<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-3936
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GYNCOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 36-3989422
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification No.)
incorporation or
organization)
</TABLE>
750 NORTH ORLEANS STREET, CHICAGO, ILLINOIS 60610, (312) 397-8200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
NORBERT GLEICHER, M.D.
CHIEF EXECUTIVE OFFICER, PRESIDENT
GYNCOR, INC.
750 NORTH ORLEANS STREET, CHICAGO, ILLINOIS 60610, (312) 397-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
HERBERT S. WANDER, ESQ. FREDERICK W. KANNER, ESQ.
JEFFREY R. PATT, ESQ. DEWEY BALLANTINE
KATTEN MUCHIN & ZAVIS 1301 AVENUE OF THE AMERICAS
525 WEST MONROE STREET NEW YORK, NEW YORK 10019
CHICAGO, ILLINOIS 60661 (212) 259-8000
(312) 902-5200
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
-------------------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
GYNCOR, INC.
------------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION LOCATION IN PROSPECTUS
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Facing Page; Outside Front Cover Page of
Prospectus; Additional Information
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution................................ Risk Factors; Dilution
7. Selling Security Holders................ Principal and Selling Stockholders
8. Plan of Distribution.................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and
Counsel................................. Legal Matters
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk Factors;
Dividend Policy; Dilution; Capitalization;
Selected Combined and Pro Forma Financial
Data; Unaudited Pro Forma Combined Financial
Information; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 7, 1996
PROSPECTUS
2,220,000 SHARES
[GYNCOR INC LOGO]
COMMON STOCK
------------------
Of the 2,220,000 shares of Common Stock being offered hereby, 2,000,000
shares are being offered by GynCor, Inc. (the "Company") and 220,000 shares are
being offered by the Selling Stockholders named under "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the public offering price for the Common
Stock will be between $13.00 and $15.00 per share. See "Underwriting" for
information to be considered in determining the public offering price. The
Common Stock has been approved for quotation on The Nasdaq Stock Market's
National Market under the symbol "GYNC."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 7.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $1,400,000 payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
333,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein subject to prior sale, when, as and if accepted by them and subject
to certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1996, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
------------------
SMITH BARNEY INC. THE CHICAGO CORPORATION
, 1996
<PAGE> 4
[GYNCOR INC. LOGO]
Clinic Locations
LOCATIONS OF OPERATIONS AND PENDING TRANSACTIONS
[Map of the United States]
CHR-Illinois
--------------
-River North
Concourse-Chicago
-Howard-Chicago
-Downers Grove
-Evergreen Park
-Glenview
-Hoffman Estates
-Lake Forest
-Naperville
-Oakbrook
-Schaumburg
-Merrillville, Indiana
*Pursuant to pending transactions
CHR-New Jersey
--------------
-Park Ridge
CHR-Florida
-----------
-Clearwater
-St. Petersburg
-Tampa
CHR-New York
------------
-Mt. Sinai Medical*
-Columbia University
-SUNY, Syracuse*
-Rockland
THE CENTER FOR HUMAN REPRODUCTION (TM)
CLINICAL CARE-RESEARCH-EDUCATION
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. See "Risk Factors" for information that should be carefully
considered by prospective investors.
THE COMPANY
GynCor, Inc. (the "Company") provides comprehensive management and clinical
support services to integrated networks of physicians specializing in the field
of reproductive medicine, primarily subspecialties of obstetrics and gynecology
and related areas of human reproduction. The Company currently manages
integrated networks of 17 reproductive medicine centers ("Centers") and 28
physicians in the Chicago, New York City and Tampa/St. Petersburg metropolitan
areas. In addition, the Company has entered into agreements or letters of intent
to add one Center and five physicians to its networks in the New York City
metropolitan area and Florida and to establish an additional network of one
Center and two physicians in Syracuse, New York. The Company anticipates that
each of these pending transactions will close prior to the effective date of
this offering. The first Center was opened in 1981 as an exclusive faculty
affiliation with Mount Sinai Hospital and Medical Center in Chicago. Since
September 1990, when independent operations began, the Company has grown from
one Center and three physicians and scientists with doctoral degrees to 19
Centers and 44 physicians and scientists after giving effect to the pending
transactions in New York and Florida. Upon completion of these transactions, the
Company's affiliated physicians will be on staff at approximately 26 hospitals,
including several of the country's leading teaching hospitals.
Reproductive medicine encompasses several medical disciplines which focus
on male and female reproductive systems and processes. Within the field of
reproductive medicine, there are several subspecialties such as obstetrics and
gynecology which apply only to women and certain subspecialties, such as
reproductive endocrinology, infertility and urology, which apply to both women
and men. The Centers provide reproductive medicine services principally relating
to the subspecialties of obstetrics and gynecology, reproductive endocrinology
and infertility, including traditional drug therapy and surgical therapies,
assisted reproductive technologies ("ART") and specialized laboratory services,
as well as perinatal services (treatment of patients with high risk
pregnancies). The Company intends to expand the range of obstetrics and
gynecology, women's health care and reproductive medicine services offered at
the Centers beyond those currently offered to include the provision of
comprehensive obstetrics and gynecology services. The Company believes that the
addition of these services, coupled with the Company's planned growth and
capitated market experience, will contribute to the Company's ability to
negotiate national and regional shared-risk arrangements with managed care
payors.
The physician practices that the Company currently manages provide
reproductive endocrinology and infertility services to patients insured by 48
third party payors, and maintain three exclusive capitated managed care
contracts covering approximately 478,000 lives. The largest of these contracts
covers approximately 441,000 lives and is with HMO-Illinois, the state's largest
HMO, owned by Blue Cross Blue Shield of Illinois. A subsidiary of Blue Cross
Blue Shield of Illinois owns a Convertible Note which is convertible into 5% of
the outstanding Common Stock of the Company. In addition, one of the Company's
affiliated practices holds what the Company believes is one of the few capitated
managed care contracts for comprehensive obstetrics and gynecology services.
Certain of the affiliated practices provide perinatal services to patients
insured by seven third party payors in the Chicago area, and certain of the
affiliated practices also maintain an exclusive managed care contract relating
to the provision of perinatal services.
The Health Care Financing Administration estimated that national health
expenditures in 1995 were over $1 trillion, and, according to industry sources,
expenditures related to infertility services, one of several subspecialties of
reproductive medicine, exceeded $1 billion. Concerns over the accelerating costs
of health care have resulted in an increased emphasis on managed care and
capitation arrangements and has placed small to mid-sized physician groups,
including physicians practicing medicine in the subspecialties of obstetrics and
gynecology, at a significant disadvantage when competing for patients. As a
result, physicians are increasingly abandoning traditional, independent private
practice in favor of affiliation with larger organizations which manage most of
the nonmedical tasks related to the provision of health care services, including
contracting with payors. By providing capital and informational, managerial and
administrative resources, these organizations enable physicians to concentrate
on providing medical services, thereby providing quality health care at lower
costs.
The Company seeks to establish integrated physician networks through
acquisitions of the nonmedical assets, such as accounts receivable, supplies,
instruments, equipment, furniture, proprietary data and contract rights, of
targeted physician practices. The targeted physicians then enter into long-term
employment agreements with a medical practice managed by the Company under a
long-term management services
3
<PAGE> 6
agreement. The typical management services agreement between the Company and a
managed practice has a term of 40 years and cannot be terminated by the managed
practice without cause. In states that prohibit the splitting of physician fees,
the Company receives a fixed management fee, payable monthly and subject to
periodic adjustment if it is determined that the fee is not commensurate with
factors such as costs incurred and past utilization levels. In other states, the
Company agrees to pay all of the managed practice's expenses, including the
physicians' base compensation and performance-based bonuses, and the Company, in
turn, receives the economic benefit of revenues in excess of expenses generated
by the managed practice.
In establishing its presence in the Chicago metropolitan area, the Company
has developed a clinical and academic affiliation with the University of
Illinois College of Medicine in Chicago. Similarly, as part of its strategy for
developing integrated networks in the New York and Tampa/St. Petersburg areas,
the Company has established an affiliation with Columbia University Medical
School and has entered into letters of intent for affiliations with Mount Sinai
Medical Center in New York City, State University of New York-Upstate Medical
Center in Syracuse, New York and the University of South Florida in Tampa,
Florida.
The Company's strategy is to develop integrated networks for reproductive
medicine services through practice affiliations that provide high quality,
cost-effective care in targeted geographic markets. The principal elements of
this strategy include: (i) affiliating with leading physician practices by
capitalizing on the professional reputation and experience of the Company and
its affiliated physicians and their relationships with general obstetricians and
gynecologists, primary care physicians and other professionals and academics in
the reproductive medicine field; (ii) developing regionally integrated specialty
networks of physicians, including expansion of the range of services offered by
newly affiliated practices; (iii) using the Company's capitated contract
experience and proprietary information system to pursue national and regional
managed care contracts, including capitated contracts; (iv) encouraging the
Company's affiliated practices to explore and develop ways to improve the
delivery of medical services by improving outcomes and reducing costs of high
quality treatment; and (v) providing a proprietary information system which
integrates all affiliated practices and enhances the Company's ability to
collect and analyze clinical, patient, administrative and financial data,
control expenses, effectively manage utilization rates, maximize reimbursements
and effectively price and attract managed care contracts.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........................................ 2,000,000 shares(1)(2)
The Selling Stockholders........................... 220,000 shares
Common Stock to be outstanding after this offering... 6,654,509 shares(1)(3)
Use of Proceeds...................................... To repay certain indebtedness and for
general corporate purposes, including
future acquisitions, expansion of
operations and working capital.
Proposed Nasdaq National Market symbol............... GYNC
</TABLE>
- -------------------------
(1) Does not include up to 333,000 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) At an assumed public offering price of $14.00 per share, the net proceeds to
the Company from this offering are estimated to be approximately $24.6
million (approximately $29.0 million if the Underwriters over-allotment is
exercised in full).
(3) Gives effect to (i) the conversion of $2,500,000 principal amount of the
Company's 10% Subordinated Convertible Promissory Note in the original
aggregate principal amount of $5,000,000 due December 1, 2000 (the
"Convertible Note"), and (ii) the exercise of an option to purchase 96,000
shares held by Vishvanath Karande, M.D., a selling stockholder. Does not
include up to 100,667 shares, 708,333 shares and 41,666 shares reserved for
issuance pursuant to a stock option held by Dr. Karande, the Company's
Incentive Compensation Plan and Directors' Stock Option Plan, respectively.
As of June 1, 1996, options to acquire 635,833 shares were outstanding under
the Incentive Compensation Plan and 6,666 shares will automatically be
granted on the effective date of this offering under the Directors' Stock
Option Plan. See "Management -- Incentive Compensation Plan," and "--
Directors' Compensation -- Directors' Option Plan."
4
<PAGE> 7
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
HISTORICAL(1)(2)
------------------------------------------------------------------------------------------------
PREDECESSOR PREDECESSOR THREE
-------------------------------------------- TWELVE ------------ MONTHS
TWELVE MONTHS ENDED MONTHS SIX MONTHS SIX MONTHS ENDED
-------------------------------------------- ENDED ENDED ENDED -----------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1994 1995 1995
----------- ----------- -------- -------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net patient service
revenue................. $2,280 $2,260 $5,545 $8,785 $13,882 $6,382 $12,060 $ 2,603
------- ------ ------ ------ --------- ------ --------- ---------
Operating expenses:
Physicians'
salaries(4)........... 247 573 760 1,812 3,014 987 2,954 690
Clinic salaries, wages
and benefits.......... 407 440 1,041 1,916 3,883 1,675 2,625 761
Clinic rent and lease
expense............... 273 472 302 307 1,083 423 881 310
Clinic supplies......... 323 299 1,356 2,338 3,531 1,748 1,842 952
Other clinic expenses... 261 177 303 574 1,054 658 861 127
General corporate
expenses.............. 1,030 493 1,167 1,448 3,215 1,030 2,604 1,128
Depreciation and
amortization.......... 117 156 96 144 651 286 365 131
------- ------ ------ ------ --------- ------ --------- ---------
Total operating
expenses............ 2,658 2,610 5,025 8,539 16,431 6,807 12,132 4,099
------- ------ ------ ------ --------- ------ --------- ---------
Operating income
(loss).................. (378) (350) 520 246 (2,549) (425) (72) (1,496)
Other (income) expense... (31) -- (37) (357) 32 -- -- (30)
Net interest expense..... 53 30 46 68 232 68 165 71
------- ------ ------ ------ --------- ------ --------- ---------
Income (loss) before
income taxes............ (400) (380) 511 535 (2,813) (493) (237) (1,537)
Income taxes (benefit)... (158) (137) 192 73 (454) (34) -- (186)
------= ------ ------ ------ --------- ------ --------- ---------
Net income (loss)(5)..... $ (242) $ (243) $ 319 $ 462 $(2,359) $ (459) $ (237) $(1,351)
======= ====== ====== ====== ========= ====== ========= =========
Net income (loss) per
share(6)................ $ (.64) $ (.05) $ (.36)
========= ========= =========
Weighted average
outstanding shares...... 3,703,619 4,336,884 3,798,627
========= ========= =========
OPERATING DATA:
(at end of period)
Number of affiliated
physicians and
scientists.............. 3 3 4 6 18 11 23 16
Number of Centers........ 1 3 5 7 11 7 11 7
<CAPTION>
HISTORICAL(1)(2) PRO FORMA(1)(3)
---------------- -------------------------
TWELVE THREE
MONTHS ENDED MONTHS
MARCH 31, DECEMBER 31, ENDED MARCH 31,
1996 1995 1996
----------- ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net patient service
revenue................. $ 5,979 $25,522 $ 7,342
--------- --------- ---------
Operating expenses:
Physicians'
salaries(4)........... 3,674 7,216 4,175
Clinic salaries, wages
and benefits.......... 1,291 6,054 1,542
Clinic rent and lease
expense............... 497 1,890 514
Clinic supplies......... 791 4,010 897
Other clinic expenses... 367 1,431 400
General corporate
expenses.............. 1,231 5,453 1,526
Depreciation and
amortization.......... 215 741 218
--------- --------- ---------
Total operating
expenses............ 8,066 26,795 9,272
--------- --------- ---------
Operating income
(loss).................. (2,087) (1,273) (1,930)
Other (income) expense... -- 7 --
Net interest expense..... 183 161 35
--------- --------- ---------
Income (loss) before
income taxes............ (2,270) (1,441) (1,965)
Income taxes (benefit)... -- (233) 92
--------- --------- ---------
Net income (loss)(5)..... $(2,270) $(1,208) $(2,057)
========= ========= =========
Net income (loss) per
share(6)................ $ (.52) $ (.19) $ (.31)
========= ========= =========
Weighted average
outstanding shares...... 4,337,185 6,403,407 6,535,161
========= ========= =========
OPERATING DATA:
(at end of period)
Number of affiliated
physicians and
scientists.............. 27 42 44
Number of Centers........ 11 19 19
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996(1)
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(7) ADJUSTED(8)
----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 655 $ 655 $ 18,743
Working capital (deficit).............................................. (731) (466) 21,039
Total assets........................................................... 13,938 16,482 33,566
Long-term debt and capital lease obligations, less current portion..... 1,238 1,731 1,096
Subordinated convertible debt.......................................... 5,000 5,000 --
Total stockholders' equity (net capital deficiency).................... (1,972) (547) 26,593
</TABLE>
(See footnotes on following page)
5
<PAGE> 8
(1) All of the Company's financial information set forth in this Prospectus
includes the operations of the Company and CHR-Illinois, CHR-Endoscopic and
CHR-Perinatal (the "Illinois Practices"). The Company was formed in January
1995 as part of the Reorganization. See "The Company." From the
Reorganization through March 31, 1996, the Company and the Illinois
Practices were operated under common control. Accordingly, the combined
financial data as of and for the twelve months ended June 30, 1995, the six
months and twelve months ended December 31, 1995 and the three months ended
March 31, 1996, has been prepared to reflect the combination of business
entities which have been operated under common control. Effective April 1,
1996, the Company entered into a 40-year management services agreement with
each of the Illinois Practices under which the Company, as opposed to
affiliates of the Company, will have perpetual, unilateral control over the
assets and operations of the Illinois Practices (other than the practice of
medicine). Accordingly, notwithstanding the lack of technical majority
ownership of the stock of such entities, consolidation of the Illinois
Practices and the entities formed in connection with the Recent Acquisitions
will be necessary to present fairly the financial position and results of
operations of the Company because of control by means other than ownership
of stock. See Note 17 of Notes to Audited Combined Financial Statements of
the Company.
(2) In 1995, the Company changed its year-end for financial reporting purposes
from June 30 to December 31. Additionally, The Center for Human Reproduction
Northwest, M.D.S.C., an Illinois medical corporation ("CHR-NW"), was
acquired in June 1994 and was merged into CHR-Illinois effective January
1995. The 1994 balance sheet data includes the accounts of CHR-Illinois and
CHR-NW, and the 1994 and 1993 statement of operations data includes only the
accounts of CHR-Illinois. See Note 1 of Notes to Audited Combined Financial
Statements of the Company.
(3) Gives effect to (i) the sale of the 2,000,000 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $14.00 per
share) and the application of the net proceeds therefrom as described under
"Use of Proceeds," (ii) the acquisitions of the nonmedical assets of the
Fertility Center of Northern New Jersey, P.A. in New Jersey and A Center for
Gynecology, P.A. in Florida (the "Recent Acquisitions"), (iii) the
conversion of $2.5 million principal amount of the Convertible Note, and
(iv) the exercise of an option to purchase 96,000 shares held by Vishvanath
Karande, M.D., a selling stockholder, as if all such events had occurred on
January 1, 1995. The pro forma combined statement of operations data for
1995 does not purport to represent what the Company's results of operations
would have been if such events had actually occurred on January 1, 1995. Pro
forma operating data relating to the number of affiliated physicians and
scientists and the number of Centers also gives effect to the medical school
affiliation entered into as of June 1, 1996 and the three pending medical
school affiliations. The pro forma financial information is presented for
the twelve month period ended December 31, 1995 because, effective December
31, 1995, the Company changed its year end for financial reporting purposes
from June 30 to December 31. See Notes 1 and 17 of Notes to Audited Combined
Financial Statements of the Company.
(4) For the three months ended March 31, 1996, physicians' salaries includes a
charge of approximately $2.0 million attributable to the Company as a result
of the restructuring of an option among the Company's principal
stockholders. See "Certain Transactions -- Restructuring of Miller Option"
and Note 17 of Notes to Audited Combined Financial Statements.
(5) From inception in January 1995, the Company has been an S corporation and
has not been subject to federal (and some state) corporate income taxes. Had
the Company been subject to federal and state income taxes during these
periods, net income (loss) and net income (loss) per share would not have
been impacted because any deferred tax asset resulting from the net losses
reflected during these periods was fully reserved. Prior to the consummation
of this offering, the Company will terminate its S corporation status and
thereafter will be treated as a C corporation.
(6) Net income (loss) per share for periods prior to 1995 are not comparable to
subsequent period amounts due to the completion of the Reorganization in
January 1995 and consequently are not included in this table.
(7) Gives effect to the Recent Acquisitions as if all such transactions had
occurred on March 31, 1996.
(8) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $14.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds" and the conversion of the Convertible Note as if
such event had occurred as of such date.
------------------------
Except as otherwise indicated, the information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option to purchase up to 333,000
additional shares of Common Stock to cover over-allotments, if any, and has been
adjusted to give effect to (i) the reincorporation of the Company in Delaware on
March 8, 1996 by means of a merger in which shareholders of the Illinois
corporation received 4,000 shares of Common Stock for each share of capital
stock of the Illinois corporation then outstanding, (ii) a five-for-six reverse
stock split of the Common Stock that became effective April 24, 1996, and (iii)
the conversion of the Convertible Note into 338,107 shares of Common Stock upon
consummation of this offering.
6
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the factors listed below in
evaluating an investment in the shares of Common Stock offered hereby.
LIMITED OPERATING HISTORY; NET OPERATING LOSSES
Prior to the recent and pending transactions in New York, New Jersey and
Florida, the Company's operations have consisted solely of providing management
services to the 11 Centers in the Chicago metropolitan area. In addition, for
the twelve months ended June 30, 1995, the six months ended December 31, 1995
and the three months ended March 31, 1996, the Company had a net loss of
approximately $2.4 million, $237,000 and $2.3 million, respectively, and at
March 31, 1996 the Company had a net capital deficiency of approximately $2.0
million. There can be no assurance that the Company will achieve profitability.
GROWTH STRATEGY AND LIMITATION ON GROWTH
The Company's strategy involves growth through acquisitions and through the
expansion of services offered by its affiliated practices. Identifying
candidates to become affiliated practices and proposing, negotiating and
implementing economically feasible affiliations with such groups can be a
lengthy, complex and costly process. There can be no assurance that the Company
will successfully establish practice affiliations with additional physician
practices. In particular, there can be no assurance that the Company will be
able to acquire the assets of, execute management services agreements with, or
profitably manage, additional affiliated practices or successfully integrate the
affiliated practices into a network that will provide appropriate incentives for
such practices to improve operating efficiencies and reduce costs while
delivering high-quality patient care. Recently, the Company has experienced
rapid growth in its business and staff. Continued rapid growth may impair the
Company's ability to efficiently provide management services to the affiliated
practices and to adequately manage and supervise its employees. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its planned
growth.
The Company has entered into letters of intent to affiliate with three
medical schools, including seven additional physicians. While the Company
expects that the transactions described in the letters of intent will be
consummated in 1996, there can be no assurance that any or all of these
transactions will be consummated. In addition, delays in consummating future
transactions may create fluctuations in quarterly results. Following this
offering and unless otherwise required by law, the Company does not intend to
seek stockholder approval for future acquisitions. Accordingly, the stockholders
of the Company will be dependent upon management's judgment with respect to such
transactions. These transactions may involve the issuance of a significant
number of additional shares of the Company's capital stock, the incurrence,
assumption or issuance by the Company of substantial indebtedness and the
undertaking by the Company of material obligations including, among others,
long-term employment, consulting or management arrangements.
HEALTH CARE REGULATION AND REFORM
The health care industry is highly regulated at both the state and federal
levels. The Company and its affiliated practices are subject to a number of laws
governing issues as diverse as relationships between health care providers and
their referral sources, prohibitions against a provider referring patients to an
entity with which the provider has a financial relationship, licensure and other
regulatory approvals, corporate practice of medicine, and regulation of
unprofessional conduct by providers, including fee-splitting arrangements. While
the Company believes that its operations materially comply with relevant state
and federal laws, many aspects of the relationships between the Company and each
of the Centers and managed practices have not been the subject of judicial or
regulatory interpretation. An adverse review or determination by any one of such
authorities, or changes in the regulatory requirements, or otherwise, could have
a material adverse effect on the operations and financial condition of the
Company. In addition, expansion of the operations of the Company to certain
jurisdictions may require modifications to the Company's relationships with
physician
7
<PAGE> 10
practice groups, which could have a material adverse impact on the Company. The
Company recently introduced a new program under which at least one of the
managed practices will be offering certain medical services over the world wide
web. Although the Company believes that this project complies with the laws of
the states in which it is being offered and federal regulations, given the
innovative nature of this project, no assurance can be given as to how state and
federal regulations will be applied to such services. Such services, however,
are not available to patients in states that expressly prohibit such practices.
In recent years, numerous legislative proposals have been introduced or
proposed in the United States Congress and in some state legislatures that would
effect major changes in the United States health care system at both the
national and state level. It is not clear at this time which proposals, if any,
will be adopted or, if adopted, what effect such proposals would have on the
Company's business. There can be no assurance that currently proposed or future
health care legislation or other changes in the administration or interpretation
of governmental health care programs will not have an adverse effect on the
Company.
DEPENDENCE UPON REIMBURSEMENT BY THIRD PARTY PAYORS
For the 12 months ended December 31, 1995 and the three months ended March
31, 1996, approximately 95% and 97% of the Company's total combined revenue,
respectively, were derived from third party payors. The health care industry is
undergoing cost containment pressures as third party payors seek to impose lower
reimbursement and utilization rates and negotiate reduced payment schedules with
medical service providers. The Company believes that this trend will continue to
result in a reduction from historical levels in per-patient revenue for such
medical providers. Further reductions in payments to physicians or other changes
in reimbursement for health care services could have a direct or indirect
adverse effect on the Company's operations. In addition, a few states, including
Illinois, mandate that insurance companies provide coverage for several of the
types of services offered by the Centers. In several of the states mandating
insurance coverage for certain infertility services, efforts have been made to
limit or repeal these requirements. It cannot be determined what effect, if any,
any change in the levels of state mandated insurance coverage would have on the
Company's revenues and income.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE
The Company believes that its success will be dependent, in part, upon the
Company's ability to negotiate, on behalf of the affiliated practices, contracts
with health maintenance organizations ("HMOs"), insurance companies, and other
private third party payors pursuant to which services will be provided on a fee-
for-service or risk-sharing/capitated basis by some or all affiliated practices.
Under certain capitated contracts, the health care provider accepts a
predetermined amount per patient, per month in exchange for providing all
necessary covered services to enrollees. Such contracts shift much of the risk
of providing health care from the payor to the provider. For the 12 months ended
December 31, 1995 and the three months ended March 31, 1996, the Company derived
approximately 34% and 29% of total combined revenue, respectively, from such
capitated contracts. The proliferation of such contracts in markets served by
the Company could result in greater predictability of revenues but also greater
unpredictability of expenses. There can be no assurance that the Company will be
able to negotiate on behalf of the affiliated practices satisfactory
arrangements on a risk-sharing or capitated basis. In addition, to the extent
that patients or enrollees covered by such contracts require more frequent or
extensive care than is anticipated, operating margins may be reduced, or the
revenues derived from such agreements may be insufficient to cover the costs of
the services provided. As a result, affiliated practices may incur additional
costs which would reduce or eliminate any earnings under these contracts.
In addition to the financial risks associated with managed care contracts,
there are certain regulatory risks associated with the Company's role in
negotiating and administering such contracts. If the Company were to contract
with third party payors directly, on behalf of its affiliated practices for
certain capitation or other risk-sharing arrangements, the Company may become
subject to state insurance laws. In some states, regulators may determine that
the Company is engaged in the business of insurance, particularly if the Company
contracts directly with self-insured employees or another entity that is not
licensed to engage in the business of insurance. In addition, the Company will
be subject to state and federal antitrust laws.
8
<PAGE> 11
DEPENDENCE ON CERTAIN THIRD PARTY PAYOR
For the twelve months ended December 31, 1995 and the three months ended
March 31, 1996, HMO-Illinois (owned by Blue Cross Blue Shield of Illinois)
accounted for approximately 33% and 28%, respectively, of the Company's total
combined revenues. After giving effect to the Recent Acquisitions, on a pro
forma basis as if such transactions had occurred on January 1, 1995,
HMO-Illinois would have accounted for approximately 26% and 23% of the Company's
pro forma total combined revenues for the twelve months ended December 31, 1995
and the three months ended March 31, 1996, respectively. The loss of or
reduction in revenues from HMO-Illinois could materially adversely affect the
Company. No other third party payor represented more than 5% of the Company's
total combined revenues or pro forma total combined revenues for the same
periods. In addition, as of June 1, 1996, the Company's capitated managed care
contract with HMO-Illinois accounted for approximately 441,000 of the estimated
478,000 covered lives for which the Company holds exclusive capitated risk
contracts. This capitated contract may be terminated by the Company or
HMO-Illinois upon 180 days' prior written notice or, in the event of a breach of
the contract, upon 30 days' prior written notice. Blue Cross Blue Shield of
Illinois, through a wholly-owned subsidiary, beneficially owns the Company's
$5,000,000 10% Subordinated Convertible Promissory Note due December 1, 2000
(the "Convertible Note") of which $2,500,000 will be converted into 5% of the
outstanding common stock of the Company after giving effect to this offering.
COMPETITION
The business of providing health care related services is intensely
competitive, as is the physician practice management industry, and each is
continuing to evolve in response to pressures to find the most cost effective
method of providing quality health care. Although the Company focuses on
physician practices that provide specific types of health care services, it
competes for management contracts with national and regional providers of
physician management services, as well as hospitals and hospital-sponsored
management services organizations. If federal or state governments enact laws
that attract other health care providers to the managed care market, the Company
may encounter increased competition from other institutions which seek to
increase their presence in the managed care market and which have substantially
greater resources than the Company. There can be no assurance that the Company
will be able to compete effectively with its competitors, that additional
competitors will not enter the market, or that such competition will not make it
more difficult to acquire the assets of, and provide management services for,
the managed practices on terms beneficial to the Company.
POTENTIAL LIABILITY AND INSURANCE
The Centers and the Company's managed practices are involved in the
delivery of health care services to the public and, consequently, are exposed to
the risk of professional liability claims. The Company provides only nonmedical
services and does not control or direct the practice of medicine by the
physicians with which it affiliates or the compliance with certain regulatory
and other requirements directly applicable to physicians and physician groups.
However, the Company's managed practices may become subject to claims, suits, or
complaints relating to services and products provided by such practices, and
there can be no assurance that such claims will not be asserted against the
Company. The Company currently does not maintain separate insurance coverage for
professional liability claims; however, pursuant to the management services
agreements, each managed practice is required to maintain comprehensive
professional liability insurance. As of June 1, 1996, the physicians employed by
the managed practices were covered by insurance coverage of $1.0 million on a
per claim basis and ranging from $3.0 million to $25.0 million on an aggregate
basis. The Company is an additional named insured on such insurance policies,
but is not indemnified by affiliated physicians or the managed practices for
liabilities resulting from the performance of medical services. There can be no
assurance that any claims asserted against the Company or the managed practices
will not be successful or, if successful, will not exceed the limits of
insurance coverage maintained by the Company or the managed practices or that
such coverage will continue to be available at acceptable costs.
9
<PAGE> 12
RELIANCE ON AFFILIATED PRACTICES
The Company's revenues will depend on the revenues generated by the medical
practices with which the Company has entered into management services
agreements. The Company provides services pursuant to management services
agreements with five medical practices, including three medical practices formed
in connection with the recent and pending transactions in New York, New Jersey
and Florida. The management services agreements define the responsibilities of
both the physician practices and the Company and govern the principal terms and
conditions of their relationship. There can be no assurance that any managed
practice will maintain a successful medical practice or that any of the key
physicians in a particular managed practice will continue practicing with such
managed practice. As a condition to entering into management services
agreements, managed practices are required to enter into non-competition
agreements with each of their respective physicians; however, there are no
assurances that any such agreement would (i) be enforceable if challenged in
court because courts are hesitant to enforce covenants restricting an
individual's ability to be gainfully employed, or (ii) restrict the physician
from moving his or her practice to another region in the United States.
Moreover, such a covenant would not prevent the physician from abandoning the
medical practice altogether. In addition, these agreements restrict competition
for a limited period of time (which may vary depending upon particular state law
requirements). Therefore, any departing physician may directly compete with his
or her former practice group after the expiration of such time period. Any
resulting loss of revenue by a managed practice could have a material adverse
effect on the Company.
NEED FOR ADDITIONAL FINANCING
The Company anticipates that its expansion strategy will continue to
require substantial capital investment. Capital is needed not only for the
acquisition of the nonmedical assets of physician practices, but also for the
effective integration, operation and expansion of the managed practices. The
managed practices may require capital for renovation and expansion and for the
addition of medical equipment and technology. The Company believes that its
existing cash resources together with the net proceeds from this offering, cash
flow from operations, and available borrowings under the Company's line of
credit with American National Bank of Chicago (the "Secured Credit Agreement")
will be sufficient to meet the Company's anticipated acquisition, expansion, and
working capital needs for the next 24 months. Thereafter, however, the Company
may be required to raise additional financing. The Company may obtain such
financing through additional borrowings or the issuance of additional equity or
debt securities, either of which could have an adverse effect on the value of
the shares of Common Stock offered by this Prospectus. Although the Company
currently believes that it will be able to secure such financing, if necessary,
there can be no assurance that the Company will be able to secure financing on
favorable terms, if at all. If the Company is unable to secure additional
financing in the future or complete a public offering, its ability to pursue its
business strategy and its results of operations for future periods may be
negatively impacted.
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent on the efforts and skills of its
executive officers, particularly Norbert Gleicher, M.D., for the management of
the Company and the implementation of its business strategy. Because of the
difficulty in finding adequate replacements for the executive officers, the
loss, incapacity or unavailability of any of these individuals could adversely
affect the Company's operations. In addition, it may be necessary for the
Company to attract and retain additional talented individuals to support
anticipated growth or to replace the executive officers in the event their
employment with the Company is terminated. The Company has entered into an
employment agreement with Dr. Gleicher, dated as of March 1, 1995 and amended as
of April 1, 1996, to serve as the President of the Company for an initial term
of five years, commencing on the effective date of this offering. See
"Management -- Employment Agreements."
VOTING CONTROL
Upon completion of this offering and after giving effect to the automatic
conversion of the Convertible Note, Dr. Gleicher will have sole beneficial
ownership of approximately 21.6% of the outstanding shares of voting capital
stock of the Company. In addition, pursuant to Voting Trust Agreements, dated
April 1, 1996,
10
<PAGE> 13
Dr. Gleicher has the right to vote shares owned by Drs. Pratt and Miller
representing approximately 33.9% of the outstanding shares of voting capital
stock of the Company with respect to certain matters, although Drs. Pratt and
Miller retain voting rights with respect to the election of directors other than
Dr. Gleicher and with respect to certain matters involving their own employment
and directorship with the Company. See "Principal and Selling Stockholders."
Consequently, pending a further issuance of the Company's voting capital stock,
Drs. Gleicher, Pratt and Miller will be able to control the election of the
Board of Directors of the Company and the determination of the Company's
policies and will be able to determine the outcome of all corporate actions
requiring a majority stockholder approval. Such control may preclude an
unsolicited acquisition of the Company and consequently adversely affect the
value of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock after this
offering, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. In addition, any such sale or
perception could make it more difficult for the Company to sell equity
securities or equity related securities in the future at a time and price that
the Company deems appropriate. After giving effect to the shares of Common Stock
offered hereby and the 338,107 shares of Common Stock to be issued upon the
automatic conversion of $2,500,000 principal amount of the Convertible Note upon
the closing of this offering, the Company will have outstanding 6,654,509 shares
of Common Stock. Of these shares, the 2,220,000 shares (2,553,000 shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock sold
in this offering will be freely tradable without restriction or limitation under
the Securities Act of 1933, as amended (the "Securities Act"), except to the
extent such shares are subject to the agreement with the Underwriters described
below, and except for any shares purchased by "affiliates," as that term is
defined under the Securities Act, of the Company. The remaining 4,434,509 shares
are "restricted securities" within the meaning of Rule 144 adopted under the
Securities Act ("Rule 144"). The restricted shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. The Company and its directors, officers, and certain
stockholders, holding in the aggregate substantially all of the Company's
currently outstanding shares of Common Stock, have agreed not to offer, sell, or
otherwise dispose of any of their restricted shares for a period of 180 days
after the date of this Prospectus without the prior written consent of Smith
Barney Inc.
Following this offering, certain holders will have "piggyback" registration
rights with respect to 550,176 shares of Common Stock held by them, which rights
allow them, subject to certain conditions, to include such shares in a
registered public offering of shares of Common Stock. In addition, the Company
intends to register approximately 749,999 shares of Common Stock reserved for
issuance under the Company's stock option plans as soon as practicable following
the consummation of this offering. See "Principal and Selling Stockholders,"
"Description of Capital Stock," "Management -- Incentive Compensation Plan,"
"Shares Eligible for Future Sale," and "Underwriting."
The Commission has recently proposed reducing the initial Rule 144 holding
period to one year and the Rule 144(k) holding period to two years. There can be
no assurance as to when or whether such rule changes will be enacted. If
enacted, such modification will have a material effect on the time when certain
shares of the Common Stock become eligible for resale.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-Laws and of Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company and
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of these provisions provide for a classified
Board of Directors following this offering, the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to the Common Stock, restrictions on the ability of stockholders to
call a special meeting of stockholders, nominate directors and submit proposals
to be considered at stockholders' meetings, and a super-majority voting
requirement in connection with the adoption of stockholders' amendments to the
By-Laws and to certain provisions of the Certificate of Incorporation, including
provisions relating to the election and
11
<PAGE> 14
removal of directors. Following this offering, the Company also will be subject
to Section 203 of the Delaware General Corporation Law ("DGCL") which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any of
a broad range of business combinations with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. See "Description of Capital Stock." In the event of a
change in control, Drs. Gleicher, Pratt and Miller are entitled to receive
certain severance payments under their respective employment agreements with the
Company and CHR-Illinois. Dr. Miller's employment agreement with CHR-Endoscopic
has a comparable severance provision. As of June 1, 1996, these agreements would
have provided aggregate severance payments to Drs. Gleicher, Pratt and Miller of
approximately $3,970,000, $1,860,000 and $1,750,000, respectively.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or continue after this offering. The initial public offering
price was determined by negotiations among the Company and the Underwriters and
may not be indicative of the market price for the Common Stock after this
offering. See "Underwriting" for factors considered in determining the initial
public offering price. From time to time after this offering, there may be
significant volatility in the market price for the Common Stock. Quarterly
operating results of the Company, timing of practice acquisitions, changes in
general conditions in the economy or the health care industry, or other
developments affecting the Company or its competitors could cause the market
price of the Common Stock to fluctuate substantially. The equity markets have,
on occasion, experienced significant price and volume fluctuations that have
affected the market prices for many companies' securities and that have often
been unrelated to the operating performance of these companies. Concern about
the potential effects of health care reform measures has contributed to the
volatility of stock prices of companies in health care and related industries
and may similarly affect the price of the Common Stock following this offering.
Any such fluctuations that occur following the closing of this offering may
adversely affect the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $10.22 per share. In the event that
options to purchase Common Stock are exercised or the Company issues additional
shares of Common Stock in the future, including shares that may be issued in
connection with future acquisitions, purchasers of Common Stock in this offering
may experience further dilution in the net tangible book value per share of
Common Stock. See "Dilution."
ISSUANCES OF ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company has the authority
to issue additional shares of Common Stock and shares of one or more series of
preferred stock (the "Preferred Stock"). Such shares may be issued by the
Company on the authority of the Board of Directors without stockholder action.
The issuance of such shares could result in the dilution of the voting power of
the shares of Common Stock purchased in this offering. At present, no series of
Preferred Stock have been authorized or issued by the Company. The terms of any
series of Preferred Stock established by the Company in the future could
adversely affect the rights of the holders of the Company's Common Stock. The
possible issuance of shares of Preferred Stock may be considered a deterrence to
a change of control. See "Description of Capital Stock -- Preferred Stock" and
"-- Delaware Law and Certain Corporate Provisions."
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<PAGE> 15
THE COMPANY
The Company was formed as an Illinois corporation in January 1995 as part
of a reorganization (the "Reorganization") pursuant to which the Company
succeeded to certain of the nonmedical business of Gleicher, Pratt & Associates,
M.D.S.C. (now known as The Center for Human Reproduction-Illinois, M.D.S.C., an
Illinois medical corporation ("CHR-Illinois")). CHR-Illinois was incorporated as
an Illinois corporation in 1981 under the name "Gleicher, Deppe, Elrad &
Associates, M.D.S.C." Unless the context otherwise requires, all references in
this Prospectus to the Company include CHR-Illinois with respect to the conduct
of its business, other than the practice of medicine, prior to January 1995. On
June 6, 1996, CHR-Illinois was merged into The Center for Human
Reproduction-Perinatal, M.D.S.C., an Illinois medical corporation
("CHR-Perinatal"), with the surviving corporation bearing the CHR-Illinois name.
The Company currently provides physician practice management services to the
following five medical corporations that provide medical services at 17 Centers:
(i) CHR-Illinois; (ii) The Center For Human Reproduction-Endoscopic, M.D.S.C.,
an Illinois medical corporation ("CHR-Endoscopic"); (iii) The Center for Human
Reproduction-Florida, Inc., a Florida corporation ("CHR-Florida"); (iv) The
Center for Human Reproduction-New Jersey, P.C., a New Jersey professional
corporation ("CHR-New Jersey"); and (v) The Medical Offices for Human
Reproduction-New York, P.C., a New York professional corporation ("CHR-New
York"); unless the context requires otherwise references to the Company
contained in this Prospectus include these medical corporations.
Effective March 8, 1996, the Company was reincorporated in the State of
Delaware. From inception, the Company has been treated for federal, and certain
state, income tax purposes as an S corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended (the "Code"), and comparable state tax
laws. As a result, any earnings of the Company during this period have not been
subject to tax at the corporate level but have been included in the taxable
income of the Company's stockholders. Prior to the consummation of this
offering, the Company will terminate its S corporation status and thereafter the
Company will be treated as a C corporation rather than an S corporation and,
accordingly, will be subject to federal, state and local income taxes.
CHR-Endoscopic and CHR-Illinois (formerly known as CHR-Perinatal) will remain S
corporations after the consummation of this offering.
The Company's executive offices are located at 750 North Orleans Street,
Chicago, Illinois 60610, and the Company's telephone number at that address is
(312) 397-8200.
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$24.6 million (approximately $29.0 million if the Underwriters' over-allotment
option is exercised in full) after deducting the underwriting discounts and
commissions and estimated offering expenses. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The Company intends to use approximately $2.5 million of the net proceeds to
repay the nonconvertible portion of the Convertible Note, which becomes due upon
the closing of this offering, plus all accrued interest thereon. The remaining
$2.5 million in principal amount of the Convertible Note will convert into
338,107 shares of Common Stock upon the closing of this offering. The
Convertible Note bears interest at an annual rate of 10% and, in December 1995,
the Company used the $5.0 million of proceeds of the Convertible Note to pay
down approximately $2.5 million outstanding under the Company's credit agreement
with Cole Taylor Bank and to retire approximately $2.2 million of various
working capital obligations. The Company intends to use approximately $4.5
million of the net proceeds of this offering to repay existing indebtedness
under the Secured Credit Agreement. The Secured Credit Agreement matures on
February 23, 1997 and bears interest at a rate equal to American National Bank
of Chicago's corporate base rate (8.25% at June 1, 1996). The Company intends to
use approximately $5.1 million for the purchase of medical equipment for future
acquisitions and expansion of services and approximately $12.5 million for
working capital and general corporate purposes. Pending such uses, the net
proceeds will be invested in short-term, interest bearing, investment grade
securities. Other than the proposed transactions disclosed herein, there are no
present commitments or agreements with respect to any material acquisitions.
DIVIDEND POLICY
The Company has never paid or declared a dividend on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. It is the
present intention of the Board of Directors of the Company to reinvest all
earnings in the business of the Company to support future growth of its
operations.
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<PAGE> 17
DILUTION
As of March 31, 1996, the Company had a pro forma net tangible book value
of $2,996,000, or $0.64 per share. Pro forma net tangible book value per share
is determined by dividing the pro forma net tangible book value (tangible assets
less liabilities) of the Company by the number of shares of Common Stock
outstanding at that date (after giving effect to the Recent Acquisitions, the
conversion of the Convertible Note and the exercise of the option to purchase
96,000 shares of Common Stock held by Dr. Karande, as if such events had
occurred on March 31, 1996). Without taking into account any changes in pro
forma net tangible book value after March 31, 1996, other than to give effect to
the sale of the shares of Common Stock offered by the Company hereby (at an
assumed public offering price of $14.00 per share) and the application of the
net proceeds therefrom as described under "Use of Proceeds," the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
$25,136,000, or $3.78 per share. This represents an immediate increase in net
tangible book value of $3.14 per share to existing stockholders and an immediate
dilution of $10.22 per share to new investors. The following table illustrates
this dilution per share.
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................................... $14.00
Pro forma net tangible book value per share as of March 31, 1996........... $0.64
Increase in pro forma net tangible book value per share attributable to the
offering(1)............................................................. 3.14
------
Adjusted pro forma net tangible book value per share after the offering...... 3.78
------
Dilution per share to new investors(2)....................................... $10.22
======
</TABLE>
- -------------------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Determined by subtracting the adjusted pro forma net tangible book value per
share after this offering from the amount of cash paid by a new investor for
a share of Common Stock.
The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between existing stockholders (including shares issued in
connection with the Recent Acquisitions, upon conversion of the Convertible Note
and the exercise of the option to purchase 96,000 shares of Common Stock held by
Dr. Karande) and new investors with respect to the number of shares of Common
Stock purchased from the Company, the aggregate net consideration paid (based
upon, in the case of new investors, an assumed public offering price of $14.00
per share), and the average price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 4,654,509 69.9% $ 4,193,168 13.0% $ 0.90
New investors............................... 2,000,000 30.1 28,000,000 87.0 14.00
--------- ----- ----------- -----
Total..................................... 6,654,509 100.0% $32,193,168 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of outstanding options after March
31, 1996, other than the option to purchase 96,000 shares of Common Stock held
by Vishvanath Karande, M.D., which is anticipated to be exercised prior to the
effective date of this offering. At June 1, 1996, there were outstanding options
(other than the portion of Dr. Karande's option referenced above) to purchase
736,500 shares of Common Stock at a weighted average exercise price of $10.64
per share (assuming an initial public offering price of $14.00 per share). None
of these options will vest prior to October 1, 1996. To the extent these options
are exercised at a price below the public offering price, there will be further
dilution to new investors. See "Management -- Incentive Compensation Plan" and
"-- Directors' Compensation -- Directors' Option Plan."
15
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
March 31, 1996, (ii) the pro forma capitalization as of March 31, 1996, giving
effect to the Recent Acquisitions, as if such transactions had occurred on such
date and (iii) the pro forma capitalization as of March 31, 1996, as adjusted to
give effect to the sale of the shares of Common Stock offered by the Company
hereby (at an assumed public offering price of $14.00 per share), the
application of the net proceeds therefrom as described under "Use of Proceeds"
and the issuance of 338,107 shares of Common Stock upon conversion of the
Convertible Note, as if all such events had occurred on March 31, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
Short-term debt:
Line of credit.............................................. $ 2,757 $ 2,757 $ --
Note Payable to Blue Cross Blue Shield of Illinois.......... 200 200 --
Current portion of long-term debt and capital lease
obligations.............................................. 638 868 538
------- ------- -------
$ 3,595 $ 3,825 $ 538
======= ======= =======
Long-term debt and capital lease obligations, less current
portion..................................................... $ 1,238 $ 1,731 $ 1,096
Subordinated convertible promissory note...................... 5,000 5,000 --
Stockholders' equity (net capital deficiency):
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding............. -- -- --
Common stock, $.0001 par value; 20,000,000 shares
authorized; 4,008,333, 4,187,467, and 6,654,509 shares
issued and outstanding, respectively(1)(2)............... -- -- 1
Additional paid-in capital.................................... 2,156 3,581 30,444
Accumulated deficit........................................... (4,128) (4,128) (3,852)
------- ------- -------
Total stockholders' equity (net capital deficiency)......... (1,972) (547) 26,593
------- ------- -------
Total capitalization........................................ $ 4,266 $ 6,184 $27,689
======= ======= =======
</TABLE>
- -------------------------
(1) The Convertible Note of the Company will automatically convert into 338,107
shares of Common Stock upon consummation of this offering. See "Description
of Capital Stock."
(2) Does not include up to 100,667 shares, 708,333 shares and 41,666 shares
reserved for issuance pursuant to a stock option held by Dr. Karande, the
Company's Incentive Compensation Plan and Directors' Stock Option Plan,
respectively. See "Management -- Incentive Compensation Plan" and "--
Directors' Compensation -- Directors' Option Plan."
16
<PAGE> 19
SELECTED COMBINED AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data of the Company should be read in
conjunction with the related financial statements, notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The selected historical
combined financial data set forth below as of December 31, 1995 and for each of
the 12 months ended June 30, 1993, 1994 and 1995 and for the six months ended
December 31, 1995, have been derived from the combined financial statements of
the Company for such periods which have been audited by Ernst & Young LLP,
independent public accountants, whose report thereon is included elsewhere in
this Prospectus. The selected historical combined financial data set forth below
as of and for the three months ended March 31, 1995 and 1996 have been derived
from the Company's unaudited financial statements, which were prepared on the
same basis as the audited financial statements and which, in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the information set forth below. These
historical results are not necessarily indicative of the results to be expected
in the future. The selected pro forma combined financial data set forth below at
March 31, 1996 and for the year ended December 31, 1995 and for the three months
ended March 31, 1996 have been derived from the unaudited pro forma combined
financial statements of the Company. The pro forma selected financial data are
not necessarily indicative of the actual results of operations or financial
position that would have been achieved had the Recent Acquisitions and this
offering been completed as of January 1, 1995 or March 31, 1996, nor are the
statements necessarily indicative of the Company's future results of operations
or financial position. See "Unaudited Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
HISTORICAL(1)(2)
------------------------------------------------------------------------------------------
PREDECESSOR PREDECESSOR
---------------------------------------------------------- -------------
TWELVE MONTHS ENDED TWELVE SIX
---------------------------------------------------------- MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1991 1992 1993 1994 1995 1994
----------- ----------- -------- -------- --------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service
revenue........................ $2,280 $2,260 $5,545 $8,785 $ 13,882 $6,382
------ ------ ------ ------ ---------- ------
Operating expenses:
Physicians' salaries(4)........ 247 573 760 1,812 3,014 987
Clinic salaries, wages and
benefits..................... 407 440 1,041 1,916 3,883 1,675
Clinic rent and lease
expense...................... 273 472 302 307 1,083 423
Clinic supplies................ 323 299 1,356 2,338 3,531 1,748
Other clinic expenses.......... 261 177 303 574 1,054 658
General corporate expenses..... 1,030 493 1,167 1,448 3,215 1,030
Depreciation and
amortization................. 117 156 96 144 651 286
------ ------ ------ ------ ---------- ------
Total operating expenses..... 2,658 2,610 5,025 8,539 16,431 6,807
------ ------ ------ ------ ---------- ------
Operating income (loss)......... (378) (350) 520 246 (2,549) (425)
Other (income) expense.......... (31) -- (37) (357) 32 --
Net interest expense............ 53 30 46 68 232 68
------ ------ ------ ------ ---------- ------
Income (loss) before income
taxes.......................... (400) (380) 511 535 (2,813) (493)
Income taxes (benefit).......... (158) (137) 192 73 (454) (34)
------ ------ ------ ------ ---------- ------
Net income (loss)(5)............ $ (242) $ (243) $ 319 $ 462 $ (2,359) $ (459)
====== ====== ====== ====== ========== ======
Net income (loss) per
share(6)....................... $ (.64)
==========
Weighted average outstanding
shares......................... 3,703,619
==========
<CAPTION>
HISTORICAL(1)(2) Pro Forma (1)(3)
-------------------------------------------- -----------------------------
SIX MONTHS THREE MONTHS ENDED TWELVE THREE
ENDED ------------------------- MONTHS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1995 1995 1996 1995 1996
------------ --------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service
revenue........................ $ 12,060 $ 2,603 $ 5,979 $ 25,522 $ 7,342
---------- ---------- ---------- ---------- ----------
Operating expenses:
Physicians' salaries(4)........ 2,954 690 3,674 7,216 4,175
Clinic salaries, wages and
benefits..................... 2,625 761 1,291 6,054 1,542
Clinic rent and lease
expense...................... 881 310 497 1,890 514
Clinic supplies................ 1,842 952 791 4,010 897
Other clinic expenses.......... 861 127 367 1,431 400
General corporate expenses..... 2,604 1,128 1,231 5,453 1,526
Depreciation and
amortization................. 365 131 215 741 218
---------- ---------- ---------- ---------- ----------
Total operating expenses..... 12,132 4,099 8,066 26,795 9,272
---------- ---------- ---------- ---------- ----------
Operating income (loss)......... (72) (1,496) (2,087) (1,273) (1,930)
Other (income) expense.......... -- (30) -- 7 --
Net interest expense............ 165 71 183 161 35
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes.......................... (237) (1,537) (2,270) (1,441) (1,965)
Income taxes (benefit).......... -- (186) -- (233) 92
---------- ---------- ---------- ---------- ----------
Net income (loss)(5)............ $ (237) $ (1,351) $ (2,270) $ (1,208) $ (2,057)
========== ========== ========== ========== ==========
Net income (loss) per
share(6)....................... $ (.05) $ (.36) $ (.52) $ (.19) $ (.31)
========== ========== ========== ========== ==========
Weighted average outstanding
shares......................... 4,336,884 3,798,627 4,337,185 6,403,407 6,535,161
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996(1)
---------------------------------------
PRO FORMA AS
DECEMBER 31, 1995 ACTUAL PRO FORMA(7) ADJUSTED(8)
----------------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 133 $ 655 $ 655 $ 18,743
Working capital (deficit)............................................. 20 (731) (466) 21,039
Total assets.......................................................... 11,614 13,938 16,482 33,566
Long-term debt and capital lease obligations, less current portion.... 1,351 1,238 1,731 1,096
Subordinated convertible debt......................................... 5,000 5,000 5,000 --
Total stockholders' equity (net capital deficiency)................... (1,702) (1,972) (547) 26,593
</TABLE>
(See footnotes on following page)
17
<PAGE> 20
(1) All of the Company's financial information set forth in this Prospectus
includes the operations of the Company and the Illinois Practices. The
Company was formed in January 1995 as part of the Reorganization. See "The
Company." From the Reorganization through March 31, 1996, the Company and
the Illinois Practices were operated under common control. Accordingly, the
combined financial data for the twelve months ended June 30, 1995, the six
months and twelve months ended December 31, 1995 and the three months ended
March 31, 1996, has been prepared to reflect the combination of business
entities which have been operated under common control. Effective April 1,
1996, the Company entered into a 40-year management services agreement with
each of the Illinois Practices under which the Company, as opposed to
affiliates of the Company, will have perpetual, unilateral control over the
assets and operations of the Illinois Practices (other than the practice of
medicine). Accordingly, notwithstanding the lack of technical majority
ownership of the stock of such entities, consolidation of the Illinois
Practices and the entities formed in connection with the Recent Acquisitions
will be necessary to present fairly the financial position and results of
operations of the Company because of control by means other than ownership
of stock. See Note 17 of Notes to Audited Combined Financial Statements of
the Company.
(2) In 1995, the Company changed its year-end for financial reporting purposes
from June 30 to December 31. Additionally, CHR-NW was acquired in June 1994
and was merged into CHR-Illinois effective January 1995. The 1994 balance
sheet data includes the accounts of CHR-Illinois and CHR-NW, and the 1994
and 1993 statement of operations data includes only the accounts of
CHR-Illinois. See Note 1 of Notes to Audited Combined Financial Statements
of the Company.
(3) Gives effect to (i) the sale of the 2,000,000 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $14.00 per
share) and the application of the net proceeds therefrom as described under
"Use of Proceeds," (ii) the Recent Acquisitions, (iii) the conversion of
$2.5 million principal amount of the Convertible Note, and (iv) the exercise
of an option to purchase 96,000 shares held by Vishvanath Karande, M.D., a
selling stockholder, as if all such events had occurred on January 1, 1995.
The pro forma combined statement of operations data for 1995 does not
purport to represent what the Company's results of operations would have
been if such events had actually occurred on January 1, 1995. The pro forma
financial information is presented for the twelve month period ended
December 31, 1995 because, effective December 31, 1995, the Company changed
its year end for financial reporting purposes from June 30 to December 31.
See Notes 1 and 17 of Notes to Audited Combined Financial Statements of the
Company.
(4) From inception in January 1995, the Company has been an S corporation and
has not been subject to federal (and some state) corporate income taxes. Had
the Company been subject to federal and state income taxes during these
periods, net income (loss) and net income (loss) per share would not have
been impacted because any deferred tax asset resulting from the net losses
reflected during these periods was fully reserved. Prior to the consummation
of this offering the Company will terminate its S corporation status and
thereafter will be treated as a C corporation.
(5) Net income (loss) per share for periods prior to 1995 are not comparable to
subsequent period amounts due to the completion of the Reorganization in
January 1995 and consequently are not included in this table.
(6) Gives effect to the Recent Acquisitions as if all such transactions had
occurred on March 31, 1996.
(7) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $14.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds" and the conversion of the Convertible Note as if
such event had occurred as of such date.
18
<PAGE> 21
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet as of March 31,
1996 and the Unaudited Pro Forma Combined Statements of Operations for the
twelve months ended December 31, 1995 and the three months ended March 31, 1996
have been prepared to reflect adjustments to the Company's historical results of
operations and financial positions to give effect to the Recent Acquisitions.
The Unaudited Pro Forma Combined Balance Sheet reflects such transactions as if
they had occurred as of March 31, 1996 and the Unaudited Pro Forma Combined
Statements of Operations reflect such transactions as if they had occurred as of
January 1, 1995.
The Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996 gives
effect to this offering (at an assumed public offering price of $14.00 per
share) and the application of net proceeds therefrom as if this offering
occurred on March 31, 1996. The Unaudited Pro Forma Combined Statements of
Operations for the twelve months ended December 31, 1995 and the three months
ended March 31, 1996 give effect to this offering (at an assumed public offering
price of $14.00 per share) and the application of net proceeds therefrom as if
this offering occurred on January 1, 1995. See "Use of Proceeds."
The pro forma financial statements have been prepared by the Company based
on the financial statements of the Company and the physician groups acquired in
the Recent Acquisitions, the financial statements of which are included
elsewhere in this Prospectus. For purposes of preparing the pro forma financial
statements, the results of operations of the Company have been adjusted to give
effect to the change in the Company's financial reporting year end and to
combine the estimated results of operations for the managed practices based upon
the historical medical practice results of the respective practices. Adjustments
have been made to the operating costs based upon the Company's evaluation of
such costs. These pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the results that would have
been obtained if the transactions had occurred on the dates indicated or that
may be realized in the future. The pro forma information should be read in
conjunction with the Company's Audited Combined Financial Statements and the
notes thereto and the historical financial statements of the acquired physician
groups and the notes thereto included elsewhere in this Prospectus.
19
<PAGE> 22
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- -------------------------------------------------------
RECENT ACQUISITION OFFERING
COMPANY(A) ACQUISITIONS(B) ADJUSTMENTS(B) COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash...................... $ 655 $ 225 $ (225) $ 655 $18,088(C) $18,743
Receivables
Patients, net of
allowance............. 4,655 857 -- 5,512 -- 5,512
Other................... 88 10 -- 98 -- 98
Notes receivable from
officers/stockholders... 1,399 -- -- 1,399 -- 1,399
Prepaid expenses,
inventories and other... 483 24 -- 507 -- 507
Deferred offering costs... 1,004 -- -- 1,004 (1,004)(D) --
-------- ------- ------ ------- ------- -------
Total current
assets............. 8,284 1,116 (225) 9,175 17,084 26,259
Property and equipment...... 6,673 643 365 7,681 -- 7,681
Less accumulated
depreciation.............. 2,142 -- -- 2,142 -- 2,142
-------- ------- ------ ------- ------- -------
4,531 643 365 5,539 -- 5,539
Goodwill, net of accumulated
amortization.............. 543 -- 614 1,157 -- 1,157
Deferred taxes.............. -- 9 (9) -- -- --
Other assets................ 580 34 (3) 611 -- 611
-------- ------- ------ ------- ------- -------
Total assets.......... $ 13,938 $ 1,802 $ 742 $16,482 $17,084 $33,566
======== ======= ====== ======= ======= =======
LIABILITIES AND
STOCKHOLDERS'
EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Notes payable............. $ 2,957 $ -- $ -- $ 2,957 $(2,957)(E) $ --
Current portion of long
term debt and capital
lease obligations....... 638 230 -- 868 (330)(E) 538
Notes payable to
officers/stockholders... 1,165 8 (8) 1,165 -- 1,165
Accounts payable.......... 2,558 393 (70) 2,881 (1,004)(E) 1,877
Income taxes payable...... -- 106 (106) -- -- --
Accrued liabilities
Compensation............ 973 -- -- 973 -- 973
Other................... 163 121 (48) 236 (130)(E) 106
Deferred revenue.......... 561 -- 561 -- 561
Deferred income taxes..... -- 166 (166) -- -- --
-------- ------- ------ ------- ------- -------
Total current
liabilities........ 9,015 1,024 (398) 9,641 (4,421) 5,220
Long term debt and capital
lease obligations, less
current portion........... 1,238 493 -- 1,731 (635)(E) 1,096
Deferred rent............... 657 67 (67) 657 -- 657
Subordinated convertible
promissory note........... 5,000 -- -- 5,000 (5,000)(F) --
Stockholders' equity (net
capital deficiency):
Common stock................ -- 5 (5) -- 1(G) 1
Additional paid-in
capital................... 2,156 3 1,422 3,581 26,863(G) 30,444
Retained earnings
(accumulated
deficit)(I)............... (4,128) 210 (210) (4,128) 276(H) (3,852)
-------- ------- ------ ------- ------- -------
Total stockholders' equity
(net capital
deficiency)............... (1,972) 218 1,207 (547) 27,140 26,593
-------- ------- ------ ------- ------- -------
$ 13,938 $ 1,802 $ 742 $16,482 $17,084 $33,566
======== ======= ====== ======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Balance Sheet.
20
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) Represents the combined historical balance sheet of the Company as of
March 31, 1996.
(B) On May 1, 1996, the Company acquired the nonmedical assets of two
physician groups, representing three physicians who are specialists in the field
of reproductive endocrinology and infertility. These physician groups are
located in the New York City metropolitan area in northern New Jersey and the
Tampa/ St. Petersburg metropolitan area.
The amounts reflected in Recent Acquisitions represent the combined
historical balance sheets as of March 31, 1996 for the Florida and New Jersey
practices that were acquired.
The estimated fair value of the assets acquired is summarized below:
<TABLE>
<CAPTION>
NEW JERSEY FLORIDA TOTAL
---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivables, net.......................... $ 569 $ 298 $ 867
Prepaid expenses................................... 13 11 24
Property and equipment............................. 274 734 1,008
Excess purchase price over fair value of net assets
acquired......................................... -- 614 614
Other assets....................................... -- 31 31
Liabilities assumed................................ (297) (825) (1,122)
------ ------ -------
$ 559 $ 863 $ 1,422
====== ====== =======
</TABLE>
The acquisition price for each transaction was funded with Common Stock of
the Company. Fertility Center of Northern New Jersey, P.A. ("Fertility Center")
received 71,654 shares with the right to receive an additional 29,778 shares
upon completion of this offering and the attainment of certain financial
targets. A Center for Gynecology, P.A. ("Center for Gynecology") received
107,480 shares, with the right to receive an additional 3,157 shares upon
completion of this offering. The value of shares issued in these transactions is
$558,901 and $862,969, respectively, for Fertility Center and Center for
Gynecology, based upon the fair market value of such shares as of the dates of
the respective purchase agreements of $7.80 per share. The excess of cost over
the fair value of the net assets acquired is amortized over the life of the
management services agreements, which is 40 years.
(C) Includes the issuance of 2,000,000 shares of Common Stock offered by
the Company hereby (at an assumed offering price of $14.00 per share) and the
use of the proceeds therefrom as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gross proceeds of the offering................................... $ 28,000
Underwriting discounts and commissions........................... 1,960
Expenses related to the offering................................. 1,400
--------
Net proceeds................................................... 24,640
Retirement of Subordinated convertible promissory note; paydown
of notes payable and other liabilities......................... 6,552
--------
Net increase in cash and cash equivalents........................ $ 18,088
========
</TABLE>
The Company intends to use the net increase in cash and cash equivalents
for acquisitions, working capital and other general corporate purposes. Pending
those uses, the net increase in cash and cash equivalents will be invested in
short term, interest bearing, investment grade securities.
(D) The adjustment to deferred offering costs reflects the payment of
offering costs previously deferred and offset against the offering proceeds at
the time of completion of this offering.
(E) Reflects the use of $5,056,000 of the net proceeds of this offering to
repay notes payable and other liabilities.
21
<PAGE> 24
(F) Reflects the conversion of $2,500,000 of the principal amount of the
Convertible Note into Common Stock and the retirement of $2,500,000 principal
amount of the Convertible Note plus accrued interest.
(G) Reflects the net proceeds of this offering of $24,640,000, plus
$2,500,000 attributable to the conversion of the Convertible Note, minus the
undistributed losses of the Company (since an S corporation) of $276,000 and
minus the par value for common stock of $1.
(H) The undistributed losses of the Company (since a Subchapter S
Corporation) reclassified to paid in capital.
(I) The combined accumulated deficit at March 31, 1996 includes $2,253,430
of accumulated deficit attributable to CHR-Illinois and CHR-Perinatal in which
the principal officers/stockholders of the Company are principal stockholders
and/or officers. On June 5, 1996, the Company acquired certain assets of CHR-
Illinois for the assumption of certain liabilities. This asset transfer had no
impact on the Financial Statements. After taking into account this transaction,
the combined accumulated deficit at March 31, 1996 would have included
approximately $1,138,462 of accumulated deficit attributable to CHR-Illinois.
22
<PAGE> 25
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------
HISTORICAL(A) PRO FORMA(B) PRO FORMA(C) HISTORICAL(A)
----------------------- ------------------------ ------------------------ -----------
RECENT TRANSACTION OFFERING AS
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED COMPANY
--------- ------------ ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net patient service revenue.... $19,918 $5,604 $ -- $25,522 $ -- $25,522 $ 5,979
--------- ------ ----- --------- ------ --------- ---------
Operating expenses:
Physicians' salaries......... 4,982 2,145 89(D) 7,216 -- 7,216 3,674(E)
Clinic salaries, wages and
benefits................... 4,833 1,286 (65)(D) 6,054 -- 6,054 1,291
Clinic rent and lease
expense.................... 1,540 350 -- 1,890 -- 1,890 497
Clinic supplies.............. 3,624 386 -- 4,010 -- 4,010 791
Other clinic
expenses................... 1,257 174 -- 1,431 -- 1,431 367
General corporate expenses... 4,795 720 (62)(G) 5,453 -- 5,453 1,231
Depreciation and
amortization............... 727 154 (73)(H) 808 (67)(I) 741 215
--------- ------ ----- --------- ------ --------- ---------
Total operating expenses..... 21,758 5,215 (111) 26,862 (67) 26,795 8,066
--------- ------ ----- --------- ------ --------- ---------
Operating income (loss)........ (1,840) 389 111 (1,340) 67 (1,273) (2,087)
Other (revenue) expense........ 32 (25) -- 7 -- 7 --
Net interest expense........... 328 43 -- 371 (210)(J) 161 183
--------- ------ ----- --------- ------ --------- ---------
Income (loss) before income
taxes........................ (2,200) 371 111 (1,718) 277 (1,441) (2,270)
Income taxes
(benefit).................... (382) 149 -- (233) -- (233) --
--------- ------ ----- --------- ------ --------- ---------
Pro forma net income (loss).... $(1,818) $ 222 $ 111 $(1,485) $ 277 $(1,208) $(2,270)
========= ====== ===== ========= ====== ========= =========
Pro forma net income (loss) per
share(K)..................... $ (.45) $ (.35) $ (.19) $ (.52)
========= ========= ========= =========
Pro forma weighted average
outstanding shares........... 4,054,750 4,233,884 6,382,469 4,337,185
========= ========= ========= =========
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------------
HISTORICAL(A) PRO FORMA(B) PRO FORMA(C)
------------- ----------------------- ------------------------
RECENT TRANSACTION OFFERING AS
ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
------------ ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net patient service revenue.... $1,363 $ -- $ 7,342 $ -- $ 7,342
------ ----- ------- ----- ---------
Operating expenses:
Physicians' salaries......... 383 118(D) 4,175 -- 4,175
Clinic salaries, wages and
benefits................... 277 (26)(D) 1,542 -- 1,542
Clinic rent and lease
expense.................... 84 (67)(F) 514 -- 514
Clinic supplies.............. 106 -- 897 -- 897
Other clinic
expenses................... 33 -- 400 -- 400
General corporate expenses... 341 (46)(G) 1,526 -- 1,526
Depreciation and
amortization............... 45 (25)(H) 235 (17)(I) 218
------ ----- ------- ----- ---------
Total operating expenses..... 1,269 (46) 9,289 (17) 9,272
------ ----- ------- ----- ---------
Operating income (loss)........ 94 46 (1,947) 17 (1,930)
Other (revenue) expense........ -- -- -- -- --
Net interest expense........... 23 -- 206 (171)(J) 35
------ ----- ------- ----- ---------
Income (loss) before income
taxes........................ 71 46 (2,153) 188 (1,965)
Income taxes
(benefit).................... 92 -- 92 -- 92
------ ----- ------- ----- ---------
Pro forma net income (loss).... $ (21) $ 46 $(2,245) $ 188 $(2,057)
====== ===== ======= ===== =========
Pro forma net income (loss) per
share(K)..................... $ (.31)
=========
Pro forma weighted average
outstanding shares........... 6,535,161
=========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations.
23
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(A) The historical statements of operations for the Company have been
restated to reflect the change in reporting year end from fiscal year ended June
30, 1995 to a calendar year reporting period. The restatement was accomplished
by adding the six months ended December 31, 1995 to the twelve months ended June
30, 1995 and deducting the six months ended December 31, 1994.
(B) The historical statements of operations data for the physician groups
recently acquired with which the Company has entered into definitive agreements
represents the combined summary results of operations of such groups for January
1, 1995 through December 31, 1995 and the three months ended March 31, 1996. The
transactions will be accounted for as asset purchases. The effects of the
transactions on the Company's results of operations have been reflected as if
the transactions had taken place as of January 1, 1995.
(C) In the pro forma presentation for the year ended December 31, 1995 and
the three months ended March 31, 1996, a substantial part of the operations data
for the Company and the physician groups recently acquired is based on unaudited
financial information that, in the opinion of management, is presented on a
basis consistent with that of the historical results.
(D) Reflects the addition of compensation expenses of $89,000 and $118,000
that would have been incurred under amended employment agreements and the
elimination of pension plan expenses of $65,000 and $26,000 that would not have
been incurred pursuant to the terms of the management services agreements for
the twelve months ended December 31, 1995 and the three months ended March 31,
1996, respectively.
(E) The expense of $3.7 million in the three months ended March 31, 1996
includes a charge of approximately $2.0 million attributable to the Company as a
result of the restructuring of an option among the Company's principal
stockholders. See "Certain Transactions -- Restructuring of Miller Option" and
Note 17 of Notes to Audited Combined Financial Statements of the Company.
(F) Reflects the elimination of deferred rent attributable to the amended
office lease.
(G) Reflects the elimination of billing and management fee expenses and the
addition of malpractice insurance coverage that would be incurred pursuant to
the management services agreements as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------- ------------------
<S> <C> <C>
Billing Service Expenses................ $ 96,000 $ 39,000
Management Fee Expenses................. 23,000 7,000
Malpractice Insurance Coverage.......... (57,000) --
---------- ---------
$ 62,000 $ 46,000
========== =========
</TABLE>
(H) Reflects the elimination of amortization for the organization costs and
the covenant not to compete, the addition of amortization for goodwill
associated with management services agreements amortized over contractual term
of 40 years and a reduction of depreciation expense attributable to a change in
the estimated useful life of medical equipment from five to seven years.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------- ------------------
<S> <C> <C>
Amortization:
Organization costs.................... $ (1,000) $ --
Covenant not to compete............... (11,000) (3,000)
Goodwill.............................. 29,000 4,000
Depreciation............................ (90,000) (26,000)
---------- ----------
$ (73,000) $(25,000)
========== ==========
</TABLE>
(I) Reflects the elimination of amortization attributable to deferred
financing costs relating to debt outstanding in 1995 which will be retired upon
consummation of this offering.
24
<PAGE> 27
(J) Reflects the retirement of outstanding interest bearing liabilities of
the Company and the acquired practices based upon the use of proceeds as
described in Note C to the Unaudited Pro Forma Combined Balance Sheet. Interest
expense was decreased by approximately $210,000 and $171,000 for the twelve
months ended December 31, 1995 and the three months ended March 31, 1996,
respectively. The interest was computed using actual interest expense accrued
during the twelve months ended December 31, 1995 and three months ended March
31, 1996. Interest on various components was as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------- ------------------
<S> <C> <C>
Convertible Note (10%).................. $ 42,000 $125,000
Note Payable (9%, 8.25%)................ 124,000 23,000
Other (8.25%)........................... 1,000 --
Recent Acquisition -- NJ
(7%, weighted average)................ 17,000 3,000
Recent Acquisition -- FL
(8.85%, weighted average)............. 26,000 20,000
--------- ---------
$ 210,000 $171,000
========= =========
</TABLE>
(K) Net income per share is based on the weighted average number of shares
of Common Stock and common stock equivalents outstanding during the period in
accordance with the applicable rules of the Commission. See Notes 1 and 9 to
Audited Combined Financial Statements of the Company. Pro forma net income per
share includes the shares issued in the Recent Acquisitions as if issued on
January 1, 1995. Pro forma net income per share, as adjusted, includes the
2,000,000 shares offered by the Company in this offering and the shares issued
in the Recent Acquisitions.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Combined Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company was formed as an Illinois corporation in January 1995 as part
of a reorganization in which the Company succeeded to the conduct of the
business, other than the practice of medicine, of CHR-Illinois. The Company,
CHR-Illinois, CHR-Perinatal and CHR-Endoscopic were operated under common
control during the three months ended March 31, 1996 and the twelve months ended
December 31, 1995, and the 1995 and first quarter of 1996 combined financial
data has been prepared to reflect the combination of business entities which
have been operated under common control. In 1995, the Company changed its year-
end for financial reporting purposes from June 30 to December 31. Additionally,
CHR-NW was acquired in June 1994 and was merged into CHR-Illinois effective
January 1995. The 1994 balance sheet data includes the accounts of CHR-Illinois
and CHR-NW, and the 1994 and 1993 statement of operations data includes only the
accounts of CHR-Illinois. See Note 1 of Notes to Audited Combined Financial
Statements of the Company. The Company currently provides physician practice
management services to the following five medical corporations that provide
medical services at 17 Centers: (i) CHR-Illinois, (ii) CHR-Endoscopic, (iii)
CHR-New York, (iv) CHR-New Jersey and (v) CHR-Florida. As a result of the
Company's limited period of affiliation with the practices and rapid expansion
of the business, the Company believes that the period to period comparisons and
percentage relationships within periods set forth below may not necessarily be
meaningful.
ACQUISITION AND AFFILIATION SUMMARY
Since March 1995, the Company has completed several transactions that
solidified its market presence in the Chicago metropolitan area and increased
the number of Chicago area Centers from seven to 11 and the number of Chicago
area affiliated physicians and scientists from 10 to 27. In March 1995, Charles
Miller, M.D., an endoscopic surgeon and infertility specialist, joined the
Company as Medical Director and Director of Endoscopic Surgery. Dr. Miller also
serves as a Director of CHR-Illinois and Vice President and a Director of
CHR-Endoscopic. Prior to joining the managed practices, Dr. Miller was the
founding director of one of the leading hospital based infertility programs in
the Chicago metropolitan area. In March 1995, John Rinehart, M.D., Ph.D., Rodney
Hoxsey, M.D. and Ellen Snowden, M.D. became affiliated with the managed
practices, helping solidify the Centers' presence in certain targeted
geographical areas and adding a nationally known ART team to complement the
existing experience of the managed practices. In March 1995, Marybeth Gerrity,
Ph.D. joined the Company as Vice President of Operations and Development, adding
her clinical and regulatory expertise to the Company. Drs. Rinehart, Hoxsey,
Snowden and Gerrity represent the teaching faculty of the Evanston-Glenbrook
Hospitals, a teaching affiliate of Northwestern University Medical School. In
August 1995, Antonio Scommegna, M.D., and Bert Scoccia, M.D., brought their
affiliation with the University of Illinois to the managed practices, and the
Centers became the official Reproductive Endocrinology and Infertility program
of the University of Illinois. Dr. Scommegna is Professor and Chair and Dr.
Scoccia is Director of the Division of Reproductive Endocrinology and
Infertility of the Department of Obstetrics and Gynecology of the University of
Illinois at Chicago. In March 1996, Carolyn Coulam, M.D. joined the Company as
National Administrative Director of Reproductive Immunology, bringing her
expertise in repeated pregnancy loss and the diagnosis and treatment of
immunologic infertility from her previous position at the nationally known
Genetics and IVF Institute in Fairfax, Virginia. In addition, the managed
practices have opened two additional Centers in the Chicago metropolitan area
since March 1995.
The Company is in the process of establishing additional networks in the
New York City metropolitan area, including New Jersey, the Syracuse metropolitan
area and the Tampa/St. Petersburg metropolitan area. The Company entered these
areas because of the size of these markets, the presence of high quality,
nationally and internationally known physicians with complementary practices and
the opportunity to establish
26
<PAGE> 29
affiliations with highly regarded medical schools. Giving effect to the Recent
Acquisitions and the recent and pending medical school affiliations in New York,
New Jersey and Florida, the Company would be affiliated with 19 Centers and 44
physicians and scientists.
In 1996, the Company has acquired two medical practices in these targeted
markets. Each of the practice acquisitions was structured as a merger of the
nonmedical assets of the acquired practice into the Company in exchange for a
number of shares of Common Stock determined based upon the value of the accounts
receivable and other assets acquired and an evaluation of the historical
revenues generated by the practice. In the New Jersey acquisition, the physician
became a shareholder of the managed practice and in each case the physician
became an employee of the managed practice formed in that particular state. See
"Business -- Affiliation Process."
In the New York metropolitan area, the Company has acquired the nonmedical
assets of Fertility Center in consideration for 71,654 shares of Common Stock,
plus an additional 29,778 shares upon completion of this offering and the
attainment of certain financial targets. Fertility Center services the New
Jersey suburbs of New York City, and the principal of this practice, Daniel
Navot, M.D., has entered into an employment agreement with CHR-New Jersey. In
addition, the Company has entered into an affiliation agreement with Columbia
University Medical School in New York City and into letters of intent to
establish affiliations with Mount Sinai Medical Center in New York City and
State University of New York-Upstate Medical Center in Syracuse, New York. All
three medical school teaching departments would integrate their respective
reproductive endocrinology and infertility private practice programs into
CHR-New York under the respective leadership of Mark V. Sauer, M.D., of Columbia
University Medical School, Maria Bustillo, M.D., of Mount Sinai Medical Center,
and Shawky Badaway, M.D., of State University of New York-Upstate Medical
Center.
In Florida, the Company has acquired the nonmedical assets of A Center for
Gynecology in consideration for 107,480 shares of Common Stock, plus an
additional 3,157 shares upon completion of this offering. The principal of this
practice, Edward A. Zbella, M.D., has entered into an employment agreement with
CHR-Florida. Dr. Zbella also has become a Director and the Senior Vice President
and Director of General Obstetrics and Gynecology Contracting of the Company. In
addition, the Company has entered into a letter of intent to establish an
affiliation with the University of South Florida in Tampa, pursuant to which
this medical school's teaching department would integrate the principal portion
of its reproductive endocrinology and infertility private practice program into
CHR-Florida under the leadership of Timothy R. Yeko, M.D. who would serve as the
Medical Director of CHR-Florida.
The Company currently is in discussions with a number of physicians and
medical schools for potential future practice affiliations in a number of
states. There can be no assurance that these discussions will result in new
practice affiliations in the near future or at all.
27
<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenue represented by
certain items reflected in the Company's Statement of Operations. The
information that follows should be read in conjunction with the Company's
Audited Combined Financial Statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
PREDECESSOR
------------------------ SIX MONTHS ENDED THREE MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31, MARCH 31,
------------------------ --------------------- ---------------------------
1993 1994 1995 1994 1995 1995 1996
----- ----- ----- ----------- ----- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Patient Revenue(1)....... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- ----- -----
Operating Expenses:
Physician Salaries......... 13.7 20.6 21.7 15.5 24.5 26.7 61.4
Clinical Salaries, Wages
and Benefits............ 18.8 21.8 28.0 26.2 21.8 29.3 21.6
Clinic Rent & Lease
Expense................. 5.4 3.5 7.8 6.6 7.3 11.9 8.3
Clinic Supplies............ 24.5 26.7 25.4 27.4 15.3 36.6 13.2
Other Clinic Expenses...... 5.5 6.5 7.6 10.3 7.1 4.9 6.2
General Corporate
Expenses................ 21.1 16.5 23.0 16.1 21.6 43.3 20.6
Depreciation &
Amortization............ 1.7 1.6 4.7 4.5 3.0 5.0 3.6
----- ----- ----- ----- ----- ----- -----
90.7 97.2 118.2 106.6 100.6 157.5 134.9
----- ----- ----- ----- ----- ----- -----
Operating Income (Loss)...... 9.3 2.8 (18.2) (6.6) (0.6) (57.5) (34.9)
Other (Income) Expense....... (0.7) (4.1) 0.2 -- -- (1.2) --
Net Interest Expense......... 0.8 0.8 1.7 1.1 1.4 2.7 3.1
----- ----- ----- ----- ----- ----- -----
Income (Loss) Before Income
Taxes...................... 9.2 6.1 (20.1) (7.7) (2.0) (59.0) (38.0)
Income Taxes (Benefit)....... 3.5 0.8 (3.2) (.5) -- (7.1) --
----- ----- ----- ----- ----- ----- -----
Net Income (Loss)............ 5.7% 5.3% (16.9)% (7.2)% (2.0)% (51.9)% (38.0)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) "Net Patient Revenue" is defined as gross clinic charges less discounts for
contractual adjustments.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Changes in results of operations for the three months ended March 31, 1995
as compared to the three months ended March 31, 1996 were caused primarily by
the continued implementation of the Company's acquisition strategy, opening of
additional office locations and product expansion efforts.
REVENUES -- Revenue increased from $2.6 million for the three months ended
March 31, 1995 to $6.0 million for the three months ended March 31, 1996, an
increase of $3.4 million or 131%. This increase primarily was attributable to
the increased number of patient visits resulting from the addition of affiliated
physicians and the opening of additional office locations.
PHYSICIAN SALARIES -- Physician salaries, which include the salaries and
incentive compensation amounts paid to the affiliated physicians, increased from
$690,000 for the three months ended March 31, 1995 to $3.7 million for the three
months ended March 31, 1996, an increase of $3.0 million or 436%. The increase
was attributable to the addition of eleven affiliated physicians since April 1,
1995. In addition, the Company recognized a charge in the three months ended
March 31, 1996 of $2.0 million attributable to the Company as a result of the
restructuring of an option among the Company's principal stockholders. See
"Certain Transactions -- Restructuring of Miller Option." As a percentage of
revenue, physician salaries increased from 26.7% to 61.4% for the three months
ended March 31, 1995 and 1996, respectively. This increase as a percentage of
revenue was primarily the result of the compensation charge discussed above.
This increase as a
28
<PAGE> 31
percentage of revenue, exclusive of the compensation charge, would be 28% of
revenues, a slight increase from the comparable quarter in 1995.
CLINICAL SALARIES, WAGES AND BENEFITS -- Clinical salaries, wages and
benefits, which include the salaries, wages and benefits of all clinically
related personnel, increased from $761,000 for the three months ended March 31,
1995 to $1.3 million for the three months ended March 31, 1996, an increase of
$539,000 or 71%. The increase was attributable to the addition of 11 affiliated
or employed physicians and scientists and four new locations since April 1,
1995. As a percentage of revenue, clinical salaries decreased from 29.3% to
21.6% for the three months ended March 31, 1995 and 1996, respectively.
CLINIC RENT AND LEASE EXPENSE -- Clinic rent and lease expense, which
includes office rental and related utility costs, increased from $310,000 for
the three months ended March 31, 1995 to $497,000 for the three months ended
March 31, 1996, an increase of $187,000 or 60%. The increase primarily resulted
from the increased facility requirements attributable to the affiliation of
eleven physicians and scientists, the related addition of four new Centers since
April 1, 1995, and the expansion of medical facilities for the practice of
perinatology. As a percentage of revenue, clinic rent and lease expense
decreased from 11.9% to 8.3% of net patient revenue for the three months ended
March 31, 1995 and 1996, respectively.
CLINIC SUPPLIES -- Clinic supplies, which include pharmacy and medical
supplies, lab tests and other supplies used by the affiliated physician groups,
decreased from $952,000 for the three months ended March 31, 1995 to $791,000
for the three months ended March 31, 1996, a decrease of $161,000 or 20%. As a
percentage of revenue, clinic supplies decreased from 36.6% for the three months
ended March 31, 1995 to 13.2% for the three months ended March 31, 1996. This
decrease was primarily a result of improved inventory control and purchasing
guidelines for supplies. The Company is committed to continuing to enforce its
stringent cost and inventory containment efforts; however, the Company believes
that, in light of its limited operating history, it cannot accurately predict
whether clinical supplies as a percentage of revenue will continue at their
current level.
OTHER CLINIC EXPENSES -- Other clinic expenses, which consist of repairs
and maintenance, insurance, consulting fees, medical equipment rental and other
direct practice costs, increased from approximately $127,000 for the three
months ended March 31, 1995 to $367,000 for the three months ended March 31,
1996, an increase of $240,000 or 189%. The increase was attributable to a
significant increase in repairs and maintenance of medical equipment as well as
a general increase in other expenses to the Company's growth in revenues. As a
percentage of revenue, other clinic expenses increased from 4.9% for the three
months ended March 31, 1995 to 6.2% for the three months ended March 31, 1996.
GENERAL CORPORATE EXPENSES -- General corporate expenses increased from
$1.1 million for the three months ended March 31, 1995 to $1.2 million for the
three months ended March 31, 1996, an increase of $100,000 or 9%. As a
percentage of revenue, general corporate expenses decreased from 43.3% for the
three months ended March 31, 1995 to 20.6% for the three months ended March 31,
1996. This decrease as a percentage of revenue is primarily the result of the
Company's ability to achieve operating leverage through the expansion of its
revenue base, as well as the impact of the Company's investment in
infrastructure in the first quarter of 1995.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expenses
increased from $131,000 for the three months ended March 31, 1995 to $215,000
for the three months ended March 31, 1996, an increase of $84,000 or 64%. This
increase primarily was attributable to investment in equipment, leases and
leasehold improvements of the facilities of physicians that affiliated with the
Company and, to a lesser extent, to corporate capital expenditures during this
time.
INTEREST EXPENSE -- Net interest expense increased from $71,000 for the
three months ended March 31, 1995 to $183,000 for the three months ended March
31, 1996, an increase of $112,000 or 158%. This increase was attributable to
interest expense on the $5.0 million of convertible subordinated debt
outstanding for the three months ended March 31, 1996. As a percentage of
revenue, net interest expense increased from 2.7% to 3.1% for the three months
ended March 31, 1995 and 1996, respectively.
29
<PAGE> 32
INCOME TAXES -- For the periods presented, the Company was a Subchapter S
corporation for tax purposes and therefore no provision for income taxes was
provided since all tax liability flowed through to the individual stockholders
of the Company. CHR-Illinois, which was organized as a C Corporation, had net
operating losses for both tax and financial reporting purposes and, as a result
of the application of the net operating loss, a tax benefit of approximately
$186,000 was recognized for the three months ended March 31, 1995.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1994
The Company's operating results during the six months ended December 31,
1995 were impacted by the Company's acquisition of two practices (Reproductive
Biology Resources, Inc. and Reproductive Medicine Associates) and affiliation
with twelve physicians and scientists during the six months ended December 31,
1994. The Company also initiated its product expansion strategy through the
creation of CHR-Perinatal and CHR-Endoscopic during 1995 and these initial
start-up costs were reflected in 1995 results. Changes in results of operations
for the six months ended December 31, 1994 as compared to the six months ended
December 31, 1995 were caused primarily by these acquisitions, affiliations,
implementation of the Company's capitated contract with Blue Cross Blue Shield
of Illinois and product expansion efforts.
REVENUES -- Revenue increased from $6.4 million for the six months ended
December 31, 1994 to $12.1 million for the six months ended December 31, 1995,
an increase of $5.7 million or 89%. This increase primarily was attributable to
the increased number of patient visits resulting from the addition of affiliated
physicians during 1995 and the inception of a capitated contract with Blue Cross
Blue Shield of Illinois in January 1995.
PHYSICIAN SALARIES -- Physician salaries, which include the salaries and
incentive compensation amounts paid to the affiliated physicians, increased from
$987,000 for the six months ended December 31, 1994 to $3.0 million for the six
months ended December 31, 1995, an increase of $2.0 million or 204%. The
increase was attributable to the addition of twelve affiliated physicians and
scientists since January 1, 1995. As a percentage of revenue, physician salaries
increased from 15.5% to 24.5% for the six months ended December 31, 1994 and
1995, respectively. This increase as a percentage of revenue was primarily the
result of the addition of the affiliated physicians and scientists after January
1, 1995 and proportionately lower revenues being initially generated by the two
new office locations during the start-up phase, as well as the development of
the perinatology practice of CHR-Perinatal.
CLINICAL SALARIES, WAGES AND BENEFITS -- Clinical salaries, wages and
benefits, which include the salaries, wages and benefits of all clinically
related personnel, increased from $1.7 million for the six months ended December
31, 1994 to $2.6 million for the six months ended December 31, 1995, an increase
of $900,000 or 53%. The increase was attributable to the increased number of
clinical personnel necessary to support the additional affiliated physicians and
scientists since January 1, 1995, as well as the opening of two new medical
facilities. As a percentage of revenue, clinical salaries decreased from 26.2%
to 21.8% for the six months ended December 31, 1994 and 1995, respectively.
CLINIC RENT AND LEASE EXPENSE -- Clinic rent and lease expense, which
includes office rental and related utility costs, increased from $423,000 for
the six months ended December 31, 1994 to $881,000 for the six months ended
December 31, 1995, an increase of $458,000 or 108%. The increase primarily
resulted from the increased facility requirements attributable to the
affiliation of eight physicians and the related addition of four new Centers
since January 1, 1995, and the expansion of medical facilities for the practice
of perinatology. As a percentage of revenue, clinic rent and lease expense
increased from 6.6% to 7.3% of net patient revenue for the six months ended
December 31, 1994 and 1995, respectively.
CLINIC SUPPLIES -- Clinic supplies, which include pharmacy and medical
supplies, lab tests and other supplies used by the affiliated physician groups,
increased from $1.7 million for the six months ended December 31, 1994 to $1.8
million for the six months ended December 31, 1995, an increase of $100,000 or
6%. This increase was attributable to the general increase in the level of
patient visits generated by the increased physician and scientist employment
levels after January 1, 1995. As a percentage of revenue, clinic supplies
decreased from 27.4% for the six months ended December 31, 1994 to 15.3% for the
six months ended
30
<PAGE> 33
December 31, 1995. This decrease was primarily a result of improved inventory
control and purchasing guidelines. In light of the Company's limited operating
history, management does not believe that it can accurately predict whether
clinical supplies as a percentage of revenue will continue at the current level.
OTHER CLINIC EXPENSES -- Other clinic expenses, which consist of repairs
and maintenance, insurance, consulting fees, medical equipment rental and other
direct practice costs, increased from approximately $658,000 for the six months
ended December 31, 1994 to $861,000 for the six months ended December 31, 1995,
an increase of $203,000 or 31%. The increase was attributable to the overall
increase in patient revenue and related increase in patient care resulting from
the addition of the twelve affiliated physicians and scientists after January 1,
1995. As a percentage of revenue, other clinic expenses decreased from 10.3% for
the six months ended December 31, 1994 to 7.1% for the six months ended December
31, 1995. This decrease was principally due to the Company being able to achieve
economies of scale and operating leverage as the Company expanded its
operations.
GENERAL CORPORATE EXPENSES -- General corporate expenses increased from
$1.0 million for the six months ended December 31, 1994 to $2.6 million for the
six months ended December 31, 1995, an increase of $1.6 million or 160%. This
increase primarily was attributable to the addition of personnel and greater
support costs associated with the Company's rapid growth since January 1, 1995
as well as an increase in the reserve for doubtful accounts. As a percentage of
revenue, general corporate expenses increased from 16.1% for the six months
ended December 31, 1994 to 21.6% for the six months ended December 31, 1995.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expenses
increased from $286,000 for the six months ended December 31, 1994 to $365,000
for the six months ended December 31, 1995, an increase of $79,000 or 28%. This
increase primarily was attributable to investment after January 1, 1995 in
equipment, leases and leasehold improvements of the facilities of physicians and
scientists that affiliated with the Company subsequent to January 1, 1995 and,
to a lesser extent, to corporate capital expenditures during this time.
INTEREST EXPENSE -- Net interest expense increased from $68,000 for the six
months ended December 31, 1994 to $165,000 for the six months ended December 31,
1995, an increase of $97,000 or 143%. This increase was attributable to interest
expense on (i) working capital indebtedness of approximately $2.5 million for
the six months ended December 31, 1995 as compared to approximately $800,000 for
the six months ended December 31, 1994 and (ii) the $5.0 million Convertible
Note for one month. As a percentage of revenue, net interest expense increased
from 1.1% to 1.4% for the six months ended December 31, 1994 and 1995,
respectively.
INCOME TAXES -- For the periods presented, the Company was a subchapter S
corporation for tax purposes and therefore no provision for income taxes was
provided since all tax liability flowed through to the individual stockholders
of the Company. CHR-Illinois, which was organized as a C Corporation, had net
operating losses for both tax and financial reporting purposes during the six
months ended December 31, 1994 and, as a result of the application of the net
operating loss, a tax benefit of approximately $34,000 was recognized.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
The Company acquired two practices, completed its merger with an affiliated
company and affiliated with ten physicians during the Company's fiscal year
ended June 30, 1995 ("Fiscal 1995"), the results of which are included in the
Company's operating results from the dates of the respective transactions. In
addition, the Company implemented its product expansion strategy through the
creation of CHR-Perinatal and CHR-Endoscopic during the first quarter of Fiscal
1995 and these initial start-up costs are reflected in Fiscal 1995 results.
Changes in results of operations for Fiscal 1995, as compared to the Company's
fiscal year ended June 30, 1994 ("Fiscal 1994"), were caused primarily by these
acquisitions, affiliations and product expansion efforts. The Company also
entered into a capitated contract with Blue Cross Blue Shield of Illinois in
January 1995.
31
<PAGE> 34
REVENUES -- Revenue increased from $8.8 million in Fiscal 1994 to $13.9
million in Fiscal 1995, an increase of $5.1 million or 58%. This increase
primarily was attributable to the increased number of patient visits resulting
from the addition of the ten affiliated physicians during Fiscal 1995 and to the
capitated contract with Blue Cross Blue Shield of Illinois.
PHYSICIAN SALARIES -- Physician salaries, which include the salaries and
incentive compensation amounts paid to the affiliated physicians, increased from
$1.8 million during Fiscal 1994 to $3.0 million in Fiscal 1995, an increase of
$1.2 million or 67%. The increase was attributable to the addition of ten
affiliated physicians since July 1, 1994. As a percentage of revenue, physician
salaries increased from 20.6% to 21.7% for Fiscal 1994 and Fiscal 1995,
respectively.
CLINICAL SALARIES, WAGES AND BENEFITS -- Clinical salaries, wages and
benefits, which include the salaries, wage and benefits of all clinically
related personnel, increased from $1.9 million for Fiscal 1994 to $3.9 million
during Fiscal 1995, an increase of $2.0 million or 105%. The increase was
attributable to the addition of clinical personnel related to the addition of
ten affiliated or employed physicians since July 1, 1994. As a percentage of
revenue, clinical salaries increased from 21.8% to 28.0% for Fiscal 1994 and
Fiscal 1995, respectively. This increase as a percentage of revenue primarily
was caused by the affiliation of ten physicians and the openings of four Centers
by the Company during the period.
CLINIC RENT AND LEASE EXPENSE -- Clinic rent and lease expense, which
includes office rental and related utility costs, increased from $307,000 for
Fiscal 1994 to $1.1 million for Fiscal 1995, an increase of $793,000 or 258%.
The increase was attributable to the affiliation of the ten physicians, the
opening of four new Centers, and the expansion of medical facilities for the
practice of perinatology. As a percentage of revenue, clinic rent and lease
expense increased from 3.5% to 7.8% of revenue for Fiscal 1994 and Fiscal 1995,
respectively. This percentage increase principally was due to the Company's
rapid expansion and costs associated with expanding operations and the related
infrastructure.
CLINIC SUPPLIES -- Clinic supplies, which include pharmacy and medical
supplies, lab tests and other supplies used by the affiliated physician groups,
increased from $2.3 million for Fiscal 1994 to $3.5 million in Fiscal 1995, an
increase of $1.3 million or 52%. This increase was attributable to the addition
of ten affiliated physicians and related increases in patient care since July 1,
1994. As a percentage of revenue, clinic supplies decreased from 26.7% for
Fiscal 1994 to 25.4% during Fiscal 1995.
OTHER CLINIC EXPENSES -- Other clinic expenses, which consist of repairs
and maintenance, insurance, consulting fees, medical equipment rental and other
direct practice costs, increased from approximately $574,000 for Fiscal 1994 to
$1.1 million for Fiscal 1995, an increase of $526,000 or 92%. As a percentage of
revenue, other clinic expenses increased from 6.5% for Fiscal 1994 to 7.6% for
Fiscal 1995. This percentage increase principally was due to the Company's rapid
expansion and costs associated with expanding operations and the related
infrastructure.
GENERAL CORPORATE EXPENSES -- General corporate expenses increased from
$1.5 million for Fiscal 1994 to $3.2 million for Fiscal 1995, an increase of
$1.7 million or 113%. This increase primarily was attributable to the addition
of personnel, greater support costs associated with the Company's rapid growth,
and an increase in bad debt expense. As a percentage of revenue, general
corporate expenses increased from 16.5% during Fiscal 1994 to 23.0% during
Fiscal 1995, primarily as a result of the rapid growth of the Company and its
investment in expanding the corporate infrastructure.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expenses
increased from $144,000 during Fiscal 1994 to $651,000 during Fiscal 1995, an
increase of $507,000 or 352%. This increase primarily was attributable to
investments after January 1, 1995 in equipment, leases and leasehold
improvements of the facilities of physicians that affiliated with the Company
subsequent to January 1, 1995 and, to a lesser extent, to corporate capital
expenditures during this time.
OTHER (INCOME) EXPENSE -- Prior to June 30, 1994, the Company owned 50% of
the outstanding stock of CHR-NW. The amount reflected in Other (Income) Expense
represented the pro rata share of the Company's interest in the earnings of
CHR-NW. This entity was acquired in its entirety as of June 30, 1994. The
expense recognized during Fiscal 1995 represented losses realized on the sale of
equipment.
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INTEREST EXPENSE -- Net interest expense increased from $68,000 during
Fiscal 1994 to $231,000 during Fiscal 1995, an increase of $163,000 or 240%.
This increase was attributable to interest expense on (i) debt obligations
totaling approximately $4.0 million during Fiscal 1995 as compared to $2.0
million during Fiscal 1994. As a percentage of revenue, net interest expense
increased from 0.8% to 1.7% for Fiscal 1994 and Fiscal 1995, respectively.
INCOME TAXES -- For the periods presented, the Company was a Subchapter S
corporation for tax purposes and therefore no provision for income taxes was
provided since all tax liability flowed through to the individual shareholders
of the Company. CHR-Illinois, which was organized as a C Corporation, had net
operating losses for both tax and financial reporting purposes during Fiscal
1995 and, as a result of the application of the net operating loss, a tax
benefit of approximately $454,000 was recognized during Fiscal 1995. The Company
recognized income tax expense of $73,000 during Fiscal 1994.
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
During the period of July 1, 1993 to June 30, 1994 the Company was
successful in obtaining a number of exclusive contracts with third party payors.
In addition the Company opened four new offices which increased the number of
patient visits and revenue during this time frame.
REVENUES -- Revenue increased from $5.5 million in the Company's fiscal
year ended June 30, 1993 ("Fiscal 1993") to $8.8 million in Fiscal 1994, an
increase of $3.3 million or 60%. Revenues increased primarily due to the Company
being successful in obtaining exclusive and semi-exclusive contracts with third
party payors as well as opening four new office locations. These new locations
increased the number of patient visits as well as the level of patient revenue.
PHYSICIAN SALARIES -- Physician salaries, which include the salaries and
incentive compensation amounts paid to the affiliated physicians, increased from
$760,000 during Fiscal 1993 to $1.8 million in Fiscal 1994, an increase of $1.0
million or 137%. As a percentage of revenue, physician salaries increased from
13.7% to 20.6% for Fiscal 1993 and 1994, respectively.
CLINICAL SALARIES, WAGES AND BENEFITS -- Clinical salaries, wages and
benefits, which include the salaries, wages and benefits of all clinical related
personnel, increased from $1.0 million for Fiscal 1993 to $1.9 million for
Fiscal 1994, an increase of $900,000 or 90%. As a percentage of revenue,
clinical salaries increased from 18.8% to 21.8% for Fiscal 1993 and 1994,
respectively. This increase as a percentage of revenue primarily was caused by
the related openings of two offices acquired during the period.
CLINIC RENT AND LEASE EXPENSE -- Clinic rent and lease expense which
includes office rental and related utility costs, increased from $302,000 for
Fiscal 1993 to $308,000 for Fiscal 1994, an increase of $6,000 or 2%. As a
percentage of revenue, clinic rent and lease expense decreased from 5.4% to 3.5%
of net patient revenue for Fiscal 1993 and 1994, respectively.
CLINIC SUPPLIES -- Clinic supplies, which include pharmacy and medical
supplies, lab tests and other supplies used by the affiliated physicians,
increased from $1.4 million for Fiscal 1993 to $2.3 million in Fiscal 1994, an
increase of $900,000 or 64%. This increase was attributable to the overall
increase in patient revenue and related increase in patient care during Fiscal
1994. As a percentage of revenue, clinic supplies increased from 24.5% for
Fiscal 1993 to 26.7% during Fiscal 1994, caused primarily by an increase in
pharmacy and medical supplies.
OTHER CLINICAL EXPENSES -- Other clinical expenses, which consist of
repairs and maintenance, insurance, consulting fees, medical equipment rental
and other direct practice costs, increased from approximately $303,000 for
Fiscal 1993 to $574,000 for Fiscal 1994, an increase of $271,000 or 89%. The
increase was attributable to an increase in insurance costs as well as medical
consulting fees. As a percentage of revenue, other clinic expenses increased
from 5.5% for Fiscal 1993 to 6.5% for Fiscal 1994.
GENERAL CORPORATE EXPENSES -- General corporate expenses increased from
$1.2 million for Fiscal 1993 to $1.5 million for Fiscal 1994, an increase of
$300,000 or 25%. This increase primarily was attributable to the addition of
personnel and greater support costs associated with the Company's rapid growth,
and an increase in
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bad debt expense. As a percentage of revenue, general corporate expenses
decreased from 21.1% during Fiscal 1993 to 16.5% during Fiscal 1994, primarily
as a result of achieving economies of scale during the Company's period of rapid
growth.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expenses
increased from $96,000 during Fiscal 1993 to $144,000 during Fiscal 1994, an
increase of $48,000 or 50%. This increase primarily was attributable to
investment in equipment, leases and leasehold improvements in the facilities and
to a lesser extent, to corporate capital expenditures during this time.
OTHER (INCOME) EXPENSE -- During Fiscal 1993 and Fiscal 1994, the Company
recorded its share of earnings from CHR-NW using the equity method. The amount
recognized for Fiscal 1993 and Fiscal 1994 is $37,000 and $349,000,
respectively. The increase primarily was caused by an increase in the
profitability of CHR-NW.
INTEREST EXPENSE -- Net interest expense increased from $46,000 during
Fiscal 1993 to $68,000 during Fiscal 1994, an increase of $22,000 or 48%. This
increase was attributable to interest expense on a greater level of debt
outstanding during Fiscal 1994 versus Fiscal 1993. As a percentage of revenue,
net interest expense was constant at 0.8%.
INCOME TAXES -- During Fiscal 1993 and Fiscal 1994, CHR-Illinois, which is
organized as a Subchapter C corporation, incurred $194,000 and $73,000 of income
tax expense, respectively. As a percentage of income, these amounts represent
3.5% and 0.8% for Fiscal 1993 and Fiscal 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to acquire the nonmedical assets of physician
practices, to enhance the operations of these practices and to develop and
acquire the requisite management infrastructure necessary to manage physician
practices effectively. To fund this development and growth, the Company
completed the private placement offering of the Convertible Note on December 1,
1995 that provided the Company with net cash proceeds of approximately $5.0
million. As of December 31, 1995, the Company had retired, with a portion of the
proceeds of the Convertible Note, approximately $2.5 million outstanding under
its credit agreement with Cole Taylor Bank as well as reducing its net working
capital obligations by $2.2 million. As of March 31, 1996, the Company had cash
of $655,000 and long term debt and leases of $6.2 million. An important aspect
of the Company's liquidity is the collection of accounts receivable. The Company
has designed its system to maximize collection efforts and to minimize the
average collection period of accounts receivable. On a monthly basis, the
Company's most significant expenditures are for physician and clinical
compensation expense as well as general corporate expenses.
On February 23, 1996, the Company entered into the Secured Credit Agreement
with American National Bank of Chicago. The Secured Credit Agreement provides
for borrowing under a revolving line of credit up to the greater of $5.0 million
or 80% of eligible receivables, as defined, for one year, with interest at the
bank's rate (8.25%, as of April 1, 1996) payable monthly. The borrowings are
collateralized primarily by receivables and are personally guaranteed jointly
and severally by each of Drs. Gleicher, Pratt, Miller and Karande. As of March
31, 1996 the line of credit balance was $3.0 million.
The Secured Credit Agreement contains affirmative and negative covenants
which require the Company to maintain certain financial ratios (including
minimum tangible net worth and maximum indebtedness to cash flow) limit the
amount of additional indebtedness, limit the creation or existence of liens, and
set certain restrictions on mergers and sales of assets.
The Company maintained a similar credit agreement with Cole Taylor Bank
which was terminated in February 1996. The facility provided for borrowings
under a revolving line of credit up to the greater of $2.5 million or 80% of
eligible receivables, as defined, for one year, with interest at the bank's rate
payable monthly. This facility was jointly and severally guaranteed by Drs.
Gleicher, Pratt, Miller and Karande. As of December 31, 1995, the Company did
not have any amounts outstanding under this credit facility.
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On December 1, 1995, the Company entered into a Note Purchase Agreement
with Nichold Company, a wholly-owned subsidiary of Blue Cross Blue Shield of
Illinois, pursuant to which the Company issued to Nichold Company the $5 million
Convertible Note. See "Description of Capital Stock -- Subordinated Convertible
Promissory Note." The proceeds of the Convertible Note were used to pay down
approximately $2.5 million outstanding under the Cole Taylor Bank Credit
Agreement as well as retire approximately $2.2 million of various working
capital obligations. Upon consummation of this offering, $2.5 million of the
principal amount of the Convertible Note, plus all accrued and unpaid interest,
will become due without demand or notice.
The Recent Acquisitions were funded with shares of Common Stock. The
Company intends to acquire the assets of additional physician practices and to
fund this growth, in part, with existing cash, cash flow from operations and
borrowings under the Secured Credit Agreement. The Company believes that its
existing cash resources together with net proceeds from the offering will be
sufficient to meet the Company's anticipated acquisition, expansion and working
capital needs for the next 24 months. Thereafter, the Company may raise capital
through the issuance of long term or short term indebtedness or the issuance of
securities in private or public transactions to fund future expansions. There
can be no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing networks can be obtained. See "Unaudited
Pro Forma Combined Financial Information" for additional information concerning
the effects on the financial condition of the Company of the net proceeds of
this offering.
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BUSINESS
GENERAL
The Company provides comprehensive management and clinical support services
to integrated networks of physicians specializing in the field of reproductive
medicine, primarily subspecialties of obstetrics and gynecology and related
areas of human reproduction. The Company currently manages integrated networks
of 17 Centers and 28 physicians in the Chicago, New York City and Tampa/St.
Petersburg metropolitan areas. In addition, the Company has entered into
agreements or letters of intent to add one Center and five physicians to its
networks in New York City and Florida and to establish an additional network of
one Center and two physicians in Syracuse, New York. The New York City and
Florida networks include the Recent Acquisitions. The Company anticipates that
each of these pending transactions will close prior to the effective date of
this offering. The first Center was opened in 1981 as an exclusive faculty
affiliation with Mount Sinai Hospital and Medical Center in Chicago. Since
September 1990, when independent operations began, the Company has grown from
one Center and three physicians and scientists with doctoral degrees to 19
Centers and 44 physicians and scientists after giving effect to the pending
transactions in New York and Florida. Upon completion of these transactions, the
Company's affiliated physicians will be on staff at approximately 26 hospitals,
including several of the country's leading teaching hospitals.
The Centers provide reproductive medicine services principally relating to
the subspecialties of obstetrics and gynecology, reproductive endocrinology and
infertility, including traditional drug therapy and surgical therapies, ART and
specialized laboratory services, as well as perinatal services. The Company
intends to expand the range of obstetrics and gynecology, women's health care
and reproductive medicine services offered at the Centers beyond those currently
offered to include the provision of comprehensive obstetrics and gynecology
services. The Company believes that the addition of these services, coupled with
the Company's planned growth and capitated market experience, will contribute to
the Company's ability to negotiate national and regional shared-risk
arrangements with managed care payors.
The physician practices that the Company currently manages provide
reproductive endocrinology and infertility services to patients insured by 48
third party payors, and maintain three exclusive capitated managed care
contracts covering approximately 478,000 lives. The largest of these contracts
covers approximately 441,000 lives and is with HMO-Illinois, the state's largest
HMO, owned by Blue Cross Blue Shield of Illinois. A subsidiary of Blue Cross
Blue Shield of Illinois owns a Convertible Note which is convertible into 5% of
the outstanding Common Stock of the Company. In addition, one of the Company's
affiliated practices holds what the Company believes is one of the few capitated
managed care contracts for comprehensive obstetrics and gynecology services.
Certain of the affiliated practices also provide perinatal services to patients
insured by seven third party payors in the Chicago area, and certain of the
affiliated practices also maintain an exclusive managed care contract relating
to the provision of perinatal services. In each of 1995 and the first quarter of
1996, revenues derived from Medicare and Medicaid represented less than 1% of
total combined revenues of the Company.
The Company seeks to establish integrated physician networks through
acquisitions of the nonmedical assets of targeted physician practices. The
targeted physicians then enter into long-term employment agreements with a
medical practice managed by the Company under a long-term management services
agreement. In establishing its presence in the Chicago metropolitan area, the
Company has developed a clinical and academic affiliation with the University of
Illinois College of Medicine in Chicago. Similarly, as part of its strategy for
developing integrated networks in the New York and Tampa/St. Petersburg areas,
the Company has entered into an affiliation agreement with Columbia University
Medical School and into letters of intent for affiliations with Mount Sinai
Medical Center in New York City, State University of New York-Upstate Medical
Center in Syracuse, New York and the University of South Florida in Tampa,
Florida.
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INDUSTRY
OVERVIEW -- The health care industry in the United States is undergoing
profound changes in an effort to manage costs more efficiently while continuing
to provide high quality health care services. The United States Health Care
Financing Administration has estimated that national health care expenditures in
1995 were over $1 trillion, with approximately $200 billion directly
attributable to physician services. Physicians have traditionally provided
medical care on a fee-for-service basis which offers few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs that are significantly higher than inflation. Concerns over the
accelerating cost of health care have resulted in the increasing prominence of
managed care which often involves shifting the financial risk of providing
health care services ultimately to the provider, thus creating incentives to
manage costs more efficiently. Health care in the United States historically has
been delivered through a fragmented system of health care providers, including
individual or small groups of primary care physicians and specialists. According
to the American Medical Association ("AMA"), in 1994 there were approximately
685,000 physicians actively involved in providing care in the United States. A
1993 AMA study estimates that there are over 86,000 physicians practicing in
3,600 multi-specialty group practices (consisting of three or more physicians)
and over 82,000 physicians practicing in 12,700 single specialty group practices
in the United States.
PHYSICIAN PRACTICE MANAGEMENT -- In response to reductions in the levels of
reimbursement by third party payors and the corresponding cost-containment
pressures on health care providers, physicians are increasingly seeking to
affiliate with larger organizations which manage the nonmedical aspects of
physician practices, such as billing, purchasing and contracting with payor
entities. Through affiliation with such organizations, including physician
practice management companies, physicians gain access to capital, as well as the
informational, managerial and administrative resources essential to the delivery
of high-quality, cost effective care in the increasingly cost-conscious managed
care environment.
These trends also have resulted in increased pressures from payors on both
primary care and specialist practices. Many payors and their intermediaries,
including governmental entities and HMOs, are increasingly expecting outside
providers of physician services to develop and maintain quality outcomes through
utilization review and quality management programs. In addition, such payors and
intermediaries typically desire to share the risk of providing services through
capitation arrangements which provide for a fixed payment per member for patient
care over a specified period of time. This focus on cost-containment and
financial risk sharing has placed small and mid-size physician groups and solo
practices at a significant competitive disadvantage because they typically have
higher operating costs, limited purchasing power with suppliers, and limited
abilities to purchase expensive state-of-the-art equipment and invest cost
effectively in a sophisticated information system.
REPRODUCTIVE MEDICINE -- Reproductive medicine encompasses several medical
disciplines which focus on male and female reproductive systems and processes.
Within the field of reproductive medicine, there are several subspecialties such
as obstetrics and gynecology which apply only to women and certain
subspecialties, such as reproductive endocrinology, infertility and urology,
which apply to both women and men. According to industry sources, expenditures
related to infertility services, one of several subspecialties of reproductive
medicine, in 1995 exceeded $1 billion.
Within the specialty of obstetrics and gynecology, there are several
subspecialties, including perinatology, reproductive endocrinology, infertility,
gynecology/oncology, and endoscopic surgery. Perinatology is a subspecialty that
focuses on pregnancies that pose a high risk of medical complications for women,
gynecology/oncology focuses on cancer of the female reproductive organs, and
endoscopic surgery is a form of minimally invasive surgery designed to correct a
variety of gynecological, urological and infertility related problems.
Reproductive endocrinology and infertility concern the diagnosis and treatment
of all physiological problems in both the male and female which lead to abnormal
reproductive functions. Reproductive endocrinologists are physicians who have
completed four years of residency training in obstetrics and gynecology and have
at least two years of additional training in an approved subspecialty fellowship
program.
Physicians practicing reproductive medicine, therefore, range from the
primary care obstetrician or gynecologist to the more specialized endoscopic
surgeon, reproductive endocrinologist or urologist. These
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specialists generally complement, rather than compete with, the work performed
by the primary obstetrician or gynecologist. The AMA estimated that in 1994
there were approximately 33,000 obstetricians and gynecologists, 504
reproductive endocrinologists, 2,905 perinatologists and 9,700 urologists board
certified in the United States. As of June 1, 1996, the Company was affiliated
with 24 fellowship trained reproductive endocrinologists, two perinatologists
and one urologist. The Company has entered into agreements or letters of intent
pursuant to which the Company will become affiliated with an additional seven
fellowship trained reproductive endocrinologists. The Company believes that its
affiliated physicians are among the leading physicians in their respective
specialties and that its affiliations with these physicians will enable it to
(i) affiliate with additional leading physicians in these and other specialties,
and (ii) obtain additional managed care contracts, including contracts for
comprehensive obstetrics and gynecology services.
Although the services offered at the Centers currently are being expanded
to include a broader range of services, including general obstetrics and
gynecology, to date substantially all of the Company's revenues have been
derived from reproductive endocrinology and infertility services. According to
The American Society for Reproductive Medicine, it is estimated that one in ten
couples of childbearing age in the United States suffer from infertility, which
is defined as the inability of noncontracepting, sexually active women to become
pregnant after having tried for at least one year. It is estimated that
approximately 1.3 million patients in the United States annually seek treatment
for problems with infertility. The Company believes that multiple factors over
the past several decades have affected fertility levels, including the mother's
age at first-birth and the increasing interval between marriage and first-birth.
Deferral of both marriage and first-birth have caused a shift in demographics of
the United States and consequently explains part of the increase in demand for
assisted reproductive technology. In addition, the technological advances in the
diagnosis and treatment of infertility have enhanced treatment outcomes and the
prognosis for many couples.
Historically, conventional infertility treatment and ART services have not
been covered by insurance plans; however, some third party payors have begun
paying a portion of these services in an effort to offer comprehensive
obstetrics and gynecology services to their members. As of June 1, 1996, ten
states, including Illinois, had laws mandating varying levels of insurance
coverage for infertility services.
The trends which are leading physicians to affiliate with physician
practice management companies are amplified in the field of reproductive
medicine due to several factors, including (i) the increasingly high level of
specialized skills and technology required to effectively utilize and improve
upon new techniques, such as micromanipulation and gynecoradiology, (ii) the
capital intensive nature of acquiring and maintaining state-of-the-art
reproductive medical equipment and laboratory and clinical facilities, (iii) the
need to develop and maintain specialized management information systems to meet
the increasing demands of technological advances, patient monitoring and third
party payors, and (iv) the need for 24 hour, seven days a week service to
respond to patient emergencies and to optimize the outcomes of patient
treatments.
BUSINESS STRATEGY
The Company's strategy is to develop integrated management networks for
human reproductive services through practice affiliations that provide high
quality, cost-effective care in targeted geographic markets. The principal
elements of this strategy include:
AFFILIATE WITH LEADING PHYSICIAN PRACTICES -- The Company seeks to
affiliate with targeted leading physician practices by capitalizing on (i) the
professional reputation of the Company and its affiliated physicians, (ii) the
Company's existing relationships with professionals and academics who practice
in the reproductive medicine field, as well as with medical schools, managed
care companies and other insurance companies, (iii) relationships with general
obstetricians and gynecologists and primary care physicians, and (iv) the
extensive experience of the Company's affiliated physicians in providing
reproductive medicine services. The Company believes that the relationships that
it has formed over the years through its affiliated physicians and nonphysician
professionals and their research, professional involvement and provision of
innovative, high quality care afford the Company the opportunity to attract the
leading physician practices in its targeted markets.
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DEVELOP INTEGRATED PRACTICE NETWORKS -- In connection with its acquisition
and affiliation strategy, the Company seeks to establish regionally integrated
specialty networks of physicians. The locally integrated networks provide
individual physicians with access to the collective knowledge and experience of
the Company's affiliated physicians and provide patients with access to a
network of reproductive medical specialists 24 hours a day, seven days a week,
which the Company believes leads to better care and patient satisfaction. The
economies of scale inherent in this network system enable the Company to reduce
the operating costs of its affiliated practices by centralizing certain clinical
functions, billing and collections, payroll and accounting and by negotiating
regional and national contracts for supplies, pharmaceuticals, equipment,
services and insurance. Once practice affiliations are established in a market,
the Company seeks to expand the services offered by the affiliated practices by
assisting the new affiliated practices in offering services which they
previously may have outsourced, such as laboratory and medical imaging services,
or which they previously may not have offered, such as advanced endoscopic
surgery, ART, micromanipulation, gynecoradiology and perinatology. In addition
to the services currently provided, the Company plans to continue to expand the
range of reproductive services offered by physicians practicing in the Company's
networks by adding obstetrics and gynecology, women's health and reproductive
medicine services. The Company believes that it will be able to successfully
apply the management expertise and methodologies the Company has developed with
respect to reproductive endocrinology and infertility to these other medical
areas.
PURSUE NATIONAL AND REGIONAL MANAGED CARE CONTRACTS -- The Company believes
that managed care will play an increasing role in the provision of reproductive
medical services, including obstetrics and gynecology subspecialties. The
Company has focused its efforts on establishing integrated networks of high
quality physicians in metropolitan markets and using its proprietary information
system and existing capitated contract experience to pursue national and
regional managed care contracts by negotiating for and effectively pricing
capitated contracts and managing outcomes and utilization rates. The Company
believes that its current capitated contract experience will enhance its ability
to market its capitated services and negotiate shared-risk arrangements.
REENGINEER THE DELIVERY OF MEDICAL SERVICES -- The Company's approach to
providing physician practice management services includes encouraging its
affiliated practices to explore and develop ways to improve the delivery of
medical services. For example, in the late 1980's, Norbert Gleicher, M.D.,
President, Chief Executive Officer and founder of the Company, developed a
cesarean section reduction program which reengineered the way obstetrical
services were provided within a large hospital department. The Company
continuously monitors and evaluates the delivery of medical services in an
effort to further improve outcomes and reduce costs of high quality treatment.
Key to the affiliated practices' ability to effectively reengineer the provision
of medical services is the collective experience of the Company's affiliated
physicians and nonphysician professionals in providing care and conducting
research, the Company's proprietary data base, the Company's affiliation with
leading academicians and medical schools, and the Company's collaboration with
managed care companies in conducting clinical studies.
PROVIDE A NATIONAL INFORMATION SYSTEM -- The Company collects and analyzes
clinical, patient, administrative and financial data using a proprietary
information system. This system and the acquired data enhance the Company's
ability to control expenses, effectively manage utilization rates and maximize
reimbursements. The Company believes that this system and its related data base
also will contribute to the Company's ability to continue to effectively price
and attract managed care contracts, including capitated contracts. Part of the
Company's process of establishing practice affiliations is to integrate its
affiliated practices into the Company's information system by installing and
maintaining in each Center the technology and skills necessary for each
affiliated practice to effectively utilize the Company's information system and
to allow the Company to incorporate each affiliated practice's historical and
current data into the system. To date, the Company has developed its information
system in the fields of reproductive endocrinology, infertility and
perinatology, and the Company believes that it will be able to effectively apply
this system to other areas of reproductive medicine.
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PHYSICIAN AFFILIATION
AFFILIATION PROCESS -- The Company currently provides management services
to five medical corporations that provide medical services at 17 Centers in
Illinois, New York, New Jersey and Florida and has entered into agreements or
letters of intent to add two Centers and seven physicians to such markets.
Generally, one or more medical corporations are formed in each state for the
provision of medical services and each affiliated physician becomes a
shareholder and employee of the managed practice in the state in which he or she
practices. To the extent permitted by applicable federal and state laws, the
Company also may acquire and operate medical practices through wholly-owned
subsidiaries. As the Company expands the breadth of services provided by medical
practices under its management, separate medical corporations may be formed in
certain states as the Company and the affiliated physicians deem appropriate.
In establishing a practice affiliation, the Company typically: (i) acquires
the nonmedical assets of a particular practice, and in certain situations,
laboratory or other ancillary facilities that are either owned by or affiliated
with such practice; (ii) enters into a long-term management services agreement
with such practice or a medical practice with which such practice becomes
affiliated, under which the Company provides comprehensive management services
to the managed practice; (iii) requires that the managed practice enter into
long-term employment agreements containing non-compete provisions with the
affiliated physicians; and (iv) assumes the principal administrative, financial
and general management functions of the physician practices, including
employment of most nonmedical personnel. In establishing a local network, the
Company develops, wherever feasible, clinical and academic affiliations with a
local medical school which has a respected reputation in the field of
reproductive medicine.
The typical management services agreement between the Company and a managed
practice has a term of 40 years and cannot be terminated by the managed practice
without cause. In states that prohibit the splitting of physician fees, the
Company receives a fixed management fee, payable monthly and subject to periodic
adjustment if it is determined that the fee is not commensurate with factors
such as costs incurred and past utilization levels. In other states, the Company
agrees to pay all of the managed practice's expenses, including the physicians'
base compensation and performance-based bonuses, and the Company, in turn,
receives the economic benefit of revenues in excess of expenses generated by the
managed practice.
Generally, the employment agreement between the managed practice and each
shareholder-employee is for an initial term of five years and provides for a
base salary and a performance-based bonus throughout the term. The employment
agreements typically cannot be terminated by the managed practice without cause
during the initial term. If a shareholder-employee voluntarily terminates his or
her employment or is terminated by the managed practice for cause, the physician
is obligated to pay the managed practice an agreed upon amount as liquidated
damages. In addition, the employment agreements generally contain covenants not
to compete for a period of two years following any termination.
The Company's primary geographic focus initially has been in the Chicago
metropolitan area, the New York City metropolitan area, including northern New
Jersey, the Syracuse metropolitan area and the Tampa/St. Petersburg metropolitan
area. The Company believes its business model is adaptable to additional markets
and will allow it to compete nationwide. The Company's success in these and
other markets will depend upon its ability to enhance operating efficiencies and
expand the scope of services at the Centers by (i) achieving successful outcomes
with comparatively low rates of utilization of services and, therefore, at
comparatively low costs, and (ii) increasing patient volume. The Company
believes that affiliation with the Company is attractive to leading physicians
in its target markets because the physicians receive base salaries from the
managed practices tied to historical income levels with incentives to exceed
historical income. In addition, the affiliation provides the managed practices
with managed care expertise in new markets, relieves the physicians of unwanted
management responsibility, provides them with access to a custom designed
proprietary data information system, gives them access to state-of-the-art
technology, reduces costs through national and regional purchase contracts and
provides opportunities to participate in national research efforts to enhance
the scientific knowledge of the field.
As the Company continues to pursue its strategy of establishing these
integrated networks, the Company also intends to expand the scope of practices
under management to include other product lines in obstetrics
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and gynecology, women's health care and/or reproductive medicine, such as
neonatal and general obstetrics and gynecology services, which go beyond the
existing product lines of reproductive endocrinology, infertility and perinatal
services currently offered by the managed practices. In January 1996, the
Company and CHR-Illinois founded CHR Managed Care Contracting, L.L.C. which
plans to provide management services, including managed care contracting
services, to a network of obstetricians and gynecologists in the Chicago
metropolitan area. These services are anticipated to include negotiating managed
care contracts.
Since December 31, 1995, the Company has acquired the nonmedical assets of
two physician practices, has entered into an affiliation with one university
medical program and has entered into letters of intent to enter into affiliation
agreements with three university medical programs. These transactions are as
follows:
<TABLE>
<CAPTION>
PHYSICIAN GROUP MARKET COMMENCEMENT DATE
- ---------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Acquisitions:
Fertility Center of Northern New Jersey, P.A. .......... Park Ridge, NJ May 1, 1996
A Center for Gynecology, P.A. .......................... Tampa, FL May 1, 1996
Affiliations:
Columbia University Medical School(A)................... New York, NY June 1, 1996
University of South Florida(A).......................... Tampa, FL August 1, 1996(B)
State University of New York-Upstate Medical
Center(A)............................................ Syracuse, NY August 1, 1996(B)
Mount Sinai Medical Center(A)........................... New York, NY September 1, 1996(B)
</TABLE>
- -------------------------
(A) The results of operations of the affiliated university medical programs are
not reflected in the pro forma results of operations because these
affiliations do not represent the acquisition of existing operations.
(B) Reflects anticipated commencement date.
After giving effect to the recent and pending transactions in New York, New
Jersey and Florida, the Company will provide management services to five medical
practices and will have established affiliations with five medical schools
resulting in affiliations with 44 physicians and scientists with doctoral
degrees. These 44 physicians and scientists in the aggregate provide services in
the following areas: reproductive endocrinology, infertility, reproductive
immunology, endoscopic surgery, gynecourology, gynecoradiology, ultrasonography,
ART, maternal/fetal medicine (perinatology), and laboratory services.
The Company has formed a National Advisory Board composed of the Regional
Medical Directors from each of the integrated networks and selected leaders in
the practice areas managed by the Company. The National Advisory Board will meet
at least biannually and will (i) suggest treatment guidelines to the managed
practices, (ii) review outcomes at the managed practices and Centers, (iii)
recommend to the Company administrative changes that may affect outcomes
favorably, and (iv) advise the Company and the managed practices about
additional reproductive medicine services which may be added to existing
services. See "Management -- National Advisory Board Members."
MEDICAL SCHOOL AFFILIATIONS -- As part of developing an integrated network
of physicians in a targeted market, the Company intends to develop, wherever
feasible, a clinical and academic affiliation with a local medical school which
is a leader in human reproductive medicine. The Company believes these
affiliations are important because they (i) provide a source of regional
leadership by including the leading physician of the medical schools'
reproductive medicine or infertility departments, (ii) enhance the Company's and
the managed practices' reputation and credibility in the local market, (iii)
provide access to a pool of qualified physicians, and (iv) provide additional
links with the academic community and research being conducted by the medical
schools. As opportunities arise, the Company also may enter into certain markets
that do not afford such medical school affiliations if the Company believes that
other advantages of such markets make them attractive.
A medical school affiliation generally provides that certain faculty
members of the medical school who specialize in human reproductive medicine,
infertility and ART medicine provide such services at a Center operated by the
local managed practice and engage in joint research and educational programs
with the managed practice. The Company provides management and administrative
services to the faculty physicians
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under the management services agreement with the managed practice. The medical
school is reimbursed for the services of the faculty physicians, and the managed
practice receives revenues generated by the faculty physicians in the field of
reproductive medicine.
MANAGED CARE CONTRACTS
The Company actively pursues contractual arrangements with managed care
companies, including full-risk capitated contracts. The growth of capitated
reimbursement presents the challenge of projecting costs of care based upon
patient populations, physician treatment patterns, and the specific requirements
of managed care contracts. The Company believes that its information system,
historical data, cooperative studies with managed care companies and experience
in negotiating and managing managed care contracts, including capitated
contracts, provide it with a competitive advantage in pursuing additional
managed care contracts.
In Illinois, the managed care contracts maintained by the Company's
affiliated practices include an exclusive capitated risk contract with
HMO-Illinois, an HMO owned by Blue Cross Blue Shield of Illinois, which covers
approximately 441,000 lives. A subsidiary of Blue Cross Blue Shield of Illinois
owns a Convertible Note which is convertible into 5% of the outstanding common
stock of the Company on a fully-diluted basis. In addition, one of the Company's
affiliated practices holds a full-risk capitated contract covering approximately
26,000 lives to provide a full range of obstetrics and gynecology services
through CHR-Florida. Under this contract, medical services which are outside the
area of reproductive endocrinology and infertility currently are outsourced on a
fee-for-service basis. The Company believes that the experience and data
developed during the two year history of this contract will prove useful in
developing the Company's managed care contracting capabilities for general
obstetrics and gynecology. For the twelve months ended December 31, 1995 and the
three months ended March 31, 1996, HMO-Illinois (owned by Blue Cross Blue Shield
of Illinois) accounted for approximately 33% and 28%, respectively, of the
Company's total combined revenues. For the twelve months ended December 31, 1995
and the three months ended March 31, 1996, HMO-Illinois accounted for
approximately 26% and 23%, respectively, of the Company's pro forma total
combined revenues after giving effect to the Recent Acquisitions, as if such
transactions had occurred January 1, 1995.
The Company believes that physicians practicing at the Centers provide
reproductive medicine services in a more cost effective manner than most
reproductive endocrinology and infertility service providers, while maintaining
the quality of patient care, by providing a mix of services that initially
focuses on diagnostic and non-ART-based services. The Company believes that most
other physician practices specializing in reproductive endocrinology and
infertility rely more heavily upon ART-based services. The Company believes that
the Centers' utilization mix gives the Company a competitive advantage in
pursuing managed care contracts, particularly capitated contracts.
MANAGEMENT INFORMATION SYSTEM
The Company believes that effective and efficient integration of clinical,
patient and financial data enhances the quality of patient care and provides a
competitive advantage in negotiating and bidding for managed care contracts.
Since 1992, the Company has invested significant capital and human resources in
the development of its proprietary data management information system. This
system currently links the existing 11 Centers in the Chicago metropolitan area
to the Company's central administrative offices for patient scheduling, billing,
data assessment, clinical outcome evaluation, utilization review, routine
clinical management and electronic medical records storage and retrieval. With
the closing of the recent transactions in New York, New Jersey and Florida, the
Company has begun integrating each of the new Centers into the Company's
management information system. This system has the capacity to allow patient
information to be immediately accessible system-wide or to designated users,
which enables patients to receive care at any Center and permits physicians to
consult on cases from different Centers. The Company believes that this nearly
paperless medical records system enables a relatively small number of physicians
to provide cost effective care to a large number of patients while increasing
the quality of care.
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In addition to the patient treatment advantages provided by the Company's
data management information system, this system enables the Company to collect
and store data which allows the Company to track and report utilization and
outcomes to insurance carriers. The Company believes that this information also
provides the Company with a competitive advantage in calculating discounted fee
schedules and evaluating the potential cost to the Company of capitation
agreements based on historical utilization rates.
REENGINEERING OF SERVICES
The Company seeks to improve patient outcomes, utilization rates and the
cost effectiveness of treatment by reengineering the way reproductive medical
services are provided. The Company believes that its academic, clinical and
management experience and that of other physicians affiliated with the Company
give the Company a competitive advantage in improving patient outcomes and in
developing and implementing more cost effective services.
Since the formation of the first Center, the Company has (i) moved
fertility services to a large extent out of the hospital setting and into
freestanding centers; and (ii) developed diagnostic and therapeutic techniques
which have reduced the need for surgical procedures compared to levels reported
by other providers in 1993. A recent comparative study conducted by Blue Cross
Blue Shield of Illinois in cooperation with the Company demonstrated that as a
consequence of reengineering the way infertility services are provided, the
total cost per clinical pregnancy achieved was lower under the Centers' care
than under the care of other providers.
Dr. Gleicher has been a leading voice in bringing the issue of excessive
cesarean section rates to national attention. According to published medical
studies, a cesarean section is the most frequently performed surgery in the
United States. In 1988, Dr. Gleicher developed a hospital based cesarean section
reduction initiative at Mount Sinai Hospital and Medical Center in Chicago that
received considerable national attention after the publication of the program's
results in an article by Dr. Gleicher and Stephen A. Myers, M.D. in the New
England Journal of Medicine. This program involved a complete reengineering of
how obstetrical services were provided within a large hospital department and
resulted in a reduction of the cesarean section rate from approximately 17.5% to
11.5%. Quality assurance standards of the American College of Obstetrics and
Gynecology now incorporate a review of cesarean section rates as a performance
criteria. Many experts believe that the current national cesarean section rate
of approximately 23% is excessive and the federal government has set a national
target rate of 15% for the year 2000 in an attempt to reduce current rates.
More recently, the Company has developed a completely reengineered
Perinatal Service Program which was implemented through CHR-Perinatal in the
Chicago metropolitan market in mid-1995. Traditional perinatal services are
based on the referral of high risk obstetrical patients to perinatologists in
tertiary care institutions (Level III hospitals). This frequently results in (i)
transfer of the patient out of her community and out of the care of her primary
obstetrician and local hospital and (ii) increased costs because services at
tertiary care facilities typically are more costly than at community hospitals.
The reengineered Perinatal Service Program developed by the Company is
principally designed to limit each of these disadvantages of current perinatal
care by bringing the perinatologist to the patient, supporting the primary
obstetrician or gynecologist in his or her management of the high risk patient
and providing the required care in the patient's local community. Based upon
preliminary data, the Company believes that this program has greatly improved
patient care quality, patient satisfaction, provider satisfaction, local
hospital satisfaction and overall costs to third party payors.
Physicians at the Centers also have been instrumental in developing the
technique of tubal catheterization to treat diseased fallopian tubes. In a
manner analogous to coronary angioplasty, the fallopian tubes are visualized
using x-ray techniques, and specialized catheters are used to open or repair
blocked tubes. This method permits both diagnosis and treatment of tubal
abnormalities without requiring the use of conventional surgical techniques.
The Company recently introduced a new program under which at least one of
the managed practices will be offering certain medical services over the world
wide web. Through a home page on the world wide web, interested couples in
certain states who qualify after on-line screening will be able, for a fee, to
obtain specified consulting services from a reproductive endocrinologist similar
to a standard "in-office" visit at a Center. The
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Company is still in the process of evaluating the scope and feasibility of the
services to be provided under this program and there can be no assurance that
this program will prove to be viable or profitable. See "-- Government
Regulation" and "Risk Factors -- Health Care Regulations and Reform."
SERVICES
The Company manages physician practices by centralizing many of the
administrative functions such as billings, collections, purchasing and accounts
receivable as well as the laboratory and information systems functions. The
Company also centrally coordinates business hours for each Center to ensure that
at least one Center in each geographic area is open at all times to receive
patients. Other than the centralization of functions mentioned above, the
Centers are managed on a decentralized basis in that physicians are encouraged
to administer their Centers in accordance with the needs of their specific
patient populations as they had before contracting with the Company. The
practice of medicine at each Center is under the exclusive control of the
physicians who practice at such location.
The Chicago metropolitan area Centers currently provide services in the
following areas of human reproductive care: (i) reproductive endocrinology and
infertility, including routine medical and surgical treatment, assisted
reproductive technologies and micromanipulation; (ii) gynecoradiology; (iii)
endoscopic surgery; (iv) perinatology, including antepartum testing; and (v)
laboratory services. The Centers in New York and Florida initially will provide
reproductive endocrinology and infertility related clinical and laboratory
services, assisted reproductive technologies and micromanipulation, with some
general obstetrics and gynecology services in Tampa/St. Petersburg. As physician
networks are developed in these and other markets, the Company intends to expand
the services offered by its affiliated practices, including services that the
affiliated physicians may have previously outsourced, such as laboratory and
imaging services, and to help them introduce services that the affiliated
physicians may not have previously provided, such as advanced endoscopic surgery
and perinatology.
REPRODUCTIVE ENDOCRINOLOGY AND INFERTILITY -- Reproductive endocrinology
refers specifically to the diagnosis and treatment of all hormonal problems
which lead to abnormal reproductive function or have an effect on the
reproductive organs. After giving effect to the recent and pending transactions
in New York, New Jersey and Florida, 31 fellowship trained reproductive
endocrinologists will be employed by or affiliated with the managed practices.
Infertility services encompass all services that enhance the couple's chance of
achieving pregnancy, including various assisted reproduction technologies and
micromanipulation procedures, as well as the use of gynecoradiology and
endoscopic surgery. Assisted reproductive technologies include in vitro
fertilization ("IVF"), gamete intrafallopian transfer ("GIFT"), zygote
intrafallopian transfer ("ZIFT"), and donor egg programs. The IVF technique is
performed by combining an egg and sperm in a laboratory and, if fertilization is
successful, transferring the resulting embryo into the woman's uterus. GIFT is
performed by a doctor using a laparoscope to insert egg and sperm directly into
a woman's fallopian tube with a resulting embryo floating into the uterus. ZIFT
is a procedure in which an egg is fertilized in the laboratory and the resulting
embryo is then transferred to the woman's fallopian tube. Women who are unable
to produce eggs but who otherwise have normal reproductive systems can use the
donor egg program in which a donor is recruited to provide eggs for
fertilization that are transferred to the recipient woman. Micromanipulation
involves techniques that are part of the assisted reproductive technology
services offered by the Centers, in which microsurgery is performed on eggs or
early embryos. These procedures are performed by using a microscopic pipette to
insert a single sperm into an egg and permit fertilization to occur even in
cases where sperm counts are quite low. These new micromanipulation procedures,
such as intracytoplasmic sperm injection ("ICSI"), provide treatment of forms of
male infertility that were not treatable two years ago.
GYNECORADIOLOGY -- The Company believes the Centers have the country's only
fluoroscopy x-ray equipment exclusively dedicated to the diagnosis and treatment
of uterine and fallopian tube disease. This sophisticated equipment allows for a
level of non-invasive diagnostic accuracy that greatly reduces the need for more
invasive, surgical diagnostic procedures, such as laparoscopies. An additional
advantage of this equipment is that it frequently allows for immediate
therapeutic intervention following the diagnosis of an abnormality. Since the
gynecoradiological procedure is less invasive and does not require general
anesthesia,
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costs are significantly lower than with similar procedures performed in
operating rooms. These services currently are only offered at five Centers in
the Chicago area.
ENDOSCOPIC SURGERY -- Endoscopic surgery is performed through a laparoscope
which generally reduces patient hospitalization and recovery times and, often,
cost of care. It can be used to treat pelvic pathology, endometriosis, tubal
ligation reversal, pelvic pain, urinary incontinence and a variety of
gynecological and infertility related conditions. It is technically demanding
and requires a skilled surgeon and sophisticated equipment to permit optimal
outcomes.
PERINATOLOGY -- Perinatology is a subspecialty of obstetrics that depends
upon providing high tech, high training consultation and intervention to ensure
optimal outcomes to patients with high risk pregnancies. Perinatology services
are currently provided primarily at four Centers in the Chicago area. Perinatal
care is provided by Center physicians with subspecialty training in maternal
fetal medicine. These highly specialized physicians accept only obstetrical
patients who are diagnosed as high risk patients. High risk patients include,
but are not limited to, those who have had repeated pregnancy losses, are at
risk for premature delivery, or have medical complications in pregnancy. The
Centers also conduct research on repeated pregnancy losses, especially as they
relate to immunological causes. Patients are transferred to the Center
physicians for complete care only if patients cannot be managed in their local
community. In most cases, however, after receiving care from the Center
physicians, these patients are transferred back to their local obstetrician.
Occasionally, Center perinatologists will co-manage patients with local
obstetricians. In cases where a patient is fully transferred to the Center
perinatologist for care, the perinatologist also will perform the delivery at a
perinatal center, or a so-called "Level III hospital."
Antepartum testing is an adjunct to the perinatology services provided and
primarily consists of the Centers performing prenatal evaluations on a
consultation basis to other obstetricians and gynecologists physicians. These
prenatal evaluation services include ultrasound evaluations, amniocenteses,
chorionic villous biopsies, and other forms of antepartum testing.
SPECIALTY LABORATORY SERVICES -- In the Chicago metropolitan area the
Centers maintain a fully licensed clinical laboratory, headed by a full-time
director. The laboratory provides diagnostic services in andrology (male
infertility), endocrinology, genetics and reproductive immunology. The central
and satellite laboratories provide a large majority of the specialized
laboratory requirements of the Centers and also provide services to
non-affiliated organizations. These services are specific to infertility,
pregnancy loss and perinatology. Generally, these are tests and procedures that
national laboratory chains find inefficient to run because of timing issues,
test complexity and interpretation limitations. When it is cost effective, the
Centers utilize the services of national laboratories for less complex and
specialized tests. Laboratory services outside of Chicago will be organized in
central regional laboratories. To the extent that it is cost effective, however,
certain highly specialized services, such as reproductive immunology testing,
will be centralized in the Chicago-based laboratory.
COMPETITION
There is intense competition among practice management companies and other
entities seeking practice affiliations. Although the Company focuses on
physician practices that provide specific types of health care services, it
competes for management contracts with national and regional providers of
physician management services, as well as with hospitals and hospital-sponsored
management services organizations. Many of these other practice management
companies are much larger and have greater access to capital than the Company;
however, the Company believes such other companies have not focused on the
specialized area of reproductive endocrinology and infertility. Certain areas of
obstetrics and gynecology, particularly reproductive endocrinology and
infertility, involve a high degree of specialization. The Company believes that
its expertise in managing these highly specialized practices, along with its
experience in attracting capitated contracts, will allow it to compete
effectively in this area. There can be no assurances, however, that larger
practice management companies will not enter the reproductive endocrinology and
infertility market or that the Company would be able to compete effectively with
them. See "Risk Factors -- Competition."
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EMPLOYEES
As of June 1, 1996, the Company employed a total of 75 people on a
full-time or part-time basis, and the managed practices employed a total of 149
people on a full-time or part-time basis. The Company has entered into
agreements or letters of intent pursuant to which 10 additional people would be
employed on a full-time or part-time basis by the Company and an additional 20
people would be employed on a full-time or part-time basis by the managed
practices. The Company believes that its relations with its employees are good.
The Company expects that it may need to hire additional personnel to accommodate
the demands prompted by the provision of services to each of the managed
practices under the management services agreements, as well as the needs of the
Company in pursuing its growth strategies. In addition, the Company generally
will employ substantially all of the nonmedical personnel of an affiliated
practice.
PROPERTY
As of the date of this Prospectus, the Company provides physician practice
management services to affiliated practices operating 11 Centers in the Chicago
metropolitan area and the Company is in the process of establishing additional
networks in the New York metropolitan area, including New Jersey (four
locations), and the Tampa/St. Petersburg metropolitan area (three locations). In
addition, the Company has entered into a letter of intent to establish an
additional network in Syracuse, New York (one location). All of the Centers are,
or will be, leased. The Company leases approximately 10,000 square feet at 750
North Orleans Street in Chicago, Illinois, for its executive offices. The lease
expires in 2009. The Company also leases or subleases the clinic and laboratory
facilities for its affiliated practices. The leases for the current 11 Centers
in the Chicago metropolitan area cover approximately 80,000 square feet of
clinic and laboratory space and have varying remaining terms ranging from two to
21 years. The leases for the remaining current six Centers in New York, New
Jersey and Florida cover approximately 19,000 square feet and have varying
remaining terms ranging from four to seven years, except for one of the Florida
leases which has a month-to-month term. In addition, the Company has signed and
submitted to the landlord for approval a lease for a 22,500 square foot Center
on Madison Avenue in New York City. The term of the lease is ten years, with two
five-year options and the Company expects that the Center will open by the end
of 1996. The Company anticipates that as the affiliated practices continue to
grow and add new services, expanded facilities will be required.
The Company believes that its current facilities and facilities planned as
part of the pending transactions will be adequate for the Company's foreseeable
needs in these geographical markets and that adequate replacement space is
readily available in each market.
GOVERNMENT REGULATION
Various state and federal laws regulate the relationship between providers
of health care services and physicians, and as a business in the health care
industry, the Company is subject to these laws and regulations. The Company is
also subject to laws and regulations relating to business corporations in
general. Although many aspects of the Company's business operations have not
been the subject of state or federal regulatory interpretation, the Company
believes its operations are in material compliance with applicable laws. There
can be no assurance, however, that a review of the Company's or the managed
practices' businesses by courts or regulatory authorities will not result in a
determination that could adversely affect the operations of the Company or the
managed practices or that the health care regulatory environment will not change
so as to restrict the Company's or the managed practices' existing operations or
their expansion. Additionally, given the innovative nature of the Company's
on-line consulting program, no assurance can be given as to how state and
federal regulations will be applied to such services. See "Risk Factors --
Health Care Regulation and Reform."
LICENSURE -- Every state imposes licensing requirements on individual
physicians and on certain types of health care providers and facilities. Many
states require regulatory approval, including licenses to render care or
certificates of need, before establishing certain types of heath care facilities
or offering services which will entail the acquisition of expensive medical
equipment. Some states, such as New York, also impose licensing and ongoing
operating requirements for medical laboratories and/or tissue banks, such as egg
and sperm
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banks. While the performance of management services on behalf of a medical
practice does not currently require any regulatory approval on the part of the
Company or its affiliated practices, there can be no assurance that such
activities will not be subject to licensure in the future.
CORPORATE PRACTICE OF MEDICINE -- The laws of many states prohibit business
corporations from engaging in the practice of medicine, such as through
employment arrangements with physicians. These laws vary from state to state and
are enforced by the state courts and regulatory authorities with broad
discretion. The Company will not employ physicians to practice medicine, will
not represent to the public that it offers medical services, and will not
control or interfere with the practice of medicine by physicians in the
affiliated practices. Managed practices in states that prohibit the corporate
practice of medicine will be organized as a medical corporation or other entity
that is specifically authorized to employ physicians. Accordingly, the Company
believes that its intended operations will not violate applicable state laws
regulating the unlicensed practice of medicine by a business corporation.
However, because the laws governing the corporate practice of medicine vary from
state to state, any expansion of the operations of the Company to a state with
strict corporate practice of medicine laws may require the Company to modify its
operations with respect to one or more affiliated practices, resulting in
increased financial risk to the Company. Further, there can be no assurance that
the Company's arrangements will not be successfully challenged as constituting
the unauthorized practice of medicine or that certain provisions of the
management services agreements or covenants not to compete will be enforceable.
FEE-SPLITTING PROHIBITIONS -- The laws of some states (including Illinois
and New York) prohibit physicians from splitting professional fees. These
statutes are sometimes quite broad and as a result prohibit otherwise legitimate
business arrangements. New York, for example, prohibits compensation
arrangements under which the amount received in payment for furnishing space,
facilities, equipment or personnel services used by a licensed physician
constitutes a percentage of or is otherwise dependent upon, the income or
receipts of the licensed physician from such physician practice. Other states,
such as Florida, only prohibit fee-splitting arrangements that are based on
referrals. Penalties for violating these fee-splitting statutes or regulations
may include revocation, suspension, or probation of a physician's license, or
other disciplinary action, as well as monetary penalties. Alleged violations of
the fee-splitting laws have also been used successfully by physicians to declare
a contract to be void as against public policy.
Pursuant to the terms of the management services agreements with the
Illinois Practices, CHR-New York and CHR-New Jersey, the Company will receive a
monthly management fee and an absolute assignment of receivables and payables to
be managed on behalf of the managed practices, and will be reimbursed for
certain expenses incurred in the management of the managed practices. While the
Company believes that its compensation arrangements substantially comply with
state fee-splitting laws, there can be no assurance that these compensation
structures will not be construed by state or judicial authorities as being
proscribed by the fee-splitting laws.
STATE ANTI-KICKBACK AND SELF-REFERRAL LAWS -- A number of states (including
Florida, Illinois and New York) have enacted laws that prohibit the payment for
referrals and other types of kickback arrangements. Such state laws typically
apply to all patients regardless of their insurance coverage. In addition, a
number of states (including Florida, Illinois and New York) have enacted laws
which to varying degrees prohibit physician self-referrals. Illinois, for
example, has a broad self-referral law which regulates all health care workers
(including physicians), regardless of the patient's source of payment. Subject
to certain limited exceptions, the Illinois law prohibits referrals for health
services provided by or through licensed health care workers to an entity
outside the health care worker's office or group practice in which the health
care worker is an investor, unless the health care worker directly provides
health services within the entity and will be personally involved with the
provision of care to the referred patient. In April 1992, the State of Florida,
enacted a Patient Self-Referral Act that severely restricts patient referrals
for certain services, prohibits mark-ups of certain procedures and requires
health care providers to disclose ownership in businesses to which patients are
referred. The Company believes it is likely that more states will adopt similar
legislation. The Company believes that its operations comply with current
statutory provisions, although there can be no assurance that state
anti-kickback and self-referral laws will not be interpreted more broadly or
amended in the future to be more expansive. In addition, expansion of the
operations of the Company to certain
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jurisdictions may require it to comply with such jurisdictions' regulations
which could lead to structural and organizational modifications of the Company's
form of relationships with managed practices. Such changes, if any, could have
an adverse effect on the Company.
STATE REGULATION OF INSURANCE BUSINESS AND HMOS -- Laws in all states
regulate the business of insurance and the operation of HMOs. Many states also
regulate the establishment and operation of networks of health care providers.
Many state insurance commissioners have interpreted their states' insurance
statutes to prohibit entities from entering into risk-based managed care
contracts unless there is an entity licensed to engage in the business of
insurance, such as an HMO, in the chain of contracts. An entity not licensed to
engage in the business of insurance that contracts directly with a self-insured
employer in such a state may be deemed to be engaged in the unlicensed business
of insurance. While these laws do not generally apply to the hiring and
contracting of physicians by other health care providers, there can be no
assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that it is in compliance with these laws in the states in which it does
business, but there can be no assurance that future interpretations of insurance
and health care network laws by regulatory authorities in these states or in the
states into which the Company may expand will not require licensure or a
restructuring of some or all of the Company's operations.
FEDERAL MEDICARE AND MEDICAID RELATED REGULATION -- There are a number of
federal laws prohibiting certain activities and arrangements relating to
services or items which are reimbursable by Medicare or Medicaid. Certain
provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Amendments," prohibit the offer, payment, solicitation or receipt
of any form of remuneration either in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease or order of items or services
that are covered by Medicare or state health programs. The Anti-kickback
Amendments are broad in scope and have been broadly interpreted by courts in
many jurisdictions. Read literally, the statute places at risk many otherwise
legitimate business arrangements, potentially subjecting such arrangements to
lengthy, expensive investigations and prosecutions initiated by federal and
state governmental officials. In particular, the Office of the Inspector General
of the U.S. Department of Health and Human Services has expressed concern that
the acquisition of physician practices by entities in a position to receive
referrals of business reimbursable by Medicare or Medicaid from such practices
could violate the Anti-kickback Amendments.
In July 1991, in part to address concerns regarding the Anti-kickback
Amendments, the federal government published regulations that provide
exceptions, or "safe harbors," for certain transactions that will be deemed not
to violate the Anti-kickback Amendments. Among the safe harbors included in the
regulations were provisions relating to the sale of physician practices,
management and personal services agreements and employee relationships.
Additional safe harbors were published in September 1993 offering protections
under the Anti-kickback Amendments to eight new activities, including referrals
within group practices consisting of active investors. Proposed amendments to
clarify these safe harbors were published in July 1994 which, if adopted, would
cause substantive retroactive changes to the 1991 regulations. Violation of the
Anti-kickback Amendments is a felony, punishable by fines up to $25,000 per
violation and imprisonment for up to five years. In addition, the Department of
Health and Human Services may impose civil penalties excluding violators from
participation in Medicare or state health programs. Although the Company
believes that its current operations are not in violation of the Anti-kickback
Amendments, there can be no assurance that regulatory authorities will not
determine that the Company's operations are in violation of the Anti-kickback
Amendments.
Significant prohibitions against physician self-referrals for services
covered by Medicare and Medicaid programs were enacted, subject to certain
exceptions, by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" (which applied only to clinical
laboratory referrals) by dramatically enlarging the list of services and
investment interests to which the referral prohibitions apply. Effective January
1, 1995 and subject to certain exceptions, Stark II prohibits a physician or a
member of his immediate family from referring Medicare or Medicaid patients to
any entity providing "designated health services" in which the
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<PAGE> 51
physician has an ownership or investment interest, or with which the physician
has entered into a compensation arrangement, including the physician's own group
practice unless such practice satisfies the "group practice" exception. The
designated health services include the provision of clinical laboratory
services, radiology and other diagnostic services (including ultrasound
services), radiation therapy services, physical and occupational therapy
services, durable medical equipment, parenteral and enteral nutrients, certain
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services. The
penalties for violating Stark II include a prohibition on Medicaid and Medicare
reimbursement and civil penalties of as much as $15,000 for each violative
referral and $100,000 for participation in a "circumvention scheme." The Company
believes that its and the managed practices' operations currently are not in
violation of Stark I or Stark II; however, the Stark legislation is broad and
ambiguous. Interpretative regulations clarifying the provisions of Stark I were
issued on August 14, 1995 and Stark II regulations have yet to be proposed.
While the Company believes it is in compliance with the Stark legislation,
future regulations could require the Company to modify the form of its
relationships with the managed practices. Moreover, the violation of Stark I or
II by the managed practices could result in significant fines and loss
reimbursement which would adversely affect the Company.
LEGAL PROCEEDINGS
There is no past, pending or, to the Company's knowledge, threatened
litigation or administrative action which has or is expected by management to
have a material effect upon the Company's business, financial condition or
operations, including any litigation or action involving the Company's officers,
directors or other key personnel.
49
<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Norbert Gleicher, M.D. .................... 47 President and Chief Executive Officer,
Director
Donna Pratt, M.D. ......................... 46 Vice President of Medical Affairs, Director
Marybeth Gerrity, Ph.D..................... 43 Senior Vice President of Operations and
Development
Robert J. Bukala........................... 39 Senior Vice President and Chief Financial
Officer
Edward A. Zbella, M.D. .................... 42 Senior Vice President and Director of
General Obstetrics and Gynecology
Contracting, Director
Donna Havemann............................. 37 Executive Vice President and Director of
Managed Care Contracting
Michael Gonzales........................... 39 Vice President -- Information Systems and
Chief Information Officer
Brian A. Kennedy........................... 52 Director
Uri Elkayam, M.D. ......................... 51 Director
Yehuda Yoked............................... 51 Director
Jack Van Hulst............................. 57 Director
</TABLE>
Norbert Gleicher, M.D., has served as President and Chief Executive Officer
and a Director of the Company since 1981. Dr. Gleicher founded the first Center
in 1981 and has over 21 years' experience in reproductive medicine. Dr. Gleicher
has served as President and a Director of CHR-Illinois since 1981 and President
and a Director of CHR-Perinatal and CHR-Endoscopic since March 1995. Dr.
Gleicher served as the Chairman of Obstetrics and Gynecology at Mount Sinai
Hospital Medical Center in Chicago between 1981 and 1990 and as professor of
Obstetrics and Gynecology and associate professor of Immunology/ Microbiology at
Rush Medical College. Since April 1996, he has been a clinical professor of
Obstetrics and Gynecology at the University of Illinois at Chicago. From 1991 to
1996, he served as professor of Obstetrics and Gynecology and professor of
Immunology at the University of Health Services, the Chicago Medical School.
From 1976 to 1981, Dr. Gleicher was assistant professor and chief of the
sections for Medical Education and Reproductive Immunology of the Department of
Obstetrics and Gynecology at Mount Sinai School of Medicine in New York. He is a
fellow of the American College of Obstetricians and Gynecologists (FACOG) and
the American College of Surgeons ("FACS"), and is a member of the American
Society for Reproductive Medicine (formerly the American Fertility Society) and
various other professional societies. Dr. Gleicher earned his M.D. from Tel Aviv
Medical School and completed his residency at the Mount Sinai School of Medicine
in New York. He has published over three hundred scientific papers, is
editor-in-chief of two scientific journals in the field of obstetrics and
gynecology, The Journal of Assisted Reproduction and Genetics (formerly the
Journal of In Vitro Fertilization and Embryo Transfer) and The American Journal
of Reproductive Immunology, and has been the editor of several textbooks in this
field, including Principles and Practice of Medical Therapy in Pregnancy
(Appelton and Lange) and Cardiac Problems in Pregnancy (Wiley and Liss).
Donna Pratt, M.D., has served as Vice President of Medical Affairs of the
Company since 1995 and has been a Director since 1994. She has over 11 years'
experience in reproductive medicine. Dr. Pratt has served as a Director of
CHR-Illinois since February 1994 and a Director of CHR-Perinatal and
CHR-Endoscopic since March 1995. Prior to joining the Company, Dr. Pratt was a
faculty member at the University of Chicago as a reproductive endocrinologist,
an assistant professor, and director of the residency program. She completed her
subspecialty fellowship in Reproductive Endocrinology and Infertility at Michael
Reese Hospital in
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<PAGE> 53
Chicago. She is a member of the American College of Obstetricians and
Gynecologists (ACOG), a member of the American Society for Reproductive Medicine
(formerly the American Fertility Society), and has memberships in several other
organizations. Dr. Pratt earned her M.D. from Rush Medical College in Chicago.
Marybeth Gerrity, Ph.D., has been Senior Vice President of Operations and
Development of the Company since March 1996 and joined the Company in March 1995
as the Vice President of Operations and Development. She has 13 years of
experience in the medical industry. Since 1992, Dr. Gerrity has served as the
President of Reproductive Biology Resources, Inc., a laboratory services
company. From 1988 until 1995, she was the Director of the Center for Assisted
Reproductive Technologies at two tertiary care centers. Dr. Gerrity is a member
of the Andrology Laboratories Committee of the American Society of Andrology,
Chairperson of the Reproductive Biology Professional Group of the American
Society for Reproductive Medicine (ASRM), and a member of the Reproductive
Biology Resources Committee of the joint ASRM/College of American Pathologists
Reproductive Laboratory Accreditation Program. She was the senior author of the
ASRM "Guidelines for Human Embryology and Andrology Laboratories." She is board
certified by the American Board of Bioanalysis as both a High Complexity
Laboratory Director and Clinical Consultant, with specialties in Embryology and
Andrology. She received her B.A. (Biology) from the College of New Rochelle, New
York, and her M.S. and Ph.D. (Pharmacology) from New York Medical College. She
is a degree candidate (1997) for Masters in Management at the Kellogg Graduate
School of Business at Northwestern University.
Robert J. Bukala joined the Company in December 1995 as Senior Vice
President and Chief Financial Officer. From 1992 through 1995, Mr. Bukala was
employed by Ernst & Young LLP, an international public accounting and consulting
firm, as a Senior Manager in the Financial Advisory Services Group where he
assisted clients in evaluating restructuring, finance and new business
opportunities. From 1988 to 1992, Mr. Bukala was Chief Financial Officer,
Treasurer and an Executive Committee Member of American Finance Group, a sponsor
of publicly traded equipment lease limited partnerships, where he was
responsible for accounting and finance, treasury, human resources and management
information systems. Mr. Bukala holds a Bachelor of Science degree in Accounting
and a Masters in Business Administration in Finance from DePaul University. He
also is a Certified Public Accountant.
Edward A. Zbella, M.D., joined the Company on May 1, 1996 as Senior Vice
President and Director of General Obstetrics and Gynecology Contracting and has
served as a Director of the Company since June 3, 1996. Since May 1, 1996, he
has been employed as a physician and the Regional Medical Director of CHR-
Florida. From January 1991 to May 1, 1996, Dr. Zbella was the owner and
President of A Center for Gynecology, P.A. From January 1991 to the present, he
has been a part owner and Vice President of Florida CryoBank, a donor and
long-term storage bank for sperm and eggs, and has been a faculty member of the
Bayfront Medical Center and Director of such center's Division of Reproductive
Endocrinology and Infertility. Dr. Zbella also has served as Medical Director,
Obstetrics and Gynecology Services of Av Med Health Plan in the Tampa Bay area
since 1992 and a faculty member of the Laser Center of America since 1990. He
received his M.D. from the University of Illinois in 1980 and completed his
residency at the University of Chicago in 1982. Dr. Zbella is a member of the
American College of Obstetricians and Gynecologists (ACOG), the American Society
for Reproductive Medicine (formerly the American Fertility Society) and other
professional societies.
Donna Havemann has been Executive Vice President and Director of Managed
Care Contracting of the Company since 1995. Prior to 1995, Ms. Havemann served
in various other executive positions of the Company which included third party
contracting and operations and personnel management responsibilities. She has
been instrumental in obtaining and servicing the Company's current managed care
business.
Michael Gonzales joined the Company in January 1996 as Vice President -
Information Systems and Chief Information Officer. From 1990 until joining the
Company, Mr. Gonzales was President of The Focus Group Ltd., where he oversaw
the development of domestic and international large scale, high volume, data
processing projects. Until August 1, 1996, Mr. Gonzales will continue to perform
services for the Focus Group Ltd. on a part-time basis. He is the author of
various books and publications on the computer industry.
51
<PAGE> 54
His most recent books, Informix Store Procedure Programming and Database
Programming & Design were published by Prentice Hall. Mr. Gonzales holds a BBA
in Market Research, an MA in Management Information Systems, and an MSE in
Software Engineering (1977).
Brian A. Kennedy has served as a Director of the Company since December
1995. Mr. Kennedy has been employed by Blue Cross Blue Shield of Illinois since
1977 where he has served as Vice President and Treasurer since 1986. Mr. Kennedy
graduated from Cornell University in 1965 and then studied for two years at
Oxford University, England. He received his MBA in 1985 from the University of
Chicago Graduate School of Business.
Uri Elkayam, M.D., has served as a Director of the Company since March
1996. Dr. Elkayam has served as a Professor of Medicine at the University of
Southern California, Los Angeles ("USC") since July 1989 and has been affiliated
with USC since 1981. Dr. Elkayam has served as Director of Heart Failure Service
at Los Angeles County-USC Medical Center from 1993 through the present and as
Chief of Cardiology at USC School of Medicine from 1990 through 1993. From 1981
to 1991 Dr. Elkayam was Director of In-Patient Cardiology at USC. From 1979 to
1981, Dr. Elkayam was an Assistant Professor of Medicine and the Director of the
Coronary Care Unit at the University of California, Irvine Medical Center. Dr.
Elkayam earned his M.D. from Tel-Aviv University and completed his fellowship in
Cardiology at Albert Einstein College of Medicine and Cedars Sinai Medical
Center.
Yehuda Yoked has served as a Director of the Company since March 1996. Mr.
Yoked has served as Vice President, Operations for Biscayne Apparel Inc., a
designer and manufacturer of high quality apparel goods, since 1991. From 1989
to 1991, Mr. Yoked served as President of Trebron Management Inc., a management
and marketing service company. Mr. Yoked has worked as a business consultant for
major U.S. corporations including General Instrument Corporation and General
Electric Company. Mr. Yoked earned his MBA at Tel-Aviv University in 1973.
Jack Van Hulst has served as a director of the Company since June 1996.
Since 1992, Mr. Van Hulst has been a partial owner and has served as the
President, Chief Executive Officer and a Director of JVL, Inc. From 1992 through
1995, Mr. Van Hulst served as President, Chief Executive Officer and a Director
of Morton Grove Pharmaceuticals ("MGP"), a generic pharmaceutical company and a
wholly-owned subsidiary of JVL, Inc., and from November 1995 to June 1996 he
served as a consultant to MGP. From June 1992 to September 1993, Mr. Van Hulst
was an owner, President and Chief Financial Officer of Pennex Products, a
pharmaceutical company, which filed for relief under Chapter 11 of the United
States Bankruptcy Code in August 1993. From 1989 to 1991, Mr. Van Hulst was
Chief Operating Officer and Executive Vice President of A.L. Laboratories, Inc.
He received a law degree from the University of Utrecht, The Netherlands in
1968.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the terms of Article V of the Company's Certificate of
Incorporation, the Board of Directors is divided into three classes, with
staggered three-year terms. The initial terms of Dr. Gleicher and Dr. Zbella
expire at the Company's annual meeting of stockholders in 1997; the initial
terms of Mr. Kennedy, Mr. Yoked and Mr. Van Hulst expire at the Company's annual
meeting of stockholders in 1998; and the initial terms of Dr. Pratt and Dr.
Elkayam expire at the Company's annual meeting of stockholders in 1999. Each
director will hold office for the term to which such director is elected and
until such director's successor is duly elected and qualified. At each annual
meeting of stockholders of the Company, the successors to the class of directors
whose terms expire at such meeting will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. See "Description of Capital Stock -- Delaware Law
and Certain Corporate Provisions." The Board of Directors elects officers
annually and such officers serve at the discretion of the Board of Directors.
52
<PAGE> 55
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has the following committees:
AUDIT COMMITTEE -- The members of the Audit Committee are Dr. Elkayam and
Mr. Yoked, both of whom are independent outside directors. The Audit Committee
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans for and
results of the audit, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls.
COMPENSATION COMMITTEE -- The members of the Compensation Committee are Dr.
Gleicher, Mr. Kennedy and Mr. Yoked. The Compensation Committee establishes a
general compensation policy for the Company, reviews the performance of the
officers of the Company, recommends to the Board of Directors the annual salary
and bonus amounts for all officers of the Company and considers other matters
relating to officer compensation.
EQUITY INCENTIVE COMMITTEE -- Currently, the members of the Equity
Incentive Committee are Dr. Gleicher and Dr. Pratt. On the effective date of
this offering, Drs. Gleicher and Pratt will be replaced by Dr. Elkayam and Mr.
Yoked, both of whom are independent outside directors. The Equity Incentive
Committee determines who shall receive awards under the Company's Incentive
Compensation Plan from those officers, employees and consultants who are
eligible to participate in the Incentive Compensation Plan, the type of award to
be made, the number of shares of Common Stock which may be acquired pursuant to
the award and the specific terms and conditions of each award.
ACQUISITION AND AFFILIATION COMMITTEE -- The members of the Acquisition and
Affiliation Committee are Dr. Gleicher and Mr. Kennedy. The Acquisition and
Affiliation Committee is authorized to review and approve, on behalf of the
Company, all acquisitions of medical practices as well as affiliations with
medical schools, university medical programs and other similar entities.
Proposed acquisitions involving the issuance of equity securities of the Company
will be referred to the Board of Directors.
DIRECTORS' COMPENSATION
CASH COMPENSATION -- Directors of the Company do not receive any cash
compensation for serving as a director of the Company other than reimbursement
for travel costs and other out-of-pocket expenses incurred in attending each
directors' meeting and committee meeting.
DIRECTORS' OPTION PLAN -- The Company adopted the Nonemployee Directors'
Stock Option Plan (the "Directors' Option Plan"), effective March 8, 1996. The
Directors' Option Plan provides for the granting of options to purchase an
aggregate of 41,666 shares (subject to adjustment in certain circumstances) of
Common Stock to members of the Board of Directors who are not also employees of
the Company ("Outside Directors").
Each of Dr. Elkayam and Mr. Yoked, Outside Directors of the Company, will
be granted non-qualified stock options ("NQSOs") to purchase 3,333 shares of
Common Stock as of the effective date of this offering (the "Initial Grant
Date") at the initial public offering price. On each anniversary of the Initial
Grant Date, NQSOs to purchase an additional 1,250 shares of Common Stock will be
granted to each of the Outside Directors if the person is still serving as a
director on such date (with a limit of options to acquire a total of 8,333
shares to be granted to any Outside Director). Upon the appointment of new
Outside Directors, each new Outside Director will be granted NQSOs to purchase
3,333 shares of Common Stock and, thereafter, options to acquire an additional
1,250 shares at each anniversary of such date if the person is still serving as
a director on such date (with a limit of options to acquire a total of 8,333
shares to be granted to any Outside Director). All options granted under the
Directors' Option Plan are exercisable upon the first anniversary of the date of
grant, subject to acceleration of vesting in certain events, and, for options
other than those granted as of the Initial Grant Date, at a price per share
equal to the closing price of the Common Stock as reported on The Nasdaq Stock
Market's National Market on the date of grant or, if no quotations were reported
on such date, the immediately preceding date on which quotations were reported.
All such options expire on the earlier
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<PAGE> 56
to occur of (i) ten years following the grant date and (ii) the date on which
the Outside Director ceases to serve as a director of the Company other than due
to death or disability.
NATIONAL ADVISORY BOARD MEMBERS
The Company has formed a National Advisory Board composed of Regional
Medical Directors from each of the integrated networks and selected leaders in
the practice areas managed by the Company. The National Advisory Board will
advise the Company, the managed practices and the Centers on various procedural
and administrative matters. The National Advisory Board will meet at least twice
each year and the Company expects that members of such board will be called on
periodically to provide advice as needed between meetings. Members of the
National Advisory Board do not receive any cash compensation for serving on the
National Advisory Board other than reimbursement for travel costs and other
out-of-pocket expenses incurred in attending meetings of such board. Members of
the National Advisory Board may receive options under the Company's Incentive
Compensation Plan as compensation for serving on the National Advisory Board. As
of the date of this Prospectus, however, the Company has not granted any stock
options to members of the National Advisory Board as compensation for serving on
such board. See "-- Incentive Compensation Plan."
The following table sets forth certain information concerning the
individuals who have agreed to serve as members of the National Advisory Board.
<TABLE>
<CAPTION>
NAME AGE
------------------------------------------------------------------------ ---
<S> <C>
Richard L. Berkowitz, M.D. ............................................. 55
Rogerio A. Lobo, M.D. .................................................. 46
Antonio Scommegna, M.D. ................................................ 64
William N. Spellacy, M.D. .............................................. 62
John J. Sciarra, M.D. .................................................. 64
Daniel Mishell, Jr., M.D. .............................................. 65
</TABLE>
Richard L. Berkowitz, M.D., has served as Chairman of the Department of
Obstetrics, Gynecology and Reproductive Science at Mount Sinai Medical Center in
New York since 1985. From 1985 until 1993, he also served as Director of that
institution's Obstetrics and Gynecology Residency Program, and he has been a
professor at the Mount Sinai School of Medicine in New York since 1982. Dr.
Berkowitz is the author of over 200 scientific papers and seven books in the
field of obstetrics and gynecology. He received his M.D. at New York University
School of Medicine and his M.P.H. in Population Dynamics and International
Health from the Johns Hopkins University School of Hygiene and Public Health.
Rogerio A. Lobo, M.D., has served as the Rappleye Professor and Chairman of
the Department of Obstetrics and Gynecology at Columbia University Medical
School in New York since 1995. From 1984 until 1995, he was Chief of the
Division of Reproductive Endocrinology and Infertility for the Los Angeles
County/University of Southern California Medical Center's Department of
Obstetrics and Gynecology. During that time he also served as Director of that
institution's Reproductive Endocrinology and Infertility Training Program. Dr.
Lobo earned his M.D. from Georgetown University Medical School.
Antonio Scommegna, M.D., has been affiliated with CHR-Illinois since August
1995 and has been the Executive Head of the Department of Obstetrics and
Gynecology at the University of Illinois College of Medicine since 1989. He also
serves as an attending physician for the Department of Obstetrics and Gynecology
for the University of Illinois Hospital and Clinics in Chicago. Dr. Scommegna is
a fellow of the American College of Obstetricians and Gynecologists (FACOG) and
is a member of numerous other professional societies. He received his M.D. from
the University of Bari in Italy and completed his residency in obstetrics and
gynecology at Michael Reese Hospital and Medical Center in Chicago.
William N. Spellacy, M.D., has been a Professor and Chairman of the
Department of Obstetrics and Gynecology at the University of South Florida since
1988. Dr. Spellacy has authored over 400 scientific papers
54
<PAGE> 57
in the field of obstetrics and gynecology and is a member of various
professional societies, including the American Society for Reproductive Medicine
(formerly the American Fertility Society). He earned his M.D. from the
University of Minnesota.
John J. Sciarra, M.D., Ph.D., has served as the Thomas J. Watkins Professor
and Chairman of Northwestern University Medical School's Department of
Obstetrics and Gynecology since 1974. He also serves as the Chairman for the
Department of Obstetrics and Gynecology at Prentice Women's Hospital and
Maternity Center of Northwestern Memorial Hospital in Chicago. A member of the
American College of Obstetricians and Gynecologists, the American Fertility
Society and other professional societies, Dr. Sciarra received his M.D. from
Columbia University's College of Physicians & Surgeons and his Ph.D. in Anatomy
from the Faculty of Pure Science at Columbia University.
Daniel R. Mishell, Jr., M.D., has served as Chairman of the University of
Southern California's Department of Obstetrics and Gynecology since 1978. Dr.
Mishell is a member of the American Fertility Society, the American College of
Obstetricians and Gynecologists and various other professional societies, and
also is a member of the American Medical Association's Residency Review
Committee of Obstetrics and Gynecology. In addition, Dr. Mishell serves as an
Associate Editor for the Journal of Reproductive Medicine and is a member of the
editorial board for numerous journals in the field of obstetrics and gynecology.
Dr. Mishell received his M.D. from Stanford University School of Medicine in
1955.
EXECUTIVE COMPENSATION
The following table presents certain information regarding compensation
paid or accrued by the Company for services rendered in all capacities during
1995, to the Company's Chief Executive Officer and to each of the Company's
other most highly compensated executive officers whose salary and bonus exceeded
$100,000 during such period (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------------
COMPENSATION SECURITIES
------------ UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION SALARY ($) (#)
- ----------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Norbert Gleicher, M.D.,.......................................... $939,472 --
Chief Executive Officer and President
Donna Pratt, M.D.,............................................... 181,947 --
Vice President of Medical Affairs
Marybeth Gerrity, Ph.D.,......................................... 132,255 63,333
Senior Vice President of Operations and Development
</TABLE>
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OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options by the Company to the Named Executive Officers during 1995.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES EXERCISE OR TERM(1)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------------
NAME (#) YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- --------------------------------- ---------- ----------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Norbert Gleicher,
M.D. ................ -- -- -- -- -- --
Donna Pratt, M.D. ..... -- -- -- -- -- --
Marybeth Gerrity,
Ph.D.(2)............. 63,333 24.4% (3) May 31, 2000 $199,499 $309,735 $443,091
</TABLE>
- -------------------------
(1) Potential realizable value is presented based on an assumed fair market
value of $6.30 and net of an assumed option exercise price of $3.15 per
share but before any federal or state income taxes associated with exercise.
The assumed exercise price is equal to 50% of $6.30, which represents the
fair market value of the Company's Common Stock at December 31, 1995, as
determined by an independent appraiser. The stated amounts are based upon
assumed appreciation rates of 0%, 5% and 10% prescribed by the Commission
rules and are not intended to forecast possible future appreciation, if any,
of the Company's stock price. The amounts reflected in the table may not
necessarily be achieved.
(2) These options were exercised as of March 31, 1996.
(3) The exercise price is determined based upon 50% of the fair market value of
the Company on the last day of the fiscal year prior to the date that Dr.
Gerrity exercises her option. See "Certain Transactions -- Acquisition of
Reproductive Biology Resources, Inc."
FISCAL YEAR-END OPTION VALUES
The following table contains information regarding the Named Executive
Officers' unexercised options at December 31, 1995. None of the Named Executive
Officers exercised any options during 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Norbert Gleicher, M.D. ............................ -- --
Donna Pratt, M.D. ................................. -- --
Marybeth Gerrity, Ph.D. ........................... 63,333/-- $199,499/--
</TABLE>
- -------------------------
(1) The value per option is calculated by subtracting the exercise price from
the fair market value of the Company's Common Stock at December 31, 1995 of
$6.30 per share, as determined by an independent appraiser. These options
were exercised as of March 31, 1996.
EMPLOYMENT AGREEMENTS
On March 1, 1995, the Company entered into an employment agreement with Dr.
Gleicher to serve as the President of the Company. This employment agreement
provides that Dr. Gleicher is to receive an annual salary for his services as
President of the Company equal to 5% of total annual revenues of each medical
practice with which the Company maintains a management services agreement,
provided that certain revenues from Medicare or state health programs are
excluded from total revenues. In 1995, Dr. Gleicher received total compensation
of $939,472 under this agreement. On April 1, 1996, this agreement was amended
to provide
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<PAGE> 59
that, for an initial term of five years commencing upon the Registration
Statement being declared effective by the Commission, Dr. Gleicher will receive
an annual base salary of $350,000 plus a bonus of $350,000 for 1996 and a bonus
in 1997 to be based upon the Company achieving certain performance criteria for
total combined net operating income, subject to a maximum bonus of $400,000 per
year. Following 1997, the amount of the bonus to be paid to Dr. Gleicher will be
determined by the Compensation Committee based upon performance criteria
consistent with those used in prior years. In addition, Dr. Gleicher has entered
into an employment agreement with CHR-Illinois pursuant to which he will receive
a base salary of $250,000 for medical services provided and following this
offering he will be entitled to receive a bonus of $250,000 for 1996 and no
bonus thereafter. See "Certain Transactions -- Certain Medical Practice
Employment Agreements."
On March 1, 1995, the Company entered into an employment agreement with Dr.
Pratt to serve as the Vice President of Medical Affairs of the Company for
successive terms of one year. On April 1, 1996, this agreement was amended to
provide that, for an initial term of five years commencing upon the Registration
Statement being declared effective by the Commission, Dr. Pratt will receive an
annual base salary of $100,000. Prior to such date, Dr. Pratt is to receive an
annual salary for her services as Vice President of Medical Affairs equal to 1%
of total annual revenues of each managed practice with which the Company
maintains a management services agreement, provided that revenues from Medicare
or state health programs are excluded from total revenues. In 1995, Dr. Pratt
received total compensation of $181,947 under this agreement. In addition, Dr.
Pratt has entered into an employment agreement with CHR-Illinois pursuant to
which she will receive a base salary of $250,000 and a minimum bonus of $100,000
for medical services provided. See "Certain Transactions -- Certain Medical
Practice Employment Agreements."
Under their amended employment agreements, neither Dr. Gleicher nor Dr.
Pratt may be terminated by the Company without cause during the initial term of
five years. Drs. Gleicher and Pratt may be terminated by the Company for "cause"
on ten days' notice. Each of Drs. Gleicher and Pratt has agreed that during the
term of their employment and for a two year period from the date of termination
of his or her employment, he or she will not directly or indirectly compete
with, solicit or offer employment to any employee of, the Company or any
affiliated medical practice, or employ any such employee who is then currently
employed or has been employed by the Company or any affiliated medical practice
within one year prior to his or her date of termination.
In the event of a change in control of the Company, the amended employment
agreements of Drs. Gleicher and Pratt provide for severance payments. A "change
in control" of the Company is triggered upon the acquisition by any individual,
entity or group of 20% of the then outstanding shares of Common Stock of the
Company, the approval by the stockholders of certain specified types of
corporate transactions or business combinations, or the replacement of a
majority of the incumbent Board of Directors. In the event of a change in
control, if either Dr. Gleicher's or Dr. Pratt's employment with the Company is
terminated by such person for good reason or by the Company without cause during
the next 36 months, the Company is obligated to pay such person a lump sum cash
payment equal to the greater of (i) the remaining salary due over the balance of
the initial term of such person's employment agreement, and (ii) $1.00 less than
three times such person's average annual compensation (including bonus) during
each of the five full fiscal years immediately prior to the effective date of
the Registration Statement. Following a change in control, if either Dr.
Gleicher's or Dr. Pratt's employment with the Company is terminated by such
person for good reason or by the Company without cause during the next 36
months, such person will not be subject to the non-competition and non-
solicitation provisions of his or her amended employment agreement following
such termination. Drs. Gleicher and Pratt also are entitled to gross-up payments
to the extent that the payments described above are subject to the excise tax
imposed by Section 4999 of the Code.
The employment agreements of Drs. Gleicher and Pratt also currently provide
for deferred compensation payments if he or she has been employed by the Company
and its predecessors for a term of ten years. The deferred compensation to be
paid to each of Drs. Gleicher and Pratt is equal to one year's annual salary and
bonus based upon the average amounts for the three years prior to beginning such
payments. Each of Drs. Gleicher and Pratt is to receive an additional one month
of deferred compensation for each full year of employment in excess of ten
years. Upon the Registration Statement being declared effective by the
Commission, each of these deferred compensation arrangements will be terminated
automatically.
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On June 13, 1995, the Company entered into an employment agreement with Dr.
Gerrity to serve as the Vice President of Operations and Development for an
initial term of three years with automatic renewal for successive one year
terms. In 1995, Dr. Gerrity received total compensation of $132,255 under this
agreement. On April 1, 1996, this agreement was amended and restated to provide
that, for an initial term of three years commencing upon the Registration
Statement being declared effective by the Commission, Dr. Gerrity will receive
an annual base salary of $250,000 plus an annual bonus of at least $75,000. The
amended agreement provides that Dr. Gerrity may not be terminated by the Company
without cause during the initial term of three years. The Company may terminate
Dr. Gerrity's employment for "cause" on ten days' notice. Dr. Gerrity is subject
to certain restrictions on competing with the Company and soliciting employees
and third party payors of the Company during the term of her employment and for
a period of one year thereafter. Following a change in control, if Dr. Gerrity's
employment with the Company is terminated by the Company without cause during
the next 36 months, she will not be subject to the non-competition and
non-solicitation provisions of her amended employment agreement following such
termination.
On May 1, 1996, the Company entered into an employment agreement with Dr.
Zbella to serve as Senior Vice President and Director of General Obstetrics and
Gynecology Contracting for an initial term of five years with automatic renewal
for successive one year terms. During the first year of this agreement, Dr.
Zbella will receive an annual salary of $300,000. Following the first year of
this agreement, Dr. Zbella will receive an annual salary based on the revenues
collected by CHR-Florida in a specific area in Florida in the immediately
preceding year ("Managed Revenue"). Such annual salary will be $75,000, $125,000
and $200,000 for Managed Revenues of $2.5 million, $2.7 million and $3.0
million, respectively, and for Managed Revenues in excess of $3.0 million Dr.
Zbella's annual salary will be equal to $200,000 plus $25,000 for each $250,000
of Managed Revenue in excess of $3.0 million. The Company may terminate Dr.
Zbella's employment for "cause" and the agreement automatically terminates with
the termination of Dr. Zbella's employment agreement with CHR-Florida. Dr.
Zbella is subject to certain restrictions on competing with the Company and
soliciting employees and third party payors of the Company during the term of
his employment with the Company.
INCENTIVE COMPENSATION PLAN
The Company has adopted an Incentive Compensation Plan (the "Incentive
Plan"), effective March 8, 1996, pursuant to which 708,333 shares of Common
Stock are reserved and available for issuance upon exercise of options and other
awards to be granted under the Incentive Plan. The purpose of the Incentive Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the
Incentive Plan to achieve long-term growth in stockholder equity in the Company
and by retaining the association of those individuals who are instrumental in
achieving this growth. The Incentive Plan is administered by the Equity
Incentive Committee of the Board of Directors that currently consists of Dr.
Gleicher and Dr. Pratt. Upon the Company's completion of this offering, Drs.
Gleicher and Pratt will be replaced by Dr. Elkayam and Mr. Yoked, both of whom
are "disinterested," as such term is used in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and "outside directors" for purposes of
Section 162(m) of the Code. See "-- Committees of the Board of Directors --
Equity Incentive Committee."
Subject to certain limits, options to be granted under the Incentive Plan
may be incentive stock options ("ISOs") meeting the requirements of Section 422
of the Code or may be options other than ISOs (non-qualified stock options or
"NQSOs"). The exercise price of an ISO must be at least equal to the fair market
value (as defined in the Incentive Plan) per share of the Common Stock on the
date of the grant, and must be at least 110% of such value if the grantee is a
substantial stockholder of the Company. The exercise price of NQSOs will be
determined by the Equity Incentive Committee and may be greater or less than the
fair market value per share of the Common Stock on the date of grant. The
exercise price is required to be paid in full at the time of exercise in cash or
its equivalent or, upon approval of the Equity Incentive Committee, by
promissory note or in shares of Common Stock. ISOs and NQSOs granted under the
Incentive Plan will be exercisable for a term of not more than 10 years, as
determined by the Equity Incentive Committee, and will become exercisable at
such time or times during the optionee's employment with the Company as may be
determined by the Equity Incentive Committee, subject to acceleration of vesting
at the discretion of the
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Equity Incentive Committee or, if so provided, upon a "change in control" of the
Company. Options that have become exercisable on or prior to the date of
termination of the optionee's employment generally will terminate at the earlier
of: (i) the expiration date of the option; (ii) where such termination of
employment occurs as a result of death or disability, one year after the date of
termination of employment; or (iii) where such termination is as a result of
retirement or by the Company without cause, 90 days after the date of
termination of employment; or (iv) where such termination is voluntary by the
employee (and is not a retirement) or by the Company for cause, the date of
notice of termination. Generally, options granted under the Incentive Plan are
not transferrable by the grantee other than by testament or the laws of descent
and distribution. Prior to the completion of an initial public offering by the
Company, shares acquired by a participant pursuant to an award under the
Incentive Plan generally will be subject to certain restrictions on
transferability. All other terms, including the time or times at which an option
becomes exercisable, may be determined by the Equity Incentive Committee in its
discretion.
The Incentive Plan also authorizes the Equity Incentive Committee to grant
restricted stock, deferred stock and stock appreciation rights ("SARs") in
connection with options granted. SARs entitle the optionee to receive upon
exercise cash or Common Stock, as determined by the Equity Incentive Committee,
equal in value to the differences between the option price and the current fair
market value of the stock subject to the option and related SAR. Exercise of a
SAR is in lieu of exercise of the related option.
As of the date of this Prospectus, the Company has granted awards under the
Incentive Plan covering 635,833 shares of Common Stock, including stock options
granted to the following executive officers of the Company: Norbert Gleicher,
M.D., 390,000 shares; Donna Pratt, M.D., 75,000 shares; Robert Bukala, 33,333
shares; Donna Havemann, 16,667 shares; and Michael Gonzales, 8,333 shares.
Options granted to these executive officers vest 20% per year over five years.
The options granted to Dr. Gleicher and Dr. Pratt were granted on April 15, 1996
and are exercisable at a purchase price equal to the per share offering price to
the public of the shares of Common Stock in this offering. The options granted
to the remaining officers were granted on March 8, 1996 and are exercisable at a
purchase price equal to $7.80 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation contains a provision eliminating
or limiting director liability to the Company and its stockholders for monetary
damages arising from acts or omissions in the director's capacity as a director.
The provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the Delaware
statutory provision making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
the Company protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above). As a result of this
provision, the ability of the Company or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. The Commission has taken the position that the provision will
have no effect on claims arising under the federal securities laws.
In addition, the Certificate of Incorporation provides for mandatory
indemnification rights, subject to limited exceptions, to any director, officer,
employee, or agent of the Company who by reason of the fact that he or she is a
director, officer, employee, or agent of the Company, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee, or agent in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of DGCL. The Company has entered into indemnity agreements with each
of its directors and certain of its officers providing for such indemnification.
In addition, the Company has obtained a directors' and officers' insurance
policy.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Board of Directors, consisting of Drs. Gleicher and Pratt
and, from December 1, 1995, Brian Kennedy, served on the Compensation Committee.
In April 1996, a Compensation Committee of the Board of Directors was formed,
consisting of Dr. Gleicher, Mr. Kennedy and Mr. Yoked. Drs. Gleicher and Pratt
and their affiliates have engaged in a number of transactions with the Company.
See "Certain Transactions -- Reorganization of Predecessor Corporation," "--
Shareholder Agreement," "-- Guarantee of Revolving Line of Credit," "--
Management Agreements," "-- Certain Medical Practice Employment Agreements," and
"-- Promissory Notes." Mr. Kennedy is an officer of Nichold Company, the holder
of the Convertible Note, and its parent company, Blue Cross Blue Shield of
Illinois. The Company is a party to a managed care contract with HMO-Illinois,
an HMO owned by Blue Cross Blue Shield of Illinois. See "Certain Transactions --
Relationship with Blue Cross Blue Shield of Illinois."
CERTAIN TRANSACTIONS
REORGANIZATION OF PREDECESSOR CORPORATION
In connection with the reorganization of the Company's predecessor,
CHR-Illinois, the Company and CHR-Illinois entered into an Asset Purchase
Agreement dated March 1, 1995. Drs. Gleicher, Pratt and Miller are shareholders
and officers of CHR-Illinois. Pursuant to the terms of the Asset Purchase
Agreement, CHR-Illinois transferred certain of its nonmedical assets, including
the trade names "The Center For Human Reproduction" and "CHR" and the goodwill
associated therewith, and certain contract rights. In consideration for such
transfer, the Company assumed liabilities under the assigned contracts and paid
a nominal cash payment aggregating $384,000. Because of the elimination of
intercompany accounts, the reorganization had no impact on the combined
financial statements of the Company. In connection with the reorganization, the
Company and CHR-Illinois also entered into a sublease pursuant to which
CHR-Illinois leases to the Company the nonexclusive use of the Center located at
750 North Orleans Street, Chicago, Illinois 60610. The rent payable under the
sublease is equal to 35% of the base rent, operating expenses, real estate taxes
and insurance, and all other pass-through expenses or charges CHR-Illinois is
obligated to pay under the lease for such premises.
RESTRUCTURING OF ILLINOIS PRACTICES
On June 5, 1996, the Company acquired certain nonmedical assets of
CHR-Illinois in consideration for the assumption of certain liabilities. On June
6, 1996, CHR-Illinois was merged into CHR-Perinatal, with the surviving
corporation bearing the name "The Center for Human Reproduction -- Illinois,
M.D.S.C." Because of the elimination of intercompany accounts, neither of these
transactions had any impact on the consolidated financial statements of the
Company.
SHAREHOLDERS AGREEMENTS
On March 1, 1995, the Company entered into a shareholders agreement with
each of Drs. Gleicher, Pratt, Miller and Karande. By separate adoption
agreement, each of Dr. Gerrity and Ms. Havemann subsequently became a party to
such shareholders agreement. This agreement restricts the ability of the parties
to transfer any shares of the Common Stock and obligates the Company to purchase
the shares held by the shareholder-employees upon their death or termination at
prices calculated in accordance with the shareholders agreement. This agreement
also provides Dr. Gleicher certain rights with respect to the admission of new
shareholders, the sale of assets or merger of the Company and the right to cause
a redemption of shares of the other shareholders if certain disputes arise. In
contemplation of this offering, on March 31, 1996, the parties to the
shareholders agreement amended the shareholders agreement to provide that it
shall immediately terminate in its entirety without any further action by any of
the shareholders upon the Registration Statement being declared effective by the
Commission. Accordingly, none of the provisions described above will remain in
effect after the completion of this offering.
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Effective April 1, 1996, the Company entered into a shareholders agreement
with each of Drs. Gleicher, Pratt, Miller, Karande, Rinehart and Gerrity and Ms.
Havemann. Effective May 1, 1996, each of Drs. Zbella and Navot became a party to
such shareholders agreement. This agreement restricts the ability of the parties
to transfer any shares of the Common Stock and obligates the Company to purchase
the shares held by the parties upon their death or termination at prices
calculated in accordance with the shareholders agreement. This agreement
provides that it shall immediately terminate in its entirety without any further
action by the parties upon the Registration Statement being declared effective
by the Commission. Accordingly, none of the provisions described above will
remain in effect after the completion of this offering.
GUARANTEE OF REVOLVING LINE OF CREDIT
The shareholders agreement provides that each beneficial owner of 5% or
more of the outstanding shares of the Company's common stock that is a party to
the agreement shall be a joint and several guarantor for any obligations of the
Company that are guaranteed by any other shareholder. Each of the other
shareholders that is a party to the shareholders agreement is obligated to
indemnify each of the other parties for any loss incurred under any guarantee
issued on behalf of the Company to the extent such loss exceeds the guaranteeing
shareholder's pro rata share of the guaranteed obligation.
Prior to February 23, 1996, the Company's revolving line of credit was
jointly and severally guaranteed by Drs. Gleicher, Pratt and Miller. On February
23, 1996, the Company replaced this revolving line of credit with a similar
facility established under a Secured Credit Agreement with American National
Bank of Chicago. The new revolving line of credit also is guaranteed jointly and
severally by each of Drs. Gleicher, Pratt and Miller. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
MANAGEMENT AGREEMENTS
In connection with the Reorganization, the Company entered into management
services agreements with each of CHR-Illinois, CHR-Endoscopic and CHR-Perinatal
(the "Illinois Medical Practices"). Drs. Gleicher, Pratt and Miller are
shareholders of each of the Illinois Medical Practices. In April 1996, the
management services agreement with each of the Illinois Medical Practices was
amended and restated. Each of these Agreements is substantially the same as the
form of management services agreement described under the caption "Business --
Physician Affiliation -- Affiliation Process Structure." In consideration for
the provision of management services, the Company receives a monthly management
fee and an absolute assignment of receivables and payables to be managed by the
Company on behalf of the Illinois Practices and the Company will be reimbursed
for certain expenses incurred in the management of the Illinois Practices. The
initial term of each of the management services agreements is 40 years, with
automatic renewal for successive five year periods thereafter unless either
party gives notice that it will not renew. In 1995, the Company received
management fees under these Agreements from CHR-Illinois, CHR-Endoscopic and
CHR-Perinatal of $5,828,993, $383,529 and $21,258, respectively. In connection
with each of these management services agreements, the Company has entered into
a license agreement pursuant to which it has granted to each of the Illinois
Practices the right to use the trade names and service marks "The Center For
Human Reproduction" and "CHR" for a nominal license fee.
On May 1, 1996, the Company entered into a management services agreement
with CHR-Florida in substantially the same form as the form of management
services agreement described under the caption "Business -- Physician
Affiliation -- Affiliation Process." Dr. Pratt is the sole shareholder of
CHR-Florida and Dr. Zbella is the Regional Medical Director of CHR-Florida. In
consideration for the provision of management services, the Company receives an
absolute assignment of receivables and assumes all payables and is entitled to
be reimbursed for certain expenses incurred in the management of CHR-Florida.
The initial term of this management services agreement is 40 years, with
automatic renewal for successive five year periods thereafter unless either
party gives notice that it will not renew. In connection with this management
services agreement, the Company has entered into a license agreement pursuant to
which it has granted CHR-Florida the right to use the trade names and services
marks "The Center For Human Reproduction" and "CHR" for a nominal license fee.
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CERTAIN MEDICAL PRACTICE EMPLOYMENT AGREEMENTS
Each of Drs. Gleicher, Pratt and Miller (the "Principal Shareholders"), has
entered into an employment agreement with CHR-Illinois. In each case, the
employee is to receive a base salary of $250,000 plus a production bonus based
upon revenues collected by CHR-Illinois for medical services rendered by the
employee or under the employee's supervision, provided that no revenues from
Medicare or state health programs related to the volume or value of referrals by
employee for "designated health services" are included in determining the
production bonus. In 1995, Drs. Gleicher, Pratt and Miller received total
compensation under these agreements of $399,166, $299,724 and $826,082,
respectively. On April 1, 1996, the employment agreements with CHR-Illinois of
each of Drs. Gleicher and Pratt were amended to provide that upon the
Registration Statement being declared effective by the Commission, Dr. Gleicher
would be entitled to receive a bonus of $250,000 for 1996 and no bonus
thereafter, and Dr. Pratt's production bonus would be subject to a minimum bonus
of $100,000 per year.
As amended, each of these employment agreements may not be terminated by
CHR-Illinois without cause during the initial term of five years. CHR-Illinois
has the right to terminate each Principal Stockholder's employment for "cause"
on ten days' notice. Each employee also has covenanted, for a two-year period
following termination, not to compete, directly or indirectly, with the Company
or CHR-Illinois, solicit or offer employment to any employee of CHR-Illinois or
any of its affiliates or employ any such employee who is then currently employed
or has been employed by CHR-Illinois or any of its affiliates within one year
prior to employee's termination. If during the initial term of five years, any
such employee is terminated for cause or voluntarily terminates his or her
employment without good reason, he or she is obligated to pay liquidated
damages.
In the event of a change in control of the Company, the employment
agreements of Drs. Gleicher, Pratt and Miller provide for severance payments. A
"change in control" of the Company is triggered upon the acquisition by any
individual, entity or group of 20% of the then outstanding shares of Common
Stock of the Company, the approval by the stockholders of certain specified
types of corporate transactions or business combinations, or the replacement of
a majority of the incumbent Board of Directors. In the event of a change in
control, if Dr. Gleicher's, Dr. Pratt's or Dr. Miller's employment with the
Company is terminated by such person for good reason or by the Company without
cause during the next 36 months, the Company is obligated to pay such person a
lump sum cash payment equal to the greater of (i) the remaining salary due over
the balance of the initial term of such person's employment agreement, and (ii)
$1.00 less than three times such person's average annual compensation during
each of the five full fiscal years immediately prior to the date of termination
of employment. Following a change in control, if Dr. Gleicher's, Dr. Pratt's or
Dr. Miller's employment with the Company is terminated by such person for good
reason or by the Company without cause during the next 36 months, such person
will not be subject to the non-competition and non-solicitation provisions of
his or her employment agreement following such termination. Drs. Gleicher, Pratt
and Miller also are entitled to gross-up payments to the extent that the
payments described above are subject to the excise tax imposed by Section 4999
of the Code. Each of these employment agreements contains a deferred
compensation provision substantially similar to that contained in such
physician's employment agreement with the Company, and upon the Registration
Statement being declared effective by the Commission, each of these deferred
compensation arrangements will be terminated automatically.
On March 7, 1995, CHR-Endoscopic and Dr. Miller entered into an employment
agreement. Under this agreement, Dr. Miller is to receive annual compensation
equal to 50% of annual collections received by CHR-Endoscopic from surgical
procedures performed by, or under the supervision of, Dr. Miller for
fee-for-service patients, including pre- and post-operative office visits and
testing. The fee schedule for surgical procedures is as agreed upon by Drs.
Gleicher and Miller. In 1995, Dr. Miller received total compensation under this
agreement of $424,000. On April 1, 1996, this agreement was amended to provide
that Dr. Miller may not be terminated by CHR-Endoscopic without cause during the
initial term of five years. CHR-Endoscopic has the right to terminate Dr. Miller
for "cause" on ten days' notice. This employment agreement contains comparable
severance, non-compete and non-solicitation provisions to those contained in Dr.
Miller's employment agreement with CHR-Illinois.
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On May 1, 1996, CHR-Florida entered into an employment agreement with Dr.
Zbella to serve as a physician and the Regional Medical Director of CHR-Florida
for an initial term of five years with automatic renewal for successive one year
terms. Following the initial five-year term, Dr. Zbella also may renew the
agreement for a term of two years subject to certain conditions. Pursuant to
this agreement, Dr. Zbella will receive an annual base salary of $500,000 plus a
production bonus based upon revenues collected by CHR-Florida for medical
services rendered by Dr. Zbella or under his supervision, provided that no
revenues from Medicare or state health programs related to the volume or value
of referrals by Dr. Zbella for "designated health services" are included in
determining the production bonus. This agreement may not be terminated by
CHR-Florida without cause during the initial term of five years. CHR-Florida has
the right to terminate this agreement for "cause" on ten days' notice. Dr.
Zbella also has covenanted, for a two-year period following termination of this
agreement by him without cause or by the Company for cause, not to compete,
directly or indirectly, with the Company or CHR-Florida, solicit or offer
employment to any employee of CHR-Florida or any of its affiliates or employ any
such employee who is then currently employed or has been employed by CHR-Florida
or any of its affiliates within one year prior to Dr. Zbella's termination. If
during the initial term of five years, Dr. Zbella is terminated for cause or
voluntarily terminates his employment with CHR-Florida without good reason, he
is obligated to pay liquidated damages.
Each of the employment agreements described above has been guaranteed by
the Company.
ACQUISITION OF REPRODUCTIVE BIOLOGY RESOURCES, INC.
On June 13, 1995, CHR-Illinois acquired substantially all of the assets of
Reproductive Biology Resources, Inc., a company owned by Dr. Gerrity. In
connection with this acquisition, the Company entered into an employment
agreement with Dr. Gerrity to serve as the Vice President of Operations and
Development of the Company. See "Management -- Employment Agreements." On June
13, 1995, the Company also entered into an Option Agreement with Dr. Gerrity
pursuant to which she was granted the option to purchase up to 63,333 additional
shares of common stock of the Company at an exercise price per share determined
based upon 50% of the fair market value of the Company on the last day of its
fiscal year prior to the date that Dr. Gerrity exercises her option. The option
expires on May 31, 2000, unless her employment is earlier terminated, and she
has the right to exercise the option once each year during the month of May.
This Option Agreement was exercised in full in March 1996 on a cashless basis
for a net 41,667 shares, and the Company agreed to make a loan to Dr. Gerrity in
June 1996 of an amount sufficient for her to pay federal and state income taxes
with respect to the exercise of this option.
ACQUISITION OF A CENTER FOR GYNECOLOGY, P.A.
On March 17, 1996, the Company, Dr. Zbella and A Center for Gynecology,
P.A. entered into an Asset Transfer and Reorganization Agreement pursuant to
which the Company acquired substantially all of the nonmedical assets of A
Center for Gynecology, P.A in exchange for 110,637 shares of Common Stock. This
transaction was closed on May 1, 1996, however, 3,157 shares are contingent upon
the completion of this offering.
RELATIONSHIP WITH BLUE CROSS BLUE SHIELD
On December 1, 1995, The Company has entered into a Note Purchase
Agreement, dated December 1, 1996 and amended April 15, 1996, with Nichold
Company, a wholly-owned subsidiary of Blue Cross Blue Shield of Illinois,
pursuant to which the Company issued to Nichold Company the Convertible Note.
See "Description of Capital Stock -- Subordinated Convertible Promissory Note."
Up to $2,500,000 of the Convertible Note is convertible, in whole or in part, at
any time in increments of no less than $500,000, into a number of shares of
Common Stock equal to 1% of the number of shares of outstanding Common Stock (on
a fully diluted basis) per $500,000 of principal amount to be converted on the
date of such conversion. The convertible portion of the Convertible Note is
subject to automatic conversion upon the closing of an initial public offering
of the Common Stock (including any over-allotment option granted to the
underwriters in connection therewith) having gross proceeds (without giving
effect to commissions or expenses) of no less than $10,000,000 and bearing an
offering price of not less than $5.00 per share (a "Qualifying IPO"). The
$2,500,000 nonconvertible portion of the Convertible Note becomes due and
payable upon the closing of a Qualifying IPO. Accordingly, upon the closing of
this offering, $2,500,000 principal amount of the Convertible Note will
automatically be converted into 338,107 shares of Common Stock and $2,500,000
principal amount of the Convertible Note will become due and payable. See "Use
of Proceeds." Nichold Company has certain
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"piggyback" registration rights with respect to the Conversion Shares. Nichold
Company also has the right to designate a member of the Company's Board of
Directors so long as the Convertible Note remains outstanding. Brian Kennedy,
the Cashier of Nichold Company and the Treasurer and a Vice President of Blue
Cross Blue Shield of Illinois, currently is serving as the designee of Nichold
Company.
On September 29, 1994, the Company entered into a managed care contract
with HMO-Illinois, an HMO owned by Blue Cross Blue Shield of Illinois. Under the
terms of this agreement, the Company's affiliated practices provide services
related to the diagnosis and treatment of male and female infertility for
HMO-Illinois members on an exclusive basis in the Chicago metropolitan area. For
HMO-Illinois members not eligible for Medicare, HMO-Illinois pays a capitation
rate per member for these services. In 1995, the Company received approximately
$6.2 million in total revenue under this agreement.
PROMISSORY NOTES
On October 4, 1995, the Company entered into a promissory note with Donna
Pratt, M.D. and her husband, James F. Bonick, pursuant to which the Company
loaned Dr. Pratt and Mr. Bonick $123,118.37. Interest on the unpaid principal
accrues at 8% per annum. Beginning on August 1, 1996, and for the next 59
months, Mr. Bonick and Dr. Pratt will make monthly payments of $2,496.40 to the
Company. Any unpaid principal and accrued interest is due and payable in full on
July 1, 2001, or upon default, which includes termination of Dr. Pratt's
employment with the Company. The promissory note is secured by a junior mortgage
on real estate. In April 1996, the promissory note was amended to defer any
principal and interest payment from the date of this offering to the 30th day
following the first day on which Dr. Pratt is eligible to sell her shares of
Common Stock pursuant to Rule 144.
On December 31, 1995, Drs. Gleicher, Pratt and Miller, the Company,
CHR-Perinatal and CHR-Endoscopic entered into a number of unsecured demand
promissory notes bearing interest at the rate of 7% per annum. Under these
notes, the following obligations were created: Drs. Gleicher, Pratt and Miller
owe $500,000, $380,000 and $285,000, respectively, to the Company;
CHR-Endoscopic and CHR-Perinatal owe $150,000 and $350,000, respectively, to Dr.
Gleicher, $120,000 and $260,000, respectively, to Dr. Pratt, and $170,000 and
$115,000, respectively, to Dr. Miller; and the Company owes $440,000 and
$725,000, respectively, to CHR-Endoscopic and CHR-Perinatal. Each of the parties
also entered into an agreement of even date that provides that no person shall
demand payment of principal under any of these notes until all of the payees
make demand and that if Dr. Gleicher makes such demand from the Company, each of
the parties concurrently will make demand.
CENTER LEASE
One of the Centers located in Chicago, Illinois is leased from Dr.
Gleicher. The Company believes that the occupancy costs to the Company under
this lease are no higher than those which would be charged by an unrelated third
party under similar circumstances. The aggregate lease payments for this
location in 1995 were approximately $90,000. See Note 8 to Audited Combined
Financial Statements of the Company.
RESTRUCTURING OF MILLER OPTION
On March 7, 1995, Drs. Gleicher, Pratt and Miller entered into an option
agreement pursuant to which Drs. Gleicher and Pratt granted Dr. Miller the
option to purchase a number of shares from each of them such that their
respective ownership interests would be equal. The exercise price for this
option was to be determined based upon a multiple of earnings before interest
and taxes for a three year period and the option was exercisable beginning in
1998. On March 31, 1996, the parties amended this option to fix the number of
shares covered at 254,167 shares and to reduce the exercise price to $.01 per
share. This resulted in a compensation charge being attributed to the Company of
approximately $2.0 million because Drs. Gleicher and Pratt own in excess of 10%
of the outstanding stock of the Company. Dr. Miller exercised this option on
April 19, 1996.
COMPANY POLICY
It is anticipated that any future material transactions with executive
officers and directors of the Company individually will be approved by the
Compensation Committee and will be made on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties.
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<PAGE> 67
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 1, 1996, before giving effect
to this offering and after giving effect to the sale of shares of Common Stock
in this offering, by (a) each Director or named executive officer of the
Company, (b) each person known by the Company to own beneficially five percent
or more of the Common Stock, (c) all current executive officers and Directors of
the Company as a group, and (d) each Selling Stockholder. 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
-------------------- NUMBER OF --------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
- -------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Norbert Gleicher, M.D.(1)(2)................ 3,816,667 91.1% -- 3,692,667 55.5%
Donna Pratt, M.D.(1)........................ 1,439,584 34.4 40,000 1,399,584 21.0
Charles E. Miller, M.D.(1)(3)............... 937,499 22.4 84,000 853,499 12.8
Nichold Company(4).......................... 230,744 5.5 -- 338,107 5.1
Edward A. Zbella, M.D....................... 107,480 2.6 -- 110,637 1.7
Marybeth Gerrity, Ph.D...................... 81,667 2.0 -- 81,667 1.2
Brian A. Kennedy............................ -- -- -- -- --
Uri Elkayam, M.D............................ -- -- -- -- --
Yehuda Yoked................................ -- -- -- -- --
Jack Van Hulst.............................. -- -- -- -- --
All directors and executive officers as a
group (11 persons)(2)..................... 4,009,147 95.7 40,000 3,888,304 58.4
OTHER SELLING STOCKHOLDERS
Vishvanath Karande, M.D.(1)(5)............ 200,000 4.6 96,000 104,000 1.5
</TABLE>
- -------------------------
* represents less than 1%.
(1) The address of each of the stockholders listed is c/o GynCor, Inc., 750
North Orleans Street, Chicago, Illinois 60610.
(2) Includes 1,439,584 shares and 937,499 shares prior to this offering, and
1,399,584 shares and 853,499 shares after this offering, beneficially owned
by Drs. Pratt and Miller, respectively, held in voting trusts pursuant to
which Dr. Gleicher has shared voting power; Drs. Pratt and Miller each have
sole investment power over their respective shares that are subject to the
voting trusts. Under the voting trusts, each of Dr. Pratt and Dr. Miller is
entitled to vote the shares in elections of the Board of Directors, except
that Dr. Gleicher is entitled to vote the shares with respect to his own
election as a board member, and Dr. Gleicher is required to vote the shares
against the removal of Drs. Pratt and Miller as members of the Board of
Directors of the Company, and against the termination of Dr. Pratt's and Dr.
Miller's employment, except for cause. The term of each of the voting trusts
is ten years.
(3) Dr. Miller has served as the Medical Director and Director of Endoscopic
Surgery of the Company and has been affiliated with CHR-Illinois and
CHR-Endoscopic since March 1995.
(4) Consists entirely of the beneficial ownership of shares issuable upon the
conversion of $2,500,000 principal amount of the Convertible Note which is
convertible within 60 days of the date of this Prospectus and which will be
converted automatically upon the closing of this offering. Nichold Company's
business address is 233 North Michigan Avenue, Suite 1300, Chicago, Illinois
60601.
(5) Includes 196,667 shares prior to this offering and 100,667 shares after this
offering which may be acquired within 60 days of the date of this Prospectus
pursuant to the exercise of stock option. Dr. Karande has indicated to the
Company that he will exercise a portion of this option for 96,000 shares
prior to or concurrently with this offering. Accordingly, his beneficial
ownership after this offering has been adjusted to give effect to his
partial exercise of this option and the sale of the resulting shares. Dr.
Karande has served as the Director of the Division of GynecoRadiology of the
Company since March 1996 and has been affiliated with CHR-Illinois since
1992.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.0001 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share.
The following summary of certain provisions relating to the Common Stock
and Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the Company's Certificate of Incorporation and
By-Laws that are included as exhibits to the Registration Statement of which
this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of June 1, 1996, there were 4,187,467 shares of Common Stock outstanding
that were held of record by seven stockholders. In addition, an aggregate of
839,166 shares of Common Stock were reserved for issuance upon the exercise of
certain outstanding options and 230,744 shares of Common Stock were reserved for
issuance upon conversion of up to $2,500,000 principal amount of the Convertible
Note. After giving effect to the shares of Common Stock offered hereby, the
exercise of the option for 96,000 shares held by Dr. Karande, and the 338,107
shares of Common Stock to be issued upon the automatic conversion of $2,500,000
principal amount of the Convertible Note upon the closing of this offering,
there will be 6,654,509 shares of Common Stock outstanding after this offering.
Subject to the rights of holders of Preferred Stock, the holders of
outstanding shares of Common Stock are entitled to share ratably in dividends
declared out of assets legally available therefor at such time and in such
amount as the Board of Directors may from time to time lawfully determine. Each
holder of Common Stock is entitled to one vote for each share held, and the
holders of Common Stock are not entitled to cumulative voting rights. Subject to
the rights of holders of any outstanding Preferred Stock, upon liquidation,
dissolution or winding up of the Company, any assets legally available for
distribution to stockholders as such are to be distributed ratably among the
holders of the then outstanding Common Stock. All shares of Common Stock
currently outstanding are and all shares of Common Stock offered hereby, when
duly issued and paid for will be, fully paid and nonassessable, not subject to
redemption and assessment and without conversion, preemptive or other rights to
subscribe for or purchase any proportionate part of any new or additional issues
of any class or series of securities convertible into stock of any class or
series. The Company intends to file an application to have the Common Stock
approved for listing on the Nasdaq National Market, subject to completion of
this offering.
PREFERRED STOCK
The Certificate of Incorporation of the Company provides for an authorized
class of undesignated Preferred Stock consisting of 1,000,000 shares. The
Preferred Stock may be issued at the direction of the Board of Directors,
without stockholder approval, in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereon, to the extent that such are not fixed in
the Company's Certificate of Incorporation, as the Board of Directors
determines. The rights, preferences, limitations and restrictions of different
series of Preferred Stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption provisions,
sinking fund provisions and other matters. The Board of Directors may authorize
the issuance of Preferred Stock which ranks senior to the Common Stock with
respect to the payment of dividends and the distribution of assets on
liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without shareholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. The issuance of Preferred Stock to certain holders
under certain circumstances may have the effect of delaying, deferring or
preventing a change in control of the Company and may have a depressive effect
on the market price of the Common Stock. Upon consummation of this offering, no
shares of Preferred Stock will be outstanding.
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<PAGE> 69
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
Nichold Company, a wholly owned subsidiary of Blue Cross Blue Shield of
Illinois, currently holds the Company's 10% Subordinated Convertible Promissory
Note, as amended, in the original principal amount of $5,000,000 due December 1,
2000. Up to $2,500,000 of the Convertible Note is convertible, in whole or in
part, at any time in increments of no less than $500,000, into a number of
Conversion Shares equal to 1% of the number of shares of outstanding Common
Stock per $500,000 of principal amount to be converted on the date of such
conversion. The convertible portion of the Convertible Note is subject to
automatic conversion upon the closing of a Qualifying IPO. The $2,500,000
nonconvertible portion of the Convertible Note becomes due and payable upon the
closing of a Qualifying IPO. Accordingly, upon the closing of this offering,
$2,500,000 principal amount of the Convertible Note will automatically be
converted into 338,107 shares of Common Stock, after giving effect to the Recent
Acquisitions, and $2,500,000 principal amount of the Convertible Note will
become due and payable. See "Use of Proceeds." Nichold Company has certain
"piggyback" registration rights with respect to the Conversion Shares.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
this statute prohibits a publicly held Delaware corporation from engaging, under
certain circumstances, in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless either (i) prior to
the date at which the stockholder became an interested stockholder the Board of
Directors approved either the business combination or the transaction in which
the person becomes an interested stockholder, (ii) the stockholder acquires more
than 85% of the outstanding voting stock of the corporation (excluding shares
held by directors who are officers or held in certain employee stock plans) upon
consummation of the transaction in which the stockholder becomes an interested
stockholder or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of the
stockholders (and not by written consent) held on or subsequent to the date of
the business combination. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's voting stock. Section 203
defines a "business combination" to include, without limitation, mergers,
consolidations, stock sales and asset based transactions and other transactions
resulting in a financial benefit to the interested stockholder.
The Company's Certificate of Incorporation and By-Laws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "antitakeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (a) upon the closing of an this
offering, the classification of the Board of Directors into three classes, each
class serving for staggered three year terms; (b) upon the closing of this
offering, elimination of stockholder action by written consent; (c) the
authority of the Board of Directors to issue series of Preferred Stock with such
voting rights and other powers as the Board of Directors may determine; (d) the
requirement that the By-Laws may only be amended (other than by the Board of
Directors) by the vote of greater than 66 2/3% of the votes entitled to be cast
generally by the outstanding Common Stock; (e) the requirement that the
provision in the Certificate of Incorporation creating the classified board may
only be amended by the vote of at least 66 2/3% of the votes entitled to be cast
generally in the election of directors; (f) upon the closing of this offering
the requirement that a director may be removed by the vote of a majority of the
votes entitled to be cast generally in the election of directors only for cause;
and (g) notice requirements in the By-Laws relating to nominations to the Board
of Directors and to the raising of business matters at stockholder meetings.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust, New York, New York.
67
<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering and after giving effect to the conversion
of the Convertible Note, the Company will have 6,654,509 shares of Common Stock
outstanding. Of these shares, the 2,220,000 shares sold in this offering
(2,533,000 shares if the Underwriters exercise their over-allotment option in
full) will be freely tradable without restriction under the Securities Act,
except for any such shares which may be acquired by an "affiliate" of the
Company as that term is defined in Rule 144 (an "Affiliate"). The 4,434,509
remaining shares constitute "restricted securities" within the meaning of Rule
144, and will only be eligible for sale in the open market commencing on the
second anniversary of the later of the date such shares were acquired from the
Company or an Affiliate, subject to the contractual lockup provisions and
applicable requirements of Rule 144 described below. However, of such restricted
securities, 550,176 shares are subject to registration rights which may entitle
the holder thereof to register such shares for resale under the Securities Act
and to sell such shares, after the lockup period, without regard for the
restrictions of Rule 144.
The Company, its officers and directors and certain stockholders of the
Company holding substantially all of the Common Stock have agreed that they will
not directly or indirectly, offer, sell, offer to sell, grant any option to
purchase or otherwise sell or dispose (or approve any offer, sale, offer of
sale, grant of any options to purchase or sale or disposition) of any shares of
Common Stock or other capital stock of the Company, or any securities
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company without the prior written consent of Smith
Barney Inc. on behalf of the Underwriters, for a period of 180 days from the
date of the Prospectus.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an "affiliate" of the Company, as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least two
years from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent of the then outstanding shares of Common Stock
(approximately 66,550 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the two year holding
period. In addition, under Rule 144(k), if a period of at least three years has
elapsed between the later of the date restricted securities were acquired from
the Company and the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions under Rule 144 described above.
The Company has granted options to purchase a total of 635,833 shares under
the Company's Incentive Plan prior to the date of this Prospectus and and 6,666
shares will automatically be granted on the effective date of this offering
under the Company's Directors' Option Plan as of the effective date of this
offering. An additional 72,500 shares and 35,000 shares are available for future
option grants under the Company's Incentive Plan and Director's Option Plan,
respectively. See "Management -- Incentive Compensation Plan" and "-- Directors'
Option Plan." In addition, upon completion of this offering, Dr. Karande will
retain an option to purchase 100,667 shares of Common Stock from the Company.
The Company intends to file a registration statement under the Securities Act
shortly after the effective date of the Registration Statement covering certain
shares of Common Stock reserved for issuance under the Incentive Plan and
Directors' Option Plan. Upon the effectiveness of that Registration Statement,
most of the shares of Common Stock issued under the Incentive Plan and the
Directors' Option Plan, other than shares held by Affiliates, will be
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<PAGE> 71
immediately eligible for resale in the public market without restriction,
subject to the terms of the agreements described above.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modification will have a material effect on
the time when certain shares of the Common Stock become eligible for resale.
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<PAGE> 72
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, the respective number of shares of Common Stock set
forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc. ...........................................................
The Chicago Corporation......................................................
-----------
Total...................................................................
===========
</TABLE>
The Underwriters are committed to take and pay for all shares of the Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and The Chicago Corporation
are acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives have informed the Company and
the Selling Stockholders that the Underwriters do not expect to confirm sales to
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 333,000
shares of Common Stock at the price to the public set forth on the cover page
hereof less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its directors and executive officers and substantially all of
the stockholders of the Company have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock, except in the case of the Company,
in certain limited circumstances.
Prior to the offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the history of, and prospects for, the Company's business
and the industry in which it competes, an assessment of the Company's management
and the present state of the Company's development, its past and present
revenues and earnings and the trend of such revenues and earnings, the prospects
for the growth of the Company's revenues and earnings, the general condition of
the securities market at the time of
70
<PAGE> 73
the offering and the market price and earnings of similar securities of
comparable companies at the time of the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Katten Muchin & Zavis, a
partnership including professional corporations, Chicago, Illinois and for the
Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The financial statements and schedule of GynCor, Inc. as of June 30, 1994
(consolidated), June 30, 1995 (combined) and December 31, 1995 (combined), and
for the years ended June 30, 1993, 1994 and 1995, and the six-month period ended
December 31, 1995 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report with respect thereon, appearing elsewhere herein and in the Registration
Statement and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Fertility Center of Northern New Jersey, P.A.
as of December 31, 1994 and 1995 and for the period from February 9, 1994
(inception) to December 31, 1994 and the year ended December 31, 1995, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report with respect thereon,
appearing elsewhere herein and in the Registration Statement and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of A Center for Gynecology, P.A. as of and for the
year ended December 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report with respect thereon, appearing elsewhere herein and in
the Registration Statement and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act and the rules
and regulations promulgated thereunder, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
exhibits thereto. The Registration Statement, including the exhibits thereto,
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
20549 D.C. and at the Commission's Regional Offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of the Registration or any part thereof
may be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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<PAGE> 74
GYNCOR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REGISTRANT
GYNCOR, INC.
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Balance Sheet as of June 30, 1994, and Combined Balance Sheets as of
June 30, 1995, December 31, 1995 and March 31, 1996 (unaudited).................... F-3
Statements of Operations for the years ended June 30, 1993 and 1994, and Combined
Statements of Operations for the year ended June 30, 1995, for the six month period
ended December 31, 1995 and for the three month periods ended March 31, 1995
(unaudited) and 1996
(unaudited)........................................................................ F-4
Statements of Stockholders' Equity for the years ended June 30, 1993 and 1994
(consolidated), and Combined Statements of Net Capital Deficiency for the year
ended June 30, 1995, for the six month period ended December 31, 1995 and for the
three month period ended March 31, 1996 (unaudited)................................ F-5
Statements of Cash Flows for the years ended June 30, 1993 and 1994, and Combined
Statements of Cash Flows for the year ended June 30, 1995, for the six month period
ended December 31, 1995 and for the three month periods ended March 31, 1995
(unaudited) and 1996
(unaudited)........................................................................ F-6
Notes to Financial Statements........................................................ F-7
RECENT ACQUISITIONS
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
Report of Ernst & Young LLP, Independent Auditors.................................... F-22
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)....... F-23
Statements of Income and Retained Earnings (Accumulated Deficit) for the period from
February 9, 1994 (inception) to December 31, 1994, the year ended December 31, 1995
and the three months ended March 31, 1996 (unaudited).............................. F-24
Statements of Cash Flows for the period from February 9, 1994 (inception) to December
31, 1994, the year ended December 31, 1995 and the three months ended March 31,
1996 (unaudited)................................................................... F-25
Notes to Financial Statements........................................................ F-26
A CENTER FOR GYNECOLOGY, P.A.
Report of Ernst & Young LLP, Independent Auditors.................................... F-29
Balance Sheet as of December 31, 1995 and March 31, 1996 (unaudited)................. F-30
Statement of Operations and Retained Earnings for the year ended December 31, 1995
and the three months ended March 31, 1996 (unaudited).............................. F-31
Statement of Cash Flows for the year ended December 31, 1995 and the three months
ended March 31, 1996 (unaudited)................................................... F-32
Notes to Financial Statements........................................................ F-33
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GynCor, Inc.
We have audited the accompanying consolidated balance sheet of GynCor, Inc.
as of June 30, 1994, and the combined balance sheets as of June 30, 1995 and
December 31, 1995, and the related statements of operations, stockholders'
equity, and cash flows for the years ended June 30, 1993 and 1994, and combined
statement of operations, net capital deficiency, and cash flows for the year
ended June 30, 1995, and the six month period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GynCor, Inc. at
June 30, 1994, and the combined financial position at June 30, 1995 and December
31, 1995, and the results of their operations and their cash flows for the years
ended June 30, 1993, 1994 and 1995, and the six month period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1996,
except for the first and second paragraphs
of Note 9 as to which the date is June 5, 1996,
and the first, third, and fourth paragraphs of
Note 17 as to which the date is May 1, 1996
F-2
<PAGE> 76
GYNCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, JUNE 30, 31, MARCH 31,
1994 1995 1995 1996
-------------- ---------- ----------- -----------
(CONSOLIDATED) (COMBINED) (COMBINED) (UNAUDITED)
(PREDECESSOR)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 331,473 $ 20,207 $ 132,965 $ 655,437
Receivables
Patients, net of allowance for doubtful
accounts of $492,000, $756,000, $590,000 and
$623,000, respectively....................... 2,722,542 2,661,076 3,873,611 4,655,057
Other.......................................... 82,477 47,030 62,455 88,079
Notes receivable from officers/stockholders...... -- 163,318 1,399,046 1,399,046
Prepaid expenses, inventories and other.......... 155,109 515,915 467,614 482,644
Deferred offering costs.......................... -- -- 430,737 1,003,877
---------- ---------- ----------- -----------
Total current assets......................... 3,291,601 3,407,546 6,366,428 8,284,140
Property and equipment:
Leasehold improvements........................... 385,130 1,590,225 1,868,800 1,882,431
Medical equipment................................ 1,665,639 2,387,652 2,716,445 2,803,904
Computer equipment and software.................. 497,566 747,006 954,602 993,753
Furniture and equipment.......................... 534,916 891,676 921,348 993,389
---------- ---------- ----------- -----------
3,083,251 5,616,559 6,461,195 6,673,477
Less accumulated depreciation and amortization... 1,130,519 1,639,652 1,947,630 2,142,511
---------- ---------- ----------- -----------
1,952,732 3,976,907 4,513,565 4,530,966
Goodwill, net of accumulated amortization.......... 567,830 553,635 546,540 542,762
Deferred taxes..................................... 22,000 -- -- --
Other assets....................................... 2,325 22,713 187,862 580,204
---------- ---------- ----------- -----------
Total assets................................. $5,836,488 $7,960,801 $11,614,395 $13,938,072
========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable.................................... $ 425,000 $2,307,863 $ 200,000 $ 2,956,508
Current portion of long-term debt and capital
lease obligations.............................. 725,817 634,506 681,854 638,318
Notes payable to officers/stockholders........... -- -- 1,165,000 1,165,000
Accounts payable................................. 1,277,019 3,586,529 2,415,461 2,558,360
Accrued liabilities
Compensation................................... 464,406 876,099 1,192,251 973,391
Other.......................................... 124,139 249,225 164,396 162,725
Deferred income taxes............................ 476,000 -- -- --
Deferred revenue................................. -- 400,000 528,280 560,593
---------- ---------- ----------- -----------
Total current liabilities.................... 3,492,381 8,054,222 6,347,242 9,014,895
Long-term debt and capital lease obligations, less
current portion.................................. 1,519,869 1,145,812 1,351,178 1,237,855
Deferred rent...................................... 85,470 343,131 617,735 657,265
Subordinated convertible promissory note........... -- -- 5,000,000 5,000,000
Stockholders' equity (net capital deficiency):
Common stock:
3,333,333, 3,963,333, 3,966,666 and 4,008,333
shares issued and outstanding, respectively.... -- -- -- --
Additional paid-in capital....................... 1,000 38,819 155,820 2,155,620
Retained earnings (accumulated deficit).......... 737,768 (1,621,183) (1,857,580) (4,127,563)
---------- ---------- ----------- -----------
Total stockholders' equity (net capital
deficiency)............................... 738,768 (1,582,364) (1,701,760) (1,971,943)
---------- ---------- ----------- -----------
$5,836,488 $7,960,801 $11,614,395 $13,938,072
========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 77
GYNCOR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTH PERIOD ENDED
-------------------------------------------- SIX MONTH PERIOD MARCH 31,
JUNE 30, JUNE 30, JUNE 30, ENDED -------------------------
1993 1994 1995 DECEMBER 31, 1995 1995 1996
------------- -------------- ----------- ----------------- ----------- -----------
(PREDECESSOR) (PREDECESSOR) (COMBINED) (COMBINED) (UNAUDITED) (UNAUDITED)
(CONSOLIDATED)
<S> <C> <C> <C> <C> <C> <C>
Net patient service
revenue................. $ 5,545,224 $8,784,602 $13,881,508 $12,059,876 $ 2,602,835 $ 5,978,921
Operating expenses:
Physicians' salaries.... 760,330 1,811,736 3,014,252 2,954,179 689,615 3,673,743
Clinic salaries, wages
and benefits.......... 1,041,439 1,916,375 3,883,206 2,624,573 761,391 1,290,457
Clinic rent and lease
expense............... 302,014 307,514 1,082,452 880,806 309,855 497,234
Clinic supplies......... 1,356,358 2,337,872 3,530,619 1,841,666 951,688 790,757
Other clinic expenses... 302,507 573,985 1,054,005 861,002 127,108 366,619
General corporate
expenses.............. 1,166,894 1,447,991 3,215,134 2,604,181 1,128,132 1,231,413
Depreciation and
amortization.......... 96,065 143,871 651,059 365,073 130,679 215,324
----------- ---------- ----------- ----------- ----------- -----------
Total operating
expenses............ 5,025,607 8,539,344 16,430,727 12,131,480 4,098,468 8,065,547
----------- ---------- ----------- ----------- ----------- -----------
Operating income (loss)... 519,617 245,258 (2,549,219) (71,604) (1,495,633) (2,086,626)
Equity in CHRNW........... 37,057 349,142 -- -- -- --
Interest expense, net of
interest income of
$5,872, $8,968, $3,100,
$66,261, $1,429 and
$1,004, respectively.... 46,080 67,980 231,640 164,793 71,200 183,357
Loss (gain) on sale of
equipment............... -- (9,144) 32,092 -- (30,350) --
----------- ---------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes............ 510,594 535,564 (2,812,951) (236,397) (1,536,483) (2,269,983)
Income taxes (benefit) --
deferred................ 192,000 73,000 (454,000) -- (186,000) --
----------- ---------- ----------- ----------- ----------- -----------
Net income (loss)..... $ 318,594 $ 462,564 $(2,358,951) $ (236,397) $(1,350,483 $(2,269,983)
=========== ========== =========== =========== =========== ===========
Pro forma net income
(loss) per common share
(unaudited)............. $ (.64) $ (.05) $ (.36) $ (.52)
=========== =========== =========== ===========
Pro forma weighted average
number of common shares
outstanding
(unaudited)............. 3,703,619 4,336,884 3,798,627 4,337,185
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 78
GYNCOR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
PREDECESSOR GYNCOR, INC. RETAINED STOCKHOLDERS'
COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS EQUITY
------------------ ------------------- PAID-IN (ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) DEFICIENCY)
--------- ------ --------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 1,
1992.................... 3,333,333 -- -- $ -- $ 1,000 $ (43,390) $ (42,390)
Net income................ -- -- -- 318,594 318,594
--------- ------ --------- ------- ---------- ------------ ------------
Balances at June 30,
1993.................... 3,333,333 -- -- -- 1,000 275,204 276,204
Net income................ -- -- -- 462,564 462,564
--------- ------ --------- ------- ---------- ------------ ------------
Balances at June 30, 1994
(consolidated).......... 3,333,333 -- -- -- 1,000 737,768 738,768
Issuance of shares --
$.0003 per share........ -- -- 3,963,333 -- 1,189 -- 1,189
Additional paid-in capital
-- Affiliates........... -- -- -- -- 36,630 -- 36,630
Net loss.................. -- -- -- -- -- (2,358,951) (2,358,951)
--------- ------ --------- ------- ---------- ------------ ------------
Balances at June 30, 1995
(combined).............. -- -- 3,963,333 -- 38,819 (1,621,183) (1,582,364)
Issuance of shares --
$.0003 per share........ -- -- 3,333 -- 1 -- 1
Compensation value of
options to purchase
common stock............ -- -- -- -- 117,000 -- 117,000
Net loss.................. -- -- -- -- -- (236,397) (236,397)
--------- ------ --------- ------- ---------- ------------ ------------
Balances at December 31,
1995 (combined)......... -- -- 3,966,666 -- 155,820 (1,857,580) (1,701,760)
Issuance of shares........ -- -- 41,667 -- -- -- --
Compensation value of
options to purchase
common stock............ -- -- -- -- 1,999,800 -- 1,999,800
Net loss.................. -- -- -- -- -- (2,269,983) (2,269,983)
--------- ------ --------- ------- ---------- ------------ ------------
Balances at March 31, 1996
(Unaudited)............. -- -- 4,008,333 $ -- $2,155,620 $ (4,127,563) $ (1,971,943)
========= ====== ========= ======= ========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 79
GYNCOR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH THREE MONTH PERIOD ENDED
-------------------------------------------- PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, -------------------------
1993 1994 1995 1995 1995 1996
------------- -------------- ----------- ------------ ----------- -----------
(PREDECESSOR) (PREDECESSOR) (COMBINED) (COMBINED) (UNAUDITED) (UNAUDITED)
(CONSOLIDATED)
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)........... $ 318,594 $ 462,564 $(2,358,951) $ (236,397) $(1,350,483) $(2,269,983)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............ 96,065 143,871 651,059 365,073 130,679 215,324
Compensation value of
options to purchase
common stock............ -- -- -- 117,000 -- 1,999,800
Equity in CHRNW........... (37,057) (349,142) -- -- -- --
Deferred rent............. (10,551) (69,045) 257,661 274,604 -- 39,530
Loss (gain) on sale of
equipment............... -- (9,144) 32,092 -- (30,350) --
Deferred income taxes..... 192,000 73,000 (454,000) -- (186,000) --
Changes in assets and
liabilities............. (349,047) (141,055) 2,889,329 (2,206,272) 1,615,244 (1,276,426)
--------- ---------- ----------- ----------- ----------- -----------
Total adjustments.... (108,590) (351,515) 3,376,141 (1,449,595) 1,529,573 978,228
--------- ---------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities................ 210,004 111,049 1,017,190 (1,685,992) 179,090 (991,755)
Investing Activities:
Acquisition, net of cash
acquired.................. -- 29,932 -- -- -- --
Proceeds from sale of
equipment................. -- -- 22,000 -- 22,000 --
Capital expenditures........ (316,659) (88,676) (1,954,348) (553,026) (75,793) (212,282)
--------- ---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities................ (316,659) (58,744) (1,932,348) (553,026) (53,793) (212,282)
Financing Activities:
Net proceeds from issuance
of common stock and
additional paid-in-capital
from Affiliates........... -- -- 37,819 1 -- --
Deferred offering costs..... -- -- -- (430,737) -- (573,140)
Loans from (repayments to)
officers/stockholders --
net....................... (2,954) 51,919 (163,318) (70,728) -- --
Due to former stockholders
of CHRNW.................. -- -- (202,664) (106,381) (151,140) (37,916)
Net proceeds from notes
payable -- banks.......... 275,000 150,000 2,107,863 -- -- 2,756,508
Proceeds from notes payable
-- other.................. -- -- 200,000 -- -- --
Repayment of notes
payable................... -- -- (425,000) (2,107,863) -- --
Proceeds from long-term debt
and subordinated
promissory note........... -- 300,000 300,000 5,300,000 300,000 --
Principal payments on
long-term debt and capital
lease obligations......... (154,514) (234,669) (1,250,808) (232,516) (286,643) (118,943)
--------- ---------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities................ 117,532 267,250 603,892 2,351,776 (137,783) 2,026,509
--------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash........................ 10,877 319,555 (311,266) 112,758 (12,486) 522,472
Cash, beginning of period..... 1,041 11,918 331,473 20,207 13,025 132,965
--------- ---------- ----------- ----------- ----------- -----------
Cash, end of period........... $ 11,918 $ 331,473 $ 20,207 $ 132,965 $ 539 $ 655,437
========= ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 80
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
GynCor, Inc. (the Company) was incorporated in January 1995 in Illinois,
and reincorporated in March 1996 in Delaware, to provide management systems and
services, non-healthcare personnel, and facilities and equipment under long-term
management service agreements to certain professional corporations. These
professional corporations are: The Center for Human Reproduction-Illinois,
M.D.S.C. (formerly known as Gleicher, Pratt, Miller, Karande & Associates, M.D.,
S.C.) (CHR-Illinois), incorporated in Illinois in 1981 to focus exclusively on
reproductive medicine; The Center for Human Reproduction-Perinatal, M.D.S.C.
(formerly known as Gleicher, Pratt, Miller, Karande Perinatal Associates, M.D.,
S.C.) (CHR-Perinatal), incorporated in Illinois in January 1995 to focus
exclusively on perinatology; and The Center for Human Reproduction-Endoscopic,
M.D.S.C. (formerly known as Endoscopic Surgery, M.D., S.C.) (CHR-Endoscopic),
incorporated in Illinois in January 1995 to focus exclusively on endoscopic
surgery. CHR-Illinois, CHR-Perinatal and CHR-Endoscopic, collectively the
Affiliates, operate under the name The Center for Human Reproduction (CHR) under
license agreements with the Company. The Company and Affiliates are collectively
referred to as the Companies.
The Company has a long-term management services agreement with the
Affiliates, under which the Company provides substantially all administrative
and management services, in exchange for a stated percentage of collected net
parent service revenue. See Note 17.
Basis of Presentation
The accompanying financial statements include the accounts of the Company
and the professional corporations described above, which have been operated
under common control by two principal stockholders during the three month
periods ended March 31, 1996 and 1995, the six month period ended December 31,
1995 and the period ended June 30, 1995. Effective December 31, 1995, the
Company changed its year end for financial reporting purposes from June 30 to
December 31.
Effective June 30, 1994, the controlling stockholders of CHR-Illinois who
also controlled a 50% interest in The Center for Human Reproduction Northwest
(CHRNW) acquired the remaining 50% from stockholders not affiliated with
CHR-Illinois, and, in January 1995, merged CHRNW into CHR-Illinois. Since
CHRNW's inception to June 30, 1994, the original 50% common control of CHRNW has
been accounted for under the equity method of accounting. The net assets of
CHRNW at June 30, 1994, were approximately $443,000, net of cash acquired of
$330,000. The purchase price for the transaction was approximately $775,000,
consisting of $300,000 cash and a $455,000 obligation to the former
stockholders. The acquisition of CHRNW was accounted for as a purchase by
CHR-Illinois, and the purchase price was allocated to assets acquired and
liabilities assumed based on the estimated fair market value, which approximated
historical net book value, existing at the date of acquisition. The excess of
purchase price over fair market value of net assets acquired is reflected in the
accompanying consolidated/combined balance sheets as goodwill, which was
$567,830 as of June 30, 1994. See Note 2.
F-7
<PAGE> 81
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The following summarizes certain financial information of CHRNW as of and
for the year ended June 30, 1994 (unaudited):
<TABLE>
<S> <C>
Current assets.................................................... $1,053,000
==========
Noncurrent assets................................................. $ 293,000
==========
Current liabilities............................................... $ 314,000
==========
Noncurrent liabilities............................................ $ 257,000
==========
Net patient service revenue....................................... $2,946,000
==========
Net income........................................................ $ 698,000
==========
</TABLE>
The accompanying 1996 (unaudited) and 1995 combined financial statements
have been prepared to reflect the combination of business entities which have
been operated under common control. The accompanying 1994 consolidated balance
sheet includes the accounts of CHR-Illinois and CHRNW, and the 1994 and 1993
statements of operations and cash flows include only the accounts of
CHR-Illinois. All significant intercompany balances and transactions between the
companies have been eliminated.
Since inception in January 1995, the efforts of CHR-Perinatal have been
primarily devoted to establishing a patient market, recruiting and training
personnel, and starting up the practice. The following summarizes certain
financial information of CHR-Perinatal, which are included in the 1995 and 1996
combined financial statements:
<TABLE>
<CAPTION>
SIX MONTH PERIOD THREE MONTH PERIOD CUMULATIVE
ENDED ENDED SINCE
DECEMBER 31, 1995 MARCH 31, 1996 INCEPTION
----------------- ------------------ ----------
<S> <C> <C> <C>
Net revenue..................................... $ 80,289 $141,080 $ 266,128
Operating expenses.............................. 445,923 254,349 1,135,126
--------- -------- ----------
Net loss and deficit accumulated during the
development stage............................. $ 365,634 $113,269 $ 868,998
========= ======== ==========
Net cash provided by (used in) operating
activities.................................... $(355,509) $ 12,636 $ (752,851)
Net cash provided by (used in repayment of)
loans from affiliates......................... (369,624) (14,907) 26,949
Cash provided by loans from stockholders........ 725,000 -- 725,000
Cash provided by issuance of common stock....... -- -- 1,030
--------- -------- ----------
Net (decrease) increase in cash................. (133) (2,271) 128
Cash, beginning of period....................... 2,532 2,399 --
--------- -------- ----------
Cash, end of period............................. $ 2,399 $ 128 $ 128
========= ======== ==========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
is provided using the straight-line or double-declining balance methods over the
estimated useful lives of the assets which range from 5 to 7 years based on the
type and condition of the assets. The Companies amortize leasehold improvements
over 20 years which represents the remaining life of the lease, including
options to renew.
F-8
<PAGE> 82
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired and is amortized on a straight-line basis over
the term of the management services agreement of 40 years. See Note 17.
Accumulated amortization is approximately $14,195, $21,290 and $25,068 at June
30, 1995, December 31, 1995 and March 31, 1996, respectively. At each balance
sheet date, the Company assesses the recoverability of goodwill and whether a
change in circumstances has occurred subsequent to an acquisition which would
indicate whether the future useful life of an asset should be revised. The
Company employs a systematic and rationale method of assessing the
recoverability of goodwill by considering various factors such as the earnings
potential of the acquired business, the management fees generated under the
related management services agreement, the value of the revenue stream generated
under any related managed care contracts and the strategic value of the office
locations acquired or assumed as a result of the acquisition.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The Company, CHR-Perinatal and CHR-Endoscopic have elected to be taxed as S
corporations under the provisions of the Internal Revenue Code. Accordingly, all
taxes for these companies, except for state replacement taxes, are paid by the
stockholders. See Note 17.
Net Patient Service Revenue
Net patient service revenue is reported at the estimated realizable amounts
from patients and third-party payors, such as health maintenance organizations
(HMOs), for services rendered.
Payment terms under certain HMO contracts are on a capitation basis (a
fixed payment per enrollee per month). Revenue related to HMO arrangements is
recognized when earned.
The Affiliates also have several fee-for-service arrangements with
third-party payors and patients. Revenue under fee-for-service arrangements is
recorded when the service is provided.
Net patient service revenue derived from two third-party payors amounted to
approximately $2,800,000, $6,100,000, $9,000,000, $4,300,000, $1,500,000 and
$2,900,000 for the years ended June 30, 1993, 1994 and 1995, and the six months
ended December 31, 1995 and the three months ended March 31, 1995 and 1996,
respectively. Receivables from these payors totalled approximately $1,529,000,
$405,000, $450,000, $350,000 and $500,000 at June 30, 1994 and 1995, and
December 31, 1995 and March 31, 1995 and 1996, respectively.
Deferred revenue represents payments received from third party payors for
future services. Deferred revenue is recognized as revenue when earned.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE> 83
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Advertising
Advertising and promotional costs are expensed when incurred. Advertising
expense was $149,022, $109,113, $45,905 and $87,551 for the periods ended June
30, 1995 and December 31, 1995 and the three months ended March 31, 1995 and
1996, respectively.
Stock-Based Compensation
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees and, accordingly, recognizes
compensation expense at the measurement date when the fair value of the shares
exceed the exercise price.
Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed by dividing net income
(loss), considering income taxes computed as if all the Companies were taxable
entities, by the number of common and common equivalent shares outstanding
during the periods in accordance with the applicable rules of the Securities and
Exchange Commission. All stock options issued have been considered as
outstanding common stock equivalents for all periods presented, even if
anti-dilutive, under the treasury stock method (based on the initial public
offering price). Shares of common stock issuable upon conversion of the
subordinated convertible promissory note are assumed to be common share
equivalents for the six months ended December 31, 1995 and the three months
ended March 31, 1996.
Net income (loss) per common share on a historical basis is as follows:
$.10, $.14, $(.64), $(.06), $(.39) and $(.57) for the years ended June 30, 1993,
1994, and 1995, and the six months ended December 31, 1995, and the three months
ended March 31, 1995 and 1996, respectively. The weighted average number of
common shares outstanding used to calculate these net income (loss) per common
share amounts are as follows: 3,333,333, 3,333,333, 3,671,508, 3,966,666,
3,428,409 and 3,967,124 for the years ended June 30, 1993, 1994, and 1995, and
the six months ended December 31, 1995, and the three months ended March 31,
1995 and 1996, respectively.
3. CREDIT RISK
Financial instruments that potentially subject the Companies to significant
concentrations of credit risk primarily consist of patient accounts receivable.
The Companies perform ongoing credit evaluations of their patients and major
third-party payors and generally requires no collateral. Reserves maintained for
potential credit losses have, when realized, been within the range of
management's expectations.
4. STOCKHOLDERS' NOTES
As of June 30, 1995, December 31, 1995 and March 31, 1996, the Companies'
notes receivable outstanding from certain stockholders were $163,318, $1,399,046
and $1,399,046, respectively. Notes receivable from officers/stockholders at
December 31, 1995 and March 31, 1996, include $1,165,000 unsecured demand notes
receivable due to the Company from three officers/stockholders, with interest at
7%, and $234,118 notes receivable, including accrued interest, from two
stockholders, with interest at 8% and collateralized by junior real estate
mortgages.
As of December 31, 1995 and March 31, 1996, notes payable to
officers/stockholders of $1,165,000 from CHR-Perinatal and CHR-Endoscopic are
due upon demand, with interest at 7%. The stockholders must jointly and
severally demand payment, with the provision that all stockholders will demand
payment if the
F-10
<PAGE> 84
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
majority stockholder demands payment. Concurrently, the Company will demand
payment of the $1,165,000 notes receivable.
Prior to 1994, CHR-Illinois paid $200,000 to an officer/stockholder as a
security deposit for property subleased from the officer/stockholder. During
1994, the stockholder sold the property to an unrelated party, a security
deposit was paid to the new landlord, and the Company received a note from the
officer/stockholder in the amount of the original security deposit in lieu of a
refund of the security deposit. During 1994, the note was forgiven and
recognized as compensation in the accompanying 1994 statement of operations.
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------ ----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
------------ ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to banks:
Revolving loans with interest at bank's rate
of 9%, were repaid in December 1995....... $ -- $2,107,863 $ -- $ --
Line of credit, with interest at bank's rate
of 8.25%, were repaid in May 1995......... 275,000 -- -- --
Term note payable, with interest at bank's
rate of 8.25%, were repaid in July
1994...................................... 150,000 -- -- --
Line of credit, with interest at bank's rate
of 8.25%, as of March 31, 1996............ -- -- -- 2,756,508
Note payable to Blue Cross Blue Shield of
Illinois for start-up costs relating to
managed care contract, due June 1, 1996,
non-interest bearing......................... -- 200,000 200,000 200,000
-------- ---------- -------- ----------
$425,000 $2,307,863 $200,000 $2,956,508
======== ========== ======== ==========
</TABLE>
In May 1995, the Companies entered into a Secured Credit Agreement which
provided for revolving loans up to the greater of $2,500,000 or the borrowing
base, as defined, through April 30, 1996, with interest at a bank's prime rate
payable monthly. The borrowings were collateralized by substantially all the
assets of the Companies and personally guaranteed by the Companies' majority
stockholders. In December 1995, the outstanding loans under this agreement were
repaid from the proceeds of a subordinated, convertible promissory note (see
Note 6). This agreement was cancelled in February 1996.
On February 23, 1996, the Companies entered into the Secured Credit
Agreement with another bank which provides for borrowings under a line of credit
up to the greater of $5,000,000 or 80% of eligible receivables, as defined, for
one year, with interest which varies at the bank's base rate payable monthly.
The borrowings are collateralized primarily by receivables and personally
guaranteed by the Companies' majority stockholders. The Companies have agreed to
comply with certain reporting and financial covenants.
F-11
<PAGE> 85
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. DEBT
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------ -----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
------------ ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Term notes payable to a bank, with interest at
prime rate plus 1%, repaid in May 1995...... $ 514,949 $ -- $ -- $ --
Secured installment note payable to a bank in
monthly payments of $8,333, plus interest at
a bank's prime rate plus 1/2% (8.75% at
March 31, 1996), with final payment due in
August 1998, guaranteed by a principal
stockholder................................. -- -- 266,667 241,667
Due to former stockholders of CHRNW, payable
in equal monthly installments to June 1996,
including interest imputed at 8%............ 420,027 217,362 110,982 73,066
Term notes payable, with interest at a bank's
prime rate plus 1%, repaid in December
1994........................................ 145,833 -- -- --
Capital lease obligations..................... 1,164,877 1,562,956 1,655,383 1,561,440
----------- ---------- ---------- -----------
2,245,686 1,780,318 2,033,032 1,876,173
Less current portion.......................... (725,817) (634,506) (681,854) (638,318)
----------- ---------- ---------- -----------
$ 1,519,869 $1,145,812 $1,351,178 $ 1,237,855
=========== ========== ========== ===========
</TABLE>
Maturities of long-term debt, excluding capital leases, as of December 31,
1995 and March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
1996.................................................. $211,444 $ 173,066
1997.................................................. 100,000 100,000
1998.................................................. 66,205 41,667
-------- ---------
$377,649 $ 314,733
======== =========
</TABLE>
F-12
<PAGE> 86
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Future minimum lease payments under capital lease obligations, with the
present value of the net minimum lease payments, as of December 31, 1995 and
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
1996................................................ $ 625,509 $ 473,444
1997................................................ 532,378 533,319
1998................................................ 473,308 477,766
1999................................................ 281,329 293,092
2000................................................ 80,822 112,068
---------- -----------
Total minimum lease payments.......................... 1,993,346 1,889,689
Less amount representing interest..................... (337,963) (328,249)
---------- -----------
Capital lease obligations............................. 1,655,383 1,561,440
Less current portion of capital lease obligations..... (470,410) (465,252)
---------- -----------
Long-term capital lease obligations................... $1,184,973 $ 1,096,188
========== ===========
</TABLE>
Equipment and accumulated depreciation under capital lease obligations are
as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
---------- -----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cost........................... $1,465,668 $2,115,828 $2,407,438 $ 2,407,438
Accumulated Depreciation....... 423,842 819,068 1,031,790 1,096,467
---------- ---------- ---------- -----------
$1,041,826 $1,296,760 $1,375,648 $ 1,310,971
========== ========== ========== ===========
</TABLE>
In December 1995, the Company entered into a 10% subordinated convertible
promissory note for $5,000,000 with Blue Cross Blue Shield of Illinois (BCBS),
payable in 2000 (promissory note). Interest is payable June 30, 1996, and
semi-annually beginning December 31, 1996. $2,500,000 of the promissory note is
payable upon the sale or merger of the Company which results in the change of
control of the Company's Board of Directors, other than defined parties, or an
initial public offering of no less than $10,000,000 and an offering price of no
less than $5 per share.
At any time, BCBS may convert $2,500,000 of the promissory note, in total
or in increments of no less than $500,000, into a number of shares of common
stock of the Company equal to 1% of the number of outstanding shares of common
stock and common stock equivalents, per $500,000 of the principal balance to be
converted. Additionally, at the time of an effective initial public offering, up
to $2,500,000 of the promissory note automatically converts into 1% of the
number of outstanding shares of common stock and common stock equivalents of the
Company, per $500,000 of the principal balance to be converted, after giving
effect to the initial public offering and not giving effect to any previous
conversion of the promissory note into common stock of the Company.
The promissory note is subordinated to the payment of any senior debt. The
Company has agreed to comply with certain reporting and financial covenants,
including certain restrictions on dividend payments.
7. INCOME TAXES
CHR-Illinois has been subject to federal and state income taxes since its
inception in 1981. At June 30, 1995, CHR-Illinois had net operating tax loss
carryforwards of $392,000, which will expire in 2007 through 2010.
F-13
<PAGE> 87
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------- -------------------------------------------------------
THREE MONTH
SIX MONTH PERIOD ENDED
PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, --------------------------
1993 1994 1995 1995 1995 1996
-------- ------- --------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deferred:
Federal..................... $158,000 $59,000 $(375,000) $ -- $(153,000) $--
State....................... 34,000 14,000 (79,000) -- (33,000) --
--
-------- ------- --------- ---------- --------- ------
$192,000 $73,000 $(454,000) $ -- $(186,000) $--
======== ======= ========= ========== ========= ======
</TABLE>
A reconciliation between income taxes (benefit) and the amount computed by
applying the statutory federal income tax rate of 35% to income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------- -------------------------------------------------------
THREE MONTH
SIX MONTH PERIOD ENDED
PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, --------------------------
1993 1994 1995 1995 1995 1996
-------- ------- --------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income taxes (benefit) at
statutory federal rate... $178,000 $ 183,000 $(976,000) $ (43,000) $(538,000) $ (795,000)
State taxes................ 25,000 10,000 (139,000) (7,000) (77,000) (50,000)
Exempt S Corporation
(income) loss............ -- -- 14,000 (190,000) (116,000) 1,155,000
Excluded equity in CHRNW... (13,000) (122,000) -- -- -- --
Net operating tax loss
carryforwards and other
not recognized........... -- -- 637,000 230,000 535,000 (320,000)
Other...................... 2,000 2,000 10,000 10,000 10,000 10,000
-------- --------- --------- ---------- --------- -----------
$192,000 $ 73,000 $(454,000) $ -- $(186,000) $ --
======== ========= ========= ========== ========= ===========
</TABLE>
Significant components of deferred tax assets (liabilities) consist of the
following:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------- -----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
----------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net operating tax loss carryforwards....... $ 22,000 $ 156,000 $ 196,000 $ 570,000
Cash basis of accounting for income taxes:
Accounts receivable...................... (1,047,000) (675,000) (1,089,000) (1,582,000)
Other current assets..................... (215,000) (143,000) (113,000) (130,000)
Accounts payable and accrued
liabilities........................... 882,000 1,334,000 2,149,000 1,640,000
Property and equipment................... (67,000) (199,000) (262,000) (262,000)
Other.................................... (29,000) 164,000 (14,000) (14,000)
----------- ---------- ------------ ---------
(454,000) 637,000 867,000 222,000
Less valuation allowance................... -- (637,000) (867,000) (222,000)
----------- ---------- ------------ -----------
$ (454,000) $ -- $ -- $ --
=========== ========== ============ ===========
</TABLE>
F-14
<PAGE> 88
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The increase in the valuation allowance resulted primarily from the
increase in the net operating tax loss carryforwards and cash basis of
accounting for income taxes.
8. OPERATING LEASES
The Companies lease certain facilities and equipment under operating
leases. Generally, real estate leases are for primary terms of 7 to 20 years
with options to renew for additional periods. Equipment leases have remaining
terms of 1 to 4 years.
Several of the real estate leases have scheduled future rent increases or
current free rental periods. Rental expense is computed on a straight-line basis
over the entire terms of the leases. Deferred rent consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------- ----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
----------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current portion............................... $ 8,520 $ 19,173 $ 22,817 $ 22,813
Long-term..................................... 85,470 343,131 617,735 657,265
------- -------- -------- ---------
$93,990 $362,304 $640,552 $ 680,078
======= ======== ======== =========
</TABLE>
CHR-Illinois leases a certain facility from a stockholder. Total rental
expense for all operating leases, except those with terms of one year or less
that were not renewed, are as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------- --------------------------------------------------------
THREE MOMTH
SIX MONTH PERIOD ENDED
PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, --------------------------
1993 1994 1995 1995 1995 1996
-------- -------- ---------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Office space.............. $268,425 $253,506 $1,010,857 $828,185 $ 243,824 $ 344,173
Medical equipment and
vehicles................ 64,112 68,738 80,664 76,514 71,569 32,157
-------- -------- ---------- -------- --------- ---------
Total rent expense...... $332,537 $322,244 $1,091,521 $904,699 $ 315,393 $ 376,330
======== ======== ========== ======== ========= =========
Amount of rent paid to
stockholder.......... $265,991 $ 88,467 $ 100,189 $ 44,620 $ 20,280 $ 21,090
======== ======== ========== ======== ========= =========
</TABLE>
Future minimum rental payments required under operating leases, including
renegotiated leases, that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1995 and March 31, 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------- --------------------------
TOTAL STOCKHOLDER TOTAL STOCKHOLDER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996........................... $ 987,024 $ 82,740 $ 610,694 $ 63,270
1997........................... 1,236,462 86,052 1,236,462 87,744
1998........................... 1,188,897 43,872 1,188,897 --
1999........................... 1,028,036 -- 1,028,036 --
2000........................... 1,213,996 -- 1,213,996 --
Subsequent years............... 7,657,652 -- 7,657,652 --
----------- -------- ----------- ---------
$13,312,067 $ 212,664 $12,935,737 $ 151,014
=========== ======== =========== =========
</TABLE>
F-15
<PAGE> 89
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
9. COMMON STOCK AND AFFILIATED EQUITY
The Company's authorized common stock was 40,000,000 shares at June 30,
1994 and 1995 and December 31, 1995 and March 31, 1996. All common share and per
share amounts in the financial statements and notes to these financial
statements have been restated to reflect a 4,000-for-1 exchange in connection
with the reincorporation in Delaware effective March 8, 1996 and a reverse stock
split on a five-for-six share basis effective April 24, 1996.
Additional paid-in capital from Affiliates of $37,630 is the net proceeds
from the issuance of shares by the Affiliates. On June 5, 1996, the Company
entered into an asset transfer agreement which resulted in the acquisition of
certain assets of the Affiliates in exchange for the assumption of certain
liabilities. This asset transfer agreement had no impact on the accompanying
financial statements. After taking into account this transaction, the combined
accumulated deficit at December 31, 1995 would have included approximately $1.7
million of an accumulated deficit attributable to the Affiliates in which the
principal officers/stockholders of the Company are principal stockholders and/or
officers of the Affiliates.
At December 31, 1995 and March 31, 1996, authorized but unissued shares of
common stock have been reserved for future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Options................................... 260,000 359,167
Subordinated convertible promissory
note.................................... 222,456 221,316
------- -------
482,456 580,483
======= =======
</TABLE>
10. STOCKHOLDERS' AND EMPLOYMENT AGREEMENTS
The Company's stockholders' agreement restricts the ability of the
stockholders to transfer any common shares of the Company and obligates the
Company to purchase the common shares held by stockholders upon termination or
death, at a defined price. The agreement also provides an officer/stockholder
certain additional rights, as defined. Upon the completion of an initial public
offering, this agreement will terminate.
During the year ended December 31, 1995, the Companies entered into or
renegotiated individual employment contracts with certain physicians and
employees, some of whom are officers and/or stockholders of the Companies. The
agreements provide for base salaries ranging from $150,000-$350,000 plus fringe
benefits. Certain agreements also provide for compensation and incentive bonuses
based on collected revenues and deferred compensation (see Note 17).
The employment agreements include covenants not to compete with the
Companies for periods of one to three years subsequent to termination of
employment. The employment agreements are currently for initial terms of one to
ten years and are automatically extended for additional one-year periods until
terminated by either party.
F-16
<PAGE> 90
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
11. CONSULTING AGREEMENTS
The Companies have entered into several agreements with consulting
physicians. The agreements provide for minimum payments totaling $293,020 during
1996 and $100,000 annually over the following four years. Consulting expenses
under these agreements are as follows:
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------
THREE MONTH
PREDECESSOR SIX MONTH PERIOD ENDED
- --------------------- PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, ---------------------------
1993 1994 1995 1995 1995 1996
- -------- -------- -------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
$ 28,708 $186,308 $228,564 $312,981 $ 120,985 $ 112,048
======= ======== ======== ======== ======== ========
</TABLE>
12. STOCK OPTIONS
Under a stock option agreement with an officer/stockholder, 63,333 shares
are to be made available commencing June 1, 1995 and ending May 31, 2000. The
price per share is equal to 50% of the fair market value of the common stock of
the Company on the last day of the fiscal year prior to the date of purchase
divided by the total shares outstanding of the Company on the date of purchase.
The stockholder has the right to exercise the option to purchase all or a
portion of the option shares during May of each year beginning in 1996. In March
1996, this option was exercised by the officer/stockholder whereby the Company
issued 41,667 shares of common stock. The Company also agreed to provide a loan
on or before June 12, 1996 in an amount equal to the aggregate Federal and state
income taxes to be paid. Compensation expense of $117,000 and $50,000 was
recorded during the period ending December 31, 1995 and March 31, 1996 in
connection with this option, respectively.
A stockholder entered into an option agreement with a principal
officer/stockholder of both the Company and CHR-Illinois to purchase 196,667
shares of common stock of the Company and 100 shares of common stock of
CHR-Illinois during the option term which commenced on January 1, 1995 and
expires December 31, 2004, unless terminated earlier as defined. This agreement
was designed and agreed to function as a single option agreement and,
accordingly, the option to purchase CHR-Illinois common stock for $2,451 per
share, adjusted annually for interest, must be exercised in full prior to an
option to purchase the Company's common stock is available at an exercise price
for less than $.01 per share. No compensation expense has been recognized, since
the combined exercise price of $1.25 exceeded the fair market value of the
Company's common stock, as determined by the Company's principal stockholders,
at the date the option was granted.
F-17
<PAGE> 91
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
13. CHANGES IN ASSETS AND LIABILITIES
Changes in assets and liabilities included in the statements of cash flows
are as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------ ------------------------------------------------------
SIX MOMTH THREE MONTH PERIOD ENDED
PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, -------------------------
1993 1994 1995 1995 1995 1996
----------- --------- ---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Receivables........... $(1,273,645) $(398,342) $ 96,913 $(1,227,960) $ 24,783 $ (807,070)
Prepaid expenses,
inventories and
other............... (23,711) (65,201) (397,861) 48,301 (32,212) (31,695)
Accounts payable...... 587,960 39,819 2,309,510 (1,171,068) 1,254,760 142,899
Accrued liabilities... 360,349 82,039 480,767 231,325 249,442 (220,531)
Deferred revenue...... -- -- 400,000 128,280 118,471 32,313
Other................. -- 200,630 -- (215,150) -- (392,342)
----------- --------- ---------- ----------- ---------- -----------
$ (349,047) $(141,055) $2,889,329 $(2,206,272) $1,615,244 $(1,276,426)
=========== ========= ========== =========== ========== ===========
</TABLE>
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the following periods is as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------ ------------------------------------------------------
SIX MOMTH THREE MONTH PERIOD ENDED
PERIOD ENDED MARCH 31,
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, -------------------------
1993 1994 1995 1995 1995 1996
----------- --------- ---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Interest.................. $ 44,402 $ 62,893 $191,082 $215,077 $25,431 $59,739
Income taxes.............. $ 22,104 $ -- $ 2,300 $ -- $ -- $ --
</TABLE>
In June 1995, CHR-Illinois purchased medical and laboratory equipment from
physician practices by assuming liabilities totaling $56,012.
Capital lease obligations of $109,314, $924,154, $688,105 and $291,610 were
incurred for new equipment during the periods ended June 30, 1993, 1994 and
1995, and December 31, 1995, respectively.
In 1994, a $200,000 security deposit held by a stockholder was converted to
a note receivable.
In 1993, CHR-Illinois entered into a $350,000 loan agreement with a bank.
$100,000 of the proceeds were designated to finance construction costs, of which
$42,404 was borrowed as of June 30, 1993. The balance of the proceeds, $247,300,
was used to repay a prior bank debt.
15. CONTINGENCIES
In addition to the general liability and malpractice insurance carried by
the individual physicians, the professional corporations are insured with
respect to general liability and medical malpractice risks on a claims made
basis. Management is not aware of any claims against the professional
corporations in excess of insurance coverage. In addition, the professional
corporations have not accrued a loss for unreported incidents or for losses
gross of insurance coverage, as the amount, if any, cannot be reasonably
estimated and the probability of an adverse outcome cannot be determined at this
time. It is the opinion of management that the
F-18
<PAGE> 92
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
ultimate resolution of any open or unasserted claims will not have a material
adverse effect on the financial position, operating results or liquidity net of
any anticipated insurance recoveries of the Company.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of all financial instruments approximated fair value at
June 30, 1994 and 1995 and at December 31, 1995 and at March 31, 1996.
17. SUBSEQUENT EVENTS AND OTHER
Management Services Agreements
On April 1, 1996, the Company entered into a long-term management services
agreement with each of the Affiliates, under which the Company provides
substantially all administrative and management services, including without
limitation, the provision of equipment, supplies, support services, nonmedical
personnel, office space, management, administration, financial record keeping
and reporting, and other business office services, in exchange for a stated
percentage of collected net patient service revenue. Within forty-five (45) days
of the end of each quarter of the Company's fiscal year, the Company shall
evaluate the cost of such services provided and the overall performance of each
Affiliate in relation to the budget for such year to date and the nature and
volume of the services provided by the Company and make any appropriate
adjustments to the initial stated percentage. Each of these agreements is a 40
year management services agreement between the Company and its Affiliates which
replaces former long-term management services agreements.
Through the 40-year management services agreements, the Company will assume
full responsibility for the operating expenses, take an assignment of
substantially all accounts receivable of the professional corporations and
receive a management fee for its services. The Company, as opposed to affiliates
of the Company, will have perpetual, unilateral control over the assets and
operations of the various professional corporations (except with regard to the
practice of medicine), and notwithstanding the lack of technical majority
ownership of the stock of such entities, consolidation of the various
professional corporations will be necessary to present fairly the financial
position and results of operations of the Company because of control by means
other than ownership of stock. Control by the Company will be perpetual rather
than temporary because of (i) the length of the original terms of the
agreements, (ii) the successive extension periods provided by the agreements,
(iii) the continuing investment of capital by the Company, (iv) the employment
of the majority of the nonphysician personnel, and (v) the nature of the
services provided to the professional corporations by the Company.
Acquisitions
On May 1, 1996, the Company entered into definitive agreements to acquire
the nonmedical assets of two physician practices. The total purchase price for
these assets is approximately $1.6 million. Each of these acquisitions will be
accounted for as a purchase, and the purchase price will be allocated to the
assets acquired based on the estimated fair market value at the date of
acquisition. The operations of the practices will be included with the Company's
financial statements beginning on the date of acquisition. Based on unaudited
data, the following table presents selected information for the Company on a pro
forma basis, assuming the
F-19
<PAGE> 93
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
practices had been consolidated for the twelve month period ended December 31,
1995, as the Company changed its fiscal year end to December 31 (see Note 1),
and the three months ended March 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C>
Net patient service revenue........................ $ 25,522,000 $ 7,342,000
Net income (loss).................................. (1,208,000) $(1,961,000)
Net income (loss) per common share................. $(.19) $(.30)
</TABLE>
Employment Agreements
On April 1, 1996, the Company amended employment agreements with three
officers/stockholders to provide, among other matters, annual base salaries
ranging from $100,000 to $350,000 per individual; fixed and performance bonuses;
termination and covenant not to compete clauses; and severance payments as
defined, for two of the officers/stockholders upon change in control, as
defined, of the Company. Upon an initial public offering, the term of the
agreements range from 3 to 5 years and any deferred compensation agreements are
automatically terminated. Additionally, on April 1, 1996, two
officers/stockholders' employment agreements with CHR-Illinois were amended
effective upon the initial public offering to provide for a production bonus for
one officer/stockholder of $250,000 in 1996 and a minimum annual production
bonus of $100,000 for the other officer/stockholder.
Stock Options
Effective March 8, 1996, the Company adopted the Directors' Stock Option
Plan (the "Plan") for members of the Board of Directors who are not also
employees of the Company. The maximum number of shares issuable under the Plan
is 41,666, subject to adjustment in certain instances. Upon the completion of an
initial public offering, Non-Qualified Stock Options ("NQSOs") to purchase 3,333
shares of common stock will be granted to each of two outside directors at an
exercise price equal to the initial public offering price. Annually, from the
initial public offering effective date, 1,250 shares of common stock will be
granted to each of the outside directors (limited to 8,333 shares per director).
New outside directors will be granted NQSOs for 3,333 shares of common stock
(1,250 shares annually thereafter and limited to 8,333 shares per outside
director). All options are exercisable on the first anniversary after the date
of grant, subject to accelerated vesting, as defined, at the fair market value
at the date of grant and expire at the earlier of 10 years from the grant date
or the date the person ceases to be an outside director.
The Company has adopted an Incentive Compensation Plan (the "Incentive
Plan"), effective March 8, 1996, under which 708,333 shares of common stock are
reserved and available for issuance upon exercise of options and other awards to
be granted under the Incentive Plan. The Incentive Plan is administered by a
Committee (Committee) of the Board of Directors. Subject to certain limits,
options to be granted under the Incentive Plan may be incentive stock options
("ISOs") or NQSOs. The exercise price of an ISO must be at least equal to the
fair market value (as defined in the Incentive Plan) per share of the common
stock on the date of the grant, and must be at least 110% of such value if the
grantee is a principal stockholder of the Company. The exercise price of NQSOs
will be determined by the Committee and may be greater or less than the fair
market value per share of the common stock on the date of the grant. ISOs and
NQSOs granted under the Incentive Plan will be exercisable for a term of not
more than 10 years, as determined by the Committee, and become exercisable as
determined by the Committee, subject to acceleration of vesting at the
discretion of the Committee or, as defined, upon a change in control of the
Company.
F-20
<PAGE> 94
GYNCOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The Incentive Plan also authorizes the Committee to grant restricted stock,
deferred stock and stock appreciation rights ("SARs") in connection with options
granted. SARs entitle the optionee to receive upon exercise cash or common
stock, as determined by the Committee, equal in value to the difference between
the option price and the current fair market value of the stock subject to the
option and related SAR. Exercise of a SAR is in lieu of exercise of the related
option.
In March 1996, the Company granted awards under the Incentive Plan covering
162,500 shares of common stock, including stock options granted to officers of
the Company. These options are exercisable at a purchase price of $7.80 per
share and vest 20% per year over five years, except that the options granted to
one officer vest in full on October 1, 1996. In April 1996, the Company granted
awards under the Incentive Plan covering 473,333 shares of common stock,
including stock options granted to officers of the Company. These options are
exercisable at a purchase price equal to the initial public offering price and
vest 20% per year over five years.
In March 1996, an officer/stockholder entered into an Amended and Restated
Option Agreement (Agreement) with two other officers/stockholders to purchase an
aggregate 254,167 shares of common stock for $.01 per share. The option expires
in 10 years, unless terminated earlier, as defined in the Agreement.
Compensation expense of $1,950,000 was recorded during the first quarter of 1996
in connection with this option.
Tax Status
Prior to the completion of an initial public offering, the Company will
terminate its S Corporation tax status and, accordingly, will be subject to
income taxes.
F-21
<PAGE> 95
REPORT OF INDEPENDENT AUDITORS
To the Shareholder
Fertility Center of Northern New Jersey, P.A.
We have audited the accompanying balance sheets of Fertility Center of
Northern New Jersey, P.A. as of December 31, 1994 and 1995, and the related
statements of income and retained earnings (accumulated deficit) and cash flows
for the period from February 9, 1994 (date of inception) to December 31, 1994,
and for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fertility Center of Northern
New Jersey, P.A. at December 31, 1994 and 1995, and the results of its
operations and its cash flows for the period from February 9, 1994 (date of
inception) to December 31, 1994, and for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 11, 1996
Chicago, Illinois
F-22
<PAGE> 96
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ 2,336 $ 200,726
Receivables...............................................
Patients (net of allowance for doubtful accounts of
$22,700 in 1994, $139,200 in 1995 and $141,000 in
1996)................................................ 92,847 565,993 565,116
Other.................................................. -- 3,500 3,500
Prepaid expenses and other................................ 23,387 22,557 13,452
-------- -------- ----------
Total current assets.............................. 116,234 594,386 782,794
Property and equipment, less accumulated depreciation of
$1,602 in 1994, $30,609 in 1995 and $43,802 in 1996....... 70,609 274,534 274,133
Deferred income taxes....................................... -- 10,000 9,000
Organization costs, less accumulated amortization of $1,125
in 1994, $2,353 in 1995 and $2,660 in 1996................ 5,012 3,785 3,478
-------- -------- ----------
Total assets...................................... $191,855 $882,705 $ 1,069,405
======== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Revolving loan............................................ $ 60,000 $ -- $ --
Due to stockholder........................................ -- 15,000 --
Current portion of long-term debt......................... -- 45,275 46,072
Accounts payable.......................................... 38,921 95,067 111,139
Accrued liabilities....................................... 28,260 83,695 48,118
Income taxes payable...................................... -- -- 106,424
Deferred rent............................................. 4,838 4,838 4,838
Deferred income taxes..................................... -- 180,000 166,000
-------- -------- ----------
Total current liabilities......................... 132,019 423,875 482,591
Long-term liabilities:
Long-term debt, less current portion...................... -- 149,281 138,338
Deferred rent............................................. 67,728 62,890 61,680
-------- -------- ----------
Total long-term liabilities....................... 67,728 212,171 200,018
-------- -------- ----------
Total liabilities................................. 199,747 636,046 682,609
Stockholders' equity (net capital deficiency):
Common stock - No par value; 2,500 shares authorized; 500
shares issued and outstanding in 1994 and 1995......... 5,000 5,000 5,000
Subscription receivable from stockholder.................. (5,000) -- --
Retained earnings (accumulated deficit)................... (7,892) 241,659 381,796
-------- -------- ----------
Total stockholder's equity (net capital
deficiency)..................................... (7,892) 246,659 386,796
-------- -------- ----------
Total liabilities and stockholder's equity........ $191,855 $882,705 $ 1,069,405
======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 97
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
STATEMENTS OF INCOME AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTH
FEBRUARY 9, 1994 PERIOD ENDED
(DATE OF INCEPTION) YEAR ENDED MARCH 31, 1996
TO DECEMBER 31, 1994 DECEMBER 31, 1995 --------------
-------------------- ----------------- (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Net patient service revenue................ $616,496 $ 2,496,460 $ 819,926
Other revenue.............................. 2,788 -- --
-------- ---------- ---------
Total revenue......................... 619,284 2,496,460 819,926
Operating expenses:
Physician salaries......................... 190,000 994,834 220,000
Clinic salaries and wages.................. 102,983 244,144 88,558
Administrative salaries and wages.......... 23,847 136,080 21,770
Benefits and payroll taxes................. 49,989 130,224 38,951
Clinic rent and lease expense.............. 72,565 120,974 30,152
Clinic supplies............................ 56,100 113,961 36,435
Other clinic expenses...................... 14,208 20,869 11,022
General corporate expenses................. 112,654 265,265 122,779
Depreciation and amortization.............. 2,727 30,235 13,500
-------- ---------- ---------
Total operating expenses.............. 625,073 2,073,211 583,167
-------- ---------- ---------
Operating income (loss)...................... (5,789) 439,874 236,759
Interest expense............................. -- 16,625 3,198
-------- ---------- ---------
Income (loss) before income taxes............ (5,789) 423,249 233,561
Income taxes:
Current.................................... 2,103 3,698 106,424
Deferred................................... -- 170,000 (13,000)
-------- ---------- ---------
2,103 173,698 93,424
-------- ---------- ---------
Net income (loss)..................... (7,892) 249,551 140,137
Retained earnings (accumulated deficit),
beginning of period........................ -- (7,892) 241,659
-------- ---------- ---------
Retained earnings (accumulated deficit),
end of period.............................. $ (7,892) $ 241,659 $ 381,796
======== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 98
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9, 1994 THREE MONTH
(INCEPTION) TO YEAR ENDED PERIOD ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Operating activities:
Net (loss) income............................ $ (7,892) $ 249,551 $ 140,137
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization............. 2,727 30,235 13,500
Deferred income taxes..................... -- 170,000 (13,000)
Deferred rent............................. 72,566 (4,838) (1,210)
Changes in operating assets and
liabilities:
Receivables, net........................ (92,847) (476,646) 877
Prepaid expenses and other.............. (23,387) 830 9,105
Organization costs...................... (6,137) -- --
Accounts payable........................ 38,921 56,146 16,072
Income taxes payable.................... -- -- 106,424
Accrued liabilities..................... 28,260 55,435 (35,577)
-------- --------- ---------
Net cash provided by operating
activities...................... 12,211 80,713 236,328
Investing activities:
Purchase of property and equipment........... (299,338) (8,049) (12,792)
-------- --------- ---------
Net cash used by investment
activities...................... (299,338) (8,049) (12,792)
Financing activities:
Proceeds from (payments to) stockholder...... -- 15,000 (15,000)
Proceeds from note payable................... 227,127 -- --
Proceeds from (payments on) revolving loan... 60,000 (60,000) --
Payments on long term debt................... -- (30,328) (10,146)
Issuance of common stock..................... -- 5,000 --
-------- --------- ---------
Net cash provided by (used in)
financing activities............ 287,127 (70,328) (25,146)
-------- --------- ---------
Increase in cash............................... -- 2,336 198,390
Cash at beginning of year...................... -- -- 2,336
-------- --------- ---------
Cash at end of year............................ $ -- $ 2,336 $ 200,726
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 99
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED), DECEMBER 31, 1995 AND 1994
1. ORGANIZATION
Fertility Center of Northern New Jersey, P.A. (the "Company") was
incorporated under the Professional Services Corporation Act on February 9, 1994
in the state of New Jersey. The Company provides services in the field of
reproductive medicine to patients in the Westwood, New Jersey area.
The Company entered into a five year agreement on May 15, 1994 with Life
Key Ventures, Inc. ("Life Key"), whereby Life Key provides management services
to the Company in exchange for a management fee. The Company terminated this
agreement in April 1996 which resulted in certain termination costs (Note 7).
2. SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment, which principally consists of medical office
equipment and leasehold improvements, are stated at cost. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the assets, which range from five to seven years based
on the type and condition of the assets. The Company amortizes leasehold
improvements over fifteen years which represents the remaining life of the
lease, including options to renew.
Net patient service revenue
Net patient service revenue is reported at the estimated realizable amounts
from patients and various third-party payors for services rendered. The Company
has negotiated agreements with managed care organizations to provide service
based on fee schedules. The Company recognizes revenue when services have been
provided to the patient.
Income taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Organization Costs
Organization costs are deferred and are amortized using the straight-line
method over 5 years.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. LINE OF CREDIT
The Company entered into a revolving line of credit agreement effective May
15, 1994 with Life Key. Under the agreement, the Company can borrow up to
$250,000. Interest on borrowings accrues at 7%. The line of credit is secured by
all property, tangible and intangible, owned by or in which the Company has an
interest, which is in the possession or control of Life Key. Amounts outstanding
at December 31, 1994 and 1995 amount to $60,000. There were no amounts
outstanding under this line of credit at December 31, 1995 and March 31, 1996.
On April 30, 1996, this line of credit was terminated.
F-26
<PAGE> 100
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED), DECEMBER 31, 1995 AND 1994
4. LONG-TERM DEBT
Long-term debt represents an amount due to Life Key for the purchase of
equipment which was previously leased by the Company from Life Key as part of an
office lease arrangement (see Note 7). The outstanding balance of the note
payable at March 31, 1996 is $184,410 and is payable in monthly installments of
$4,500 (including interest) through January 2000, the life of the office lease.
Interest on the note accrues at 7%.
Interest paid during 1995 and during the three month period ended March 31,
1996 amounted to $14,685 and $3,346.
5. DUE TO STOCKHOLDER
As of March 31, 1996 (Unaudited), the Company has no indebtedness to its
stockholder.
6. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 9,
1994
(INCEPTION)
TO YEAR ENDED THREE MONTH
DECEMBER DECEMBER PERIOD ENDED
31, 31, MARCH 31,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Current.................................... $ 2,103 $ 3,698 $106,424
Deferred:
Federal.................................. -- 130,000 (10,000)
State.................................... -- 40,000 (3,000)
------ -------- -------
$ 2,103 $ 173,698 $ 93,424
====== ======== =======
</TABLE>
Significant components of the Company's deferred tax assets (liabilities),
which principally result from use of the cash basis for income tax purposes, as
of December 31 and March 31, 1996 (Unaudited) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Accounts receivable...................... $ (5,000) $(225,000) $(226,000)
Accounts payable and accrued
liabilities............................ 18,000 56,000 64,000
Other.................................... (13,000) (1,000) 5,000
-------- --------- ---------
$ -- $(170,000) $(157,000)
======== ========= =========
</TABLE>
The Company paid income taxes of $2,326 in 1995.
7. OPERATING LEASE
The Company entered into a five year lease agreement on May 15, 1994 to
lease office space and equipment from Life Key. The lease term commenced upon
occupancy in January 1995. From February 1994 to December 1994, Life Key
provided temporary space to the Company at no charge. Lease expense was
recognized from February 1994 to December 1994 resulting in deferred rent. The
leased equipment was
F-27
<PAGE> 101
FERTILITY CENTER OF NORTHERN NEW JERSEY, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED), DECEMBER 31, 1995 AND 1994
subsequently purchased by the Company in 1995 in exchange for a note payable.
Total rent expense was $72,000, $121,000 and $30,152 in 1994, 1995 and the three
month period ended March 31, 1996, respectively. Future annual minimum lease
payments amount to $125,448 through 1999 under this lease arrangement.
On April 30, 1996 the Company terminated its management agreement and
revolving line of credit with Life Key. The Company is continuing to lease its
office and clinical space from Life Key. As part of the termination agreement,
GynCor has agreed to reimburse Life Key in the amount of $135,000 over 36 months
in equal monthly installments of $3,750 commencing June 1, 1996.
8. CONTINGENCIES
The Company maintains professional liability insurance coverage on a claims
made basis with coverage of $1 million per incident and $3 million annual
aggregate. As of March 31, 1996, there were no asserted professional liability
claims against the Company; accordingly, no amounts for potential losses have
been accrued in the accompanying financial statements. The Company has not
accrued a loss for unreported incidents, or for losses gross of insurance
coverage, as the amount, if any, cannot be reasonably estimated at this time and
the probability of an adverse outcome cannot be determined at this time. It is
the opinion of management that the ultimate resolution of any unasserted claims
will not have a material adverse effect on the financial position, operating
results or liquidity gross of any anticipated insurance recoveries of the
Company.
9. EMPLOYEE BENEFIT PLAN
The Company created a defined benefit pension plan for its eligible
employees in 1995. The Plan currently includes two participants, the Company's
stockholder and his spouse. Benefits vest incrementally over six years of
participation and distribution from the plan is payable upon normal retirement
date or death. Benefits are based on years of service and compensation subject
to certain maximum limitations. No contribution was made to the Plan during
1995.
The accumulated benefit obligation (all vested) and projected benefit
obligation at December 31, 1995 amounted to $37,589 and $58,171, respectively.
There are no plan assets.
For the plan year ended December 31, 1995, net periodic pension cost which
consisted of service cost, amounted to $58,171. The weighted average discount
rate used in calculating the projected benefit obligation at December 31, 1995
is 6%. The assumed rate of increase in future compensation levels is 3%.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments approximates carrying value at
December 31, 1994 and 1995 and at March 31, 1996.
11. SUBSEQUENT EVENT
The Company's sole shareholder executed a definitive agreement to sell all
of the nonmedical assets of the Company to GynCor, Inc. in April 1996 and the
sale was closed on May 1, 1996. Simultaneous with the sale, it is anticipated
that the Company will enter into a 40 year clinic services agreement with
GynCor, Inc.
F-28
<PAGE> 102
REPORT OF INDEPENDENT AUDITORS
To the Shareholder
A Center for Gynecology, P.A.
We have audited the accompanying balance sheet of A Center for Gynecology,
P.A. as of December 31, 1995, and the related statements of operations and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A Center for Gynecology,
P.A. at December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
March 13, 1996
Chicago, Illinois
F-29
<PAGE> 103
A CENTER FOR GYNECOLOGY, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 59 $ 23,551
Receivables:
Patients (net of allowance for doubtful accounts of $195,000 in
1995 and $193,123 in 1996)..................................... 365,227 291,545
Other........................................................... 6,100 6,386
Prepaid expenses and other......................................... 15,492 11,000
-------- ---------
Total current assets.......................................... 386,878 332,482
Property and equipment, less accumulated depreciation of $438,891 in
1995 and $450,853 in 1996.......................................... 390,158 369,344
Covenant not to compete, less accumulated amortization of $25,732 in
1995 and $28,384 in 1996........................................... 27,298 24,646
Deposits............................................................. 6,783 6,783
-------- ---------
Total assets.................................................. $811,117 $ 733,255
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable................................................... $166,626 $ 281,563
Current portion of long-term debt.................................. 183,930 184,423
Notes payable to stockholder....................................... -- 8,000
Accrued liabilities................................................ 78,448 73,324
-------- ---------
Total current liabilities..................................... 429,004 547,310
Long-term liabilities:
Long-term debt, less current portion............................... 387,757 354,758
Deferred income taxes.............................................. 1,764 --
-------- ---------
Total long-term liabilities................................... 389,521 354,758
-------- ---------
Total liabilities............................................. 818,525 902,068
-------- ---------
Stockholders' equity (net capital deficiency):
Common stock, $5 par value; 100 shares authorized; 100 shares
issued and outstanding, including shares in treasury............ 500 500
Additional paid-in capital......................................... 2,452 2,452
Retained earnings (accumulated deficit)............................ 39,640 (121,765)
-------- ---------
42,592 (118,813)
Treasury stock, at cost -- 50 shares (purchased during 1995)....... (50,000) (50,000)
-------- ---------
Total stockholder's equity (net capital deficiency)........... (7,408) (168,813)
-------- ---------
$811,117 $ 733,255
======== =========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 104
A CENTER FOR GYNECOLOGY, P.A.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
THREE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Net patient service revenue.................................. $3,107,853 $ 543,203
Other revenue................................................ 27,124 --
---------- ----------
Total revenue............................................. 3,134,977 543,203
Operating expenses:
Officer salaries............................................. 1,150,311 162,500
Clinic salaries and wages.................................... 692,050 100,288
Benefits and payroll taxes................................... 83,511 49,851
Clinic rent and lease expense................................ 228,925 54,251
Clinic supplies.............................................. 271,796 69,647
Other clinic expenses........................................ 152,785 22,430
General corporate expenses................................... 454,558 195,736
Depreciation and amortization................................ 125,998 31,329
---------- ----------
Total operating expenses.................................. 3,186,429 686,032
---------- ----------
Operating loss................................................. (24,957) (142,829)
Interest expense............................................... 26,495 20,340
---------- ----------
Loss before income taxes (benefit)............................. (51,452) (163,169)
Income taxes (benefit)....................................... (24,236) (1,764)
---------- ----------
Net loss.................................................. (27,216) (161,405)
Retained earnings, beginning of year........................... 66,856 39,640
---------- ----------
Retained earnings (accumulated deficit), end of year........... $ 39,640 $ (121,765)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 105
A CENTER FOR GYNECOLOGY, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net loss........................................................... $ (27,216) $ (161,405)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 125,998 31,329
Deferred taxes.................................................. (24,236) (1,764)
Equipment transferred as compensation........................... 11,500 10,000
Changes in operating assets and liabilities:
Receivables, net.............................................. (60,014) 73,396
Prepaid expenses and other.................................... 2,660 4,492
Accounts payable.............................................. 13,092 114,937
Accrued liabilities........................................... (14,590) (5,124)
--------- ---------
Net cash provided by operating activities.................. 27,194 65,861
Investing activities:
Purchase of property and equipment................................. (243,576) (17,863)
--------- ---------
Net cash used in investing activities...................... (243,576) (17,863)
Financing activities:
(Repayments to) loans from Stockholder............................. (67,914) 8,000
Purchase of treasury stock......................................... (50,000) --
Proceeds from long-term debt....................................... 400,000 --
Principal payments on long-term debt............................... (68,689) (32,506)
--------- ---------
Net cash provided by (used in) financing activities........ 213,397 (24,506)
--------- ---------
Decrease (Increase) in cash.......................................... (2,985) 23,492
Cash at beginning of year............................................ 3,044 59
--------- ---------
Cash at end of year.................................................. $ 59 $ 23,551
========= =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 106
A CENTER FOR GYNECOLOGY, P.A.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
1. ORGANIZATION
A Center for Gynecology, P.A. (the "Company") was incorporated under the
Professional Services Corporation Act on November 28, 1988 in the state of
Florida. The Company was incorporated under the name Fertility Institute of West
Florida, P.A. and changed to its current name effective July 29, 1993. The
Company provides various services in the field of reproductive medicine to
patients in the Tampa/ St. Petersburg metropolitan area.
2. SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment, which principally consists of medical office
equipment and leasehold improvements, are stated at cost. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 7 years. The Company
amortizes leasehold improvements over 10 years, the remaining life of the lease,
including options to renew.
Covenant Not to Compete
Amortization of covenant not to compete is calculated using the
straight-line method over five years, which is the term of the underlying
agreement.
Net patient service revenue
Net patient service revenue is reported at the estimated realizable amounts
from patients and various third-party payors for services rendered. The Company
has negotiated agreements with certain managed care and health maintenance
organizations (HMO's) which provide for revenues based on a fee schedule or
capitated basis. For patient and third-party payors on a fee-for-service or fee
schedule basis, revenue is recognized when services are performed for the
patient. For capitated agreements, revenue is recognized by the Company based on
a fixed fee per enrollee member per month in the capitated plan.
Income taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-33
<PAGE> 107
A CENTER FOR GYNECOLOGY, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and March 31,
1996 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Installment note due South Trust Bank of West Florida;
payable in monthly principal installments of $6,666 through
October 31, 2000, with variable interest rate (9.25% at
December 31, 1995 and March 31, 1996), and collateralized
by substantially all the assets of the Company............. $ 386,668 $ 373,336
Promissory note due AMI Town and Country Hospital; payable in
monthly principal and interest installments of $4,272
through October 1, 1997, including interest at 8%, and
personally guaranteed by the stockholder of the Company.... 87,153 76,005
Other promissory notes related to acquisition of medical
practice assets; payable in quarterly principal
installments of $10,000 through June 30, 1998, with
interest imputed at 8%, and collateralized by accounts
receivable and certain tangible property of the Company.... 97,866 89,840
--------- ---------
571,687 539,181
Less amounts due within one year............................. (183,930) (184,423)
--------- ---------
$ 387,757 $ 354,758
========= =========
</TABLE>
The following is a schedule of principal maturities of long-term debt as of
December 31, 1995 and March 31, 1996 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
1996.......................................................... $183,930 $ 184,423
1997.......................................................... 141,653 138,267
1998.......................................................... 99,438 89,824
1999.......................................................... 80,000 80,000
2000.......................................................... 66,666 46,667
-------- --------
$571,687 $ 539,181
======== ========
</TABLE>
4. INCOME TAXES
Income tax benefit for the year ended December 31, 1995 and the three month
period ended March 31, 1996 (unaudited) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Deferred:
Federal..................................................... $(22,336) $(1,626)
State....................................................... (1,900) (138)
-------- -------
$(24,236) $(1,764)
======== =======
</TABLE>
F-34
<PAGE> 108
A CENTER FOR GYNECOLOGY, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
A reconciliation between income taxes (benefit) and the amount computed by
applying the statutory federal income tax rate of 35% to income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Income taxes (benefit) at statutory federal rate.............. $(18,008) $ (57,109)
State taxes................................................... (1,868) (5,924)
Net operating tax loss carryforwards and other not
recognized.................................................. -- 61,269
Other -- net.................................................. (4,360) --
-------- --------
$(24,236) $ (1,764)
======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1995 and (unaudited) March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Net operating tax loss carryforwards......................... $ -- $ 44,067
Accounts receivable.......................................... (125,764) (119,172)
Accounts payable............................................. 121,000 141,955
Other........................................................ 3,000 (18,144)
--------- ---------
(1,764) 48,706
Less valuation allowance..................................... -- (48,706)
--------- ---------
$ (1,764) $ --
========= =========
</TABLE>
5. OPERATING LEASE
The Company entered into a ten year lease agreement on July 1, 1993 to
lease office space from its stockholder. Total rent expense for 1995 was
approximately $228,925 and for the three months ended March 31, 1996 was
approximately $50,979. The following is a schedule of future minimum lease
payments under operating leases as of (unaudited) March 31, 1996:
<TABLE>
<S> <C>
1996.............................................................. $ 100,710
1997.............................................................. 134,280
1998.............................................................. 150,252
1999.............................................................. 166,220
2000.............................................................. 166,220
Thereafter........................................................ 415,552
----------
$1,133,234
==========
</TABLE>
6. EMPLOYMENT CONTRACTS
The Company has entered into individual employment contracts with certain
physicians and employees, some of whom are officers and/or stockholders of the
Company. The contracts provide for base salaries ranging from $44,000 to
$400,000 plus fringe benefits. Certain contracts also provide for compensation
and incentive bonuses based on collected revenues.
The employment contracts include covenants not to compete with the Company
for periods of two to three years subsequent to termination of employment. The
employment contracts are currently for initial
F-35
<PAGE> 109
A CENTER FOR GYNECOLOGY, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
terms of one to five years and are automatically extended for additional
one-year periods until terminated by either party.
7. MAJOR CUSTOMER
The Company and the stockholder have an agreement with a managed care
organization, of which the stockholder is an employee, whereby fixed monthly
payments are received by the Company based on the number of managed care
organization enrollees (capitation contract). Revenue generated from this
capitation contract accounts for 29% and 6% of total net patient service revenue
for the year ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
8. CONTINGENCIES
The Company maintains professional liability insurance coverage on a claims
made basis. Coverage limits prior to August 1, 1995 were $1,000,000 per claim
and $3,000,000 annual aggregate. Coverage limits beginning August 1, 1995 were
$250,000 per claim and $750,000 annual aggregate. The Company's stockholder is
provided additional professional liability insurance in the amount of $1,000,000
per claim for services rendered in connection with its capitation contract at
the expense of the managed care organization. As of March 31, 1996 there were no
asserted professional liability claims against the Company; accordingly, no
amounts for potential losses have been accrued in the accompanying financial
statements. The Company has not accrued a loss for unreported incidents, or for
losses gross of insurance coverage, as the amount, if any, cannot be reasonably
estimated at this time and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any unasserted claims will not have a material adverse effect on
the financial position, operating results or liquidity gross of any anticipated
insurance recoveries of the Company.
9. PROFIT SHARING PLAN
The Company elected to terminate its profit sharing plan effective December
31, 1995. Contributions of approximately $53,500 were made by the Company in
1995 for the 1994 plan year. No contributions were made nor are due for the 1995
plan year. The Company is awaiting qualification from the Internal Revenue
Service on its termination plan.
10. SUBSEQUENT EVENT
The Company's sole shareholder executed a definitive agreement to sell all
of the nonmedical assets of the Company to GynCor, Inc. in 1996. Simultaneous
with the sale, it is anticipated that the Company will enter into a 40 year
management services agreement with GynCor, Inc.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments approximates carrying value at
December 31, 1995 and March 31, 1996.
F-36
<PAGE> 110
[PICTURE]
Pictured are former patients and their children celebrating with the Company the
tenth anniversary of its Infertility Program.
LIFE CYCLE OF REPRODUCTIVE MEDICINE
FEMALE CARE NEEDS TIME LINE
Age-----------------------------------------------------------------------------
| | | | |
0 20 40 60 80
REPRODUCTIVE ENDOCRINOLOGY
ART & MICROMANIPULATION
PERINATOLOGY
ENDOSCOPIC SURGERY
OBSTETRICS AND GYNECOLOGY
LAB SERVICES
UROLOGY
MALE CARE NEEDS TIME LINE
Age-----------------------------------------------------------------------------
| | | | |
0 20 40 60 80
REPRODUCTIVE ENDOCRINOLOGY
LAB SERVICES
UROLOGY
<PAGE> 111
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
The Company............................. 13
Use of Proceeds......................... 14
Dividend Policy......................... 14
Dilution................................ 15
Capitalization.......................... 16
Selected Combined and Pro Forma
Financial Data........................ 17
Unaudited Pro Forma Combined Financial
Information........................... 19
Unaudited Pro Forma Combined Balance
Sheet................................. 20
Notes to Unaudited Pro Forma Combined
Balance Sheet......................... 21
Unaudited Pro Forma Combined Statement
of Operations......................... 23
Notes to Unaudited Pro Forma Combined
Statement of Operations............... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 26
Business................................ 36
Management.............................. 50
Certain Transactions.................... 60
Principal and Selling Stockholders...... 65
Description of Capital Stock............ 66
Shares Eligible for Future Sale......... 68
Underwriting............................ 70
Legal Matters........................... 71
Experts................................. 71
Additional Information.................. 71
Index to Combined Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,220,000 SHARES
[GYNCOR INC LOGO]
COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
SMITH BARNEY INC.
THE CHICAGO CORPORATION
------------------------------------------------------
------------------------------------------------------
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee............... $ 13,206
NASD filing fee................................................... 4,330
Nasdaq National Market listing fee................................ 34,136
Accountants fees and expenses..................................... 600,000
Blue Sky fees and expenses........................................ 20,000
Legal fees and expenses........................................... 450,000
Transfer Agent and Registrar fees and expenses.................... 2,000
Printing and engraving expenses................................... 125,000
Directors' and officers' liability insurance premiums............. 133,000
Miscellaneous expenses............................................ 18,328
-----------
Total........................................................ $ 1,400,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Company's Certificate of Incorporation provides that the
Company shall indemnify, to the fullest extent permitted by the DGCL, any person
who is or was a director, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or if such person has previously been
designated for indemnification by resolution of the Board of Directors, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company, provided, however, that
indemnification shall only be made upon a determination that such director,
officer, employee or agent has met the applicable standard of conduct as
determined (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders of the Company. Notwithstanding the foregoing, the Company
shall not be obligated to pay expenses incurred by a director or officer with
respect to any threatened or pending claim, suit or action, whether civil,
criminal, administrative, investigative or otherwise initiated or brought
voluntarily by a director or officer and not by way of defense without the prior
written consent of the Company.
In addition, Article XII provides that no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
II-1
<PAGE> 113
The Company has obtained an insurance policy which will entitle the Company
to be reimbursed for certain indemnity payments it is required or permitted to
make to its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The undersigned has sold the unregistered securities described below within
the past three years without registering the securities under the Securities Act
of 1933, as amended:
In connection with the reorganization of a predecessor corporation on March
1, 1995, shares of Common Stock of the undersigned were issued as follows:
Norbert Gleicher, M.D., the Chief Executive Officer, President and a Director of
the Company, purchased 800 shares of Common Stock for $800; Donna Pratt, M.D.,
the Vice President of Medical Affairs and a Director of the Company, purchased
200 shares of Common Stock for $200; Charles E. Miller, M.D., the Medical
Director and Director of Endoscopic Surgery of the Company, purchased 145 shares
of Common Stock for $145; and Vishvanath Karande, M.D., purchased one share of
common stock for $1.00.
On March 21, 1995, John S. Rinehart, M.D. purchased 31 shares of Common
Stock for $31.
On June 13, 1995, Marybeth Gerrity, Ph.D., the Senior Vice President of
Operations and Development of the Company, purchased 12 shares for $12.
On December 1, 1995, the Company issued a 10% subordinated convertible
promissory note in the original principal amount of $5,000,000 due December 1,
2000. Up to $2,500,000 of the convertible note is convertible, in whole or in
part, at any time in increments of no less than $500,000, into a number of
shares of Common Stock equal to 1% of the number of shares of outstanding Common
Stock per $500,000 of principal amount to be converted on the date of such
conversion.
On March 31, 1996, the Company issued 50,000 shares of Common Stock to
Marybeth Gerrity, Ph.D. in satisfaction of outstanding stock options.
On May 1, 1996, the Company issued 71,654 shares to Fertility Center of
Northern New Jersey, P.A., with the right to receive an additional 29,778 shares
upon completion of this offering and the attainment of certain financial
targets, in exchange for all of the nonmedical assets of such company.
On May 1, 1996, the Company issued 107,480 shares to A Center for
Gynecology, P.A., with the right to receive an additional 3,157 shares upon
completion of this offering, in exchange for all of the nonmedical assets of
such company.
All of the issuances of unregistered securities described above were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See "Exhibit Index" on page II-6 hereof, following the signature page.
(b) Financial Statement Schedules
Report of Independent Auditors
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-2
<PAGE> 114
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the applicable provisions of the DGCL, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois on the 7th day of June, 1996.
GYNCOR, INC.
By: /s/ NORBERT GLEICHER, M.D.
------------------------------------
Norbert Gleicher, M.D.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on June 7, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ NORBERT GLEICHER, M.D. President, Chief Executive Officer
- -------------------------------------------- (Principal Executive Officer) and a Director
Norbert Gleicher, M.D.
/s/ ROBERT J. BUKALA Senior Vice President and Chief Financial
- -------------------------------------------- Officer (Principal Financial and Accounting
Robert J. Bukala Officer)
* Vice President of Medical Affairs and a
- -------------------------------------------- Director
Donna Pratt, M.D.
* Director
- --------------------------------------------
Brian A. Kennedy
* Director
- --------------------------------------------
Uri Elkayam, M.D.
* Director
- --------------------------------------------
Yehuda Yoked
*By: /s/ ROBERT J. BUKALA
- --------------------------------------------
ROBERT J. BUKALA
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 116
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 22, 1996, except for the first and second
paragraphs of Note 9 as to which the date is June 5, 1996, and the first, third,
and fourth paragraphs of Note 17 as to which the date is May 1, 1996 for GynCor,
Inc., and March 13, 1996, for A Center for Gynecology, P.A., and March 11, 1996
for Fertility Center of Northern New Jersey, P.A., in the Registration Statement
(Form S-1 No. 333-3936) and related Prospectus of GynCor, Inc. for the
registration of 2,220,000 shares of common stock.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
June 5, 1996
II-5
<PAGE> 117
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement among the Company, the Selling Stockholders, Smith
Barney Inc. and The Chicago Corporation.
* 2.1 Asset Transfer and Reorganization Agreement, dated March 17, 1996 among GynCor,
Inc., A Center for Gynecology, P.A. and Edward Zbella, M.D.
* 2.2 Asset Transfer and Reorganization Agreement, dated April 10, 1996 among GynCor,
Inc., Fertility Center of Northern New Jersey, P.A. and Daniel Navot, M.D.
2.3 Asset Transfer Agreement dated June 5, 1996, between GynCor, Inc. and The Center for
Human Reproduction -- Illinois, M.D.S.C.
* 3.1 Certificate of Incorporation of the Company.
* 3.2 By-Laws of the Company.
4.1 Specimen stock certificate representing Common Stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities being
registered (including consent)
**10.1 Comprehensive Infertility Care Service Agreement dated January 1, 1996 between
Health Care Service Corporation d/b/a HMO Illinois and The Center for Human
Reproduction.
*10.2 GynCor, Inc. Incentive Compensation Plan.
*10.3 GynCor, Inc.'s Nonemployee Directors' Stock Option Plan.
*10.4 Management Services Agreement, dated April 1, 1996 between GynCor, Inc. and The
Center for Human Reproduction -- Illinois, M.D.S.C.
*10.5 Management Services Agreement, dated April 1, 1996 between GynCor, Inc. and The
Center for Human Reproduction -- Perinatal, M.D.S.C.
*10.6 Management Services Agreement, dated April 1, 1996 between GynCor, Inc. and The
Center for Human Reproduction -- Endoscopic, M.D.S.C.
*10.7 Form of Management Services Agreement to be entered into between GynCor, Inc. and
The Center for Human Reproduction -- Florida, Inc.
*10.8 Form of Management Services Agreement to be entered into between GynCor, Inc. and
The Center for Human Reproduction -- New York, P.C.
*10.9 Form of Management Services Agreement to be entered into between GynCor, Inc. and
The Center for Human Reproduction -- New Jersey, P.C.
*10.10 Affiliation Agreement dated March 19, 1996 among GynCor, Inc., The Center for Human
Reproduction -- New York, P.C. and Columbia University Medical School.
*10.11 Form of Affiliation Agreement to be entered into among GynCor, Inc., The Center for
Human Reproduction -- Florida, Inc. and the University of South Florida Medical
School.
*10.12 Medical Director Agreement dated March 19, 1996 between Columbia University Medical
School and Mark V. Sauer, M.D.
*10.13 750 N. Orleans Lease, as amended, dated July 13, 1994 by and between The Union
Central Life Insurance Company and Gleicher Pratt & Associates, M.D.S.C.
*10.14 Form of lease for Columbia University Medical School.
*10.15 Amended and Restated Employment Agreement dated April 1, 1996 between GynCor, Inc.
and Norbert Gleicher, M.D.
*10.16 Amended and Restated Employment Agreement dated April 1, 1996 by and between GynCor,
Inc. and Donna Pratt, M.D.
10.17 Amended and Restated Employment Agreement dated April 1, 1996 by and between GynCor,
Inc. and Marybeth Gerrity, Ph.D.
10.18 Employment Agreement dated April 1, 1996 by and between GynCor, Inc. and Robert J.
Bukala.
</TABLE>
II-6
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.19 Employment Agreement dated April 1, 1996 by and between GynCor, Inc. and Michael L.
Gonzales.
*10.20 Form of Executive Employment Agreement to be entered into between GynCor, Inc. and
Edward Zbella, M.D.
*10.21 Form of Executive Employment Agreement to be entered into between GynCor, Inc. and
Daniel Navot, M.D.
*10.22 Employment Agreement dated April 1, 1996 between The Center for Human
Reproduction -- Illinois, M.D.S.C. and Norbert Gleicher, M.D.
*10.23 Employment Agreement dated April 1, 1996 by and between The Center for Human
Reproduction -- Illinois, M.D.S.C. and Donna Pratt, M.D.
*10.24 Employment Agreement dated April 1, 1996 between The Center for Human
Reproduction -- Illinois, M.D.S.C. and Charles Miller, M.D.
10.25 Employment Agreement dated April 1, 1996 between The Center for Human
Reproduction -- Illinois, M.D.S.C. and Vishvanath Karande, M.D.
*10.26 Employment Agreement dated April 1, 1996 between The Center for Human
Reproduction -- Illinois, M.D.S.C. and John Rinehart, M.D., Ph.D.
*10.27 Employment Agreement dated April 1, 1996 between The Center for Human
Reproduction -- Endoscopic, M.D.S.C. and Charles Miller, M.D.
*10.28 Form of Employment Agreement to be entered into between The Center for Human
Reproduction -- Florida, Inc. and Edward Zbella, M.D.
*10.29 Form of Employment Agreement to be entered into between The Center for Human
Reproduction -- New Jersey, P.C. and Daniel Navot, M.D.
*10.30 Guaranty Agreement dated April 1, 1996 between GynCor, Inc. and Norbert Gleicher,
M.D.
*10.31 Guaranty Agreement dated April 1, 1996 between GynCor, Inc. and Donna Pratt, M.D.
*10.32 Guaranty Agreement dated April 1, 1996 between GynCor, Inc. and Charles Miller, M.D.
for CHR-Illinois employment agreement
10.33 Amended and Restated Stock Option Agreement dated March 31, 1996 between Norbert
Gleicher, M.D., GynCor, Inc. and Vishvanath Karande, M.D.
*10.34 Amended and Restated Option Agreement dated March 31, 1996 among Charles Miller,
M.D., Norbert Gleicher, M.D. and Donna Pratt, M.D.
*10.35 Option Agreement dated June 13, 1995 between Gleicher, Pratt, Miller, Karande &
Associates I, Inc. and Marybeth Gerrity, Ph.D.
10.36 Option Agreement effective May 1, 1996 between Daniel Navot, M.D. and Norbert
Gleicher, M.D.
*10.37 Voting Trust Agreement dated April 1, 1996 between Norbert Gleicher, M.D. and
Charles Miller, M.D.
*10.38 Voting Trust Agreement dated April 1, 1996 between Norbert Gleicher, M.D. and Donna
Pratt, M.D.
*10.39 Form of Indemnification Agreement for GynCor, Inc. Officers and Directors.
*10.40 Gleicher, Pratt & Associates I, Inc. Organization and Shareholders Agreement dated
March 1, 1995 among Norbert Gleicher, M.D., Donna Pratt, M.D., Charles Miller, M.D.,
and Vishvanath Karande, M.D.
*10.41 Form of Shareholders Agreement to be entered into among GynCor, Inc. and certain of
its stockholders.
10.42 Form of GynCor Stock Escrow Agreement to be entered into among GynCor, Inc., Edward
A. Zbella, M.D. and American National Bank and Trust Company of Chicago, as escrow
agent.
*10.43 Form of GynCor Stock Escrow Agreement to be entered into among GynCor, Inc., Daniel
Navot, M.D. and American National Bank and Trust Company of Chicago, as trustee.
</TABLE>
II-7
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
*10.44 Note Purchase Agreement between Gleicher, Pratt, Miller, Karande & Associates I,
Inc. and Nichold Company dated December 1, 1995.
*10.45 10% Subordinated Promissory Note between Gleicher, Pratt, Miller, Karande &
Associates I, Inc. and Nichold Company in the principal amount of $5,000,000 and
form of amendment to be entered into between the parties.
*10.46 Demand Note Agreement, dated December 31, 1995 among Gleicher, Pratt, Miller,
Karande & Associates I, Inc., Endoscopic Surgery, M.D.S.C., Gleicher, Pratt, Miller
& Karande Perinatal Associates, M.D.S.C., Norbert Gleicher, M.D., Donna Pratt, M.D.
and Charles Miller, M.D.
*10.47 Promissory Note dated October 4, 1995 between James F. Bonick and Donna E.
Pratt-Bonick, M.D., and the Company.
10.48 Deferral Agreement dated April 1, 1996 by and between James F. Bonick and Donna E.
Pratt-Bonick, M.D., and The Center for Human Reproduction-Illinois, M.D.S.C.
10.49 Registration Rights Agreement dated April 30, 1996 among GynCor, Inc., Donna Pratt,
M.D., Charles Miller, M.D. and Vishvanath Karande, M.D.
*10.50 Loan and Security Agreement dated February 23, 1996 between American National Bank
and Trust Company of Chicago, GynCor, Inc., Gleicher, Pratt, Miller, Karande &
Associates, M.D.S.C., Gleicher, Pratt, Miller, Karande Perinatal Associates,
M.D.S.C. and Endoscopic Surgery, M.D.S.C.
*10.51 Promissory Note (Line of Credit) dated February 1996 between GynCor, Inc., Gleicher,
Pratt, Miller, Karande & Associates, M.D.S.C., Gleicher, Pratt, Miller, Karande
Perinatal Associates, M.D.S.C., Endoscopic Surgery, M.D.S.C., and American National
Bank and Trust Company of Chicago.
*10.52 Guaranty dated February 23, 1996 between American National Bank and Trust Company of
Chicago and Norbert Gleicher, M.D.
*10.53 Guaranty dated February 23, 1996 between American National Bank and Trust Company of
Chicago and Donna E. Pratt, M.D.
*10.54 Guaranty dated February 23, 1996 between American National Bank and Trust Company of
Chicago and Charles Miller, M.D.
*10.55 Guaranty dated February 23, 1996 between American National Bank and Trust Company of
Chicago and Vishvanath C. Karande, M.D.
10.56 Amendment to Gleicher, Pratt & Associates I, Inc. Organization and Shareholders
Agreement dated March 31, 1996 among Norbert Gleicher, M.D., Donna Pratt, M.D.,
Charles Miller, M.D., Vishvanath Karande, M.D., John S. Rinehart, M.D., Marybeth
Gerrity, Ph.D. and Donna Havemann.
10.57 2301 Howard Street Office Building Lease.
10.58 Guaranty Agreement dated April 1, 1996 between GynCor, Inc. and Charles Miller, M.D.
for CHR-Endoscopic employment agreement.
10.59 Form of Madison Avenue Office Building Lease.
11 Statement Regarding Computation of Earnings Per Share.
23.1 Consent of Ernst & Young LLP. (included on page II-5 of this Registration Statement)
23.2 Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5
hereto).
*24 Power of Attorney (see signature page).
27.1 Financial Data Schedule for the twelve months ended June 30, 1995.
27.2 Financial Data Schedule for the six months ended December 31, 1995.
27.3 Financial Data Schedule for the three months ended March 31, 1996.
</TABLE>
- -------------------------
* Previously filed.
** Confidential treatment requested as to certain provisions.
II-8
<PAGE> 120
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GynCor, Inc.
We have audited the financial statements of GynCor, Inc. as of June 30,
1994 (consolidated), June 30, 1995 (combined), and December 31, 1995 (combined),
and for the years ended June 30, 1993, 1994 and 1995, and the six-month period
ended December 31, 1995, and have issued our report thereon dated March 22,
1996, except for the first and second paragraphs of Note 9, as to which the date
is June 5, 1996, and the first, third, and fourth paragraphs of Note 17 as to
which the date is May 1, 1996 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1996
except for the first and second paragraphs
of Note 9 as to which the date is June 5, 1996,
and the first, third, and fourth paragraphs of
Note 17 as to which the date is May 1, 1996
S-1
<PAGE> 121
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GYNCOR, INC.
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
CHARGED TO
OTHER
BALANCE AT CHARGED TO ACCOUNTS DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND -- -- END OF
PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
DECEMBER 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts.................... $ 756,000 $163,000 $ -- $329,000(1) $ 590,000
Deferred taxes -- valuation
allowance................... 637,000 230,000 -- -- 867,000
----------- -------- -------- -------- ----------
$ 1,393,000 $393,000 $ -- $329,000 $1,457,000
----------- -------- -------- -------- ----------
YEAR ENDED JUNE 30, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts.................... $ 492,000 $269,000 $ -- $ 5,000(1) $ 756,000
Deferred taxes -- valuation
allowance................... -- 637,000(3) -- -- 637,000
----------- -------- -------- -------- ----------
$ 492,000 $906,000 $ -- $ 5,000 $1,393,000
----------- -------- -------- -------- ----------
YEAR ENDED JUNE 30, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts.................... $ 227,000 $115,000 $280,000(2) $130,000(1) $ 492,000
Deferred taxes -- valuation
allowance................... -- -- -- -- --
----------- -------- -------- -------- ----------
$ 227,000 $115,000 $280,000 $130,000 $ 492,000
</TABLE>
- -------------------------
(1) Write offs, net of recoveries.
(2) Effective June 30, 1994, the Company acquired the assets, subject to certain
liabilities, of CHR-NW.
(3) The increase in the valuation allowance resulted primarily from the increase
in the net operating tax loss carryforwards and cash basis of accounting for
income taxes.
S-2
<PAGE> 1
EXHIBIT 1
Draft of June 6, 1996
2,220,000 SHARES
GYNCOR, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1996
SMITH BARNEY INC.
THE CHICAGO CORPORATION
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
GynCor, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell an aggregate of 2,000,000 shares of its common stock, par value
$0.0001 per share (the "Common Stock"), to the several Underwriters named in
Schedule I hereto (the "Underwriters"). In addition, solely for the purpose of
covering over-allotments, the Company proposes to sell to the Underwriters,
upon the terms and conditions set forth in Section 2 hereof, up to an
additional 333,000 shares (the "Additional Shares") of Common Stock, and the
persons named on Schedule II hereto as selling stockholders (the "Selling
Stockholders") propose to sell to the several Underwriters an aggregate of
220,000 shares of Common Stock. The 2,000,000 shares of Common Stock to be
issued and sold to the Underwriters by the Company and the 220,000 shares of
Common Stock to be sold to the Underwriters by the Selling Stockholders are
hereinafter referred to as the "Firm Shares." The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares", and
the Company and the Selling Stockholders are hereinafter sometimes referred to
as the "Sellers."
The Sellers wish to confirm as follows their agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the
<PAGE> 2
Act (the "registration statement"), including a prospectus subject to
completion, relating to the Shares. The term "Registration Statement" as used
in this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if
the registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an additional
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the
Abbreviated Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments as you may
determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Sellers herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $ per share
(the "Purchase Price Per Share"), that number of Firm Shares which bears the
same proportion to the aggregate number of Firm Shares to be issued and sold by
the Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Sellers.
Subject to such adjustments as you may determine in order to avoid
fractional shares, the Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Sellers herein contained
and subject to all the terms and conditions set forth herein, each Underwriter
agrees to purchase from the Selling Stockholder at the purchase price per share
that number of Firm Shares which bears the same proportion to the number of
Firm Shares set forth opposite the names of the Selling Stockholder in Schedule
II hereto as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Sellers.
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the
2
<PAGE> 3
Underwriters shall have the right to purchase from the Company, at the purchase
price per share, pursuant to an option (the "over-allotment option") which may
be exercised, at any time and from time to time, prior to 9:00 p.m., New York
City time, on the 30th day after the date of the Prospectus (or, if such 30th
day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading), up to an
aggregate of 333,000 Additional Shares from the Company. Upon any exercise of
the over-allotment option, each Underwriter, severally and not jointly, agrees
to purchase from the Company the number of Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) which
bears the same proportion to the number of Additional Shares to be purchased by
the Underwriters as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number of Firm Shares increased
as set forth in Section 12 hereof) bears to the aggregate number of Firm
Shares.
Certificates in transferable form for the Shares of the Selling
Stockholders agree to sell pursuant to this Agreement have been placed in
custody with __________ (the "Custodian") for delivery under this Agreement
pursuant to a Custody Agreement and Power of Attorney (the "Custody Agreement")
executed by the Selling Stockholders appointing __________ and ________ as
agents and attorneys-in-fact (the "Attorneys-in-Fact"). The Selling
Stockholders agree that (i) the Shares represented by the certificates held in
custody pursuant to the Custody Agreement are subject to the interests of the
Underwriters and the Company, (ii) the arrangements made by the Selling
Stockholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable and (iii) the obligations of the Selling
Stockholders hereunder and under the Custody Agreement shall not be terminated
by any act of the Selling Stockholders or by operation of law, whether by the
death or incapacity of any Selling Stockholder or the occurrence of any other
event. If any Selling Stockholder shall die or be incapacitated or if any
other event shall occur before the delivery of the Shares hereunder,
certificates for the Shares to be sold by the Selling Stockholders shall be
delivered to the Underwriters by the Attorneys-in-Fact in accordance with the
terms and conditions of this Agreement and the Custody Agreement as if such
death or incapacity or other event had not occurred, regardless of whether or
not the Attorneys-in-Fact or any Underwriter shall have received notice of such
death, incapacity or other event. Each Attorney-in-Fact represents that he is
authorized, on behalf of each of the Selling Stockholders, to execute this
Agreement and any other documents necessary or desirable in connection with the
sale of the Shares to be sold hereunder by the Selling Stockholders, to make
delivery of the certificates for such Shares, to receive the proceeds of the
sale of such Shares, to give receipts for such proceeds, to pay therefrom any
expenses to be borne by the Selling Stockholders in connection with the sale
and public offering of such Shares, to distribute the balance thereof to the
Selling Stockholders, and to take such other actions as may be necessary or
desirable in connection with the transactions contemplated by this Agreement.
Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement.
3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on
3
<PAGE> 4
, 1996 (the "Closing Date"). The place of closing for the Firm Shares and
the Closing Date may be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement between you and
the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered
to you on the Closing Date or the Option Closing Date, as the case may be,
against payment of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
or any Abbreviated Registration Statement to be declared effective before the
offering of the Shares may commence, the Company will endeavor to cause
the Registration Statement or such post-effective amendment to become effective
as soon as possible and will advise you promptly and, if requested by you, will
confirm such advice in writing, when the Registration Statement or such
post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction or the initiation of any proceeding
for such purpose; and (iii) within the period of time referred to in paragraph
(f) below, of any change in the Company's condition (financial or other),
business, prospects, properties, net worth or results of operations, or of the
happening of any event, which makes any statement of a material fact made in
the Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations
thereunder to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus (as then amended or
4
<PAGE> 5
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, five signed
copies of the registration statement as originally filed with the Commission
and of each amendment thereto, including financial statements and all
exhibits to the registration statement and will also furnish to you, without
charge, such number of conformed copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits, as you
may request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall object after being
so advised or (ii) so long as, in the opinion of counsel for the Underwriters,
a prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such
quantities as you have requested or may hereafter request, copies of each form
of the Prepricing Prospectus. The Company consents to the use, in accordance
with the provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and
by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus
so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto)
as you may request. The Company consents to the use of the Prospectus (and of
any amendment or supplement thereto) in accordance with the provisions of the
Act and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set
forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto and will expeditiously furnish to the Underwriters and dealers a
reasonable number of copies thereof. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should
be amended or supplemented, the Company, if requested by you, will promptly
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
5
<PAGE> 6
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those arising out
of the offering or sale of the Shares, in any jurisdiction where it is not now
so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering
a twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time
to time such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating
this Agreement pursuant to Section 10 or Section 11 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Company to comply with the terms or fulfill any
of the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you
of the time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not sell,
offer to sell, contract to sell or otherwise transfer or dispose of any Common
Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock), or grant any options or warrants to purchase Common Stock,
for a period of 180 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action
6
<PAGE> 7
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the Nasdaq Stock Market's National
Market prior to or concurrently with the effectiveness of the registration
statement.
6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder agrees
with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement, any Abbreviated Registration Statement and
any post-effective amendment thereto to become effective at the earliest
possible time.
(b) Such Selling Stockholder will pay all federal and other taxes, if
any, on the transfer or sale of any Shares that are sold by the Selling
Stockholder to the Underwriters.
(c) Such Selling Stockholder will do or perform all things required
to be done or performed by such Selling Stockholder prior to the Closing Date
to satisfy all conditions precedent to the delivery of the Shares by such
Selling Stockholder pursuant to this Agreement.
(d) Such Selling Stockholder will not offer, sell, contract to sell or
otherwise dispose of, or grant any option to purchase, any shares of Common
Stock (or any securities convertible into or exercisable or exchangeable for
Common Stock) owned by such Selling Stockholder, except for the sale of Shares
to the Underwriters pursuant to this Agreement, or exercise any registration
rights with respect to the sale of Common Stock, without the prior written
consent of Smith Barney Inc. for a period of 180 days after the date of the
Prospectus.
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(f) hereof, of any change in information
relating to such Selling Stockholder and of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations or any other information relating to the Company or
relating to any matter stated in the Prospectus or any amendment or supplement
thereto that comes to the attention of such Selling Stockholder that suggests
that any statement made in the Registration Statement or the Prospectus (as
then amended or supplemented, if amended or supplemented) is or may be untrue
in any material respect or that the Registration Statement or Prospectus (as
then amended or supplemented, if amended or supplemented) omits or may omit to
state a material fact or a fact necessary to be stated therein in order to make
the statements therein not misleading in any material respect.
(g) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982, as amended, with respect to the transactions herein
contemplated, such Selling Stockholder agrees to deliver
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<PAGE> 8
to you prior to or on the Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto or any Abbreviated Registration Statement shall become
effective and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, complied or will comply in
all material respects with the provisions of the Act and did not or will not at
any such times contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and warranty
does not apply to statements in or omissions from the registration statement or
the Prospectus made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by or on behalf
of any Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights (other than such rights as
shall terminate upon completion of the offering contemplated hereby, as set
forth in the Registration Statement and the Prospectus); the Shares have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar rights; and
the capital stock of the Company conforms to the description thereof in the
Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries (as
hereinafter defined) taken as a whole.
(e) All of the Company's subsidiaries (as defined in the Act) are
identified on Exhibit 21.1 to the Registration Statement and are referred to
herein individually as a "Subsidiary" and collectively as the "Subsidiaries."
Each Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business
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<PAGE> 9
as described in the Registration Statement or Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, prospects, properties, net worth
or results of operations of the Company and the Subsidiaries taken as a whole.
All the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable, and
are wholly owned by the Company directly, free and clear of any lien, adverse
claim, security interest, equity or other encumbrance, except as described in
the Registration Statement or Prospectus.
(f) Each individual physician, individual physician practice, group
physician practice and professional corporation with which the Company is
affiliated, through employment agreements with individual physicians or
management agreements with a practice or professional corporation, is listed on
Schedule III hereto, and are referred to herein individually as an "Affiliated
Physician Group" and collectively as the "Affiliated Physician Groups." Each
Affiliated Physician Group is duly organized and is duly qualified or licensed
by, and is in good standing in, each jurisdiction in which it conducts its
businesses and in which the failure to be so qualified or licensed,
individually or in the aggregate, would have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.
(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries or Affiliated Physician Groups, or to which the Company or any of
the Subsidiaries or Affiliated Physician Groups, or to which any of their
respective properties, is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required, and
there are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that are
not described or filed as required by the Act.
(h) Neither the Company nor any of the Subsidiaries nor any of the
Affiliated Physician Groups is in violation of its certificate of
incorporation, by-laws or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to it
or of any decree of any court or governmental agency or body having
jurisdiction over it, or in default in any material respect in the performance
of any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any material agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries or Affiliated Physician Groups is a party or by which any of them
or any of their respective properties may be bound.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act and the Exchange Act and compliance
with the securities or Blue Sky laws of various jurisdictions, all of which
have been or will be effected in accordance with this Agreement) or conflicts
or will conflict with or constitutes or will constitute a breach of, or a
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<PAGE> 10
default under, the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or
Affiliated Physician Groups or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries or Affiliated Physician Groups is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or Affiliated Physician
Groups or any of their respective properties, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of the Subsidiaries or Affiliated Physician Groups pursuant
to the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of their respective property
or assets is subject.
(j) No consents, approvals, authorizations or releases under any
agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party are necessary to consummate the transactions
contemplated hereby, except such as have been obtained.
(k) Ernst & Young, L.L.P., who have certified or shall certify the
financial statements included in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), are independent public
accountants as required by the Act.
(l) The financial statements, together with related schedules and
notes included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply with the requirements of the Act
and present fairly the consolidated financial position, results of operations
and changes in financial position of the Company, the Subsidiaries and the
Affiliated Physician Groups on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; and the other financial and
statistical information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the Company, the Subsidiaries and the Affiliated Physician
Groups. The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Registration
Statement and the Prospectus present fairly the information shown therein, have
been prepared in accordance with applicable requirements of the Act (including
Article 11 of Regulation S-X), have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly computed on the basis described therein. The
assumptions used in preparation of the pro forma financial statements and other
pro forma financial information included in the Registration Statement and the
Prospectus are reasonable, and the adjustments used therein are reasonably
appropriate to give effect to the transactions or circumstances referred to
therein.
(m) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as rights to indemnity and contribution hereunder may be
limited by federal
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<PAGE> 11
or state securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles.
(n) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries or Affiliated Physician Groups has
incurred any liability or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that is material to the
Company, the Subsidiaries and the Affiliated Physician Groups taken as a whole,
and there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company or any of the
Subsidiaries or Affiliated Physician Groups, or any material adverse change, or
any development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company, the Subsidiaries and the Affiliated Physician Groups taken as a whole.
(o) Each of the Company, the Subsidiaries and the Affiliated
Physician Groups has good and marketable title to all property (real and
personal) described in the Prospectus as being owned by it, free and clear of
all liens, claims, security interests or other encumbrances except such as
are described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement, and all the property
described in the Prospectus as being held under lease by the Company or any of
the Subsidiaries or Affiliated Physician Groups is held by them under valid,
subsisting and enforceable leases.
(p) The Company, the Subsidiaries and the Affiliated Physician
Groups own or possess all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being owned
by any of them or necessary for the conduct of their respective businesses, and
the Company is not aware of any claim to the contrary or any challenge by any
other person to the rights of the Company, the Subsidiaries and the Affiliated
Physician Groups with respect to the foregoing.
(q) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.
(r) There are no material Medicare, Medicaid or other managed care
recoupment or recoupments of any third-party payor being sought, threatened,
requested or claimed against the Company, any of the Subsidiaries or any
Affiliated Physician Group or any physician in any Affiliated Physician Group.
(s) The Company, each of the Subsidiaries, each of the Affiliated
Physician Groups and each physician in any Affiliated Physician Group has such
orders, consents, certificates of need, permits, licenses, franchises,
authorizations, clearances and other approvals
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<PAGE> 12
(collectively, the "Permits") of governmental or regulatory authorities
(domestic and foreign) as are necessary to own their respective properties and
to conduct their respective businesses in the manner described in the
Prospectus, including, without limitation, such Permits as are required (x)
under such federal and state healthcare laws, statutes and regulations as are
applicable to the Company, the Subsidiaries and the Affiliated Physician
Groups, (y) to receive reimbursement under Medicare/Medicaid and (z) under such
insurance laws and regulations as are applicable to the Company, the
Subsidiaries and the Affiliated Physician Groups, subject to such
qualifications as may be set forth in the Prospectus. Each of the Company, the
Subsidiaries and the Affiliated Physician Groups has fulfilled and performed in
all material respects their respective obligations with respect to the Permits,
and no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit, subject to such
qualifications as may be set forth in the Prospectus. Except as described in
the Prospectus, none of the Permits contains any restriction that is
materially burdensome to the Company, any of the Subsidiaries or any of the
Affiliated Physician Groups.
(t) Neither the Company nor any of the Subsidiaries nor any of the
Affiliated Physician Groups is in material violation of any healthcare law,
ordinance, administrative or governmental rule or regulation applicable to
the Company, any of the Subsidiaries or any of the Affiliated Physician Groups,
including, without limitation, those relating to reimbursement by government
agencies and fraudulent or wrongful billings.
(u) Neither the Company nor any of the Subsidiaries nor any of the
Affiliated Physician Groups nor any employee or agent of the Company, any
Subsidiary or any of the Affiliated Physician Groups has made any payment of
funds or received or retained any funds in violation of any healthcare law,
rule or regulation, including, without limitation, those prohibiting
fee-splitting or fees for the referral of patients.
(v) The businesses of the Company, the Subsidiaries and the Affiliated
Physician Groups do not violate in a material respect any healthcare statute,
administrative or governmental rule or regulation of the United States of
America applicable to the Company, any of the Subsidiaries or any of the
Affiliated Physician Groups, including, but not limited to, 42 U.S.C. Section
1395nn; 42 U.S.C. Section 1396b(s); 42 U.S.C. Section 1320a-7b(b), or any
healthcare judgment, injunction, order or decree of any court or government
entity or instrumentality of the United States of America having jurisdiction
over the Company, any of the Subsidiaries or any of the Affiliated Physician
Groups
(w) The statements in the Registration Statement and Prospectus under
the captions "Risk Factors -- Government Regulation" and "Business -- Government
Regulation", insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
(x) The property, assets and operations of the Company, the
Subsidiaries and the Affiliated Physician Groups are in compliance in all
material respects with all applicable federal, state, local or foreign laws,
rules, orders, decrees, judgments, injunctions, licenses, permits or
regulations relating to environmental matters (collectively, the "Environmental
Laws"), except to the extent that failure to comply with such Environmental
Laws would not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net
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<PAGE> 13
worth or results of operations of the Company, the Subsidiaries and the
Affiliated Physician Groups taken as a whole. None of the property, assets or
operations of the Company, any of the Subsidiaries or any of the Affiliated
Physician Groups is the subject of any federal, state, local or foreign
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any substance regulated by, or which would
form the basis of liability under, any Environmental Laws (a "Hazardous
Substance") into the environment or is in contravention of any federal, state,
local or foreign law, order or regulation that would have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company, the Subsidiaries and the
Affiliated Physician Groups taken as a whole. Neither the Company nor any of
the Subsidiaries nor any of the Affiliated Physician Groups has received any
notice or claim, nor are there pending, threatened or reasonably anticipated
lawsuits against them with respect to violations of an Environmental Law or in
connection with the release or threatened release of any Hazardous Substance
into the environment. Neither the Company nor any of the Subsidiaries nor any
of the Affiliated Physician Groups has any material contingent liability in
connection with any release or threatened release of any Hazardous Substance
into the environment.
(y) The Company, each of the Subsidiaries and each of the Affiliated
Physician Groups is insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are customary in the
businesses in which they are engaged; (ii) all policies of insurance and
fidelity or surety bonds insuring the Company, any of the Subsidiaries, any of
the Affiliated Physician Groups and their respective businesses, assets,
employees, officers and directors are in full force and effect; (iii) the
Company, the Subsidiaries and the Affiliated Physician Groups are in compliance
with the terms of such policies and instruments in all material respects; and
(iv) there are no claims by the Company or any of the Subsidiaries or any of
the Affiliated Physician Groups under any such policy or instrument as to which
any insurance company is denying liability or defending under a reservation of
rights clause. The Company, each of the Subsidiaries and each of the
Affiliated Physician Groups maintains insurance of the types and in amounts
generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies and businesses, all of which insurance
is in full force and effect.
(z) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(aa) To the Company's knowledge, neither the Company nor any
Subsidiary nor any Affiliated Physician Group nor any employee or agent of the
Company, any Subsidiary or Affiliated Physician Group has made any payment
of funds of the Company, any Subsidiary or any Affiliated Physician Group or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
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(ab) The Company, each of the Subsidiaries and each of the Affiliated
Physician Groups have filed all tax returns required to be filed, which
returns are complete and correct, and neither the Company nor any Subsidiary
nor any Affiliated Physician Group is in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with respect
thereto.
(ac) No holder of any security of the Company has any right,
contractual or otherwise, to require registration of shares of Common Stock or
any other security of the Company except as described in the Prospectus, and
the Company has received appropriate waivers with respect to such rights.
Except as described in or contemplated by the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
there are no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable or
exercisable for capital stock of the Company. No person has the right,
contractual or otherwise, to cause the Company to permit such person to
underwrite the sale of any of the Shares.
(ad) Neither the Company nor any of the Subsidiaries is, nor will the
Company or any of the Subsidiaries become, upon sale of the Shares to be issued
and sold in accordance herewith and upon application of the net proceeds to the
Company from such sale as described in the Prospectus under the caption "Use of
Proceeds," an "investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(ae) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 and the regulations thereunder, relating to issuers
doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder now has or has the right to acquire, and
on the Closing Date will have, valid and marketable title to the Shares to be
sold by such Selling Stockholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation, any restriction
on transfer or other defect in title.
(b) Such Selling Stockholder now has, and on the Closing Date will
have, full legal right, power and authorization, and any approval required by
law (except such as may be required under the Act or state securities or Blue
Sky laws governing the purchase and distribution of the Shares), to
sell, assign, transfer and deliver such Shares in the manner provided in this
Agreement, and upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire valid and marketable title to such Shares,
free and clear of any lien, claim, security interest, or other encumbrance,
restriction on transfer or other defect in title.
(c) This Agreement and the Custody Agreement have been duly
authorized, and in the case of this Agreement, when executed and delivered on
behalf of such Selling Stockholder in accordance with the Custody Agreement,
have been duly executed and delivered by or on behalf of such Selling
Stockholder and are the valid and binding agreements of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with
their respective terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and except as enforcement hereof
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<PAGE> 15
and thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles.
(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or state securities or Blue Sky laws
governing the purchase and distribution of the Shares) or conflicts or will
conflict with or constitutes or will constitute a breach of, or default under,
or violates or will violate, any agreement, indenture or other instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder
is or may be bound or to which any of such Selling Stockholder's property or
assets is subject, or any statute, law, rule, regulation, ruling, judgement,
injunction, order or decree applicable to such Selling Stockholder or to any
property or assets of such Selling Stockholder.
(e) Such Selling Stockholder has reviewed the Registration Statement
and the Prospectus. The Registration Statement and the Prospectus and any
amendment or supplement thereto do not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) The representation and warranties of such Selling Stockholder in
the Custody Agreement are, and on the Closing Date will be, true and correct.
(g) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements described
in the Prospectus.
9. INDEMNIFICATION AND CONTRIBUTION. The Company agrees to indemnify and
hold harmless each of you and each other Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any Prepricing Prospectus shall not inure to
the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of Shares by such Underwriter to any person if
(i) a copy of the Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the untrue statement or alleged
untrue statement or
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<PAGE> 16
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus and (ii) the Company has delivered
the Prospectus to the several Underwriters in requisite quantity on a timely
basis to permit such delivery or sending. The foregoing indemnity agreement
shall be in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel
or (iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling person
and the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Company shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the Company
agrees to indemnify and hold harmless any Underwriter and any such controlling
person, to the extent provided in the preceding paragraph, from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act to the same extent as the indemnity from the
Company to each Underwriter set forth in Section 9(a) hereof (but subject to
Section 9(g) hereof). In case any action or claim shall be brought or asserted
against any Underwriter or any such controlling person in respect of which
indemnity may be sought against such Selling Stockholders pursuant to this
paragraph (c), such Selling Stockholders shall have the rights and duties given
to the Company, and each Underwriter and any such controlling person shall have
the rights and duties given to the Underwriters, under paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
each of the Selling Stockholders may otherwise have.
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(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, the Selling Stockholders and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, to the same extent as the indemnity from the Company to each
Underwriter set forth in Section 9(a) hereof, but only with respect to
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, the
Selling Stockholder or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (d), such Underwriter shall have the
rights and duties given to the Company by paragraph (b) above (except that if
the Company shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
such Underwriter's expense), and the Company, its directors, any such officer,
the Selling Stockholder and any such controlling person shall have the rights
and duties given to the Underwriters by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Sellers on the one hand and the Underwriters on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Sellers on the one hand and the Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Sellers on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
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(f) The Sellers and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by a
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (e) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (e) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 12 hereof) and not joint.
(g) Notwithstanding any other provision of this Section 9, the
liability of each Selling Stockholder for indemnification or contribution under
this Section 9 shall not exceed an amount equal to the number of Shares sold
by such Selling Stockholder hereunder multiplied by the purchase price per
share set forth in Section 2 hereof.
(h) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(i) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Sellers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, the Selling
Stockholders or any person controlling the Company, (ii) acceptance of any
Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Company, its directors or officers, the Selling
Stockholders or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the
Underwriters to purchase the Firm Shares hereunder are subject to the following
conditions:
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(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared, or, in the case of an Abbreviated Registration Statement, to
become, effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment or Abbreviated
Registration Statement shall have become effective not later than 5:30 P.M.,
New York City time, on the date hereof, or at such later date and time as shall
be consented to in writing by you, and all filings, if any, required by Rules
424 and 430A under the Act shall have been timely made; no stop order
suspending the effectiveness of the registration statement shall have been
issued and no proceeding for that purpose shall have been instituted or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
prospects, properties, net worth, or results of operations of the Company not
contemplated by the Prospectus, which in your opinion, as Representatives of
the several Underwriters, would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Company,
or any officer or director of the Company, which makes any statement made in
the Prospectus untrue or which, in the opinion of the Company and its counsel
or the Underwriters and their counsel, requires the making of any addition to
or change in the Prospectus in order to state a material fact required by the
Act or any other law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Prospectus
to reflect such event or development would, in your opinion, as Representatives
of the several Underwriters, materially, adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date an opinion of Katten,
Muchin & Zavis, counsel for the Company and the Selling Stockholders, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters to the effect that:
(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered
and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole;
(ii) Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease, and
operate its properties and to conduct its business as described in the
Registration Statement and Prospectus (and any amendment or supplement
thereto); and all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are wholly owned by the Company directly, free and clear of
any security interest, lien, adverse claim, equity or other encumbrance.
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<PAGE> 20
(iii) Each Affiliated Physician Group is duly organized
and is duly qualified or licensed by, and is in good standing in, each
jurisdiction in which it conducts its business and in which the failure
to be so qualified or licensed would have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.
(iv) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
and the authorized capital stock of the Company conforms in all material
respects as to legal matters to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock";
(v) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly authorized and
validly issued, are fully paid and nonassessable and were issued and sold
in compliance with all applicable Federal and State securities laws;
(vi) The Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable
and free of any (A) preemptive rights or (B) to the best knowledge of such
counsel after reasonable inquiry, similar rights that entitle or will entitle
any person to acquire any Shares upon the issuance thereof by the Company;
(vii) The form of certificates for the Shares conforms to
the requirements of the Delaware General Corporation Law;
(viii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the best
knowledge of such counsel after reasonable inquiry, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b);
(ix) The Company has the corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
(x) Neither the Company nor any of the Subsidiaries is
in violation of its certificate of incorporation, bylaws or other
organizational documents, and, to the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Subsidiaries is in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note or other evidence of indebtedness,
except as may be disclosed in the Prospectus;
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(xi) Neither the offer, sale or delivery of the Shares,
nor the execution, delivery or performance of this Agreement, nor compliance by
the Company with the provisions hereof, nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
of incorporation, bylaws or other organizational documents of the Company or
any of the Subsidiaries, or any agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound that is made an exhibit to
the Registration Statement or is known to such counsel after reasonable
inquiry, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries, nor will any such action result in any violation of any existing
law, regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree known to
such counsel after reasonable inquiry, and applicable to the Company or any of
the Subsidiaries or any of their respective properties;
(xii) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the part
of the Company (except as have been obtained under the Act or such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of the Shares to
the Underwriters as contemplated by this Agreement;
(xiii) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial statements and
notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act;
(xiv) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company, any of the Subsidiaries
or any of the Affiliated Physician Groups, or to which the Company, any of the
Subsidiaries any of the Affiliated Physician Groups or any of their respective
properties, is subject, which are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) that are
not so described and (B) there are no agreements, contracts, indentures, leases
or other instruments that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to be
filed as an exhibit to the Registration Statement that are not described or
filed as required, as the case may be;
(xv) To the best knowledge of such counsel after
reasonable inquiry, the Company, each of the Subsidiaries and each of the
Affiliated Physician Groups has full power and authority and all Permits as
are required under applicable law to own, lease and operate their respective
properties and to conduct their respective businesses as now being conducted as
described in the Prospectus, including, without limitation, such Permits as are
required (x) under such federal and state healthcare laws, statutes and
regulations as are applicable to the Company, the Subsidiaries and the
Affiliated Physician Groups, (y) to receive reimbursement under
Medicare/Medicaid and (z) under such insurance laws and regulations as are
applicable to the Company, the Subsidiaries and the Affiliated Physician
Groups;
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(xvi) To the best knowledge of such counsel after
reasonable inquiry, the Company is not affiliated through employment
agreements, management agreements or otherwise, with any physicians,
physician practices, physician group practices or professional corporations
other than the Affiliated Physician Groups. Each Affiliated Physician Group is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with full power and authority to own, lease,
and operate its properties and to conduct its business;
(xvii) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements or other
legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
(xviii) Except as described in the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of,
commitment, plan or arrangement to issue, any shares of capital stock of
the Company or any securities convertible into or exchangeable or exercisable
for capital stock of the Company; and except as described in the Prospectus,
there is no holder of any security of the Company or any other person who has
the right, contractual or otherwise, to cause the Company to sell or otherwise
issue to them, or permit them to underwrite the sale of, any of the Shares or
the right to have any Common Stock or other securities of the Company included
in the Registration Statement or the right, as a result of the filing of the
Registration Statement or otherwise, to require registration under the Act of
any shares of Common Stock or other securities of the Company; and
(xix) Neither the Company nor any of the Subsidiaries is,
nor will the Company or any of the Subsidiaries become upon the sale of the
Shares and the application of the proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds," an "investment company" or a
person "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xx) This Agreement and the Custody Agreement have each
been duly executed and delivered by or on behalf of each Selling Stockholder
and is a valid and binding agreement of each Selling Stockholder, enforceable
against each Selling Stockholder in accordance with its terms, except (A) as
enforcement of rights to indemnity and contribution hereunder and thereunder
may be limited by federal or state securities laws or principles of public
policy and (B) subject to the qualification that the enforceability of its
obligations hereunder and thereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
(xxi) Each Selling Stockholder has full legal right,
power and authorization and any approval required by law to sell, assign,
transfer and deliver good and marketable title to the Shares each Selling
Stockholder has agreed to sell pursuant to this Agreement; and upon delivery of
such Shares pursuant to this Agreement and payment therefor as contemplated
herein, the Underwriters will acquire good and marketable title to such Shares
free and clear of any adverse claim; and
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(xxii) To the knowledge of such counsel, the execution and
delivery of this Agreement and the Custody Agreement by each Selling
Stockholder and the consummation of the transactions contemplated hereby and
thereby will not conflict with, violate, result in a breach of or constitute a
default under the terms or provisions of any material agreement, indenture,
mortgage or other instrument to which such Selling Stockholder is a party or by
which it or any of its assets or property is bound, or any court order or
decree or any law, rule, or regulation known to such counsel applicable to such
Selling Stockholder or to any of the property or assets of such Selling
Stockholder.
In addition, such counsel shall state that in connection with the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountant of the Company
and the Underwriters' representatives at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel has not undertaken to investigate or verify independently, and
does not assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the Prospectus, on
the basis of the foregoing, no facts have come to the attention of such counsel
leading such counsel to believe that either the Registration Statement at the
time it became effective contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus at the
date thereof or as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no view with
respect to the financial statements and schedules, the notes thereto or the
other financial, statistical and accounting data included therein).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United
States, the State of Illinois or the corporation law of the State of Delaware;
provided that (1) each such local counsel is acceptable to the Representatives,
(2) such reliance is expressly authorized by each opinion so relied upon and a
copy of each such opinion is delivered to the Representatives and is, in form
and substance, satisfactory to them and counsel for the Underwriters and (3)
counsel shall state in their opinion that they believe that they and the
Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of Dewey
Ballantine, counsel for the Underwriters, dated the Closing Date and addressed
to you, as Representatives of the several Underwriters, with respect to the
matters referred to in clauses (vi) (other than subclause (B) thereof), (vii),
(viii), (ix) and the penultimate paragraph of the foregoing paragraph (c) and
such other related matters as you may request.
(e) You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Ernst & Young, L.L.P., independent
certified public accountants, substantially in the forms heretofore approved by
you.
(f)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, contemplated by the Commission
at or prior to the Closing Date;
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<PAGE> 24
(ii) there shall not have been any change in the capital stock of the Company
nor any material increase in the short-term or long-term debt of the Company
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company; (iv) the Company shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Company, other than those reflected in or contemplated by
the Registration Statement or the Prospectus (or any amendment or supplement
thereto); and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 11(f) and in Section 11(g) hereof.
(g) The Company shall have terminated its S corporation status and
shall have elected to be treated as a C corporation under the Internal Revenue
Code of 1986, as amended.
(h) The Company shall have obtained any and all consents, approvals,
authorizations or releases (under any agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries is a party)
necessary in order to consummate the transactions contemplated by this
Agreement.
(i) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to
the Closing Date.
(j) The Shares shall have been listed or approved for listing
subject to notice of issuance on the Nasdaq Stock Market's National Market.
(k) The Company shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you, as Representatives of the Underwriters, and counsel for the
Underwriters.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the several Underwriters, or to
counsel for the Underwriters, shall be deemed a representation or warranty by
the Company to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 11, except that, if
any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (h) and paragraph
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<PAGE> 25
(k) shall be dated the Option Closing Date in question and the opinions called
for by paragraphs (c) and (d) shall be revised to reflect the sale of
Additional Shares.
11. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the Shares; (v)
the registration of the Common Stock under the Exchange Act and the listing of
the Shares on the Nasdaq National Market; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and expenses of
counsel for the Underwriters in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. in connection with
the offering; (viii) the transportation and other expenses incurred by or on
behalf of representatives of the Company in connection with presentations to
prospective purchasers of the Shares; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (x) the performance by the Company of its
other obligations under this Agreement.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto or an Abbreviated
Registration Statement to be declared effective before the offering of the
Shares may commence, when notification of the effectiveness of the registration
statement or such post-effective amendment or Abbreviated Registration
Statement has been released by the Commission. Until such time as this
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they have agreed to purchase hereunder, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
number of Shares which the Underwriters are obligated to purchase on the
Closing Date, each non-defaulting Underwriter shall be obligated, severally, in
the proportion which the number of Firm Shares set forth opposite its name in
Schedule I hereto bears to the aggregate number of Firm Shares set forth
opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
25
<PAGE> 26
(predecessor of Smith Barney Inc.), to purchase the Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused, to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase on the Closing Date, and
arrangements satisfactory to the non-defaulting Underwriters and the Company
for the purchase of such Shares by the non-defaulting Underwriters or by
another party or parties satisfactory to the non-defaulting Underwriters and
the Company are not made within thirty-six (36) hours after such default, this
Agreement shall terminate without liability on the part of the non-defaulting
Underwriters or the Company. In any such case which does not result in
termination of this Agreement, either the non-defaulting Underwriters or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve the defaulting Underwriter from liability in respect of such default
under this Agreement. The term "Underwriter" as used in this Agreement
includes, for all purposes of this Agreement, any party not listed in Schedule
I hereto who, with your approval and the approval of the Company, purchases
Shares which a defaulting Underwriter agreed, but failed or refused, to
purchase.
Any notice under this Section 13 may be given by telegram or telecopy or
telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the
Closing Date or any Option Closing Date (if different from the Closing Date and
then only as to the Additional Shares), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market shall have been suspended or materially
limited, (ii) a general moratorium on commercial banking activities in New York
shall have been declared by either federal or state authorities, or (iii) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your reasonable judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the offering
price to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
termination may be given by telegram or telecopy and shall be subsequently
confirmed by letter.
14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth in
the last paragraph on the cover page, the stabilization legend on the inside
front cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10 and 11
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 750 North Orleans Avenue, Chicago, Illinois 60610, Attention:
Norbert Gleicher, M.D., with a copy to Katten, Muchin & Zavis, 525 West Monroe
Street, Chicago, Illinois 60661, Attention: Jeffrey R. Patt, Esq.; or (ii)
if to you, as Representatives of the several Underwriters, care of Smith Barney
Inc., 388
26
<PAGE> 27
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the Americas,
New York, New York 10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Shares
in his status as such purchaser.
16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
27
<PAGE> 28
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
GYNCOR, INC.
By:
-----------------------------
Norbert Gleicher
Chief Executive Officer, President
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
THE CHICAGO CORPORATION
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
------------------------------------------
Managing Director
28
<PAGE> 29
SCHEDULE I
GynCor, Inc.
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
----------- -----------
<S> <C>
Smith Barney Inc. ............................
The Chicago Corporation ......................
______________
Total ................................
2,220,000,000
==============
</TABLE>
<PAGE> 30
SCHEDULE II
GYNCOR, INC.
Selling Stockholders
<TABLE>
<CAPTION>
SHARES
NAME TO BE SOLD
- ---- ----------
<S> <C>
Donna Pratt, M.D. ...................................... 40,000
Charles E. Miller, M.D. ................................ 84,000
Visvanath Karande, M.D. ................................ 96,000
--------
Total .......................................... 220,000
========
</TABLE>
<PAGE> 31
SCHEDULE III
Affiliated Physician Groups
Individual Physician
Physician Practice
Group Physician Practice
Professional Corporation
<PAGE> 1
EXHIBIT 2.3
ASSET TRANSFER AGREEMENT
This Asset Transfer Agreement ("Agreement"), dated as of June 5, 1996
and effective as of January 1, 1996, is made by and between GynCor, Inc., a
Delaware corporation ("GynCor") and The Center For Human Reproduction -
Illinois, M.D., S.C. ("CHR-IL") (GynCor and CHR-IL are individually referred to
herein as a "Party" and collectively referred to herein as "Parties").
RECITALS:
A. CHR-IL conducts a medical practice which specializes in
reproductive medicine ("Practice") in the Chicago, Illinois metropolitan area.
B. GynCor is engaged in the business of managing medical
practices.
C. CHR-IL desires to sell and transfer certain of its nonmedical
business assets ("Purchased Assets") and GynCor desires to purchase and acquire
such assets and to assume certain liabilities and obligations, as provided for
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the Parties agree as
follows:
ARTICLE I
CONVEYANCE OF ASSETS
Section 1.01 Conveyance of Assets. Subject to the terms and
conditions herein set forth, and in reliance upon the representations and
warranties set forth herein, GynCor agrees to purchase the Purchased Assets of
CHR-IL, as set forth in Exhibit "A," which is attached hereto and made a part
hereof.
To the extent the assignment of any Purchased Asset listed in Exhibit
"A" to this Agreement shall require the consent of another party thereto, then
CHR-IL shall endeavor to obtain such consent from such other party and, until
such consent is obtained, CHR-IL will provide GynCor with the full benefits,
claims and/or rights arising under the Purchased Asset.
Section 1.02 Assumption of Obligations and Liabilities. At the
Closing, GynCor shall assume and agree to pay or perform, promptly as they
become due, the obligations and liabilities of CHR-IL ("Assumed Obligations")
as set forth in Exhibit "B," which is attached hereto and made a part hereof.
Except for the Assumed Obligations, GynCor shall not assume or be
<PAGE> 2
deemed to have assumed and shall not be responsible for any other obligation or
liability of CHR-IL, direct or indirect, known or unknown, absolute or
contingent.
Section 1.03 Purchase Price. In consideration for the conveyance of
the Purchased Assets by CHR-IL to GynCor pursuant to this Agreement, GynCor
hereby agrees to pay a purchase price of $8,831,554, payable by the assumption
of the Assumed Obligations of $5,181,446 and by the offset of $3,650,108 in
amounts due and owing to GynCor by CHR-IL for management services rendered.
ARTICLE II
REPRESENTATIONS OF CHR-IL
CHR-IL represents and warrants to GynCor that:
Section 2.01 Organization, Valid Authorization and Good Standing.
CHR-IL is an Illinois medical corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois and is not required to
be qualified to do business in any state or jurisdiction other than the State
of Illinois. CHR-IL has the power and authority to enter into this Agreement
and related transaction documents and to carry out its obligations thereunder.
The execution and delivery of this Agreement and related transaction documents
and the consummation of this Agreement and the transactions contemplated
thereby have been duly and validly authorized by CHR-IL, and no other corporate
or other proceedings are necessary to authorize this Agreement and related
transaction documents and the transactions contemplated thereby. This Agreement
has been duly and validly executed and delivered by CHR-IL and constitutes the
valid and binding agreement of CHR-IL enforceable against it in accordance with
its terms. Each transaction document related to this Agreement has been
executed and delivered by CHR-IL, and will upon such execution and delivery
constitute the valid and binding agreement of CHR-IL enforceable against it in
accordance with its terms.
Section 2.02 Compliance. The execution and delivery of this Agreement
and related transaction documents and the consummation of the transactions
contemplated thereby by CHR-IL will not (i) violate any provision of its
organizational documents, (ii) violate any material provision of or result in
the breach of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any material obligation under any mortgage,
lien, lease, contract, license, instrument or any other agreement to which
CHR-IL is a party, (iii) result in the creation or imposition of any material
lien, charge, pledge, security interest or other material encumbrance upon any
property of CHR-IL, or (iv) to the best of CHR-IL's knowledge, violate or
conflict with any order award, judgment or decree or other material restriction
or any material law, ordinance or regulation to which CHR-IL or its property is
subject.
Section 2.03 Litigation. There are no material claims, actions,
suits, proceedings (arbitration or otherwise) or investigations pending or, to
the best of CHR-IL's knowledge,
2
<PAGE> 3
threatened against CHR-IL at law or in equity in any court or before or by any
governmental authority, and, to the best of CHR-IL's knowledge, there are no,
and have not been any, facts, conditions or incidents that could be reasonably
expected to result in any such actions, suits, proceedings (arbitration or
otherwise) or investigations. CHR-IL is not in default in respect of any
judgment, order, writ, injunction or decree of any court or other Governmental
Authority.
Section 2.04 Title to the Purchased Assets. CHR-IL is the owner and has
as of the date hereof, good and marketable title to the Purchased Assets, free
and clear of any and all liens, charges, pledges, claims, security interests,
exceptions or other encumbrances of any kind.
Section 2.05 Prepaid Items. All prepaid expenses ("Prepaid Expenses")
may be transferred to GynCor without the necessity of obtaining any consent or
approval.
Section 2.06 Accounts Payable. The accounts payable, notes payable, and
contracts payable ("Accounts Payable") listed in Exhibit "B" were incurred in
the ordinary and usual course of business of CHR-IL, may be assumed by GynCor
and are due and payable in the ordinary course of business of CHR-IL.
Section 2.07 Completeness and Conditions of Assets. The Purchased Assets
of CHR-IL include all the properties used to conduct the Practice as presently
conducted.
ARTICLE III
REPRESENTATIONS OF GYNCOR
GynCor represents and warrants to CHR-IL that:
Section 3.01 Organization; Valid Authorization and Good Standing.
GynCor is a Delaware corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois. GynCor is duly qualified to
transact business in the State of Illinois. GynCor has the power and authority
to own all of its properties and assets and to conduct its business, except
where the failure to have such power and authority would not have a material
adverse effect on the business of GynCor. GynCor has the power and authority to
enter into this Agreement and related transaction documents to which it is a
party and to carry out its obligations thereunder. The execution and delivery
of the transaction documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly and validly authorized by the
Board of Directors of GynCor, and no other corporate or other proceedings on
the part of GynCor is necessary to authorize this Agreement and related
transaction documents and the transactions contemplated thereby. This
Agreement has been duly and validly executed and delivered by GynCor and
constitutes the valid and binding agreement of GynCor enforceable in accordance
with its terms.
3
<PAGE> 4
Section 3.02 Compliance. The execution and delivery of this Agreement
and related transaction documents and the consummation of the transactions
contemplated thereby by GynCor will not (i) violate any provision of its charter
or bylaws, (ii) violate any material provision of or result in the breach of or
entitle any party to accelerate (whether after the giving of notice or lapse of
time or both) any material obligation under any mortgage, lien, lease,
contract, license, instrument or any other agreement to which GynCor is a
party, (iii) result in the creation or imposition of any material lien, charge,
pledge, security interest or other encumbrance upon any property of GynCor or
(iv) violate or conflict with any order, award, judgment or decree or other
material restriction or any material law, ordinance or regulation to which
GynCor is subject.
Section 3.03 Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Authority or
other person is required in connection with the execution and delivery of this
Agreement or related transaction documents by GynCor or the consummation by
GynCor of the transactions contemplated thereby, except for (i) any filings
required under the rules and regulations of the Securities and Exchange
Commission, and filings required by the Blue Sky laws of the various states;
(ii) the approval by Nichold Company, an Illinois corporation, of the
transactions contemplated by this Agreement; and (iii) the approval by American
National Bank & Trust Company of Chicago of the transactions contemplated by
this Agreement.
ARTICLE IV
CLOSING
Section 4.01 Closing. The Closing will take place at Katten Muchin &
Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693 on June
5, 1996 ("Closing Date") at 5:00 p.m. (local time) or such other place and time
as the parties may agree upon.
Section 4.02 Documents to be Delivered by CHR-IL and GynCor. At the
Closing, CHR-IL and GynCor each shall deliver to the other a Bill of Sale and
Assignment and Assumption Agreement covering all of the Purchased Assets listed
in Exhibit "A" and the Assumed Obligations listed in Exhibit "B."
ARTICLE V
MISCELLANEOUS
Section 5.01 Parties Bound. Except to the extent otherwise expressly
provided herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
4
<PAGE> 5
Section 5.02 Choice of Law. This Agreement shall be construed,
interpreted, and the rights of the parties determined in accordance with, the
laws of the State of Illinois. The Parties agree that if a controversy or
claim between or among them arises out of or in relation to this Agreement and
results in litigation, the courts of Cook County, Illinois or the courts of
the United States of America located in Cook County, Illinois shall have
jurisdiction to hear and decide such matter, and the Parties hereby submit to
jurisdiction to such courts.
Section 5.03 Entire Agreement; Amendments and Waivers. This Agreement,
the other transaction documents and all exhibits and schedules hereto and
thereto, constitute the entire agreement between the parties pertaining to the
subject matter hereof and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof. No supplement,
modification or waiver of this Agreement shall be binding unless it shall be
specifically designated to be a supplement, modification or wavier of this
Agreement and shall be executed in writing by the Party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be binding unless
executed in writing by the Party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
Section 5.04 Assignment. This Agreement may not be assigned by
operation of law or otherwise except that GynCor shall have the right to assign
this Agreement, at any time, to any direct or indirect wholly owned subsidiary
of Gyncor. No such assignment shall relieve GynCor of its obligations
hereunder.
Section 5.05 Further Assurances. From time to time hereafter and
without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated by this Agreement and related transaction documents or as shall be
reasonably necessary or appropriate in connection with the carrying out of the
parties' respective obligations hereunder or the purposes of this Agreement.
Section 5.06 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date set forth below their respective signatures.
THE CENTER FOR HUMAN GynCor, Inc., a Delaware corporation
REPRODUCTION-ILLINOIS, M.D.,
S.C., an Illinois medical corporation
By: /s/ Norbert Gleicher, M.D. By: /s/ Norbert Gleicher, M.D.
-------------------------- --------------------------
Its: President Its: President
-------------------------- --------------------------
6
<PAGE> 7
EXHIBIT "A"
Purchased Assets
----------------
<TABLE>
<CAPTION>
Fair Market
Value
------------
<S> <C>
Cash $ 22,376
Accounts Receivable (Net) $ 3,169,415
Interest Receivable $ 2,914
Due from Stockholder $ 182,928
Employee Advance $ 23,302
Due from Affiliates $ 17,464
Prepaid Expenses $ 267,122
Property & Equipment (Net) $ 4,800,000
Other Assets $ 68,409
Goodwill $ 300,000
- -------- ----------
Total $ 8,831,554
</TABLE>
<PAGE> 8
EXHIBIT "B"
Assumed Liabilities
<TABLE>
<CAPTION>
Fair Market
Value
-----------
<S> <C>
Checks in Excess of Funds $ 452,419
Accounts Payable $1,504,267
Contracts Payable $ 156,743
Due to HMOI $ 200,000
Due to Humana $ 50,000
Accrued Expenses $ 734,949
Deferred Rent $ 640,551
Notes Payable $1,442,517
- ------------- ----------
Total $5,181,446
</TABLE>
<PAGE> 1
EXHIBIT 4.1
GYNCOR INC (SM)
PRACTICE MANAGEMENT IN REPRODUCTIVE MEDICINE
<TABLE>
<S><C>
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 403921 10 9
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON STOCK, PAR VALUE $.0001 PER SHARE, OF
GYNCOR, INC.
transferable on the records of the corporation in person or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by a Transfer Agent and Registrar.
WITNESS the facsimile seal of the corporation and the facsimile signatures of its duly authorized officers.
DATED:
GynCor, Inc.
Corporate
Donna E. Pratt, M.D. SEAL Norbert Gleicher, M.D.
SECRETARY 1996 PRESIDENT
DELAWARE
</TABLE>
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK)
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
GYNCOR,INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO
THE TRANSFER AGENT.
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF
THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
<TABLE>
<S> <C>
TEN COM - AS TENANTS IN COMMON UNIF GIFT MIN ACT - ......... CUSTODIAN..........
(CUST) (MINOR)
TEN ENT - AS TENANTS BY THE ENTIRETIES UNDER UNIFORM GIFTS TO MINORS
JT TEN - AS JOINT TENANTS WITH RIGHT OF ACT ............................
SURVIVORSHIP AND NOT AS TENANTS (STATE)
IN COMMON
</TABLE>
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED, __________________________ HEREBY SELL, ASSIGN AND TRANSFER
UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
------------------------------------
/ /
/ /
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
--------------------------------------------------------------------- SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
------------------------------------------
-------------------------------------------------------------------- ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED:
----------------------------------
------------------------------------------
BY
----------------------------------------
THE SIGNATURES(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17 AD-15.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5
June 7, 1996
GynCor, Inc.
750 North Orleans Street
Chicago, IL 60510
Re: Registration Statement on Form S-1 (Registration
No. 333-3936)
Ladies and Gentlemen:
We have acted as counsel for GynCor, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to up to 2,553,000 shares of the Company's
Common Stock, $.0001 par value per share (the "Common Stock").
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates and written statements of the Selling
Stockholders and of directors, officers and employees of, and the accountants
for, the Company. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such instruments, documents and
records as we have deemed relevant and necessary to examine for the purpose of
this opinion, including (a) the Registration Statement, (b) the proposed
Underwriting Agreement by and among the Company, Smith Barney Inc., The Chicago
Corporation and the Selling Stockholders named on Schedule II thereto (the
"Underwriting Agreement"), (c) the Certificate of Incorporation of the Company,
(d) the By-laws of the Company, as amended to date, and (e) resolutions adopted
by the Board of Directors of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the due authority of the parties signing such
documents, the authenticity of the documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified, conformed or reproduced copies.
<PAGE> 2
GynCor, Inc.
June 7, 1996
Page 2
Based upon and subject to the foregoing, it is our opinion that the
2,553,000 shares of Common Stock covered by the Registration Statement
(including the 333,000 shares subject to the Underwriters' over-allotment
option), when issued and sold by the Company and paid for in accordance with
the provisions of the Underwriting Agreement, will be legally issued, fully
paid and non-assessable shares of Common Stock.
Our opinion expressed above is limited to the General Corporation Law
of the State of Delaware, and we do not express any opinion concerning any
other laws. This opinion is given as of the date hereof and we assume no
obligation to advise you of changes that may hereafter be brought to our
attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing
of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL TREATMENT REQUESTED
Confidential Portions of this Agreement which have been redacted are marked
with brackets ("[ ]"). The omitted material has been filed separately with
the Securities and Exchange Commission.
COMPREHENSIVE INFERTILITY CARE
SERVICE AGREEMENT
This Agreement, made this 1st day of January 1996 is entered into, by and
between Health Care Service Corporation d/b/a HMO Illinois, (HMOI) and The
Center for Human Reproduction ("PROVIDER"). It is understood and agreed that
this agreement shall also include members of other HMOI designated managed care
products which are marketed by or wholly-owned subsidiaries of Health Care
Service Corporation, and that the term HMOI as used in this Agreement shall
include such members enrolled therein. However, this Agreement may not apply to
HMOI members formerly enrolled in the Dreyer Health Plan. HMOI will notify
Provider in writing prior to any former Dreyer members being covered by this
Agreement.
Whereas, PROVIDER and HMOI wish to work together to encourage the cost
effective delivery of health care services and to increase the utilization of
PROVIDER by HMOI members.
Now, therefore, PROVIDER and HMOI mutually agree as follows:
1) The term of this Agreement shall be from January 1, 1996 through December
31, 1996. Thereafter this Agreement shall be automatically renewed for
successive twelve (12) month periods, unless terminated as provided in
paragraph 2.
2) This Agreement may be terminated under the following conditions: by either
party giving the other party one hundred eighty (180) days prior written notice;
except that for breach of this Agreement, thirty (30) days prior written notice
shall be effective.
3) For HMOI members not eligible for Medicare for which PROVIDER provides
Covered Infertility Services during the term of this Agreement, HMOI shall pay
the capitation rate as provided in Exhibit "A" (attached).
4) For purposes of this Agreement, Covered Infertility Services included in
the capitation are all services and supplies related to the diagnosis
and treatment of male and female infertility; including, but not limited to:
1. Male Infertility/Urology physician services.
2. Outside laboratory services.
3. Professional services, including, but not limited, to
anesthesia, for all ambulatory surgery.
4. Micromanipulation services.
5. All female and male infertility services provided by
gynecologists.
6. All infertility laboratory services.
7. All infertility imaging, inclusive of ultrasound and
fluoroscopy services.
8. All injectable fertility medications.
<PAGE> 2
However, Covered Infertility Services do not include inpatient hospital
facility fees and ambulatory surgery facility fees which will be billed to HMOI
by the facility rendering the services and paid by HMOI to the facility.
PROVIDER agrees to utilize only those facilities authorized by HMOI.
5) Provider agrees to bill HMOI in a manner acceptable to HMOI and to
comply with all reasonable HMOI requirements.
6) PROVIDER may bill HMOI's members directly for co-payments and deductibles
under the member's contract with HMOI, and for amounts for services not covered
under the member's contract with HMOI at PROVIDER'S charges generally made for
those services.
7) For HMOI members eligible for Medicare for which PROVIDER provides services
or supplies during the term of this Agreement, PROVIDER shall bill HMOI for
deductible amounts and services covered by HMOI but not covered by Medicare at
PROVIDER's charges generally made for those services.
8) The relationship of PROVIDER and HMOI shall be that of provider and
purchaser of health care services, respectively. Each party is and shall
continue to be an independent entity. Neither party is the agent or
representative of the other. Neither party shall have any express or implied
right or authority to assume or create any obligation or responsibility on
behalf of or in the name of the other party.
9) HMOI agrees to grant PROVIDER the exclusive right to provide Covered
Infertility Services to Covered Persons in PROVIDER'S geographic service area
which consists of Cook, DuPage, Lake, Kane, Will, McHenry counties, Illinois,
and Lake and Porter Counties, Indiana. Provider acknowledges, however, that on
an exception basis, certain medical groups may be allowed to provide Covered
Infertility Services to Covered Persons enrolled in that particular Medical
Group.
10) Provider agrees to provide Covered Infertility Services to Covered Persons,
at least at the following locations:
750 N. Orleans, Chicago, IL
2301 West Howard Street, Chicago, IL
1585 North Barrington Rd, Hoffman Estates, IL
18 W. 22nd, Oakbrook Terrace, IL
2850 West 95th St., Evergreen Park, IL
8697 Broadway, Merrillville, IN
1555 Bond Street, Naperville, IL
11) PROVIDER agrees to provide HMOI with monthly utilization reports as well
as sharing results of its Quality Improvement Program as it relates to
Covered Persons.
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12) Provider agrees to respond, in writing, to complaints by Covered Persons
within ten (10) business days after receipt and to send a copy of its response
to HMOI. Provider further agrees to respond in writing to requested or
inquiries from HMOI written ten (10) business days.
13) Provider agrees to refer all non-emergency medical conditions other than
Covered Infertility Services to the Covered Person's participating HMOI
Medical Group/IPA.
14) Each Party agrees to hold the other harmless from any claims, demands and
expenses of all kinds by reason of any act or omission caused or alleges to
have been caused by the party or by an agent or employee of the party.
15) PROVIDER agrees to maintain adequate financial protection against
professional liability during the term of this Agreement. PROVIDER shall
provide HMOI at least fifteen (15) days advance notice of the termination of
such protection.
16) Provider agrees to pay all referral bills pertaining to HMOI members
within forty-five (45)days of Provider's receipt of said bills. In the event
Provider fails to pay said bills on a timely basis, HMOI will pay those bills
using funds from Provider's capitation.
17) PROVIDER agrees to allow HMOI, upon reasonable prior notice, to audit
financial, administrative and medical records and procedures.
18) Provider agrees that it and Dr. Norbert Gleicher, M. D., shall be
responsible for credentialling all physicians who provide covered infertility
services to HMO Illinois members.
19) This Agreement in writing constitutes the entire contract between the
parties and supersedes and replaces all other agreements between the parties
for these services.
20) The parties agree to initiate negotiations for next year's Agreement on or
about July 31, 1996.
For: CENTER FOR HUMAN REPRODUCTION For: HEALTH CARE SERVICE CORP.
By: /s/ Norbert Gleicher, M.D. By: /s/ Frank Nicholson
Title: President Title: Vice President
Date: 3/21/96 Date: 4/3/96
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<PAGE> 4
EXHIBIT A
CAPITATION RATE
CONFIDENTIAL TREATMENT
1) The capitation rate shall be $[ ] per member per month as determined by
HMOI eligibility data. Medication reimbursement shall be $[ ] out of the
$[ ] total capitation.
2) If, during the term of this Agreement, PROVIDER shall provide Covered
Infertility Services at a capitation, discount, rate, differential or other
allowance more favorable than that provided for in this Agreement, then
PROVIDER agrees to promptly notify HMOI in writing, and HMOI, at its option,
shall be given the advantage of such capitation discount, rate, differential or
other allowance effective as of the effective date of said contract or other
arrangement. Provided however, that this provision shall not apply to covered
services rendered under any governmental program.
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EXHIBIT 10.17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of April, 1996, by and
between GYNCOR, INC., a Delaware corporation (the "Corporation"), and MARYBETH
GERRITY, Ph.D. (the "Employee").
RECITALS:
A. The Corporation has been organized under the laws of the State of
Delaware and specializes in the management and administration of medical
practices, including prepaid and fee-for-service medical care.
B. The Corporation currently provides Management Services to certain
medical service corporations (the "Affiliated Corporations"), each of which
uses the name The Center for Human Reproduction ("CHR") in the conduct of the
business or medical practice, and in the future, the Corporation may manage the
medical practices of other medical service corporations, partnerships, limited
liability companies, proprietorships or other entities which use the name CHR
in the conduct of their businesses or medical practices.
C. The Employee is currently the Senior Vice President of Operations and
Development of the Corporation, pursuant to an Employment Agreement dated June
13, 1995 (the "Current Employment Agreement").
D. The Employee is a Certified High Complexity Laboratory Director and a
Certified Clinical Laboratory Consultant.
E. The Corporation is pursuing an initial public offering of its common
stock (the "Public Offering"), and, in contemplation of the Public Offering,
Employee and the Corporation have agreed to amend and restate the terms and
conditions of Employee's employment with the Corporation, which amendments and
restatements shall become effective upon completion of the Public Offering.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT.
(a) Position. The Corporation and Employee agree that during the term of
this Agreement, Employee will serve as the Senior Vice President of
Operations and Development with areas of responsibility including regulatory
affairs, supervision of billing and purchasing, business development planning
and such other responsibilities as determined by the Corporation's President in
consultation with Employee. Although Employee's office will be located at
750 North Orleans, Chicago, Illinois, she will allocate her time among the
Corporation's other offices and laboratories, as the responsibilities of her
job may require.
<PAGE> 2
(b) Duties and Restrictions. Employee shall devote her full-time and best
efforts in the performance of her duties on behalf of the Corporation to
further the interests of the Corporation. During the term of this Agreement,
Employee shall be permitted to devote such time to performing laboratory and
related services for the Affiliated Corporations as is necessary or appropriate
for her to maintain in good standing her licenses and credentials. Employee
may engage in teaching, lecturing, speaking, publishing, honoraria and book
royalties and retain the income and pay the expenses from such activities;
provided that the President of the Corporation in the exercise of her
reasonable business judgment agrees in writing that such activities do not
interfere with the performance of Employee's employment duties.
(c) Research and Publications. Employee will cooperate and assist other
employees of the Corporation or Affiliated Corporations in preparation of
clinical and research papers for publication, and will use her best efforts to
elevate the standing of the members of the Corporation and Affiliated
Corporations in the field of laboratory science by submission of articles for
publication.
2. TERM.
Unless and until the Corporation's Registration Statement on Form S-1
relating to the Public Offering is declared effective by the Securities and
Exchange Commission (the "Effective Date"), the Current Employment Agreement
shall remain in full force and effect. The initial term of this Agreement
shall commence on the Effective Date and continue for a term of three years
(the "Initial Term"). The terms and conditions of this Agreement shall be
automatically renewed for subsequent terms of one (1) year (each, a "Renewal
Period") unless at least ninety (90) days prior to the commencement of a
Renewal Period, either the Corporation or the Employee shall give notice to the
other of its or her intent to not renew this Agreement. If notice of intent to
not renew this Agreement is given by either the Corporation or the Employee
pursuant to this Section 2, such notice shall constitute termination without
Cause for purposes of this Agreement, and any rights of the Employee arising as
a result of such termination without Cause shall survive such termination of
this Agreement. Notwithstanding the foregoing, this Agreement may be
terminated as hereinafter provided.
3. COMPENSATION.
(a) Base Salary. As a salary ("Base Salary") for all of the services
rendered by Employee, the Corporation shall pay Employee Two Hundred Fifty
Thousand Dollars ($250,000) per annum, payable in equal monthly installments.
Employee's salary will be prorated for any partial year. Employee acknowledges
that a part of her salary may be the result of services Employee provides
through contractual arrangements with third parties including affiliated
hospitals. Except as otherwise specifically provided in this Agreement,
payments to Employee for services rendered after the Effective Date related to
an agreement with a hospital or third party, will be paid or endorsed over by
Employee to the Corporation or an Affiliated Corporation as the Corporation
directs.
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<PAGE> 3
(b) Bonus. Employee shall be eligible for periodic bonuses from the
Corporation to be determined by the Corporation's Compensation Committee;
provided that for each year during the Initial Term, Employee's annual bonus
shall not be less than $75,000, prorated for any partial year.
(c) Benefits. The Employee shall be eligible to participate in any
health, life, disability and retirement or fringe benefit plan, if any, in
accordance with the terms with respect to which said plans may be adopted by
the Corporation from time to time; provided that with respect to any such plan
or benefit, the Employee shall have the obligation to comply with the
requirements necessary to obtain such insurance coverages or benefits.
However, if Employee elects to retain her current health and disability
insurance coverages, the Corporation will reimburse Employee to maintain her
existing health and disability insurance coverages.
(d) Expenses
(i) The Corporation agrees to pay or reimburse Employee for all
reasonable expenses incurred by her in furtherance of the Corporation's
business and in connection with performance of Employee's duties
hereunder, including, but not limited to, professional society dues,
journals, expenses for travel, entertainment, and expenses incurred in
attending conventions and seminars within guidelines established by the
Corporation from time to time. The Corporation will provide Employee
with secretarial and other support services as it deems reasonably
necessary for Employee to fulfill her duties. All reasonable expenses
for conferences where Employee is presenting a paper or organizing or
chairing a session at such conference, plus one other conference, will be
paid by the Corporation. The Corporation shall have the sole discretion
to decide the business reasonableness of all such expenses. However,
Employee's attendance at conventions and seminars is subject to the
Corporation's efficient operation, and the parties will consult with one
another with respect thereto. The Employee shall submit receipts for
payment or reimbursement of all expenses which shall be subject to the
Corporation's approval at its sole discretion.
(ii) In addition to other benefits during the terms of her
employment, the Corporation will pay Employee's tuition costs to attend
the Executive Master's Program at the J.L. Kellogg Graduate School of
Management at Northwestern University.
(e) Vacation. During each year of the Agreement, and any extensions
thereof, the Employee shall be entitled to four (4) weeks of paid vacation
time. Further, Employee will receive a two (2) week educational leave of
absence for attendance at medical seminars. Attendance at a professional
meeting or seminar shall not be deemed a vacation. Whenever Employee is a
speaker, presenter of a paper or organizer or chair of a session at a
professional meeting, such absence will not reduce her educational leave of
absence. Up to one (1) week of vacation time not utilized during any year may
be accrued to the next following year. Employee will not be entitled to
compensation for unused vacation time upon termination of employment unless
there is full compliance with all of the provisions of this Agreement.
Further, subject to
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<PAGE> 4
the Corporation's right to schedule the requested vacation period of
Employee to effectuate the efficient operations of the Corporation, and in the
interest of patient care, Employee may use up to three weeks of her annual
vacation consecutively.
(f) Loan. The Corporation shall extend to Employee a loan for such amount
as is necessary to fund any federal and state income taxes owed by Employee
that arise due to options, granted to Employee by the Corporation, to purchase
shares of Common Stock of the Corporation. Such loan shall be given by the
Corporation to Employee on or before June 12, 1996, and shall be pursuant to a
note, in the form to be agreed upon by the parties.
4. TRADE SECRETS AND INTELLECTUAL PROPERTY.
Employee recognizes, acknowledges and agrees that (i) financial
information concerning the Corporation's business marketing plan, personnel,
patient lists, fee schedules, forms, information, business management and
methods, and trade secrets; (ii) technical and non-technical medical data such
as patterns of utilization of medical services, compilation and analysis of
financial information and medical data to prepare and submit bids and proposals
to third party payors, including without limitation insurance companies, health
maintenance organizations, managed care companies, preferred provider
organizations, multi-specialty medical groups or other similar entities to
provide medical services on a capitation or discounted fee-for-service basis;
(iii) case records and histories; and (iv) proprietary computer software,
management information and information systems of the Corporation constitute
trade secrets ("Trade Secrets"). Further, Employee recognizes, acknowledges
and agrees that the Trade Secrets are sufficiently secret that the Corporation
derives economic value from their not being known to other persons who can
obtain economic value from their disclosure or use. Therefore, Employee shall
have a continuing duty to the Corporation which shall survive termination of
employment to: (i) maintain the secrecy of the Trade Secrets and use such Trade
Secrets for the exclusive benefit and advantage of the Corporation; (ii) retain
and keep any Trade Secret information which comes into Employee's knowledge,
possession or control, regardless of whether by proper or improper means, as
strictly confidential and shall not disclose such Trade Secrets to any third
party, including without limitation any partnership, corporation,
proprietorship or other entity, under her control or ownership, or for whom
Employee is a director, shareholder, partner, employee, independent contractor,
agent or affiliate in any capacity or from whom she derives direct or indirect
economic benefit. Trade Secrets do not include any information that (i) is or
becomes generally available to and known by the public (other than as a result
of an unpermitted disclosure directly or indirectly by the receiving party or
its affiliates, advisors, or representatives); (ii) is or becomes available to
the receiving party on a nonconfidential basis from a source other than the
furnishing party or its affiliates, advisors, or representatives, provided that
such source is not and was not bound by a confidentiality agreement with or
other obligation of secrecy to the furnishing party of which the receiving
party has knowledge at the time of such disclosure; or (iii) has already been
or is hereafter independently acquired or developed by the receiving party
without violating any confidentiality agreement with or other obligation of
secrecy to the furnishing party. If Employee should leave the employment of
the Corporation, Employee will neither take nor retain, without prior written
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<PAGE> 5
authorization from the Corporation, any papers, patient lists, fee schedules,
patient records, files, or other documents or copies thereof or other
confidential information or Trade Secrets of any kind belonging to the
Corporation. Without limiting other possible remedies to the Corporation for
the breach of this Section 4, Employee agrees that injunctive or other
equitable relief shall be available to enforce this Section 4, such relief to
be without the necessity of posting a bond, cash or otherwise, provided that
the Corporation shall give the Employee no less than three (3) days' notice
prior to seeking such injunctive relief. Employee further agrees that if any
restriction contained in this Section 4 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and such remaining restrictions contained herein shall be enforced
independently of each other.
5. TERMINATION.
(a) By Employee. Employee may terminate this Agreement at any time during
the term upon ninety (90) days prior written notice to the Corporation. Upon
such notice of termination from Employee, the Corporation may require Employee
to continue to render full time service on the Corporation's behalf, limit or
impose reasonable restrictions on Employee's activities during such notice
period as it deems reasonably necessary, accept Employee's notice of
termination as Employee's resignation from the Corporation at any time during
such notice period, and the Corporation may impose during such notice period
any other restrictions as it deems reasonably necessary.
(b) By Corporation. The Corporation may not terminate this Agreement
without Cause (as defined in Section 8(a)) during the Initial Term. The
Corporation may terminate this Agreement for Cause on ten (10) days notice to
the Employee.
6. RESTRICTIVE COVENANTS.
(a) Employee Acknowledgements. Employee agrees and acknowledges that in
order to assure the Corporation that it will retain its value as a going
concern, it is necessary that Employee undertake not to utilize her special
knowledge of the Corporation and her relationships with Third Party Payors and
Affiliated Corporations to compete with the Corporation. Employee further
acknowledges that:
(i) Employee will occupy a position of trust and confidence with the
Corporation and will acquire an intimate knowledge of all proprietary and
confidential information concerning the Corporation's provision of
management services to the Affiliated Corporations (the "Business");
(ii) the agreements and covenants contained in this Section 5 are
essential to protect the Corporation and the goodwill of the Business;
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<PAGE> 6
(iii) the Corporation would be irreparably damaged if Employee were
to provide services to any person or entity in violation of the
provisions of this Agreement; and
(iv) the scope and duration of the Restrictive Covenants are
reasonably designed to protect a protectible interest of the Corporation
and are not excessive in light of the circumstances.
(b) Nonsolicitation. Subject to Section 6(h) below, The "Restricted
Period" for purposes of this Agreement shall be the period of time commencing
on the date hereof and ending on the date one year after termination of
Employee's employment for any reason. Employee hereby agrees that at all times
during the Restricted Period, Employee shall not, directly or indirectly, as
employee, agent, consultant, stockholder, director, partner or in any other
individual or representative capacity, solicit or participate in any business
which solicits any entity which is or was a Third Party Payor or a "Prospective
Third Party Payor" of the Corporation or the Affiliated Corporations during the
Restricted Period for the purpose of marketing, selling or providing any such
Third Party Payor any medical or laboratory services that are currently
available from the Corporation or the Affiliated Corporations, or encouraging
any such Third Party Payor to terminate or otherwise alter its relationship
with the Corporation or an Affiliated Corporation; provided that nothing in
this Section shall prohibit Employee from (i) negotiating, contracting or
participating in the negotiations of any such contracts solely for her own
services; and (ii) becoming employed by any company that solicits any entity
which is or was a Third Party Payor or a Prospective Third Party Payor of the
Corporation or the Affiliated Corporations during the Restricted Period as
described above so long as Employee does not participate in such solicitation
efforts with respect to laboratory or medical services relating to infertility
or assisted reproductive technology. For purposes of this Agreement,
"Prospective Third Party Payor" shall mean any entity that the Corporation or
any Affiliated Corporation has contacted (orally or in writing), during the one
year period prior to the earlier of (i) the date of determination or (ii) the
effective date of the termination of Employee's employment with the
Corporation, for the purpose of providing medical or laboratory services.
(c) Interference with Employee Relationships. During the Restricted
Period, Employee shall not, directly or indirectly, as employee, agent,
consultant, stockholder, director, co-partner or in any other individual or
representative capacity, without the prior written consent of the Corporation,
employ or engage, recruit or solicit for employment or engagement, any person
who is or becomes employed or engaged by the Corporation or an Affiliated
Corporation during the Restricted Period, or otherwise seek to influence or
alter any such person's relationship with the Corporation or any Affiliated
Corporation.
(d) Non-Competition. Employee hereby agrees that at all times during the
Restricted Period, Employee shall not, directly or indirectly, engage in or
participate as an employee, agent, consultant, stockholder, director, partner,
or in any other individual or representative capacity, the provision of
physician practice management services to physicians or medical practices which
specialize in the field of reproductive medicine, including, without
limitation,
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<PAGE> 7
obstetrics, gynecology, and related areas of female health care and human
reproduction; provided that nothing in this Section shall prohibit
Employee from becoming employed by any entity engaged in the provision of
physician practice management services so long as Employee does not participate
in the provision of such services to physicians or medical practices which
specialize in the field of reproductive medicine, including, without
limitation, obstetrics, gynecology, and related areas of female health care and
human reproduction.
(e) Injunctive Relief. The Corporation shall be authorized and entitled
to obtain from any court of competent jurisdiction temporary, preliminary and
permanent injunctive relief as well as other equitable relief without posting a
bond, cash or security, which rights and remedies shall be cumulative and in
addition to any other rights to which the Corporation may be entitled, provided
that the Corporation shall give the Employee no less than three (3) business
days' written notice prior to seeking such injunctive relief.
(f) Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the terms of this Agreement or any particular Restrictive Covenant too
lengthy or too inclusive, the other provisions of this Section 5 shall
nevertheless stand, and the Restricted Period shall be deemed to be the longest
period permissible by law under the circumstances, and the restricted
activities shall be deemed to include as many activities as permissible by law
under the circumstances. The court in each case shall reduce the necessary
terms to permissible duration or scope.
(g) Survival. The provisions of this Section 6 shall survive the
termination of this Agreement.
(h) Bankruptcy Event. If a "Bankruptcy Event" occurs, the provisions of
this Section 6 shall terminate immediately without further action of Employee.
A "Bankruptcy Event" shall have occurred if the Corporation makes an assignment
for the benefit of creditors; or an order, judgment or decree is entered
adjudicating the Corporation bankrupt or insolvent; or any order for
relief with respect to the Corporation is entered under the Bankruptcy Code; or
the Corporation petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Corporation, or of any
substantial part of the assets of the Corporation, or commences any proceeding
relating to the Corporation under any bankruptcy reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation and either (i) the Corporation
by any act indicates its approval thereof, consent thereto or acquiescence
therein or (ii) such petition, application or proceeding is not dismissed
within ninety (90) days.
(i) Change in Control. If a Change in Control of the Corporation occurs,
and, during the 36 months following such Change in Control, Employee is
terminated by the Corporation without Cause the covenants set forth in this
Section 6 thereafter shall be of no force and effect.
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<PAGE> 8
7. DEFINITIONS.
(a) Cause. Cause means any one of the following events as they pertain to
Employee:
(i) Employee's material failure, refusal or inability to perform
essential duties required under this Agreement, material failure, refusal
or inability to comply with policies of the Corporation which may be
established from time to time, or a material breach of a provision of
this Agreement; which conditions of termination for Cause continue to
exist for sixty (60) days after the Corporation provides written notice
to Employee, specifying the nature and extent of the reason for such
notice; provided, however, if the reason specified for the notice is not
cured within sixty (60) days, but is capable of being cured within a
reasonable period of time in excess of sixty (60) days, then termination
for Cause shall not occur if Employee commences to cure within the first
sixty (60) day period and thereafter diligently and in good faith
continues to cure to completion;
(ii) Employee's willful engaging in gross misconduct materially
injurious to the Corporation that has not been cured by Employee within
sixty (60) days of written notice from the Corporation specifying the
alleged willful gross misconduct and material injury;
(iii) an act of fraud or dishonesty by Employee that results in
material gain or personal enrichment of Employee at the Corporation's
expense; or
(iv) Employee's conviction in a court of competent jurisdiction of
any felony offense or any act involving moral turpitude.
The decision to terminate Employee's employment for Cause, to take other action
or to take no action in response to such occurrence shall be in the sole and
exclusive discretion of the Corporation.
(b) Definition of Change in Control. For purposes of this Agreement, a
Change in Control shall mean the happening of any of the following events
following a Public Offering:
(i) An acquisition of at least twenty percent (20%) by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of the then
outstanding shares of common stock of the Corporation (the "Outstanding
Corporation Common Stock") or the combined voting power of the then
outstanding voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding Corporation
Voting Securities"); or
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(ii) The approval by the shareholders of the Corporation of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Corporation, the sale or disposition of all or
substantially all of the assets of the Corporation or similar corporate
transaction (in each case referred to in this Section 7(b) as a
"Corporate Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval by shareholders, to
the consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the date of the Public Offering, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this Section 7(b), that any
individual who becomes a member of the Board subsequent to the date of
the Corporation's Public Offering whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of those individuals who are members of the Board and
who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that any
such individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the foregoing provisions of this Section 7(b), the
following shall be excluded from the events described in Sections 7(b)(i)
and (ii) above: (i) any acquisition by or consummation of a Corporate
Transaction with the Corporation, an affiliated business manager or an
affiliated corporation, (ii) any acquisition by or consummation of a
Corporate Transaction with Employee or Norbert Gleicher, M.D. or any
group of which either of them is a member, (iii) the acquisition by or
consummation of a Corporate Transaction with any Person who beneficially
owned, immediately prior to such acquisition or Corporate Transaction,
directly or indirectly, twenty percent (20%) or more of the Outstanding
Corporation Common Stock or Outstanding Corporation Voting Securities, or
(iv) any acquisition or Corporate Transaction, if more than a majority of
the beneficial ownership of the entity resulting from the acquisition or
Corporate Transaction is held by Persons who held the beneficial
ownership of the Outstanding Corporation Voting Securities before the
acquisition or Corporate Transaction.
8. MISCELLANEOUS.
(a) A waiver of a breach of this Agreement by any party hereto shall not
operate or be construed as a waiver of any subsequent breach by either the
Corporation or Employee.
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(b) This Agreement shall be binding upon and inure to the benefit of the
Corporation and Employee and their respective successors, heirs and legal
representatives. The Corporation shall have the right to assign its rights and
obligations under this Agreement on the sale of its assets, merger or other
reorganization.
(c) Any notice, demand or other communication required, permitted or
desired to be given under this Agreement shall be in writing and either:
(i) personally delivered to Employee or (ii) sent by registered mail; and in
the case of the Corporation, to the principal office. In the case of (i) notice
shall be deemed given on delivery and in the case of (ii) the day following
deposit in the U.S. mail with postage prepaid and return receipt requested.
(d) This Agreement contains the entire understanding of the parties and
may not be altered, amended or modified except by written agreement by the
parties hereto. No prior, contemporaneous or subsequent oral or written
agreement or understanding shall alter or modify the terms hereof.
(e) In the event that any portion of this Agreement is deemed
unenforceable or void by a court of competent jurisdiction, the parties hereto
agree that such unenforceable or void provision may be severed from this
Agreement without, in any manner, affecting the remaining portions hereof.
(f) This Agreement shall be governed and construed in accordance with the
laws of the State of Illinois, and any action or proceeding arising under this
Agreement shall be prosecuted and defended only in the Circuit Court of Cook
County, Illinois which court shall have the sole and exclusive jurisdiction
over the subject matter and parties.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
EMPLOYEE GYNCOR, INC., a Delaware Corporation
/s/ MARYBETH GERRITY, PH.D. By: /s/ NORBERT GLEICHER, M.D.,
- --------------------------- ---------------------------
Marybeth Gerrity, Ph.D. Norbert Gleicher, M.D., President
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of April, 1996, by and
between GYNCOR, INC., a Delaware corporation (the "Corporation"), and ROBERT J.
BUKALA (the "Employee").
RECITALS:
A. The Corporation has been organized under the laws of the State of
Delaware and specializes in the management and administration of medical
practices, including prepaid and fee-for-service medical care.
B. The Corporation currently provides management services to certain
medical service corporations (the "Affiliated Corporations"), each of which
uses the name The Center for Human Reproduction ("CHR") in the conduct of the
business or medical practice, and in the future, the Corporation may manage the
medical practices of other medical service corporations, partnerships, limited
liability companies, proprietorships or other entities which use the name CHR
in the conduct of their businesses or medical practices.
C. The Corporation is pursuing an initial public offering of its common
stock (the "Public Offering").
D. The Corporation desires that the Employee be employed by the
Corporation as its Senior Vice President and Chief Financial Officer, and the
Employee desires to accept such employment on the terms hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT.
The Corporation and Employee agree that during the term of this Agreement,
Employee will be the Senior Vice President and Chief Financial Officer with
areas of responsibility including oversight of all accounting, financing and
financial reporting matters affecting the Corporation and Affiliated
Corporations and such other responsibilities as determined by the Corporation's
President in consultation with Employee.
2. TERM.
The initial term of this Agreement shall commence effective as of the date
hereof (the "Effective Date") and continue for a term of three (3) years (the
"Initial Term"). The terms and conditions of this Agreement shall be
automatically renewed for subsequent terms of three (3) years (each,
<PAGE> 2
a "Renewal Period") unless at least ninety (90) days prior to the
commencement of a Renewal Period, either the Corporation or the Employee shall
give notice to the other of its or his intent to not renew this Agreement. If
notice of intent to not renew this Agreement is given by either the Corporation
or the Employee pursuant to this Section 2, such notice shall constitute
termination without Cause for purposes of this Agreement, and any rights of the
Employee arising as a result of such termination without Cause shall survive
such termination of this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated as hereinafter provided.
3. COMPENSATION.
(a) Base Salary. As a salary ("Base Salary") for all of the services
rendered by Employee, the Corporation shall pay the Employee One Hundred Fifty
Thousand Dollars ($150,000) per annum, payable in equal biweekly installments.
(b) Bonus. Employee will be eligible for an annual bonus payable in cash,
based upon the attainment of mutually agreed upon performance goals; provided
that for each year during the Initial Term, Employee's annual cash bonus shall
not be less than $70,000. In addition, Employee shall be eligible to
participate in the Corporation's Stock Incentive Plan (the "Incentive Plan")
and, with respect to each year during the Initial Term, Employee shall receive
a grant of options to purchase at least 10,000 shares, in each case subject to
such vesting and performance criteria as the Equity Incentive Committee shall
reasonably establish and subject to the availability of options for issuance
under the Incentive Plan. In the event that a sufficient number of options are
not available under the Incentive Plan to cover such option grant within 90
days of the Equity Incentive Committee's determination that the performance
criteria have been satisfied, then Employee shall receive a cash bonus of at
least Seventy Thousand Dollars ($70,000) in lieu and satisfaction of such
option grant.
(c) Benefits.
(i) The Employee shall be eligible to participate in any health,
life, disability and retirement or fringe benefit plan, if any, adopted
by the Corporation from time to time, in accordance with the terms with
respect to which said plans may be afforded to other officers; provided
that with respect to any such plan or benefit, the Employee shall have
the obligation to comply with the requirements necessary to obtain such
insurance coverages or benefits.
(ii) The Employee shall receive an automobile allowance of Six
Hundred Dollars ($600) per month from the Corporation.
(d) Expenses. The Corporation agrees to pay or reimburse Employee for all
reasonable expenses incurred by him in furtherance of the Corporation's
business and in connection with performance of Employee's duties. The Employee
shall submit receipts for
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payment or reimbursement of all expenses which shall be subject to the
Corporation's approval at its sole discretion.
4. TRADE SECRETS.
Employee recognizes, acknowledges and agrees that with regard to the
Corporation an Affiliated Corporations: (a) financial information concerning
business and personnel; (b) technical and non-technical medical data such as
patterns of utilization of laboratory and medical services, compilation and
analysis of financial information and laboratory and medical data to prepare
and submit bids and proposals to insurance companies, health maintenance
organizations, managed care companies, preferred provider organizations,
multi-specialty medical groups or other similar entities ("Third Party Payors")
to provide medical or laboratory services on a capitation or discounted
fee-for-service basis; and (c) case records, laboratory reports and the
compilation and analysis of laboratory data, histories and lists of the names,
addresses, and telephone numbers of patients and third party referral sources
of laboratory and other business, as well as utilization and referral patterns
of third parties who refer laboratory and other business to the Corporation and
Affiliated Corporations, constitute trade secrets ("Trade Secrets"). Further,
Employee recognizes, acknowledges and agrees that the Trade Secrets are
sufficiently secret that the Corporation and Affiliated Corporations derive
economic value from their not being known to other persons who can obtain
economic value from their disclosure or use. Therefore, Employee covenants and
agrees that he shall have a continuing duty to the Corporation and Affiliated
Corporations which shall survive termination of employment to: (a) maintain
the secrecy of the Trade Secrets and use such Trade Secrets for the exclusive
benefit and advantage of the Corporation and Affiliated Corporations; (b)
retain and keep any Trade Secret information which comes into his knowledge,
possession or control, regardless of whether by proper or improper means, as
strictly confidential and shall not disclose such Trade Secrets to any third
party, including without limitation any partnership, corporation,
proprietorship, or other entity, under his control or ownership, or for whom
Employee is a director, shareholder, partner, employee, independent contractor,
agent or affiliate in any capacity or from whom he derives direct or indirect
economic benefit.
5. RESTRICTIVE COVENANTS.
(a) Employee Acknowledgements. Employee agrees and acknowledges that in
order to assure the Corporation that it will retain its value as a going
concern, it is necessary that Employee undertake not to utilize his special
knowledge of the Corporation and his relationships with Third Party Payors and
Affiliated Corporations to compete with the Corporation. Employee further
acknowledges that:
(i) Employee will occupy a position of trust and confidence with the
Corporation and will acquire an intimate knowledge of all proprietary and
confidential information concerning the Corporation's provision of
management services to the Affiliated Corporations (the "Business");
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(ii) the agreements and covenants contained in this Section 5 are
essential to protect the Corporation and the goodwill of the Business;
(iii) the Corporation would be irreparably damaged if Employee were
to provide services to any person or entity in violation of the
provisions of this Agreement; and
(iv) the scope and duration of the Restrictive Covenants are
reasonably designed to protect a protectible interest of the Corporation
and are not excessive in light of the circumstances.
(b) Nonsolicitation. The "Restricted Period" for purposes of this
Agreement shall be the period of time commencing on the date hereof and ending
on: (i) if Employee voluntarily terminates his employment or is terminated by
the Corporation for Cause, the date one (1) year after the effective date of
termination of Employee's employment, or (ii) if Employee is terminated by the
Corporation without cause, the effective date of termination of Employee's
employment. Employee hereby agrees that at all times during the Restricted
Period, Employee shall not, directly or indirectly, solicit, or participate as
employee, agent, consultant, stockholder, director, partner or in any other
individual or representative capacity in any business which solicits (i) any
entity which is or was a Third Party Payor of the Corporation or the Affiliated
Corporations during the Restricted Period for the purpose of marketing, selling
or providing any such Third Party Payor any medical or laboratory services
that are currently available from the Corporation or the Affiliated
Corporations, or encouraging any such Third Party Payor to terminate or
otherwise alter its relationship with the Corporation or an Affiliated
Corporation, or (ii) any entity that is or was a "Prospective Third Party
Payor" of the Corporation or an Affiliated Corporation, for the purpose of
marketing, selling or providing any such Third Party Payor any medical or
laboratory services that are currently available from the Corporation or the
Affiliated Corporations, or encouraging any such Third Party Payor to terminate
or otherwise alter its relationship with the Corporation or an Affiliated
Corporation. For purposes of this Agreement, "Prospective Third Party Payor"
shall mean any entity that the Corporation or any Affiliated Corporation has
contacted (orally or in writing), during the one year period prior to the
earlier of (i) the date of determination or (ii) the effective date of the
termination of Employee's employment with the Corporation, for the purpose of
providing medical or laboratory services.
(c) Interference with Employee Relationships. During the Restricted
Period (and one year thereafter if Employee is terminated with cause by the
Company or voluntarily terminates his employment with the Company), Employee
shall not, directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative capacity,
without the prior written consent of the Corporation, employ or engage, recruit
or solicit for employment or engagement, any person who is or becomes employed
or engaged by the Corporation or an Affiliated Corporation during the
Restricted Period, or otherwise seek to influence or alter any such person's
relationship with the Corporation or any Affiliated Corporation.
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<PAGE> 5
(d) Non-Competition. Employee hereby agrees that at all times during the
Restricted Period, Employee shall not, directly or indirectly, engage in or
participate as an employee, agent, consultant, stockholder, director, partner,
or in any other individual or representative capacity, the provision of
physician practice management services to physicians or medical practices which
specialize in the field of reproductive medicine, including, without
limitation, obstetrics, gynecology, and related areas of female health care and
human reproduction.
(e) Injunctive Relief. The Corporation shall be authorized and entitled
to obtain from any court of competent jurisdiction temporary, preliminary and
permanent injunctive relief as well as other equitable relief without posting a
bond, cash or security, which rights and remedies shall be cumulative and in
addition to any other rights to which the Corporation may be entitled,
provided that the Corporation shall give the Employee no less than three (3)
business days' written notice prior to seeking such injunctive relief.
(f) Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the terms of this Agreement or any particular Restrictive Covenant too
lengthy or too inclusive, the other provisions of this Section 5 shall
nevertheless stand, and the Restricted Period shall be deemed to be the longest
period permissible by law under the circumstances, and the restricted
activities shall be deemed to include as many activities as permissible by law
under the circumstances. The court in each case shall reduce the necessary
terms to permissible duration or scope.
(g) Bankruptcy Event. If a "Bankruptcy Event" occurs, the provisions of
this Section 5 shall terminate immediately without further action of Employee.
A "Bankruptcy Event" shall have occurred if the Corporation makes an assignment
for the benefit of creditors; or an order, judgment or decree is entered
adjudicating the Corporation bankrupt or insolvent; or any order for relief
with respect to the Corporation is entered under the Bankruptcy Code; or the
Corporation petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Corporation, or of any
substantial part of the assets of the Corporation, or commences any proceeding
relating to the Corporation under any bankruptcy reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation and either (i) the Corporation
by any act indicates its approval thereof, consent thereto or acquiescence
therein or (ii) such petition, application or proceeding is not dismissed
within ninety (90) days.
6. TERMINATION.
(a) This Agreement may be terminated by the Corporation without cause at
any time upon ninety (90) days prior written notice. This Agreement may be
terminated by the Employee voluntarily at any time upon ninety (90) days prior
written notice. If Employee terminates employment, Employee shall continue to
render services on behalf of the Corporation, and shall be paid a regular
salary earned to the date of termination, and Employee shall be liable to the
Corporation for any loss and expense incurred if Employee refuses to work
during the ninety
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<PAGE> 6
(90) day period. If the Corporation terminates Employee's employment
under the provisions of this Section 6, the Corporation will pay Employee a
regular salary earned during the ninety (90) day period, provided that
Employee, if requested by the Corporation, continues to work during the
ninety (90) day period. If Employee refuses to continue to work during the
ninety (90) day period, Employee will be liable to the Corporation for any loss
and expense incurred.
(b) The Corporation may terminate Employee's employment for Cause on ten
(10) days notice to the Employee. Termination for Cause shall mean any one of
the following events as they pertain to Employee:
(i) Employee's material failure, refusal or inability to perform
essential duties required under this Agreement, material failure, refusal
or inability to comply with policies of the Corporation which may be
established from time to time, or a material breach of a provision of
this Agreement; which conditions of termination for Cause continue to
exist for sixty (60) days after the Corporation provides written notice
to Employee, specifying the nature and extent of the reason for such
notice; provided, however, if the reason specified for the notice is not
cured within sixty (60) days, but is capable of being cured within a
reasonable period of time in excess of sixty (60) days, then termination
for Cause shall not occur if Employee commences to cure within the first
sixty (60) day period and thereafter diligently and in good faith
continues to cure to completion;
(ii) Employee's willful engaging in gross misconduct materially
injurious to the Corporation that has not been cured by Employee within
sixty (60) days of written notice from the Corporation specifying the
alleged willful gross misconduct and material injury;
(iii) an act of fraud or dishonesty by Employee that results in
material gain or personal enrichment of Employee at the Corporation's
expense; or
(iv) Employee's conviction in a court of competent jurisdiction of
any felony offense or any act involving moral turpitude.
7. LEGAL EXPENSES.
If the Employee takes legal action to enforce the Corporation's obligations
under this Agreement and Employee prevails in such action, then the Corporation
shall reimburse Employee for all reasonable expenses (including reasonable
attorneys' fees) actually incurred by the Employee in such action.
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<PAGE> 7
8. MISCELLANEOUS.
(a) A waiver of a breach of this Agreement by any party hereto shall not
operate or be construed as a waiver of any subsequent breach by either the
Corporation or the Employee.
(b) This Agreement shall be binding upon and inure to the benefit of the
Corporation, the Affiliated Corporations and Employee and their respective
successors, heirs and legal representatives. The Corporation shall have the
right to assign its rights and obligations under this Agreement on the sale of
its assets, merger or other reorganization.
(c) Any notice desired, required, or permitted to be given under this
Agreement shall be made in writing and either: (i) personally delivered to the
Employee or (ii) sent by registered mail; and in the case of the Corporation,
to its principal office. In the case of (i) notice shall be deemed given on
delivery and in the case of (ii) the day following deposit in the U.S. mail
with postage prepaid and return receipt requested.
(d) This Agreement contains the entire understanding of the parties and
may not be altered, amended or modified except by written agreement by the
parties hereto. No prior oral or written agreement or understanding shall
alter or modify the terms hereof.
(e) In the event that any portion of this Agreement is deemed
unenforceable or void by a court of competent jurisdiction, the parties hereto
agree that such unenforceable or void provision may be severed from this
Agreement without, in any manner, affecting the remaining portions hereof.
(f) This Agreement shall be governed and construed in accordance with the
laws of the State of Illinois, and any action or proceeding arising under this
Agreement shall be prosecuted and defended only in the Circuit Court of Cook
County, Illinois which court shall have the sole and exclusive jurisdiction
over the subject matter and parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
EMPLOYEE: GYNCOR, INC., a Delaware corporation
/s/ ROBERT BUKALA By: /s/ NORBERT GLEICHER, M.D.
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Robert J. Bukala Norbert Gleicher, M.D., President
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<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of April, 1996, by and
between GYNCOR, INC., a Delaware corporation (the "Corporation"), and MICHAEL
L. GONZALES (the "Employee").
RECITALS:
A. The Corporation has been organized under the laws of the State of
Delaware and specializes in the management and administration of medical
practices, including prepaid and fee-for-service medical care.
B. The Corporation currently provides management services to certain
medical service corporations (the "Affiliated Corporations"), each of which
uses the name The Center for Human Reproduction ("CHR") in the conduct of the
business or medical practice, and in the future, the Corporation may manage the
medical practices of other medical service corporations, partnerships, limited
liability companies, proprietorships or other entities which use the name CHR
in the conduct of their businesses or medical practices.
C. The Corporation is pursuing an initial public offering of the Common
Stock (the "Public Offering").
D. The Corporation desires that the Employee be employed by the
Corporation as its Vice President and Chief Information Officer, and the
Employee desires to accept such employment on the terms hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT.
(a) Position. The Corporation and Employee agree that during the term of
this Agreement, Employee will be the Vice President and Chief Information
Officer with areas of responsibility including development and implementation
of all policies, procedures and long term strategies for information and data
systems for the Corporation and Affiliated Corporations, and such other
responsibilities as determined by the Corporation's President in consultation
with Employee.
(b) Duties. Employee's employment duties shall include, but not be
limited to, the following:
(i) evaluation and determination of the overall strategic direction
and business contribution of the Corporation's information system;
<PAGE> 2
(ii) planning and oversight of multiple projects including the
implementation and development of software, hardware and
telecommunications strategies and standards on a national basis;
(iii) planning and oversight of research, evaluation and integration
of new technology, systems development methodologies, data
administration, capacity planning, training and technical support;
(iv) evaluation of the Corporation's current dependence on outside
consulting and outsourcing and implementation of cost effective
alternatives;
(v) establishment of policies and procedures for reproducible
system operations and maintenance;
(vi) development and implementation of a Corporation-wide standard
for consistency in hardware and software purchasing;
(vii) administration of departmental budget and personnel matters;
(viii) planning and implementation of system upgrades;
(ix) participation in research projects and publications relating to
CHR patient care, scientific interests and business goals, and assistance
of other CHR professional staff members in this regard; and
(x) responsibility for maintenance of databases used for
statistical analysis by the Corporation.
(c) Outside Activities. The Corporation and Employee agree that from the
Effective Date and until August 1, 1996, Employee may spend, on average, one
day per calendar week on business concerning The Focus Group.
(d) Joint Venture Opportunities. The Corporation and Employee agree that
a separate joint venture agreement may be negotiated between the parties as
additional product development opportunities with commercial value arise.
(e) Intellectual Property Rights. Employee will retain all intellectual
property and copyrights to all published work of Employee that was published
prior to the Effective Date, but Employee will transfer and convey to the
Corporation all intellectual property and copyrights arising out of or relating
to any work performed by Employee while employed by the Corporation, and the
Corporation acknowledges that Employee's contribution to the Corporation
through the development and successful implementation of any such intellectual
property will be taken into account in the Compensation Committee's
determination of bonuses under this Agreement. Notwithstanding the foregoing
and subject to the terms of Section 4 of this
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<PAGE> 3
Agreement, Employee may continue to publish articles, books and other written
materials during the term of his employment and retain the proceeds of
any such work, provided that such activities do not interfere with Employee's
duties and obligations under this Agreement or the operation of the
Corporation's business.
2. TERM.
The initial term of this Agreement shall commence effective as of the date
hereof (the "Effective Date") and continue for a term of three (3) years (the
"Initial Term"). The terms and conditions of this Agreement shall be
automatically renewed for subsequent terms of one (1) year (each, a "Renewal
Period") unless at least ninety (90) days prior to the commencement of a
Renewal Period, either the Corporation or the Employee shall give notice to the
other of its or his intent to not renew this Agreement. If notice of intent to
not renew this Agreement is given by either the Corporation or the Employee
pursuant to this Section 2, such notice shall constitute termination without
Cause for purposes of this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated as hereinafter provided.
3. COMPENSATION.
(a) Base Salary. As a salary ("Base Salary") for all of the services
rendered by Employee, the Corporation shall pay the Employee One Hundred Twenty
Thousand Dollars ($120,000) per annum, payable in equal biweekly installments.
(b) Bonus. Upon execution of this Agreement and thereafter in January of
each calendar year during the Initial Term of this Agreement, Employee shall
receive a bonus payment for such year of $40,000 (the "Minimum Bonus").
Notwithstanding the foregoing, if Employee is terminated for cause by the
Corporation or voluntarily terminates his employment during the Initial Term,
Employee shall forfeit and repay to the Corporation within five (5) business
days of the effective date of termination, a portion of the Minimum Bonus
paid to Employee during the year in which such termination occurs (the "Subject
Year"), equal to the Minimum Bonus multiplied by a fraction equal to the number
of days in the Subject Year after the effective date of termination, divided by
365. Employee shall be eligible to receive an additional bonus to be
determined by the Corporation's Compensation Committee, or in the absence of a
Compensation Committee, the Board of Directors, at the end of each calendar
year. In addition, Employee shall be eligible to participate in the
Corporation's Stock Incentive Plan (the "Incentive Plan") and, with respect to
each year during the Initial Term, Employee shall receive a grant of options to
purchase at least 8,000 shares, in each case subject to such vesting and
performance criteria as the Equity Incentive Committee shall reasonably
establish and subject to the availability of options for issuance under the
Incentive Plan. In the event that a sufficient number of options are not
available under the Incentive Plan to cover such option grant within 90 days of
the Equity Incentive Committee's determination that the performance criteria
have been satisfied, then Employee shall receive a cash bonus of Fifty Five
Thousand Dollars ($55,000) in lieu and satisfaction of such option grant.
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(c) Benefits.
(i) The Employee shall be eligible to participate in any health,
life, disability and retirement or fringe benefit plan, if any, in
accordance with the terms with respect to which said plans may be adopted
by the Corporation from time to time; provided that with respect to any
such plan or benefit, the Employee shall have the obligation to comply
with the requirements necessary to obtain such insurance coverages or
benefits.
(ii) Employee shall receive an automobile allowance of Five Hundred
Dollars ($500) per month from the Corporation.
(d) Expenses.
(i) The Corporation agrees to pay or reimburse Employee for all
reasonable expenses incurred by him in furtherance of the Corporation's
business and in connection with the performance of Employee's duties.
Employee shall submit receipts for payment or reimbursement of all
expenses, which shall be subject to the Corporation's approval.
(ii) Through December 31, 1996, the Corporation will provide
Employee with up to Four Thousand Dollars ($4,000) per month for
reimbursement of living expenses, including commuting costs.
4. TRADE SECRETS.
Employee recognizes, acknowledges and agrees that with regard to the
Corporation and Affiliated Corporations: (a) financial information concerning
business and personnel; (b) technical and non-technical medical data such as
patterns of utilization of laboratory and medical services, compilation and
analysis of financial information and laboratory and medical data to prepare
and submit bids and proposals to insurance companies, health maintenance
organizations, managed care companies, preferred provider organizations,
multi-specialty medical groups or other similar entities ("Third Party Payors")
to provide medical or laboratory services on a capitation or discounted
fee-for-service basis; and (c) case records, laboratory reports and the
compilation and analysis of laboratory data, histories and lists of the names,
addresses, and telephone numbers of patients and third party referral sources
of laboratory and other business, as well as utilization and referral patterns
of third parties who refer laboratory and other business to the Corporation and
Affiliated Corporations, constitute trade secrets ("Trade Secrets"). Further,
Employee recognizes, acknowledges and agrees that the Trade Secrets are
sufficiently secret that the Corporation and Affiliated Corporations derive
economic value from their not being known to other persons who can obtain
economic value from their disclosure or use. Therefore, Employee covenants and
agrees that he shall have a continuing duty to the Corporation and Affiliated
Corporations which shall survive termination of employment to: (a) maintain
the secrecy of the Trade Secrets and use such Trade Secrets for the exclusive
benefit and advantage of the Corporation and Affiliated Corporations; (b)
retain and keep any Trade Secret information which comes into his knowledge,
possession or control, regardless of whether
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by proper or improper means, as strictly confidential and shall not disclose
such Trade Secrets to any third party, including without limitation any
partnership, corporation, proprietorship, or other entity, under his control or
ownership, or for whom Employee is a director, shareholder, partner, employee,
independent contractor, agent or affiliate in any capacity or from whom he
derives direct or indirect economic benefit.
5. RESTRICTIVE COVENANTS.
(a) Employee Acknowledgements. Employee agrees and acknowledges that in
order to assure the Corporation that it will retain its value as a going
concern, it is necessary that Employee undertake not to utilize his special
knowledge of the Corporation and his relationships with Third Party
Payors and Affiliated Corporations to compete with the Corporation. Employee
further acknowledges that:
(i) Employee will occupy a position of trust and confidence with the
Corporation and will acquire an intimate knowledge of all proprietary and
confidential information concerning the Corporation's provision of
management services to the Affiliated Corporations (the "Business");
(ii) the agreements and covenants contained in this Section 5 are
essential to protect the Corporation and the goodwill of the Business;
(iii) the Corporation would be irreparably damaged if Employee were
to provide services to any person or entity in violation of the
provisions of this Agreement; and
(iv) the scope and duration of the Restrictive Covenants are
reasonably designed to protect a protectible interest of the Corporation
and are not excessive in light of the circumstances.
(b) Nonsolicitation. The "Restricted Period" for purposes of this
Agreement shall be the period of time commencing on the date hereof and ending
on: (i) if Employee voluntarily terminates his employment or is terminated by
the Corporation for Cause, the date one (1) year after termination of
Employee's employment, or (ii) if Employee is terminated by the Corporation
without Cause, the effective date of termination of Employee's employment.
Employee hereby agrees that at all times during the Restricted Period, Employee
shall not, directly or indirectly, solicit, or participate as employee, agent,
consultant, stockholder, director, partner or in any other individual or
representative capacity in any business which solicits (i) any entity which is
or was a Third Party Payor of the Corporation or the Affiliated Corporations
during the Restricted Period for the purpose of marketing, selling or providing
any such Third Party Payor any medical or laboratory services that are then
currently available from the Corporation or the Affiliated Corporations, or
encouraging any such Third Party Payor to terminate or otherwise alter its
relationship with the Corporation or an Affiliated Corporation, or (ii) any
entity that is or was a "Prospective Third Party Payor" of the Corporation or
an
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Affiliated Corporation, for the purpose of marketing, selling or providing
any such Third Party Payor any medical or laboratory services that are then
currently available from the Corporation or the Affiliated Corporations, or
encouraging any such Third Party Payor to terminate or otherwise alter its
relationship with the Corporation or an Affiliated Corporation. For purposes
of this Agreement, "Prospective Third Party Payor" shall mean any entity that
the Corporation or any Affiliated Corporation has contacted (orally or in
writing), during the one year period prior to the earlier of (i) the date of
determination or (ii) the effective date of the termination of Employee's
employment with the Corporation, for the purpose of providing medical or
laboratory services.
(c) Interference with Employee Relationships. During the Restricted
Period (and one year thereafter if Employee is terminated with Cause or
terminates his employment without Good Reason), Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner
or in any other individual or representative capacity, without the prior
written consent of the Corporation, employ or engage, recruit or solicit for
employment or engagement, any person who is or becomes employed or engaged by
the Corporation or an Affiliated Corporation during the Restricted Period, or
otherwise seek to influence or alter any such person's relationship with the
Corporation or any Affiliated Person.
(d) Non-Competition. Employee hereby agrees that at all times during the
Restricted Period, Employee shall not, directly or indirectly, engage in or
participate as an employee, agent, consultant, stockholder, director, partner,
or in any other individual or representative capacity, the provision of
physician practice management services to physicians or medical practices which
specialize in the field of reproductive medicine, including, without
limitation, obstetrics, gynecology, and related areas of female health care and
human reproduction.
(e) Injunctive Relief. The Corporation shall be authorized and entitled
to obtain from any court of competent jurisdiction temporary, preliminary and
permanent injunctive relief as well as other equitable relief without posting a
bond, cash or security, which rights and remedies shall be cumulative and in
addition to any other rights to which the Corporation may be entitled, provided
that the Corporation shall give the Employee no less than three (3) business
days' written notice prior to seeking such injunctive relief.
(f) Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the terms of this Agreement or any particular Restrictive Covenant too
lengthy or too inclusive, the other provisions of this Section 5 shall
nevertheless stand, and the Restricted Period shall be deemed to be the longest
period permissible by law under the circumstances, and the restricted
activities shall be deemed to include as many activities as permissible by law
under the circumstances. The court in each case shall reduce the necessary
terms to permissible duration or scope.
(g) Bankruptcy Event. If a "Bankruptcy Event" occurs, the provisions of
this Section 5 shall terminate immediately without further action of Employee.
A "Bankruptcy Event" shall have occurred if the Corporation makes an assignment
for the benefit of creditors; or an order,
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judgment or decree is entered adjudicating the Corporation bankrupt or
insolvent; or any order for relief with respect to the Corporation is entered
under the Bankruptcy Code; or the Corporation petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or liquidator of
the Corporation, or of any substantial part of the assets of the Corporation,
or commences any proceeding relating to the Corporation under any bankruptcy
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced, against the Corporation and either
(i) the Corporation by any act indicates its approval thereof, consent thereto
or acquiescence therein or (ii) such petition, application or proceeding is not
dismissed within ninety (90) days.
6. TERMINATION.
(a) This Agreement may be terminated by the Corporation without Cause at
any time upon ninety (90) days prior written notice. This Agreement may be
terminated by the Employee voluntarily at any time upon ninety (90) days prior
written notice. If Employee terminates employment, Employee shall continue to
render services on behalf of the Corporation, and shall be paid a regular
salary earned to the date of termination, and Employee shall be liable to the
Corporation for any loss and expense incurred if Employee refuses to work
during the ninety (90) day period. If the Corporation terminates Employee's
employment under the provisions of this Section 6, the Corporation will pay
Employee a regular salary earned during the ninety (90) day period, provided
that Employee, if requested by the Corporation, continues to work during the
ninety (90) day period. If Employee refuses to continue to work during the
ninety (90) day period, Employee will be liable to the Corporation for any loss
and expense incurred.
(b) The Corporation may terminate Employee's employment for Cause on ten
(10) days notice to the Employee. Termination for Cause shall mean any one of
the following events as they pertain to Employee:
(i) Employee's material failure, refusal or inability to
perform essential duties required under this Agreement,
material failure, refusal or inability to comply with policies of
the Corporation which may be established from time to time, or a
material breach of a provision of this Agreement; which
conditions of termination for Cause continue to exist for sixty
(60) days after the Corporation provides written notice to
Employee, specifying the nature and extent of the reason for such
notice; provided, however, if the reason specified for the notice
is not cured within sixty (60) days, but is capable of being
cured within a reasonable period of time in excess of sixty (60)
days, then termination for Cause shall not occur if Employee
commences to cure within the first sixty (60) day period and
thereafter diligently and in good faith continues to cure to
completion;
(ii) Employee's willful engaging in gross misconduct materially
injurious to the Corporation that has not been cured by Employee within
sixty (60) days of written
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notice from the Corporation specifying the alleged willful gross
misconduct and material injury;
(iii) an act of fraud or dishonesty by Employee that results in
material gain or personal enrichment of Employee at the Corporation's
expense; or
(iv) Employee's conviction in a court of competent jurisdiction of
any felony offense or any act involving moral turpitude.
7. SEVERANCE PAYMENTS.
(a) If, during the Initial Term, (i) Employee is terminated by the
Corporation without Cause or (ii) Employee terminates his employment with the
Corporation (or its successor or assigns) for Good Reason, the Corporation
shall pay Employee a severance payment of $100,000, payable in ten (10) equal
monthly installments, beginning on the first day of the month immediately
following the effective date of Employee's termination by the Corporation
without Cause or Employee's termination of his employment for Good Reason, and
the remainder of which shall be due on the first day of each of the following
nine (9) months, until the entire $100,000 is paid.
(b) Employee's right to receive such severance payments is expressly
conditioned on his signing an agreement to release the Corporation and the
Affiliated Corporations from any and all claims, demands and causes of action,
to the Corporation's reasonable satisfaction. Employee's failure or refusal to
sign such an agreement shall release the Corporation from its obligation to
make such severance payments, and if Employee breaches the provisions of
such agreement, the Corporation shall be relieved of its obligation to pay the
balance, if any, of such severance payments pursuant to this Section 7, and
Employee shall reimburse the Corporation all monies paid pursuant to this
Section 7.
(c) For purposes of this Agreement, the term Good Reason shall mean a
material reduction of Employee's responsibilities and duties with the
Corporation, unless (i) such event occurs with the Employee's express prior
written consent, (ii) the event is an isolated, insubstantial or inadvertent
action or failure to act which is remedied by the Corporation within thirty
(30) days of receiving written notice thereof from Employee, or (iii) the event
occurs in connection with the termination for Cause of the Employee's
employment.
8. MISCELLANEOUS.
(a) A waiver of a breach of this Agreement by any party hereto shall not
operate or be construed as a waiver of any subsequent breach by either the
Corporation or the Employee.
(b) This Agreement shall be binding upon and inure to the benefit of the
Corporation, the Affiliated Corporations and Employee and their respective
successors, heirs and legal
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representatives. The Corporation shall have the right to assign its
rights and obligations under this Agreement on the sale of its assets, merger
or other reorganization.
(c) Any notice desired, required, or permitted to be given under this
Agreement shall be made in writing and either: (i) personally delivered to the
Employee or (ii) sent by registered mail; and in the case of the Corporation,
to its principal office. In the case of (i) notice shall be deemed given on
delivery and in the case of (ii) the day following deposit in the U.S. mail
with postage prepaid and return receipt requested.
(d) This Agreement contains the entire understanding of the parties and
may not be altered, amended or modified except by written agreement by the
parties hereto. No prior oral or written agreement or understanding shall
alter or modify the terms hereof.
(e) In the event that any portion of this Agreement is deemed
unenforceable or void by a court of competent jurisdiction, the parties hereto
agree that such unenforceable or void provision may be severed from this
Agreement without, in any manner, affecting the remaining portions hereof.
(f) This Agreement shall be governed and construed in accordance with the
laws of the State of Illinois, and any action or proceeding arising under this
Agreement shall be prosecuted and defended only in the Circuit Court of Cook
County, Illinois which court shall have the sole and exclusive jurisdiction
over the subject matter and parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
EMPLOYEE: GYNCOR, INC., a Delaware corporation
/s/ MICHAEL L. GONZALES By: /s/ NORBERT GLEICHER, M.D.
- ----------------------- -------------------------------
Michael L. Gonzales Norbert Gleicher, M.D., President
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EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of April, 1996, by and
between CENTER FOR HUMAN REPRODUCTION-ILLINOIS, M.D.S.C., an Illinois medical
corporation (the "Corporation"), and VISHVANATH C. KARANDE, M.D. (the
"Physician").
RECITALS:
A. The Corporation has been organized as a medical corporation under the
laws of the State of Illinois and provides services in the field of obstetrics
and gynecology.
B. Physician is a duly licensed physician in Illinois qualified to
practice obstetrics and gynecology, and is a specialist in reproductive
endocrinology.
C. The Corporation desires to retain the services of Physician to provide
medical services as an employee, and Physician desires to accept such
employment on the terms hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment.
(a) General Terms. The Corporation and Physician agree that during the
term of this Agreement, Physician will be employed as a physician and render
medical services to patients of the Corporation which the parties intend will
be primarily in the specialty of infertility and reproductive endocrinology at
the Corporation's offices in one or more locations, and at such hospitals,
institutions and other locations as may from time to time be designated by the
Corporation. The Corporation will provide Physician the space, equipment, and
support services necessary to maintain Physician's infertility practice.
(b) Duties.
(i) Physician shall be engaged in the full-time practice of medicine
and perform medical and surgical treatments, and give consultation and
advice on behalf of the Corporation devoting all Physician's professional
time and efforts to further the interests of the Corporation. During the
term of this Agreement, Physician shall not engage in the practice of
medicine except as an employee of the Corporation, and Physician shall
not, directly or indirectly, engage in any professional or business
activity which is competitive with the business of the Corporation.
Physician may participate in professional associations, boards, teaching,
lecturing, serving as an expert witness and similar activities consistent
with Physician's past practices, provided that such activities
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do not interfere with Physician's duties and obligations under this
Agreement or the operation of the Corporation's medical practice and
patient care.
(ii) The Physician's duties shall include, but not be limited to:
(1) Providing professional medical care to all patients
assigned to Physician, from time to time, by the Corporation,
including, without limitation, patients covered by managed care or
network contracts, in accordance with prevailing standards of care,
as well as practice protocols, utilization levels, and policies as
adopted from time to time by the Corporation, which provision of
care shall include on-call duties consistent with the requirement
of the Corporation and the practice of medicine.
(2) Maintaining regular office/work hours at such locations
designated by the Corporation in accordance with policies
established by the Corporation.
(3) Keeping and maintaining or causing to be kept and
maintained, appropriate records, reports, claims, and
correspondence necessary and appropriate in connection with all
professional services rendered by Physician under this Agreement,
including, without limitation, any utilization review, quality
assurance or medical resource management reports requested by the
Corporation. All medical, patient, business, financial records,
correspondence or other documents generated by Physician or the
Corporation shall belong to the Corporation and Physician shall
have no right to keep or retain such records, papers and documents
after this Agreement is terminated.
(4) Promoting, to the extent permitted by law and applicable
standards of professional ethics, the professional practice of the
Corporation.
(5) Performing the administrative duties reasonably assigned
by the Corporation to Physician, including, without limitation,
cooperating with the Corporation's billing and collection efforts.
(6) Performing all acts reasonably necessary to maintain
Physician's professional skills.
(c) Fees.
(i) Any and all professional fees generated hereunder during the
term of this Agreement shall belong to the Corporation. "Professional
Fees" shall mean fees, compensation or remuneration generated by
Physician and collected by the Corporation for services rendered,
including, without limitation, the provision of professional medical
services rendered by Physician, medical research conducted by Physician,
and
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administrative hospital services performed by Physician in
Physician's capacity as an employee of the Corporation. However,
Physician may retain any income that Physician may earn from teaching,
lecturing, serving as an expert witness and similar activities.
(ii) Subject to the provisions of the Management Services Agreement
("Management Services Agreement") by and between GynCor, Inc., a Delaware
corporation ("Business Manager") and the Corporation, the Corporation may
establish the fees to be charged for professional services. It is
specifically understood and agreed that Physician shall have no right or
claim to any portion of Professional Fees.
(d) Managed Care Agreements. Subject to the provisions of the Management
Services Agreement, the Corporation or Business Manager may enter into
indemnity, managed care or network agreements with third party payors,
including any insurance company, health maintenance organization, preferred
provider organization, other managed care organization, employer or
governmental entity that may require the Corporation and/or Physician to engage
in utilization review or peer review activities. Physician will render medical
care under such agreements and fully cooperate in such activities and will
comply with the requirements of any indemnity, managed care or network
agreement. If required by any managed care entity or network, Physician will
execute an agreement individually, as requested by the Corporation. Physician
shall have no authority to, and shall not, execute agreements binding the
Corporation unless Physician is duly authorized by the Corporation.
(e) Covenants and Representations. Physician represents and covenants
that:
(i) Physician has and will during the term hereof maintain a valid
and unrestricted license to practice medicine in the State of Illinois.
(ii) Physician has and will during the term hereof maintain full
medical staff privileges at such hospitals as Physician and the
Corporation mutually agree that Physician should maintain medical staff
privileges.
(iii) Physician has not been disciplined by any professional,
managed care or peer review organization, governmental agency, provider
network, or hospital medical staff for any action or omission based on
quality of care.
(iv) Physician has the affirmative obligation to report to the
Corporation any investigation or inquiry by any hospital other healthcare
institution, managed care organization, regulatory agency, governmental
authority or professional society regarding any item or activity, whether
material or not, listed in Section 7(b) of this Agreement, and any
actions, suits or proceedings pending or threatened against Physician and
directly or indirectly affecting the Corporation.
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(v) Physician has and will during the term hereof maintain a valid
and unrestricted license or registration to prescribe drugs, medications,
pharmaceuticals, or controlled substances to the extent necessary or
appropriate for his practice.
(vi) Physician will continue throughout the term of this Agreement
to engage in the full-time practice of medicine as an employee of the
Corporation.
(vii) Physician will throughout the term of this Agreement represent
and hold himself out to the public as a physician employed by the
Corporation and not, in such capacity, the employee, agent or contractor
of Business Manager, which is providing certain management services to
the Corporation pursuant to the Management Services Agreement.
(viii) Physician will not execute any managed care contract or enter
into any other oral or written agreement on behalf of Physician (to the
extent related to the provision of medical care), Business Manager or the
Corporation without in each such instance obtaining the prior approval
and authorization of Business Manager and the Corporation. All medical,
patient, business, financial and other records, papers and documents
generated by Physician, the Corporation or employees or agents of the
Corporation shall belong to the Corporation, and Physician shall
have no right to keep or retain such records, papers or documents after
this Agreement is terminated; provided that after such termination upon
proper patient authorization such patient records will be provided at
Physician's expense.
(ix) Physician is not a party to any agreement that would be
breached by the execution and performance of this Agreement.
(x) Physician expressly agrees that Business Manager is a third
party beneficiary of any duty, obligation and covenant of Physician under
this Agreement, and grants to Business Manager the express right, but not
the obligation, to direct or independently enforce, at law or in equity,
any such claim, right or other remedy on behalf of the Corporation
hereunder. Physician acknowledges and agrees that the Corporation may
assign or otherwise grant Business Manager the right to enforce any of
the provisions of this Agreement on behalf of the Corporation.
2. Term-Prior Agreement.
(a) The initial term of this Agreement shall commence with the
effective date of the initial public offering of Business Manager's stock
pursuant to the Securities Act of 1933, as amended (the "Public
Offering"), and shall continue for a term of five years ("Initial Term").
The existing Employment Agreement of Physician and Corporation shall be
terminated and replaced as of the effective date hereof.
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(b) After the Initial Term, unless this Agreement is terminated, the
Agreement shall automatically be renewed from year to year for successive
one-year terms. Notwithstanding the foregoing, this Agreement may be
terminated as hereinafter provided.
3. Compensation.
(a) Salary. As a salary ("Base Salary") for all of the services rendered
by Physician, the Corporation shall pay Physician Two Hundred Fifty Thousand
Dollars ($250,000.00) per annum, payable in arrears in equal monthly
installments.
(b) Bonus. Physician will be entitled to participate in the
Corporation's Physician Production Bonus Plan in the manner summarized in
Exhibit "A" attached hereto.
4. Benefits.
(a) During the term of this Agreement, Physician will be entitled to
vacation, expense reimbursement, health, life, disability, retirement and other
benefit plans adopted by the Corporation.
(b) During each year of the Agreement, and any extensions thereof, the
Physician shall be entitled to three (3) weeks of paid vacation time. Further,
Physician will receive a one-week educational leave of absence for attendance
at medical seminars. Whenever Physician is a speaker or presenter of a paper
at a professional meeting, such absence will not affect his annual educational
leave of absence. Physician will receive three (3) weeks vacation and two (2)
weeks for medical seminars. Attendance at a professional meeting or seminar
shall not be deemed a vacation. Up to one (1) week of vacation time not
utilized during any year may be accrued to the next following year. Physician
will not be entitled to compensation for unused vacation time upon termination
of employment unless there is full compliance with all of the provisions of
this Agreement. Further, subject to the Corporation's right to schedule the
requested vacation period of Physician to effectuate the efficient operations
of the Corporation, and in the interest of patient care, Physician may use up
to three (3) weeks of his annual vacation consecutively.
(c) The Corporation agrees to pay or reimburse Employee for all reasonable
expenses incurred by him in furtherance of the Corporation's business and in
connection with performance of Employee's duties hereunder, including, but not
limited to, medical society dues, medical journals, licensure fees, expenses
for travel, entertainment, and expenses incurred in attending conventions and
seminars within guidelines established by the Corporation from time to time.
Employee may attend each conference where Employee is presenting a paper plus
one other conference. The Corporation shall have the sole discretion to decide
the business reasonableness of all expenses. However, Employee's attendance at
conventions and seminars is subject to the Corporation's efficient operation of
the medical practice and in the interest of patient care, and the parties will
consult with one another with respect thereto. The Employee shall submit
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receipts for payment or reimbursement of all expenses which shall be subject to
the Corporation's approval at is sole discretion.
(d) In the event Physician becomes "totally disabled," as hereafter
defined, Physician shall receive continuation of his Base Salary for up to 90
days or until his disability insurance commences, whichever is sooner. The
term "total disability" means Physician's inability to engage in the practice
of infertility and assisted reproductive medicine. If following a period of
"total disability" for 90 days, Physician shall be able to engage in the
practice of infertility and assisted reproductive medicine for a continuous
period of 180 days or more, any subsequent total disability shall be regarded
as a new period of "total disability." If such continuous period of ability to
engage in the practice of infertility and assisted reproductive medicine and
the actual engaging in such practice is less than 180 days, any subsequent
"total disability" shall be deemed a continuation of the previous "total
disability" and the entire period of "total disability" shall be treated as a
single period. Any payment received by Physician from any policy of disability
insurance regardless of whether paid to the Physician or the Corporation shall
be setoff by the Corporation against Base Salary payments made to the
Physician.
5. Professional Liability Insurance.
(a) Coverage. During the term of this Agreement the Corporation will
provide and maintain occurrence, claims made or other form of professional
liability insurance coverage in amounts as determined by the Business Manager
in consultation with the Corporation covering Physician for Physician's acts or
omissions in the performance of Physician's duties hereunder. Physician shall
cooperate with the Corporation in providing any information or documentation
necessary to procure professional liability insurance coverage. Should, for
any reason, this Agreement be terminated while such a policy of professional
liability insurance is in effect, Physician agrees that the Corporation is
solely entitled to any refund of the unused portion of the premiums paid for by
the Corporation for such insurance and Physician shall, concurrently with the
execution of this Agreement, execute an assignment of the right of any such
refund in favor of the Corporation. At the Corporation's option, such policy
of professional liability insurance may continue beyond the termination of this
Agreement, in which case the Corporation shall be entitled to offset the
premium costs it has paid allocable to such professional liability insurance
after the termination of this Agreement against any amounts due to Physician
from the Corporation.
(b) Tail Insurance. In the event the Corporation terminates this
Agreement for cause or Physician terminates this Agreement without cause and
"claims made" professional liability insurance is in effect, Physician shall be
responsible for the payment of the insurance premium for "tail" professional
liability insurance coverage equal to the amount of professional liability
insurance coverage then covering Physician. In the event Physician terminates
this Agreement for cause, the Corporation shall be responsible for the payment
of the insurance premium for such tail insurance. In either case, the
Corporation shall be named as an additional insured under the tail
professional liability insurance policy. Unless the Corporation has purchased
"tail" insurance under the provisions of this Section 5(b), Physician shall pay
all insurance premiums
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for such "tail" insurance coverage and provide the Corporation with proof
of professional liability coverage. In addition, the Corporation's obligation
to provide "tail" insurance shall be conditioned upon (i) Physician relocating
to practice medicine outside of the State of Illinois, and that "tail"
insurance is necessary for the continuation of medical malpractice insurance
coverage for acts and omissions of the Physician occurring within the course
and scope of employment for the Corporation, and (ii) the Physician shall have
complied with all the material terms of this Agreement.
6. Billing Assignment. Physician hereby assigns to the Corporation and its
assigns any current and future right to bill and receive payment for medical
services from individuals and third party payors, including, without limitation
any insurer, health maintenance organization, preferred provider organization,
the Medicare or Medicaid programs, or other managed care payor, for
professional services rendered by Physician under this Agreement. If
Physician receives payment from any such individual or third party payor, those
funds shall be immediately turned over to the Corporation. Physician
acknowledges that the Corporation or its assigns shall submit these billings in
its own name, and that Physician is prohibited from billing any individual or
third party payor for professional services under this Agreement.
7. Termination.
(a) By Physician.
(i) Physician may terminate this Agreement without cause upon the
payment of liquidated damages as hereafter provided and with ninety (90)
days prior written notice to the Corporation. Upon such notice of
termination from Physician, the Corporation may require the Physician to
continue to render full time medical service on the Corporation's behalf,
limit or impose restrictions on Physician's activities during such notice
period as it deems necessary, accept Physician's notice of termination as
Physician's resignation from the Corporation at any time during such
notice period, or the Corporation may impose any other restrictions as it
deems necessary.
(ii) In the event Physician terminates this Agreement without cause
within five (5) years after the date of this Agreement, Physician shall
pay to the Corporation as liquidated damages and not as a penalty an
amount reasonable in light of the actual losses to be suffered by the
Corporation, its other shareholders and Business Manager; provided,
however, that liquidated damages shall not be payable if termination is
due to Physician's death or disability. Physician agrees the amount of
the losses to be suffered by the Corporation, its other shareholders and
Business Manager arise from the breach by Physician of Physician's
covenant to remain a full-time employee of the Corporation during the
Initial Term of the Agreement. Further, the loss of revenues to the
Corporation and Business Manager resulting therefrom and the loss to
other shareholders of the Corporation who are also shareholders of
Business Manager will be difficult to ascertain, but that the liquidated
damages set forth herein have been arrived at after good faith efforts to
estimate such losses. Physician specifically acknowledges that (1) the
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Corporation and Business Manager entered into a long term management
agreement in substantial part based upon Physician's covenant to continue
full-time practice with the Corporation during the Initial Term of this
Agreement, (2) Physician's breach of Physician's covenant to practice
medicine as a full-time employee of the Corporation during the Initial
Term will deprive the Corporation, its other shareholders and Business
Manager of the benefit of their bargain, and each of the Corporation, its
shareholder and Business Manager will suffer economic damages, and
(3) upon the payment of liquidated damages by Physician to the
Corporation, the amount of liquidated damages will be paid over to
Business Manager. Therefore, upon termination of this Agreement by
Physician without cause within five (5) years after the effective date of
this Agreement, the amount of liquidated damages to be paid by Physician
shall be equal to the Value Ratio (defined below) multiplied by $500,000
for the first year of this Agreement and 80%, 60%, 40% and 20%,
respectively, of $500,000 for the second, third, fourth and fifth years
of this Agreement. The payment of liquidated damages shall be made in
cash or shares of Business Manager's common stock valued at the Fair
Market Value to the Corporation within the later of (a) sixty (60) days
after termination of this Agreement, or (b) forty-five (45) days after
the filing of an S-8 registration statement by the Corporation.
As used herein, the following terms shall have the meanings set forth
below:
"Fair Market Value" means the higher of (i) the average
closing sale price per share of Business Manager's common stock for
the twenty trading days ending on the effective date of Physician's
termination of employment and (ii) the average closing sale price
per share of Business Manager's common stock for the twenty
trading days ending on the second trading day prior to the date on
which Physician makes payment in full of the liquidated damages
provided for in this paragraph, in each case, as listed or quoted
on the national exchange or quotation system on which Business
Manager's common stock is then listed or quoted.
"Initial Public Offering Price" means the price per share of
Business Manager's common stock set forth in Business Manager's
final prospectus in connection with its initial public offering,
without regard to any applicable commissions or discounts.
"Value Ratio" means the lower of (i) 2.0, and (ii) the higher
of (x) the Fair Market Value divided by the Initial Public Offering
Price and (y) 1.0. In the event that Business Manager is not
listed or quoted on a national exchange or quotation system on the
effective date of Physician's termination of employment, the Value
Ratio shall be deemed to be equal to 1.0.
(iii) Physician may terminate this Agreement for "cause", as
hereafter defined, if such cause continues to exist for sixty (60) days
after the Corporation and Business Manager receive notification thereof,
which notice specifies the nature and extent of the basis for such notice
of termination; provided, however, if the basis for the notice of
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termination is not cured within sixty (60) days, but is capable of being
cured within a reasonable period of time in excess of sixty (60) days,
then termination for cause shall not occur if the Corporation commences
to cure within the first sixty (60) day period and thereafter diligently
and in good faith continues to cure to completion. For purposes of this
Section 7(a)(iii), the term "cause" shall mean a material default by the
Corporation in the performance of any of its material obligations under
the provisions of this Agreement.
(b) By Corporation. The Corporation may not terminate this Agreement
without "cause" during the Initial Term. The Corporation may terminate this
Agreement for "cause" on ten (10) days notice to the Physician. Termination
for "cause" shall mean any one of the following events as they pertain to
Physician:
(i) Loss or suspension of Physician's license to practice medicine
in the State of Illinois for any period of time.
(ii) The loss, restriction, revocation or suspension of clinical
privileges or medical staff membership at any hospital where medical
services are performed by Physician as a result of professional quality
or competence issues related to Physician's practice of medicine;
however, a temporary suspension for administrative reasons such as, a
failure to prepare or sign charts, will not be a basis for termination if
there is prompt compliance and the suspension is rescinded.
(iii) Resignation from the medical staff of a hospital under threat
of disciplinary action related to issues of Physician's competence and
quality of patient care.
(iv) Revocation or suspension for any period of time from
participation in the Medicare or Medicaid programs.
(v) The failure or inability to obtain malpractice insurance in an
amount satisfactory to the Corporation.
(vi) Physician's failure, refusal or inability to perform essential
duties required under this Agreement, failure, refusal or inability to
comply with material policies and protocols of the Corporation which may
be established from time to time, the failure or inability to produce the
amount of professional fee targets established by the Corporation (which
targets shall not include fees from "designated services" rendered to
Medicare or Medicaid beneficiaries under the Stark Act or to any patient
under any applicable state self-referral law), failure, refusal or
inability of Physician to observe reasonable utilization levels
established by the Corporation in the performance of Physician's duties,
or a breach of a material provision of this Agreement; which conditions
of termination for cause continue to exist for sixty (60) days after the
Corporation or Business Manager provides notice to Physician, specifying
the nature and extent of the reason for such notice; provided, however,
if the reason specified for the notice is not cured within sixty
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(60) days, but is capable of being cured within a reasonable period of
time in excess of sixty (60) days, then termination for cause shall not
occur if Physician commences to cure within the first sixty
(60) day period and thereafter diligently and in good faith continues to
cure to completion. Failure or inability by the Physician to produce the
professional fee target levels established by the Corporation and
Business Manager shall not be grounds for termination so long as
Physician can demonstrate the usual and customary diligence in the
practice of medicine.
(vii) Physician misappropriates revenue of the Corporation.
(viii) Physician takes any action or engages in any activity that is
detrimental to the material interests of the Corporation and such action
or activity continues after Physician receives notice to cease such
activity.
(ix) Physician's conviction in a court of competent jurisdiction of
any felony offense that affects the Corporation's goodwill and reputation
or adversely affects Physician's ability to carry out Physician's
obligations hereunder.
(x) Physician's Employment Agreement with Business Manager is
terminated by Physician without Good Reason or by Business Manager for
Cause during the Initial Term.
If the Corporation terminates this Agreement for cause within five (5)
years after the effective date of this Agreement, Physician shall pay to the
Corporation as liquidated damages and not as a penalty an amount reasonable in
light of the actual losses to be suffered by the Corporation, its other
shareholders and Business Manager. Physician agrees the amount of the losses
to be suffered by the Corporation, its other shareholders and Business Manager
arise from the breach by Physician of Physician's covenant to remain a
full-time employee of the Corporation during the Initial Term of the Agreement.
Further, the loss of revenues to the Corporation and Business Manager
resulting therefrom and the loss to other shareholders of the Corporation who
are also shareholders of Business Manager will be difficult to ascertain, but
that the liquidated damages set forth herein have been arrived at after good
faith efforts to estimate such losses. Physician specifically acknowledges
that (1) the Corporation and Business Manager entered into a long term
management agreement in substantial part based upon Physician's covenant to
continue full-time practice with the Corporation during the Initial Term of
this Agreement, (2) Physician's breach of Physician's covenant to practice
medicine as a full-time employee of the Corporation during the Initial Term
will deprive the Corporation, its other shareholders and Business Manager of
the benefit of their bargain, and each of the Corporation, its shareholder and
Business Manager will suffer economic damages, and (3) upon the payment of
liquidated damages by Physician to the Corporation, the amount of liquidated
damages will be paid over to Business Manager. Therefore, in the event of the
termination of this Agreement by the Corporation for cause within five (5)
years after the effective date of this Agreement, the amount of liquidated
damages to be paid by Physician shall be equal to the Value Ratio multiplied by
$500,000 for the first year of this Agreement and 80%, 60%, 40%
10
<PAGE> 11
and 20%, respectively, of $500,000 for the second, third, fourth and fifth
years of this Agreement. Payment of the liquidated damages shall be made in
cash or shares of Business Manager's common stock valued at the Fair Market
Value to the Corporation within the later of (a) sixty (60) days after
termination of this Agreement, or (b) forty-five (45) days after the filing of
an S-8 registration statement by the Corporation.
8. Trade Secrets and Intellectual Property.
(a) Confidentiality. Physician agrees to keep confidential and not use
or disclose to others during the term of this Agreement and at all times
thereafter, except as consented to in writing by the Corporation and Business
Manager or as required by law, any Trade Secrets. Physician recognizes,
acknowledges and agrees that (i) financial information concerning the
Corporation's business, marketing plan, personnel, patient lists, fee
schedules, forms, information, business management and methods, trade secrets
of the Corporation or Business Manager; (ii) technical and non-technical
medical data such as patterns of utilization of medical services, compilation
and analysis of financial information and medical data to prepare and submit
bids and proposals to third party payors, including, without limitation any
insurance company, health maintenance organization, managed care company,
preferred provider organization, multi-specialty medical group or other similar
entity to provide medical services on a capitation or discounted
fee-for-service basis; (iii) case records and case histories; (iv) proprietary
computer software, management information and information systems of the
Corporation or Business Manager constitute trade secrets ("Trade Secrets").
Further, Physician recognizes, acknowledges and agrees that the Trade Secrets
are sufficiently secret that the Corporation derives economic value from their
not being known to other persons who can obtain economic value from their
disclosure or use. Therefore, Physician shall have a continuing duty to the
Corporation and Business Manager which shall survive termination of employment
to: (i) maintain the secrecy of the Trade Secrets and use such Trade Secrets
for the exclusive benefit and advantage of the Corporation and Business
Manager; (ii) retain and keep any Trade Secret information which comes into
Physician's knowledge, possession or control, regardless of whether by proper
or improper means, as strictly confidential and shall not disclose such Trade
Secrets to any third party. Trade Secrets do not include any information
that (i) is or becomes generally available to and known by the public (other
than as a result of an unpermitted disclosure directly or indirectly by the
Physician or his advisors or representatives); (ii) is or becomes
available to the receiving party on a nonconfidential basis from a source other
than the Physician or his advisors or representatives, provided that such
source is not and was not bound by a confidentiality agreement with or other
obligation of secrecy to the furnishing party of which the receiving party has
knowledge at the time of such disclosure; or (iii) has already been or is
hereafter independently acquired or developed by the receiving party without
violating any confidentiality agreement with or other obligation of secrecy to
the furnishing party. If Physician should leave the employment of the
Corporation, Physician will neither take nor retain, without prior written
authorization from the Corporation and Business Manager, any papers, patient
lists, fee schedules, patient records, files, or other documents or copies
thereof or other confidential information or Trade Secrets of any kind
belonging to Corporation or Business Manager. Without limiting other possible
remedies to the Corporation or Business
11
<PAGE> 12
Manager for the breach of this covenant, Physician agrees that injunctive or
other equitable relief shall be available to enforce this covenant, such relief
to be without the necessity of posting a bond, cash or otherwise, provided
that the Corporation shall give Physician no less than three (3) business days'
written notice prior to seeking such injunctive relief. Physician further
agrees that if any restriction contained in this paragraph is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and such remaining restrictions contained herein shall be enforced
independently of each other.
(b) Ownership of Intellectual Property. Physician assigns and agrees to
assign to the Corporation the entire worldwide right, title and interest in and
to any concepts, works, designs, inventions, processes, improvements, know-how,
and/or developments, whether or not patentable or subject to copyright or
trademark protection (hereinafter collectively referred to as "Technology"),
made or conceived of, either solely or jointly with others: (i) on or with the
use of the Corporation's time, equipment, materials, supplies, facilities, or
trade secrets or confidential business information or (ii) resulting from or
suggested by my work for the Corporation. All such Technology shall
automatically and immediately be deemed to be works made for hire and the
property of the Corporation as soon as made or conceived. To the extent that
any of such Technology may not, by operation of law, be deemed a work made for
hire, Physician shall assign to the Corporation all worldwide right, title and
interest in and to the ownership of copyright in the Technology and the
Corporation shall have the right to obtain and hold in its own name copyrights,
registrations and similar protection which may be available in the Technology.
Physician shall, without charge to the Corporation, provide to the Corporation
or its designees all assistance reasonably required to perfect, protect and
enforce such rights. It is understood that this agreement does not apply to
any Technology for which no equipment, supplies, facility or trade secret
information of the Corporation was used and which was developed entirely on
Physician's own time, unless: (i) the Technology relates to the business of the
Corporation or to the Corporation's actual or demonstrably anticipated research
or development; or (ii) the Technology results from any work performed by
Physician for the Corporation. The Corporation will have the sole authority
and discretion to file or not to file patent, trademark, copyright or other
applications to protect the Technology anywhere in the world, and the
Corporation will be responsible for all costs in connection with those
applications. This agreement to assign Physician's rights to Technology shall
remain in full force and effect after termination of Physician's association
with the Corporation if the Technology is derived from, based upon, or uses the
Trade Secrets of the Corporation.
9. Restrictive Covenants.
(a) Nonsolicitation and Noncompetition. Subject to Section 9(b) below,
Physician covenants and agrees that during the term of the Agreement and for a
period of two (2) years from the date of the termination of this Agreement,
without regard to the reason for such termination, Physician shall not,
directly or indirectly, as an employee, employer, contractor, agent, principal,
shareholder, director, corporate officer, or in any other individual or
representative capacity:
12
<PAGE> 13
(i) solicit or attempt to solicit, directly, or indirectly through
any announcement, advertisement, newsletter, circular or otherwise, any
person who was a patient of the Corporation during the term of this
Agreement or is then a patient of the Corporation;
(ii) engage or participate in the medical and surgical practice of
infertility or assisted reproduction technology within a radius of ten
(10) miles ("Practice Area") of any medical office or facility of the
Corporation where Physician regularly examines or treats patients which
shall include any hospital, medical clinic, ambulatory surgical treatment
center or other medical facility within the Practice Area;
(iii) negotiate, contract, participate in negotiations (which shall
include the preparation, review and submission of bids or proposals) with
any third party payor, including without limitation, any insurance
company, health maintenance organization, managed care company,
preferred provider organization, multi-specialty medical group or
self-insured employer with whom the Corporation has a managed care
contract as of the termination date of this Agreement or who was in
active negotiations with the Corporation in connection with a managed
care contract as of the termination date of this Agreement, except that
Physician may negotiate, contract and participate in negotiations of such
contracts solely for his own services or those of a group practice of
which he is a member permitted by this Agreement; or
(iv) hire, attempt to hire, contract or solicit with respect to
hiring any employee of the Corporation or Business Manager, or form a
corporation, partnership or joint venture or other entity with any such
employee, who is then currently employed or who had been employed by the
Corporation or Business Manager within one (1) year prior to the
termination date of this Agreement.
(b) Change in Control. If a Change in Control of Business Manager occurs,
and, during the 36 months following such Change in Control, Physician either is
terminated by the Corporation without cause or Physician terminates his
employment with the Corporation for Cause, the covenants set forth in Section
9(a) thereafter shall be of no force and effect. For purposes of this
Agreement, a "Change in Control" of the Business Manager shall mean the
happening of any of the following events following a Public Offering:
(i) An acquisition of at least twenty percent (20%) by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of the then
outstanding shares of common stock of the Business Manager (the
"Outstanding Corporation Common Stock") or the combined voting power of
the then outstanding voting securities of the Business Manager entitled
to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); or
13
<PAGE> 14
(ii) The approval by the shareholders of the Business Manager of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Business Manager, the sale or disposition of all or
substantially all of the assets of the Business Manager or similar
corporate transaction (in each case referred to in this Section 9(b) as a
"Corporate Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval by
shareholders, to the consent of any government or governmental agency,
the obtaining of such consent (either explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the date of the Public Offering, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this Section 9(b), that any
individual who becomes a member of the Board subsequent to the date of
the Business Manager's Public Offering whose election, or nomination for
election by the Business Manager's shareholders, was approved by a vote
of at least a majority of those individuals who are members of the Board
and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that any
such individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the foregoing provisions of this Section 9(b), the
following shall be excluded from the events described in Sections 9(b)(i)
and (ii) above: (i) any acquisition by or consummation of a Corporate
Transaction with the Business Manager, an affiliated business manager or
an affiliated corporation, (ii) any acquisition by or consummation of a
Corporate Transaction with Physician or Norbert Gleicher, M.D. or any
group of which either of them is a member, (iii) the acquisition by or
consummation of a Corporate Transaction with any Person who beneficially
owned, immediately prior to such acquisition or Corporate Transaction,
directly or indirectly, twenty percent (20%) or more of the Outstanding
Corporation Common Stock or Outstanding Corporation Voting Securities, or
(iv) any acquisition or Corporate Transaction, if more than a majority of
the beneficial ownership of the entity resulting from the acquisition or
Corporate Transaction is held by Persons who held the beneficial
ownership of the Outstanding Corporation Voting Securities before the
acquisition or Corporate Transaction.
(c) Physician Acknowledgments.
(i) The Physician acknowledges that through association with the
Corporation, Physician has gained access and introduction to hospital
administrators, physicians, third party payors, including without
limitation, health maintenance organizations, managed
14
<PAGE> 15
care companies, health care insurance, preferred provider
organizations, multi-specialty medical groups, and other persons with
whom the Corporation and Business Manager have contracts and agreements,
with whom the Corporation and Business Manager in part depend upon for
the continued maintenance of such contracts and agreements.
(ii) Physician agrees that any violation by Physician of the
provisions hereof would irreparably damage the Corporation and Business
Manager and that the restrictions imposed hereunder are equitable and
reasonable, and that the Corporation and Business Manager have no
adequate remedy at law to redress a violation hereof. Further, Physician
agrees that the Corporation's decision to enter into this Agreement and
Business Manager's decision to enter into the Management Services
Agreement have been materially induced because of the covenants and
assurances of Physician contained in this Agreement, and that the
foregoing restrictive covenants are necessary to ensure the continuation
of the business of the Corporation and Business Manager and their
reputation and legitimate business interests.
(iii) Physician specifically acknowledges that the Corporation has
entered into a long term Management Services Agreement with the Business
Manager based, in material part, on the performance by Physician of the
provisions of this Agreement, including, without limitation, the
covenants of Sections 8 and 9. Further, Physician recognizes and
acknowledges that Business Manager would not have entered into the
Management Services Agreement or any other transaction with the
Corporation and Physician without reliance upon Physician's covenant and
agreement to observe and perform the obligations under this Agreement,
including, without limitation, the provisions of Sections 8 and 9 hereof.
Therefore, Physician agrees that Business Manager as a third party
beneficiary of this Agreement shall have the right, but not the
obligation, to direct or independently enforce the provisions of Sections
8 and 9.
(iv) The covenants of Sections 8 and 9 shall be construed as an
agreement ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action of Physician against the
Corporation or Business Manager whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by
the Corporation or Business Manager of the covenants in Sections 8 and 9.
(v) Physician acknowledges that neither the public in general nor
individual patients will be adversely affected by the enforcement of the
restrictive covenants contained herein because other similar providers of
professional medical services are readily available within the Practice
Area.
(d) Enforcement.
(i) If the Physician violates the terms of Section 8 or 9, the time
period for which Physician is to be restricted will abate during the time
that Physician violates the
15
<PAGE> 16
terms hereof, and the remaining period of time for which the restriction
applies will thereafter recommence on the date that Physician ceases to
violate the terms hereof.
(ii) The Corporation or Business Manager shall be authorized and
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as other equitable
relief without posting a bond, cash or other security, which rights and
remedies shall be cumulative and in addition to any other rights or
remedies to which the Corporation or Business Manager may be entitled,
provided that the Corporation shall give the Physician no less than three
(3) business days' written notice prior to seeking such injunctive
relief. In addition to any other damages or other relief sought, the
Corporation shall be entitled to recover any costs, expenses and
attorneys' fees incurred in the enforcement of the provision of Sections
8 and 9 hereof.
(iii) If any court of competent jurisdiction shall deem any of the
foregoing restrictive covenants or confidentiality agreements, or portion
of any such covenant or agreement too extensive or unenforceable, the
other provisions of Sections 8 and 9 shall nevertheless stand and remain
enforceable according to their terms. In such circumstance, the parties
expressly authorize the court to modify that covenant or agreement, or
offending portion thereof, so that the restrictions, limitations and
scope of the restrictive covenants and confidentiality agreements extend
for the longest period, comprise the largest territory and are
enforceable to the maximum permissible extent by law under the
circumstances.
(e) Survival. The provisions of this Section shall survive the
termination of this Agreement.
(f) Termination. If a "Bankruptcy Event" occurs, the provisions of this
Section 9 and the obligation to pay liquidated damages pursuant to Section 7
shall terminate immediately without further action of Physician. A "Bankruptcy
Event" shall have occurred if the Corporation or Business Manager makes an
assignment for the benefit of creditors; or an order, judgment or decree is
entered adjudicating the Corporation or Business Manager bankrupt or insolvent;
or any order for relief with respect to the Corporation or Business Manager is
entered under the bankruptcy Code; or the Corporation or Business Manager,
respectively, petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Corporation or Business
Manager, respectively, or of any substantial part of the assets of the
Corporation or Business Manager, respectively, or commences any proceeding
relating to the Corporation or Business Manager, respectively, under any
bankruptcy reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Corporation or Business Manager and either (A) the Corporation or Business
Manager by any act indicates its approval thereof, consent thereto or
acquiescence therein or (B) such petition, application or proceeding is not
dismissed within ninety (90) days.
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<PAGE> 17
10. Miscellaneous.
(a) Nothing contained herein shall be construed or interpreted to
interfere in the relationship between Physician and patient and the rights and
obligations incidental thereto.
(b) A waiver of a breach of this Agreement by any party hereto shall not
operate or be construed as a waiver of any subsequent breach by either the
Corporation or Physician.
(c) This Agreement shall be binding upon and inure to the benefit of the
Corporation and Physician and their respective successors, heirs and legal
representatives. The Corporation shall have the right to assign its rights and
obligations under this Agreement on the sale of its assets, merger or other
reorganization.
(d) Any notice, demand or other communication required, permitted or
desired to be given under this Agreement shall be in writing and shall be
deemed effectively given and delivered in person, by telecopy, by overnight
courier or by registered or certified mail, postage prepaid, return receipt
requested, addressed to the party at the principal office of the Corporation
or, at the residence of Physician on file with the Corporation, or to such
other address and to the attention of such other person(s) or officer(s) as
either party may designate by written notice. A copy of any such notice,
demand or other communication shall be delivered to Business Manager, in the
same manner notice is given to any party hereto, at its offices located at 750
North Orleans, Chicago, Illinois 60610.
(e) This Agreement contains the entire understanding of the parties and
may not be altered, amended or modified except by written agreement by the
parties hereto. No prior, contemporaneous or subsequent oral or written
agreement or understanding shall alter or modify the terms hereof.
(f) In the event that any portion of this Agreement is deemed
unenforceable or void by a court of competent jurisdiction, the parties hereto
agree that such unenforceable or void provision may be severed from this
Agreement without, in any manner, affecting the remaining portions hereof.
(g) This Agreement shall be governed and construed in accordance with the
laws of the State of Illinois.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
PHYSICIAN: CENTER FOR HUMAN REPRODUCTION-
ILLINOIS, M.D.S.C., an Illinois medical
corporation
/s/ VISHVANATH C. KARANDE, M.D. By: /s/ NORBERT GLEICHER, M.D.
- ------------------------------- ----------------------------
Vishvanath C. Karande, M.D. Its: President
---------------------------
18
<PAGE> 19
EXHIBIT A
PHYSICIAN PRODUCTION BONUS PLAN
The Corporation has adopted and established a Physician Production Bonus
Plan (the "Plan") pursuant to which Physician shall be entitled to a bonus as
summarized below. The Plan is administered by the Board of Directors of the
Corporation, and Physician acknowledges that the bonus set forth below is
subject to the further terms and conditions of the Plan and the authority
granted therein to the Board of Directors.
In addition to Base Salary, the Corporation will pay Physician an annual
production bonus (the "Production Bonus") equal to a percentage of the sum of
(a) the revenues collected by the Corporation during the applicable year from
fee-for-service medical care, other third party payors, ultrasound and nurse
assistant fees and laboratory services, net of charge backs, discounts,
refunds, professional courtesy, reimbursements and pass-through payments to
third parties, attributable to Physician's professional services, and (b)
Professional Services Capitation Revenue for the applicable year multiplied by
a fraction which has a numerator which is the number of patient encounters by
the Physician and the denominator of which is the number of patient encounters
by all of the Corporation's Physicians. Provided, however, neither revenues
from Medicare nor state health programs related to the volume or value of
referrals by Physician for "designated health services" as defined in 42 USC
Section 1395nn(h)(6), as such statute may hereafter be amended, nor revenues,
which under the laws of Illinois would violate such state's prohibition on
self-referrals, shall be included to determine Production Bonus. For purposes
of this Plan, the term "patient encounters" means a treatment or procedure for
a patient performed by or under the supervision of an Employee employed by the
Corporation and recorded in the patient's medical record.
The Production Bonus for each year will be an amount equal to the sum of
the referenced percentage of the corresponding incremental ranges of Physician
Production determined as follows:
<TABLE>
<CAPTION>
PHYSICIAN PRODUCTION: PERCENTAGE PAID AS PRODUCTION BONUS
- --------------------- -----------------------------------
<S> <C>
$0.00 - $999,999.99 0%
$1,000,000.00 - $1,999,999.99 5%
$2,000,000.00 - $2,999,999.99 10%
$3,000,000.00 - $3,999,999.99 15%
$4,000,000.00 or more 20%
</TABLE>
Notwithstanding the terms and conditions of the Plan and the authority granted
thereunder, Corporation shall not amend the Plan in a manner which adversely
affects the Production Bonus during the Initial Term.
19
<PAGE> 1
EXHIBIT 10.33
AMENDED AND RESTATED OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is made and entered into as of this
31st day of March, 1996, between NORBERT GLEICHER, M.D. ("Seller"), GYNCOR,
INC. (the "Corporation") and VISHVANATH KARANDE, M.D. ("Purchaser").
R E C I T A L S:
A. Seller and Purchaser previously entered into a certain Stock Purchase
Agreement, dated March 1, 1995 (the "Original Stock Purchase Agreement") under
which Purchaser agreed to purchase shares of common stock of Center for Human
Reproduction-Illinois, M.D.S.C. (formerly known as Gleicher, Pratt &
Associates, M.D.S.C. and referred to herein as "CHR-Illinois").
B. Seller and Purchaser previously entered into a certain Option
Agreement, dated March 1, 1995 (the "CHR-IL Option Agreement") pursuant to
which Seller granted Purchaser an option to purchase additional shares of
CHR-Illinois, and the Corporation, Center for Human Reproduction-Perinatal,
M.D.S.C. (formerly known as Gleicher, Pratt Perinatal Associates, M.D.S.C. and
referred to herein as "CHR-Perinatal"), Center for Human
Reproduction-Endoscopic, M.D.S.C. (formerly known as Endoscopic Surgery,
M.D.S.C. and referred to herein as "CHR-Endoscopic") and Purchaser previously
entered into an Additional Option Agreement, dated March 1, 1995, and an
Amendment to Additional Option Agreement, dated March 16, 1995 (the "Additional
Option Agreements"), pursuant to which Seller granted Purchaser the option to
purchase shares of the Company, CHR-Perinatal and CHR-Endoscopic. The CHR-IL
Option Agreement and the Additional Option Agreements are referred to herein as
the "Prior Option Agreements."
C. In order to clarify the terms of the Original Stock Purchase Agreement
and the Prior Option Agreements, Seller, the Corporation and Purchaser have
agreed to amend and restate such agreements as set forth herein.
NOW, THEREFORE, in consideration of the undertakings, covenants and
agreements set forth in this Agreement and other good and valuable
considerations, the receipt and sufficiency of which is hereby acknowledged, it
is hereby agreed by and among Seller, the Corporation and Purchaser as follows:
1. GRANT OF OPTIONS.
(a) Seller hereby confirms his prior grant to Purchaser of an option to
purchase 100 shares of Common Stock of CHR-Illinois (the "CHR-IL Option
Shares") on the terms and conditions hereinafter set forth (the "CHR-IL
Option"). The Corporation hereby confirms its prior grant to Purchaser of an
option to purchase 236,000 shares of Common Stock of the Corporation (the
"Corporation Option Shares" and together with the CHR-IL Option Shares, the
"Option Shares") on the terms and conditions hereinafter set forth (the
"Corporation
<PAGE> 2
Option" and together with the CHR-IL Option, the "Options"). Seller,
Purchaser and CHR-Perinatal hereby agree that effective as of the effective
date of the Registration Statement on Form S-1 of the Corporation relating to
the pending initial public offering, if any (the "Effective Date"), each of
Purchaser's options to purchase additional shares in CHR-Perinatal and
CHR-Endoscopic granted pursuant to the Additional Option Agreements shall
terminate without further action by any party.
(b) Seller, Purchaser and the Corporation hereby agree that in the event
of any Corporation stock dividend, stock split, reverse stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Corporation, corporate separation or division of the
Corporation, sale by the Corporation of all or a substantial portion of its
assets, reorganization, rights offering, partial or complete liquidation, or
any other event having a similar effect to the foregoing, then the number of
Option Shares held by the Purchaser and the exercise price per share shall be
adjusted to reflect equitably the effects of such changes on the Purchaser.
2. COMMENCEMENT AND EXPIRATION DATE OF OPTION. The Options commenced on
January 1, 1995 and expire on December 31, 2004 (the "Option Period"), unless
the Option Period is sooner terminated as hereinafter provided in Section 5.
If the Options are not exercised during the Option Period, the Options shall
expire and this Agreement shall terminate and be of no further force or effect,
and neither party shall have any further rights or obligations under this
Agreement.
3. EXERCISE OF OPTION.
(a) Purchaser shall have the right to exercise the CHR-IL Option in full
but not in part at any time during the Option Period. The purchase price for
each CHR-IL Option Share shall be Two Thousand Four Hundred Fifty-One Dollars
($2,451.00), provided that effective January 1, 1996, and on January 1 of each
subsequent year that the CHR-IL Option remains in effect, the exercise price
for each CHR-IL Option Share shall be increased by an amount equal to the prior
year's exercise price multiplied by 70% of the corporate base rate announced by
The First National Bank of Chicago, Chicago, Illinois, on January 1 of such
year. The exercise price shall be paid to Seller by cashier's or certified
check at the time of closing, provided that, if Purchaser exercises the CHR-IL
Option prior to the date on which the Form S-8 (defined below) becomes
effective, Purchaser may exercise the CHR-IL Option by delivering a promissory
note to Seller for the exercise price secured by all of the shares of common
stock of the Corporation owned by Purchaser as of such date and thereafter.
The parties agree that the loan evidenced by such promissory note shall become
due and payable on the earlier of (i) the forty-fifth day following the
effective date of the Form S-8 and (ii) the second anniversary of the issuance
of such promissory note, and otherwise shall bear terms reasonably acceptable
to Seller.
(b) If Purchaser has exercised the CHR-IL Option in full, Purchaser may
thereafter exercise the Corporation Option for an exercise price of $59.00 in
the aggregate.
2
<PAGE> 3
4. FORM S-8. The Corporation agrees to use its best efforts to file a
Registration Statement on Form S-8 (the "Form S-8") registering the Corporation
Option and the Corporation Option Shares with the Securities and Exchange
Commission ("SEC") on or before March 1, 1997.
5. TERMINATION OF OPTION. If Purchaser's employment by the Corporation is
terminated by Purchaser or the Corporation for any reason, the Options shall
terminate upon the effective date of such termination. If Purchaser dies, the
Options shall terminate forty-five (45) days after his death. Notwithstanding
the foregoing, if Purchaser dies or is terminated by the Corporation for any
reason prior to the date the Form S-8 becomes effective, the Options will not
terminate until forty-five (45) days after the date on which the Form S-8
becomes effective.
6. LIQUIDATED DAMAGES. If Purchaser's employment with CHR-IL is
terminated by CHR-IL prior to the date the Corporation's Form S-8 becomes
effective, any liquidated damages owed by Purchaser to CHR-IL pursuant to
Purchaser's employment agreement therewith will not become due and payable
until forty-five (45) days after the date on which the Form S-8 becomes
effective.
7. NOTICE OF EXERCISE. The CHR-IL Option shall be exercised by written
notice to Seller. The Corporation Option shall be exercised by written notice
to the Corporation.
8. CLOSING. The closing of the exercise of the Options ("Closing") shall
be on the 5th business day after delivery of notice of exercise of the Options
at the Corporation's offices in Chicago, Illinois, or at such other location as
is acceptable to Purchaser, the Corporation and Seller. At the Closing, Seller
and the Corporation will deliver stock certificates representing the CHR-IL
Option Shares and Corporation Option Shares purchased, respectively, and
Purchaser shall deliver to Seller and the Corporation the exercise price for
the Option Shares purchased from each of them.
9. NOTICE. Any notice required or desired to be given under this
Agreement shall be in writing and shall be deemed to have been properly served
when (i) delivered in person or (ii) deposited in the United Sates mail,
certified mail, return receipt requested, postage prepaid, or (iii) deposited
in Express Mail service such as United Parcel Service, Federal Express or
similarly recognized overnight mail service addressed as follows:
To Seller: NORBERT GLEICHER, M.D.
750 North Orleans
Chicago, Illinois 60610
To Purchaser: VISHVANATH KARANDE, M.D.
750 North Orleans
Chicago, Illinois 60610
To Corporation: GynCor, Inc.
750 North Orleans
Chicago, Illinois 60610
3
<PAGE> 4
or at such other address as such parties shall from time to time designate by
notice in accordance with the terms hereof. Notice shall be deemed effective
upon delivery, if personally delivered, or two days after the date of
postmarking, if mailed.
10. LIMITATIONS. The Options and all rights granted in this Agreement to
Purchaser shall be exercisable only by Purchaser. The Options and all rights
granted under this Agreement shall not be transferred, assigned, pledged or
hypothecated in any way, whether by operation of law or otherwise, and shall
not be subject to execution, attachment or similar process. Upon any attempt
to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or
rights contrary to the provisions in this Agreement, the Options and rights
incidental thereto shall immediately become null and void.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the sale and purchase of the Option Shares. All
previous and contemporaneous negotiations, understandings and agreements
between the parties hereto, with respect to the transaction set forth herein
are merged in this instrument, which fully and completely expresses the
parties' rights and obligations.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Option Agreement as of the day first written above.
SELLER: PURCHASER:
/s/ NORBERT GLEICHER, M.D. /s/ VISHVANATH KARANDE, M.D.
- -------------------------- ----------------------------
Norbert Gleicher, M.D. Vishvanath Karande, M.D.
GYNCOR, INC. CENTER FOR HUMAN REPRODUCTION-
ILLINOIS, M.D.S.C.
By: /s/ NORBERT GLEICHER, M.D. /s/ NORBERT GLEICHER, M.D.
-------------------------- ---------------------------
Norbert Gleicher, M.D., Norbert Gleicher, M.D.,
President President
4
<PAGE> 1
EXHIBIT 10.36
OPTION AGREEMENT
This OPTION AGREEMENT ("Option Agreement"), dated as of the 24th day of
April, 1996 by and between DANIEL NAVOT, M.D. ("Shareholder") and NORBERT
GLEICHER, M.D. (the "Optionee").
R E C I T A L S
A. The Shareholder is the sole shareholder of THE MEDICAL OFFICES FOR
HUMAN REPRODUCTION NEW YORK, P.C., a New York professional corporation ("New
PC"), which conducts a medical practice which specializes in infertility and
assisted reproductive medicine.
B. The Optionee is a physician licensed to practice medicine.
C. It is a condition to the execution and delivery of the Management
Services Agreement dated April 24, 1996 (the "Management Agreement") between
New PC and GynCor, Inc. ("GynCor"), and the New PC Shareholders Agreement
("Shareholders Agreement") of even date herewith that this Option be granted by
the Shareholder to the Optionee.
D. The Shareholder desires to afford the Optionee an opportunity to
purchase all of the ownership interest held by Shareholder in PC ("Shareholder
Interest") as required by the Shareholders Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. Grant of Option. The Shareholder hereby irrevocably grants to Optionee
the right and option (hereinafter called the "Option") to purchase all of the
Shareholder Interest owned by Shareholder at the exercise price set forth in
paragraph 2, during the period and subject to the conditions herein set forth.
2. Option Price. The Option Price for the Shareholder's Interest shall be
the lesser of One Thousand Dollars ($1,000.00) or the purchase price provided
by the Shareholders Agreement.
3. Option Term. The term of this Option ("the Option Period") shall
expire on the effective date of the termination of the Management Services
Agreement.
4. Exercise of Option. The Option shall immediately become exercisable on
the date hereof, and shall be exercisable at any time thereafter during the
Option Period.
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<PAGE> 2
5. Manner of Exercise. The Option shall be exercised by giving written
notice to Shareholder accompanied by the Optionee's check payable to
Shareholder for the amount of the Option Price and an affidavit of Optionee to
the effect that Optionee is lawfully entitled to hold an ownership interest in
New PC. Upon delivery of such notice, payment and affidavit, the Optionee
shall be deemed to have acquired such Shareholder's entire Shareholder Interest
and shall be deemed to have become a shareholder of New PC without any further
action on the part of the Optionee, the Shareholders or New PC. At the
Optionee's request, Shareholder shall also delver an assignment of his
Shareholder Interest in New PC to the Optionee in form and substance reasonably
satisfactory to Optionee. In the event the Option shall be exercised by any
person or persons other than the Optionee, such notice shall be accompanied by
appropriate proof of the rights of such person or persons to exercise the
Option.
6. Transferability of Option. The Option is transferable by Optionee to
any person who lawfully may hold an ownership interest in New PC ("Designee"),
and upon any such transfer, all references herein to "Optionee" shall be deemed
to include such "Designee". Optionee hereby grants to GynCor the right to
designate who the Designee will be, and otherwise to exercise all of the rights
of Optionee hereunder to the extent permitted by law in the event of, and
immediately upon, the death or disability of Optionee.
7. Attorney for Shareholder. Shareholder hereby irrevocably makes,
constitutes and appoints Optionee as true and lawful attorney-in-fact, for
Shareholder, and in the Shareholder's place and stead, to execute and deliver
any assignment of a Shareholder Interest. The foregoing grant of authority is
a special power of attorney coupled with an interest and shall survive the
death or incapacity of Shareholder. Shareholder hereby grants to Optionee a
proxy to vote such Shareholder's Interest, to the extent permitted by law,
effective immediately upon exercise of the Option. Upon the exercise of the
Option in the manner provided in Paragraph 5, Shareholder authorizes New PC to
cancel on its books all certificates or other evidence of his Shareholder
Interest, regardless of the lack of delivery of such certificates of any other
document.
8. No Obligation to Exercise Option. Optionee shall be under no
obligation to exercise all or any part of the Option.
9. Representations and Warranties of the Shareholders. Shareholder
hereby represents and warrants to, and covenants with, Optionee as follows:
(a) Shareholder has full power and authority to execute and
deliver this Option Agreement and to perform all of the obligations
contained herein, and none of such actions will violate any
provisions of law or will violate or constitute a default under the
Shareholders Agreement, or any other agreement or instrument to
which Shareholder is a party.
(b) This Option Agreement constitutes, and each instrument to be
executed and delivered by Shareholder in connection with the
exercise of the Option will
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<PAGE> 3
constitute, the valid and legally binding obligation of
Shareholder, enforceable against him in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting the
enforcement of creditors' rights generally, and the discretion of
the courts before which any proceeding therefor may be brought.
(c) The Shareholder is the only shareholder of New PC and no
other person will be permitted to become a shareholder (other than
pursuant to the exercise of this Option) without thirty (30) days'
prior written notice to the Optionee and the grant to Optionee of an
option on such person's Shareholder Interest in form and substance
comparable to this Agreement and otherwise satisfactory to Optionee.
(d) Shareholder shall take, or cause to be taken, all steps to
maintain New PC as a New York professional corporation in good
standing and, without the prior written consent of the Optionee,
shall not take, or cause or allow to be taken, any steps to dissolve
or liquidate New PC.
10. Restrictions on Transfer of Shareholder Interest: Consents. During
the Option Period, Shareholder shall not Transfer, as hereinafter defined, all
or any part of his Shareholder Interests without the prior written consent of
the Optionee. Any such Transfer shall be void unless Optionee has given his
prior consent. For purposes of this Option Agreement, "Transfer" shall include
any dissolution or liquidation of New PC or any sale, assignment, mortgage,
hypothecation, transfer, pledge, creation of a security interest in or lien
upon, encumbrance, gift or other disposition, but "Transfer" shall not include
any transfer of all or any part of a Shareholder Interest pursuant to the
Shareholders Agreement, in which the transfer is made subject to this Option
Agreement. Further, New PC and the Shareholder shall not amend or modify New
PC's Articles of Incorporation, Bylaws, or Shareholders Agreement in any manner
that would adversely affect the Optionee's right hereunder without the
Optionee's prior written consent. Shareholder consents to the Option on the
Shareholder Interests granted herein, and agrees to recognize Optionee as a
substituted shareholder immediately upon the exercise of the Option. Any
provisions in the Shareholders Agreement that conflict with this Option
Agreement are superseded and shall be of no effect.
11. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party entitled to receive the notice or when sent by personal delivery,
certified or registered mail, postage prepaid, or bonded overnight courier
properly addressed to the party entitled to receive such notice, if to a
Shareholder at the address listed after his name at the end of this Agreement
or such other address on the books of GynCor, or if to Optionee, at the address
as may be furnished in writing, otherwise to the address stated below:
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<PAGE> 4
With a copy to:
Norbert Gleicher, M.D. Michael D. Schlesinger
GYNCOR, INC. ROBBINS, SALOMON & PATT, LTD.
750 North Orleans Street 25 East Washington Street, Suite 1000
Chicago, Illinois 60610 Chicago, Illinois 60602
12. Successors and Assigns. This Option Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective executors,
administrators, heirs, and assigns.
13. Governing Law. This Option Agreement shall be governed by and
construed under the laws of the State of New York without regard to the
conflicts of laws provisions of any state.
14. Counterparts. This Option Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Amendment. This Option Agreement may not be amended except by an
instrument in writing signed by all the parties.
16. Gender and Number. Whenever the context of this Shareholders
Agreement requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement as of the date first above written.
OPTIONEE:
/s/ NORBERT GLEICHER, M.D.
-------------------------------------
Norbert Gleicher, M.D.
SHAREHOLDER:
/s/ DANIEL NAVOT, M.D.
-------------------------------------
Daniel Navot, M.D.
400 Old Hook Road
Westwood, NJ 07675
4
<PAGE> 5
CONSENT
THE MEDICAL OFFICES FOR HUMAN REPRODUCTION - NEW YORK, P.C., a New York
professional corporation, consents to the Option on the Shareholder Interest
granted herein, and agrees to recognize Optionee as a substituted shareholder
immediately upon each exercise of this Option and payment of the exercise price
therefor.
THE MEDICAL OFFICES FOR HUMAN
REPRODUCTION - NEW YORK, P.C.
A New York professional corporation
By: /s/ DANIEL NAVOT, President
---------------------------------
Name: Daniel Navot, President
<PAGE> 1
EXHIBIT 10.42
GYNCOR STOCK ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into this 26th day
of April, 1996 by and among GynCor, Inc., a Delaware corporation ("GynCor"),
Edward A. Zbella, M.D. ("Physician") and American National Bank and Trust
Company of Chicago, as escrow agent ("Escrow Agent").
R E C I T A L S
WHEREAS, A Center for Gynecology, P.A., a professional corporation ("Old
PC"), GynCor and Physician have entered into an Asset Transfer and
Reorganization Agreement dated as of the 17th day of March, 1996 ("ATR
Agreement");
WHEREAS, the ATR Agreement provides for the issuance of shares of the
Common Stock of GynCor (the "Purchase Shares") to Old PC of which Physician was
formerly an employee/owner, and for the immediate distribution of the Purchase
Shares to the Physician by Old PC; and
WHEREAS, Physician has agreed that twenty-five percent (25%) of the number
of Purchase Shares (the "Escrowed Shares") shall be deposited and held in, and
disbursed from, an escrow account established pursuant to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the recipient and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ASSET TRANSFER AND REORGANIZATION AGREEMENT.
All of the terms and provisions of the ATR Agreement are incorporated
herein. All defined terms in the ATR Agreement shall have the same meaning
unless otherwise defined. Each provision of this Agreement shall be
interpreted so as to give effect to the provisions and intent of the ATR
Agreement.
2. PHYSICIAN'S ESCROW DEPOSIT.
(a) This Agreement has been executed and the deposit of the Escrowed
Shares hereunder will be made pursuant to Section 1.05 of the ATR Agreement for
the purpose of securing the benefits of the representations, warranties,
covenants and indemnification obligations of Old PC and the Physician set forth
in the ATR Agreement.
(b) Upon closing of the transactions contemplated by the ATR Agreement and
execution of this Agreement, Physician shall deposit, or cause to be deposited,
with the Escrow Agent the Escrowed Shares, along with the assignments in blank
for each such stock certificate executed by
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<PAGE> 2
Physician and a signature guaranteed with a Medallion Stamp with respect to the
stock certificates issued in his name.
(c) In the event that any additional shares of GynCor's common stock are
issued to Old PC, or Physician following dissolution of Old PC, pursuant to
Section 1.04(b) of the ATR Agreement, Physician shall deposit, or cause to be
deposited, with the Escrow Agent stock certificates representing 25% of such
additional shares, along with assignments in blank for each such stock
certificate executed by Physician and a signature guaranteed with a Medallion
Stamp with respect to the stock certificates issued in his name, and any such
additional shares shall thereafter be deemed to be "Purchased Shares" and
Escrowed Shares for purposes of this Agreement.
3. RELEASE OF PURCHASED SHARES FROM ESCROW.
(a) On each anniversary of the date of this Agreement identified below
(each, a "Release Date"), Escrow Agent will release to Physician a number of
the Escrowed Shares along with the corresponding stock power deposited in
escrow by or on behalf of Physician equal to (i) the corresponding percentage
of Escrowed Shares set forth below for such date, minus (ii) the sum of (A) the
number of Escrowed Shares previously delivered to GynCor pursuant to Section 4
below, plus (B) the number of Escrowed Shares subject to delivery to GynCor in
accordance with Section 4 below with respect to any then pending but unresolved
Claims (defined below), plus (C) the number of such Escrowed Shares released to
Physician pursuant to this Section 3 prior to such date:
<TABLE>
<CAPTION>
Applicable
Release Date Percentage
------------------ -------------
<S> <C>
First Anniversary 20%
Second Anniversary 40%
Third Anniversary 60%
Fourth Anniversary 80%
Fifth Anniversary 100%
</TABLE>
(b) The Escrowed Shares will be held by Escrow Agent until required to be
released pursuant to Section 3(a) above or Section 4 below. Any delivery of
Escrowed Shares to be made to Physician pursuant to Section 3(a) above will be
in the form of stock certificates of GynCor issued in the name of Physician,
and GynCor will take such action as may be necessary to cause stock
certificates to be issued to Physician pursuant to this provision.
(c) The number of Escrowed Shares to be released to Physician on any given
Release Date shall be rounded to the next lowest whole number except on the
last Release Date, in which case, cash will be paid in lieu of fractions of the
Escrowed Shares otherwise issuable to Physician on such date in an amount equal
to the product determined by multiplying such fraction by the Fair Market Value
(defined below) of the GynCor common stock as of such date. Within thirty
business days after written notice from the Escrow Agent of any cash payable in
lieu of fractional shares on
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<PAGE> 3
the last Release Date, GynCor will deposit with Escrow Agent sufficient funds
to pay such cash amounts for fractional shares.
(d) The Escrow Agent is hereby granted the power to effect any transfer of
Escrowed Shares contemplated by this Agreement. GynCor will cooperate with the
Escrow Agent in promptly issuing stock certificates to effect such transfers.
4. NOTICE AND RESOLUTION OF CLAIMS.
(a) In the even that GynCor desires to seek recovery against the Escrowed
Shares for any breach by Old PC or Physician of any of the representations,
warranties, covenants or indemnification obligations of such parties set forth
in the ATR Agreement (in each case, a "Breach"), then promptly after receipt by
GynCor of notice or discovery of any claim, damage or legal action or
proceeding (a "Claim") arising from or relating to a Breach, GynCor will give
Physician and the Escrow Agent written notice of such Claim. Each notice of a
Claim by GynCor (a "Notice of Claim") will contain the following information to
the extent it is reasonably available to GynCor:
(i) GynCor's good faith estimate of the reasonably foreseeable
maximum amount of alleged damages (which amount may be revised by GynCor
at any time prior to the release of Escrowed Shares to GynCor with
respect to such Claim); and
(ii) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged damages based on
GynCor's good faith belief thereof, including, without limitation, the
identity and address of a third-party claimant (to the extent reasonably
available to GynCor) and copies of any formal demand or complaint.
(b) The Escrow Agent will not transfer any of the Escrowed Shares held in
the Escrow Account to GynCor pursuant to a Notice of Claim until such Notice of
Claim has been resolved in accordance with the following provisions:
(i) If within thirty (30) calendar days after a Notice of Claim is
delivered to the Escrow Agent and Physician, Physician does not contest
the Notice of Claim in writing to the Escrow Agent and GynCor, or
Physician does not pay the amount demanded, then the Escrow Agent will
promptly transfer to GynCor for cancellation that number of Escrowed
Shares having a Fair Market Value as of the date of transfer equal to the
amount of damages specified in the Notice of Claim and will notify
Physician of such transfer.
(ii) In the event that Physician gives written notice (a "Notice of
a Contested Claim") contesting all or a portion of a Notice of Claim to
GynCor and the Escrow Agent (a "Contested Claim") within the 30-day
period provided above, matters that are subject to third party claims
asserted against GynCor, Old PC or Physician will await the final
decision, award or settlement of such claim and any related litigation,
arbitration or other proceeding; provided that any such asserted claim
will be deemed resolved in favor of Physician (and
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<PAGE> 4
therefore subject to release in accordance with Section 3 hereof) with
respect to Escrowed Shares retained by Escrow Agent pursuant to clause
(B) of Section 3(a)(ii) if, within six (6) months following the
corresponding Release Date, such asserted claim does not result in the
actual commencement of, or written correspondence threatening the
commencement of, any litigation, arbitration or other proceedings.
Alternatively, Claims by GynCor against the Escrowed Shares for any
Breach by Old PC or Physician under the ATR Agreement that are wholly
between GynCor and Old PC or Physician (i.e., that do not include claims
asserted by third parties) ("Arbitrable Claims"), will be settled by
binding arbitration to the extent contested by Physician pursuant to this
Section 4(b)(ii). However, nothing in this Agreement shall preclude
GynCor from pursuing any other remedies under the ATR Agreement
including, without limitation, injunctive relief or specific performance
relating to any covenant therein. The final decision of the arbitrator
will be furnished to Physician in writing and will constitute a
conclusive determination of the issue in question, binding upon the
parties at issue.
(A) Any Arbitrable Claim shall be settled by arbitration in
Chicago, Illinois and, except as herein specifically stated, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA Rules") then in effect. In all
events, however, the provisions of this Section 4(b)(ii) shall
govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction
over the subject matter thereof. The arbitrator shall (i) not be
bound by the rules of evidence or civil procedure but rather may
consider such writings or oral presentations as a reasonable
businessman would use in the conduct of the day-to-day conduct of
his affairs, and may require the parties to submit some or all of
their presentation orally or in written form as the arbitrator may
deem appropriate and (ii) have the authority to grant any equitable
and legal remedies that would be available in any judicial
proceeding instituted to resolve a Contested Claim. As soon as an
arbitrator has been agreed upon, a hearing date shall be set as
soon thereafter as determined by the arbitrator. Written
submittals shall be presented and exchanged by both parties as
determined by the AAA Rules, including reports prepared by experts
upon whom either party intends to rely. At such time the parties
will also exchange copies of all documentary evidence upon which
they will rely at the arbitration hearing and a list of witnesses
whom they intend to call to testify at the hearing. Each party
shall also make its respective experts available for deposition by
the other party prior to the hearing date. The arbitrator shall
make his award as promptly as practicable after conclusion of the
hearing.
(B) Any such arbitration will be conducted before a single
arbitrator who will be compensated for his or her services at a
rate to be determined by the parties or by the American Arbitration
Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to
agree upon his or her rate of compensation.
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<PAGE> 5
(C) The American Arbitration Association, in accordance with
the AAA Rules, will have the authority to select an arbitrator from
a list of arbitrators who are partners in a nationally recognized
firm of independent certified public accountants from the
management advisory services department (or comparable department
or group) of such firm or are partners in a major law firm
acceptable to both GynCor and Physician; provided, however, that
(i) such firm cannot be the firm of certified public accountants
then auditing the books and records of either party or providing
management or advisory services for either party and (ii) if any
disagreement or dispute arises concerning specialized matters such
as employee benefits, the arbitrator shall be a specialist in such
matters.
(D) GynCor and Physician will each pay 50% of the initial
compensation to be paid to the arbitrator in any such arbitration
and 50% of the costs of transcripts and other normal and regular
expenses of the arbitration proceedings.
(E) For any Arbitrable Claim submitted to arbitration, the
burden of proof will be as it would be if the claim were litigated
in a judicial proceeding.
(F) Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis
and reasons for any decision reached and will deliver such
documents to each party to this Agreement along with a signed copy
of the award.
(G) The arbitrator chosen in accordance with these provisions
will not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of this
Agreement.
(H) Except as specifically otherwise provided in this
Agreement or the ATR Agreement, arbitration will be the sole and
exclusive remedy of the parties for any Arbitrable Claim arising
out of this Agreement or the ATR Agreement.
(iii) Any amount owed to GynCor hereunder, determined pursuant to
Section 4(b)(i) or (ii) above, will be immediately payable to GynCor out
of the Escrowed Shares then held by the Escrow Agent at a per share value
equal to the Fair Market Value of the Escrowed Shares at the time such
claim is resolved, unless Physician pays to GynCor the amount of the
award. As used herein, the term "Fair Market Value" means, with respect
to each Purchase Share, (i) if GynCor's common stock is then listed or
quoted on a national exchange or quotation system, the average closing
sale price per share of GynCor's common stock for the twenty (20) trading
days ending on the second trading day prior to the date of determination
as listed or quoted on the national exchange or quotation system on which
GynCor's common stock is then listed or quoted, or (ii) if GynCor's
common stock is not then listed or quoted on a nation exchange or
quotation system, the fair market value per share of GynCor common stock
as set forth in an appraisal report prepared by a nationally
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<PAGE> 6
recognized independent appraisal firm retained by GynCor, which report
shall not be more than twelve months old as of the date of determination.
(iv) GynCor need not exhaust any other remedies that may be
available to it but may proceed directly in accordance with the
provisions of this Agreement. GynCor may institute Claims against the
Escrowed Shares and, in satisfaction thereof, may recover Escrowed
Shares pursuant to the terms of this Agreement, without making any other
Claims directly against Old PC or Physician. The assertion of any single
Claim for indemnification hereunder will not bar GynCor from asserting
other Claims hereunder.
5. VOTING RIGHTS OF OWNERSHIP.
(a) Except for any stock splits, stock paid in shares of capital stock of
GynCor or recapitalizations declared with respect to the common stock of
GynCor, any cash dividends, dividends payable in securities or other
distributions of any kind made with respect of the Escrowed Shares then in
escrow will be distributed by GynCor to Physician. Any shares of capital stock
of GynCor to be issued with respect to any Escrowed Shares then in escrow as a
consequence of any stock split, stock dividend paid in shares of capital stock
of GynCor or recapitalization shall be deemed to be "Escrowed Shares" under
this Agreement and shall be deposited by Physician, or on its behalf, with the
Escrow Agent along with any necessary additional assignments in blank therefor
executed by Physician. To the extent that Escrow Agent is reflected as the
registered holder of the Escrowed Shares then in escrow, the Escrow Agent, at
the written direction of Physician, will have the right to vote, or not vote,
the Escrowed Shares, or any portion thereof, deposited in the Escrow Account,
for the account of Physician so long as such Escrowed Shares are held in
escrow, and GynCor will take all steps necessary to allow the exercise of such
rights and, at GynCor's expense, the Escrow Agent shall promptly forward, or
cause to be forwarded, copies of any proxies, proxy statements and other
soliciting materials to Physician, and shall vote the applicable portion of the
Escrowed Shares in accordance with any written instructions timely received by
the Escrow Agent from Physician. While the Escrowed Shares remain in the
Escrow Agent's possession pursuant to this Agreement, Physician will retain and
will be able to exercise all other incidents of ownership of said Escrowed
Shares that are not inconsistent with the terms and conditions thereof.
(b) No Escrowed Shares or any beneficial interest therein may be pledged,
sold, assigned or transferred (including by operation of law) by Physician or
may be taken or reached by any legal or equitable process in satisfaction of
any debt or other liability of Physician (other than as expressly contemplated
by this Agreement), prior to the release by the Escrow Agent to Physician of
such Escrowed Shares.
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<PAGE> 7
6. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) The Escrow Agent will incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other document believed by it to be genuine and duly
authorized, nor for any other action or inaction, except its own willful
misconduct or gross negligence. The Escrow Agent will not be responsible for
the validity or sufficiency of this Agreement. In all questions arising under
this Agreement, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent based on
such advice, the Escrow Agent will not be liable to anyone. The Escrow Agent
will not be required to take any action hereunder involving any expense unless
the payment or such expense is made or provided for in a manner satisfactory to
it.
(b) In the event conflicting demands are made or conflicting notices are
served upon the Escrow Agent with respect to the Escrow Account, the Escrow
Agent will have the absolute right, at the Escrow Agent's election, to (i) file
a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves, or (ii) disregard any
conflicting demands or conflicting notices and comply with and obey all orders,
judgments or decrees entered or issued by any court with or without
jurisdiction. In the event such interpleader suit is brought, the Escrow Agent
will thereby be fully released and discharged from all further obligations
imposed upon it under this Agreement, and GynCor will pay the Escrow Agent
(subject to reimbursement from Physician pursuant to Section 8(e) hereof) all
costs, expenses and reasonable attorney's fees expended or incurred by the
Escrow Agent pursuant to the exercise of Escrow Agent's rights under this
Section 6 (such costs, fees and expenses will be treated as extraordinary fees
and expenses for the purposes of Section 8(e) hereof).
(c) Each other party hereto, jointly and severally (each an "Indemnified
Party" and together the "Indemnifying Parties"), hereby covenants and agrees to
reimburse, indemnify and hold harmless Escrow Agent, Escrow Agent's employees
and agents (severally and collectively, "Escrow Agent"), from and against any
loss, damage, liability or loss suffered, incurred by, or asserted against
Escrow Agent (including amounts paid in settlement of any action, suit,
proceeding, or claim brought or threatened to be brought and including
reasonable expenses of legal counsel) arising out of, in connection with or
based upon any act or omission by Escrow Agent relating in any way to this
Agreement or Escrow Agent's services hereunder. This indemnity shall exclude
gross negligence or willful misconduct on Escrow Agent's part.
7. NOTICES. All notices, instructions and other communications required
or permitted to be given hereunder or necessary or convenient in connection
herewith must be in writing and will be deemed delivered (i) when personally
served, (ii) the first business day following the date of deposit with an
overnight courier service or (iii) on the earlier of actual receipt or the
third business day following the date on which the notice is deposited in the
United States mail, first class certified, postage prepaid, addressed as
follows:
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<PAGE> 8
If to the Escrow Agent:
American National Bank and Trust Company of Chicago
33 North LaSalle Street
13th Floor - Corporate Trust
Chicago, Illinois 60690
Attention: Brian Terwillinger
If to Physician, at the address set forth next to his name on the signature
page of this Agreement.
If to GynCor:
GynCor, Inc.
750 North Orleans Street
Chicago, Illinois 60610
Attention: Norbert Gleicher, M.D.
With a copy to:
Robbins, Salomon & Patt, Ltd.
25 East Washington Street
Suite 1000
Chicago, Illinois 60602
Attention: Michael D. Schlesinger
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Jeffrey R. Patt, Esq.
or to such other address as GynCor, Physician or the Escrow Agent, as the case
may be, designates in a writing delivered to each of the other parties hereto.
8. GENERAL.
(a) This Agreement will be governed by and construed in accordance with
the internal laws of the State of Illinois without regard to conflict-of-law
principles and will be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
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<PAGE> 9
(b) This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, but all of which together will constitute
one and the same instrument.
(c) Except as otherwise set forth in the ATR Agreement, this Agreement
constitutes the entire understanding and agreement of the parties with respect
to the subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the
subject matter hereof.
(d) No waiver by any party hereto of any condition or of any breach of any
provision of this Agreement will be effective unless in writing. No waiver by
any party of any such condition or breach, in any one instance, will be deemed
to be a further or continuing waiver of any such condition or breach or waiver
of any other condition or breach of any other provision contained herein.
(e) Escrow Agent's annual administrative fee of $1,500.00 will be paid by
GynCor. Any extraordinary fees and expenses, including without limitation any
fees or expenses incurred by the Escrow Agent in connection with a dispute over
the distribution of Escrowed Shares or the validity of a Notice of Claim, will
be paid fifty percent (50%) by GynCor and fifty percent (50%) by Physician.
(f) In the event the Escrow Agent becomes unavailable or unwilling to
continue in its capacity hereunder, the Escrow Agent may resign and be
discharged from its duties or obligations hereunder by giving resignation to
the parties to this Agreement, specifying a date not less than thirty (30) days
following such notice date of when such resignation will take effect. GynCor
will designate a successor Escrow Agent prior to the expiration of such notice
period by giving written notice to the Escrow Agent and Physician. GynCor may
appoint a successor Escrow Agent without the consent of Physician so long as
such successor is a bank with assets of at least $50 million, and may appoint
any other successor Escrow Agent with the consent of Physician, which will not
be unreasonably withheld. The Escrow Agent will promptly transfer the Purchase
Shares to such designated successor.
(g) GynCor and Physician agree that they will take all actions necessary
to facilitate the implementation of the provisions of this Agreement,
including, without limitation, delivery of letters of direction to any transfer
agent, Escrow Agent or third party, and additional stock powers.
(h) The Escrow Agent's duties are limited to those set forth in this
Agreement, and Escrow Agent, acting as such under this Agreement, is not
charged with knowledge of or any duties or responsibilities under any other
document or agreement, including without limitation the ATR Agreement. Escrow
Agent may execute any of its powers or responsibilities hereunder and exercise
any rights hereunder either directly or by or through its agents or attorneys.
Escrow Agent shall not be responsible for and shall not be under a duty to
examine
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<PAGE> 10
into or pass upon the validity, binding effect, execution of sufficiency of
this Escrow Agreement or of any agreement amendatory or supplemental hereto.
(i) This Agreement may be amended by the written agreement of GynCor, the
Escrow Agent and Physician, provided that, if the Escrow Agent does not agree
to an amendment agreed upon by GynCor and Physician, the Escrow Agent will
resign and GynCor will appoint a successor Escrow Agent in accordance with
Section 8(f) above.
IN WITNESS WHEREOF, the parties have duly executed this Agreement of the
day and year first above written.
GYNCOR, INC.
By: /s/ NORBERT GLEICHER, M.D.
-----------------------------------
Its: President
-----------------------------------
PHYSICIAN:
/s/ EDWARD A. ZBELLA, M.D.
-----------------------------------
Edward A. Zbella, M.D.
-----------------------------------
-----------------------------------
-----------------------------------
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, AS ESCROW AGENT
By: /s/ TIMOTHY P. MARTIN
--------------------------------
Its: Trust Officer
------------------------------
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<PAGE> 1
EXHIBIT 10.48
DEFERRAL AGREEMENT
THIS AGREEMENT is made this 1st day of April, 1996, by and between JAMES
F. BONICK and DONNA E. PRATT-BONICK, M.D. (collectively referred to as
"Borrower"), and CENTER FOR HUMAN REPRODUCTION-ILLINOIS, M.D.S.C. (formerly
known as Gleicher, Pratt, Miller, Karande & Associates, M.D.S.C.), an Illinois
medical corporation ("Lender").
WHEREAS, Borrower and Lender are parties to that certain Promissory Note
for the principal sum of One Hundred Twenty Three Thousand One Hundred Eighteen
Dollars and Thirty-Seven Cents ($123,118.37), secured by that certain Second
Mortgage on the real estate and improvements located at 3730 N. Lake Shore
Drive, County of Cook, State of Illinois (hereinafter "Promissory Note"); and
WHEREAS, Borrower has agreed to amend certain agreements in contemplation
of an initial public offering (the "Public Offering") of shares of GynCor,
Inc., a Delaware corporation (the "Company"), in consideration for which Lender
has agreed to allow Borrower to defer certain payments due under the Promissory
Note until such time as Borrower may sell securities currently held by them or
one of them in an open market transaction.
IT IS THEREFORE AGREED:
1. PAYMENT DEFERRAL. Lender hereby agrees that all payments of principal
and interest under the Promissory Note due from the effective date of the
initial public offering of the common stock of the Company, if any, through and
until the Maturity Date (defined below) shall be deferred until the Maturity
Date. Notwithstanding the foregoing sentence, interest on the outstanding
principal of the Promissory Note shall continue to accrue during such period of
deferral.
2. PAYMENT DUE IN FULL 30 DAYS AFTER ELIGIBLE DATE. In the event that an
initial public offering of the common stock of the Company becomes effective,
all accrued and unpaid interest and outstanding principal on the Promissory
Note thereafter shall become immediately due and owing on the thirtieth (30th)
day following the Eligible Date (defined below).
3. ELIGIBLE DATE. The term the "Eligible Date" shall mean the date after
which Borrower may, in accordance with all of the conditions of Rule 144 of the
Securities and Exchange Commission, promulgated under the Securities Act of
1933, as amended ("Rule 144"), or, otherwise sell shares of common stock of the
Company currently held by Borrower on the NASDAQ Stock Market, or if the common
stock is not listed on NASDAQ, on the principal national securities exchange on
which the common stock is listed or admitted to trading, and if not so listed
or admitted, in the over-the-counter market.
<PAGE> 2
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year first written above.
LENDER: BORROWER:
/s/ JAMES F. BONICK
----------------------
CENTER FOR HUMAN REPRODUCTION- James F. Bonick
ILLINOIS, M.D.S.C.
By: /s/ NORBERT GLEICHER /s/ DONNA E. PRATT-BONICK, M.D.
--------------------------- -------------------------------
Norbert Gleicher, President Donna E. Pratt-Bonick, M.D.
<PAGE> 1
EXHIBIT 10.49
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 30,
1996, by and among Donna Pratt, M.D., Charles E. Miller, M.D., Vishvanath C.
Karande, M.D. (the "Stockholders") and GynCor, Inc., a Delaware corporation
(the "Company").
WHEREAS, the Stockholders are owners of common stock, par value $.0001 per
share, of the Company (the "Common Stock");
WHEREAS, at the request of the Company, each of the Stockholders has
amended certain of such person's employment agreements with the Company and/or
affiliates which in some cases may result in a requirement to recognize a
taxable gain; and
WHEREAS, in consideration of each of the Stockholders agreeing to amend
certain agreements with the Company, the Company has agreed to provide each
Stockholder with the ability to register a limited number of such person's
shares of Common Stock in the Company's proposed initial public offering of its
Common Stock on the terms and conditions set forth herein.
NOW, THEREFORE, upon the premises and the mutual promises herein
contained, and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement the following initially
capitalized terms shall have the following meanings:
Registrable Shares: As defined in Section 2.1 of this Agreement.
Registration Expenses: As defined in Section 2.5 of this Agreement.
Rule 144: Rule 144 promulgated under the Securities Act, or any successor
rule to similar effect.
SEC: The United States Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, or any successor
statute.
Securities Exchange Act: The Securities Exchange Act of 1934, as amended,
or any successor statute.
Termination Date: The date which is the earlier of the fifth anniversary
of the date hereof and the date the Stockholders no longer hold any Registrable
Shares.
<PAGE> 2
2. REGISTRATION UNDER SECURITIES ACT.
2.1 INCIDENTAL REGISTRATION.
(a) Right to Include the Registrable Shares. If the Company, at any time
before the Termination Date, registers shares of Common Stock under the
Securities Act by registration on Form S-1 in connection with an initial public
offering ("Registered Offering"), the Stockholders shall be entitled to
register up to the following number of shares of Common Stock held by such
Stockholder ("Registrable Shares") in the Registered Offering:
<TABLE>
<CAPTION>
Registrable
Stockholder Shares
----------- -----------
<S> <C>
Donna Pratt, M.D. ................................ 50,000
Charles E. Miller, M.D. .......................... 100,000
Vishvanath C. Karande, M.D. ...................... 115,000
</TABLE>
provided, however, that any such securities shall cease to be Registrable
Shares with respect to a proposed offer or sale thereof (i) when a registration
statement with respect to the sale of all of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with the plan of distribution set forth in such registration
statement or (ii) they shall have ceased to be outstanding.
Each Stockholder's signing of this Agreement shall constitute such
person's written request to register the number of shares of Common Stock set
forth opposite his or her name above, subject to the priorities set forth in
Section 2.1(b) below. If the Company thereafter determines for any reason not
to register or to delay registration of shares of its common stock, the Company
may, at its election, give written notice of such determination to each
Stockholder participating in such registration and, thereupon, (i) in the case
of a determination not to register, shall be relieved of the obligation to
register such Registrable Shares in connection with such registration (but not
from any obligation of the Company to pay the Registration Expenses in
connection therewith), and (ii) in the case of a determination to delay
registration, shall be permitted to delay registering any Registrable Shares,
for the same period as the delay in registration of such other securities. The
Company will pay all Registration Expenses in connection with registration of
Registrable Shares requested pursuant to this Section 2.1.
(b) Priority in Registration Rights in Connection with Registered
Offering. If the managing underwriter(s) of the Registered Offering advise the
Company (or the other stockholders participating therein) in writing that in
their good faith opinion such offering would be adversely affected by the
inclusion therein of the total number of Registrable Shares requested to be
included therein by a Stockholder participating in such registration under this
Agreement, the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, and (2) the
securities requested to be registered by the Stockholders and other
stockholders entitled to participate in the registration, drawn from them pro
rata based on the number each has requested to be included in such
registration. In the event that a
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<PAGE> 3
Stockholder's Registrable Shares are reduced under this Section and thereafter
such Stockholder is obligated to pay any federal or state income taxes with
respect to the exercise in 1996 of any options to purchase shares of Common
Stock prior to the effective date of the Registered Offering (the "Exercised
Options"), the Company agrees that it will make a loan to such Stockholder, on
a timely basis prior to such tax obligations becoming due and payable, of an
amount equal to the difference, if any, of (i) the sum of such tax obligations
plus any other amounts due and owing with respect to the Exercised Options,
minus (ii) the net proceeds of the sale of the Registrable Shares of the
Stockholder sold in the Registered Offering, if any. The specific terms of the
loan described above will be mutually agreed upon by the parties, provided,
however, the interest rate for the loan shall be comparable to other loans made
by the Company for similar purposes.
2.2 REGISTRATION PROCEDURES.
(a) If permitted by applicable law and regulation, the Company, at the
request of the Stockholders when their Registrable Shares are included in any
registration statement filed by the Company, shall file such amendments and/or
supplements to such registration statement, and, subject to Section 2.1, agrees
to take such other steps as may be required to maintain such registration
statement in effect, and to keep the information therein current, until the
earlier of the sale of all of the shares included in the registration or the
expiration of forty-five (45) days from the effective date thereof. In
connection with any registration statement referred to in this Section 2, the
Company shall furnish to the Stockholders, when their Registrable Shares are
included therein (or to any broker or other person at their request), a
reasonable number of copies of such registration statement, each amendment and
supplement thereto and each document included therein, and such number of
copies of the then current prospectus included therein as they may from time to
time reasonably request.
(b) In connection with any registration statement referred to in this
Section 2, each prospective selling Stockholder shall furnish to the Company in
writing such information relating to such Stockholder as the Company may
reasonably request in connection with the preparation of such registration
statement and each such Stockholder agrees to notify the Company as promptly as
practicable of any inaccuracy or change in information it has previously
furnished to the Company or of the happening of any event, in either case as a
result of which any prospectus relating to such registration contains an untrue
statement of a material fact regarding such Stockholder or the distribution of
such Registrable Shares or omits to state any material fact regarding such
Stockholder or the distribution of such Registrable Shares required to be
stated therein or necessary to make the statement therein not misleading in
light of the circumstances then existing, and to promptly furnish to the
Company any additional information required to correct and update any
previously furnished information or required such that such prospectus shall
not contain, with respect to such Stockholder or the distribution of such
Registrable Shares, an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
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<PAGE> 4
(c) The Company's obligations under this Section 2 to a Stockholder shall
be conditioned upon that Stockholder and any underwriter participating in such
Registered Offering executing and delivering to the Company appropriate
agreements, if necessary in the opinion of counsel to the Company, in form
reasonably satisfactory to counsel for the Company, that such person will
comply with all anti-stabilization, manipulation, and similar provisions of
Section 10 of the Securities Exchange Act and any rules promulgated thereunder
and will furnish to the Company information about sales made in such Registered
Offering.
(d) The Company shall, at the Company's expense, use its best efforts to
cause all of the Registrable Shares included in a registration statement
referred to herein to be qualified under the securities or blue sky laws of
such reasonable number of jurisdictions as the Stockholders or the managing
underwriter named therein, may designate, and the Company will use its best
efforts to continue such qualification in effect so long as may be necessary to
comply with all applicable laws regulating sales of securities, provided,
however that in connection with the foregoing, the Company shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 2.2(d) or
subject itself to tax in any such jurisdiction, or (ii) consent to general
service of process in any such jurisdiction.
(e) In connection with any registration statement referred to in this
Section 2 the Company will promptly advise the Stockholders, when their
Registrable Shares are included therein, (i) when the registration statement
has become effective, (ii) when any post-effective amendment to the
registration statement becomes effective, and (iii) of any request by the SEC
for any amendment or supplement to the registration statement or prospectus or
for additional information. If at any time the SEC should institute or threaten
to institute any proceeding for the purposes of issuing, or should issue, a
stop order suspending the effectiveness of the registration statement, the
Company will promptly notify the Stockholders when their Registrable Shares are
included in such registration statement, and will use its best efforts to
prevent the issuance of any such stop order or to obtain the withdrawal thereof
as soon as possible; and the Company will advise the Stockholders promptly of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any shares of the
Common Stock of the Company for sale in any jurisdiction.
(f) If the Company at any time proposes to register any of its securities
under the Securities Act as contemplated by Section 2.1 and such securities are
to be distributed by or through one or more underwriters, the Company shall
have the right to select the underwriter(s) and the Stockholders participating
in the Registered Offering shall be party to the underwriting agreement between
the Company and such underwriters and the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of the Stockholders
participating in the registration. Except as provided in the following
sentence, each Stockholder shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding himself or herself, his or
her Registrable Shares and the intended method of distribution and any other
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<PAGE> 5
representation required by law. In addition, each Stockholder shall enter into
and perform his or her obligations pursuant to any underwriting agreement to be
entered into with respect to a Registered Offering that includes such person's
Registrable Shares.
2.3 INDEMNIFICATION.
(a) By the Company. In connection with each registration of
Registrable Shares pursuant to this Section 2, the Company agrees to indemnify
and hold harmless each holder of Registrable Shares and its control
persons (as within the meaning of Section 15 of the Securities Act or Section
20 of the Securities Exchange Act), officers, employees and agents and each and
all of them, from and against any and all losses, claims, damages, liabilities,
costs or expenses (including reasonable attorneys' and accountants' fees) or
actions, joint or several, to which they or any of them may become subject
under the Securities Act or otherwise and to reimburse the persons indemnified
as above to any reasonable legal or other expenses (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation or threatened litigation, whether or not resulting in any liability
("Indemnified Damages"), arising out of, or based upon, any allegation of (x)
any untrue statement of a material fact contained in the registration statement
or in any application or other document executed by the Company in connection
therewith or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to register or qualify the
Registrable Shares under the securities laws thereof, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except to the extent such statement
of fact or omission thereof is based on information furnished in writing by
such Stockholder(s) or (y) the employment by the Company of any device, scheme
or artifice to defraud, or the engaging by the Company in any act, practice or
course of business which operated or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company shall participate, in
connection with the issuance and sale of any of the Registrable Shares. The
Company agrees to pay any reasonable legal and other expenses for which it is
liable under this subsection 2.3(a) from time to time (but not more frequently
than monthly) within thirty (30) days after its receipt of a bill therefor.
(b) By Stockholders. Each Stockholder with Registrable Shares
included in a registration statement pursuant to this Section 2 agrees to
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section
20 of the Securities Exchange Act, and each of its officers, directors,
employees and agents and each underwriter, to the same extent as the foregoing
indemnity from the Company to them, but with respect to clause (x) of such
indemnity in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from the registration
statement was made in reliance upon information furnished in writing to the
Company by such holder specifically for use in connection with the preparation
of the registration statement or the filing by the Company in any jurisdiction
in order to register or qualify the Registrable Shares under the securities
laws thereof and with respect to clause (y) of such indemnity in each case to
the extent, and only to the extent, of the acts of such
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<PAGE> 6
Stockholder; provided, however, that such indemnity shall be limited to such
Stockholder's proceeds from the sale of Registrable Shares in the Registered
Offering. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such officer,
director, employee, agents, underwriters or controlling persons and shall
survive the transfer of such securities by the Stockholder to whom it relates.
(c) Third Party Claims. If any action is brought against a person
entitled to indemnification pursuant to the foregoing subsection 2.3(a) or (b)
(an "indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof (provided the omission to so
notify the indemnifying party of any such action shall not release the
indemnifying party from any liability it may have to such indemnified party
except to the extent such failure shall have actually and materially prejudiced
the indemnifying party as a result thereof). In case any such action is
brought against an indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim is to be
made will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall reasonably conclude based upon advice of counsel that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified party shall have the right to select separate counsel to
assume such legal defenses and otherwise to participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by that indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 2.3 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party
at the expense of the indemnifying party. An indemnifying party shall not be
liable for any settlement of any action or proceeding effected without its
written consent. An indemnifying party shall not settle any action or
proceeding on behalf of an indemnified party without such indemnified party's
consent (unless such settlement involves only the payment of money damages
where the indemnifying party will pay the full amount thereof).
(d) Indemnification Payments. Except as otherwise provided in Section
2.3(a) the indemnification required by this Section 2.3 shall be made by
periodic payments of the
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<PAGE> 7
amount thereof during the course of the investigation or defense, as and when
bills are received or Indemnified Damages are incurred.
(e) Contribution. If the indemnification provided for in this Section
2.3 shall for any reason be held by a court to be unavailable to an indemnified
party under subparagraph (a) or (b) hereof in respect of any Indemnified
Damages, then, in lieu of the amount paid or payable under subparagraph (a) or
(b) hereof, the indemnified party and the indemnifying party under subparagraph
(a) or (b) hereof shall contribute to the aggregate Indemnified Damages, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party with respect to the statements or
omissions which resulted in such Indemnified Damages, as well as any other
relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The obligations of the Stockholders to
contribute as provided in this subparagraph (e) are several in proportion to
the relative value of their respective Registrable Shares covered by such
registration statement and not joint. In addition, no person shall be
obligated to contribute hereunder any amounts in payment for any settlement of
any action or claim effected without such person's consent, which consent shall
not be unreasonably withheld.
(f) Other Rights; Liabilities. The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar right of the
indemnified party against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
2.4 REASONABLE INVESTIGATION. In connection with the preparation and
filing of each registration statement under the Securities Act pursuant to this
Agreement, the Company will give each Stockholder participating in the
registration and such Stockholder's counsel and accountants such access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary to conduct a reasonable
investigation within the meaning of the Securities Act.
2.5 REGISTRATION EXPENSES. In a registration of Registrable Shares under
Section 2.1, the Company will pay all Registration Expenses, including
reasonable fees and expenses of separate counsel for the Stockholders
participating in such registration, not to exceed $20,000 in the aggregate, but
excluding the fees and expenses of any other person retained by
the Stockholders. Registration Expenses include all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, including fees with respect to
filings required to be made with the National Association of Securities
Dealers, Inc., fees and expenses of compliance with securities or blue sky
laws, including, without limitation, reasonable fees and disbursements of
counsel for the underwriters, all word processing, duplicating and printing
expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel of the Company and of all independent certified public
accountants of the Company (including the expenses of any special audit and
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<PAGE> 8
"cold comfort" letters required by or incident to such performance),
underwriters fees and disbursements (excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Shares),
securities acts liability insurance if the Company so desires, fees and
expenses of other persons retained by the Company (all such expenses being
herein called "Registration Expenses"). Except as otherwise provided above,
the Company will also pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange, rating agency fees and the fees and expenses of any
person, including special experts, retained by the Company.
3. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns. The Company may not assign its
obligations hereunder. The Stockholders may not assign their rights hereunder
or otherwise provide to any third party the benefits granted to the
Stockholders hereunder without the prior written consent of the Company, which
consent may be granted or withheld at the Company's sole discretion.
4. MISCELLANEOUS.
(a) Severability. If any term or provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
(b) Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(c) Waivers, Etc. No failure or delay on the part of either party
hereto (or the intended third party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
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<PAGE> 9
(d) Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof. The section headings
contained in this Agreement are solely for the purpose of reference, and shall
not in any way affect the meaning or interpretation of this Agreement.
(e) Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original but all of which together shall be one and the same instrument.
(f) Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or
served, if in writing and delivered personally, by facsimile or sent by
registered mail, postage prepaid as follows:
(i) if to the Company, to:
GynCor, Inc.
750 North Orleans Street
Chicago, IL 60610
Attention: Norbert Gleicher, M.D.
Telecopy No. - (312) 649-9655
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
Attention: Jeffrey R. Patt
Telecopy No. - (312) 902-1061
(ii) if to a Stockholder, to such Stockholder at the address or
telecopy number reflected on the Company's corporate records.
Notice given by facsimile shall be deemed delivered on the business day after
it is received by the recipient. Notice given by mail as set out above shall
be deemed delivered five (5) calendar days after the date the same is mailed.
(g) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
(h) Amendments. This Agreement may be amended only by a written agreement
signed by the Company and each Stockholder.
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<PAGE> 10
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed as of the date first above written.
GYNCOR, INC. STOCKHOLDERS:
By:/s/ NORBERT GLEICHER, M.D. /s/ DONNA PRATT, M.D.
---------------------------- -----------------------
Norbert Gleicher, M.D. Donna Pratt, M.D.
Its: President
/s/ CHARLES E. MILLER, M.D.
------------------------------
Charles E. Miller, M.D.
/s/ VISHVANATH C. KARANDE, M.D.
------------------------------
Vishvanath C. Karande, M.D.
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<PAGE> 1
EXHIBIT 10.56
AMENDMENT TO THE GLEICHER, PRATT & ASSOCIATES I, INC.
ORGANIZATION AND SHAREHOLDERS AGREEMENT
THIS AMENDMENT is made this 31st day March, 1996 between GynCor, Inc., a
Delaware corporation ("Corporation") successor in interest to an Illinois
corporation formerly known as Gleicher, Pratt & Associates I, Inc., and Norbert
Gleicher, M.D. ("Gleicher"), Donna Pratt, M.D., Charles Miller, M.D.,
Vishvanath Karande, M.D., John S. Rinehart, M.D., Marybeth Gerrity, Ph.D. and
Donna Havemann (herein referred to collectively as the "Shareholders").
W I T N E S S E T H :
WHEREAS, the Shareholders have previously entered into or adopted the
Gleicher, Pratt & Associates I, Inc. Organization and Shareholders Agreement
dated March 1, 1995 ("Agreement") which contains various restrictions on the
transfer or assignment of shares of the Corporation; and
WHEREAS, the Corporation intends to make an initial public offering of its
stock pursuant to the Securities Act of 1933, as amended ("Public Offering");
and
WHEREAS, prior to the Public Offering the Corporation wishes to admit
additional shareholders ("New Shareholders") whose shares will be subject to
limited restrictions pursuant to an agreement among the New Shareholders,
Gleicher and the Corporation ("GynCor Shareholders Agreement"); and
WHEREAS, the Shareholders wish to allow the issuance of shares to the New
Shareholders to increase the business of the Corporation and facilitate the
Public Offering and to terminate the restrictions on their own shares upon the
Public Offering; and
THEREFORE, the Shareholders and the Corporation agree as follows:
1. GYNCOR SHAREHOLDERS AGREEMENT. Notwithstanding any provision of the
Agreement, the Corporation and Shareholders consent to the execution of the
GynCor Shareholders Agreement by the Corporation, Gleicher and the New
Shareholders, and the issuance of shares to the New Shareholders.
2. TERMINATION OF AGREEMENT. Following a Public Offering, the shares
subject to the Agreement may be transferred by the Shareholders free of its
restrictions after (i) the public registration of the shares under the
Securities Act of 1933, as amended, and any applicable state "Blue Sky" laws
(collectively the "Securities Laws"), or (ii) whenever counsel for the
Corporation is of the opinion that the shares may be transferred without
registration under the Securities Laws.
3. EFFECTIVENESS. This Amendment shall be effective upon execution of it
by the Corporation and Shareholders owning two-thirds (2/3) of the shares
subject to the Agreement.
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IN WITNESS WHEREOF, the Corporation and the Shareholders have executed
this Agreement.
SHAREHOLDERS:
/s/ NORBERT GLEICHER, M.D.
- ---------------------------
Norbert Gleicher, M.D.
/s/ DONNA PRATT, M.D.
- ---------------------------
Donna Pratt, M.D.
/s/ CHARLES MILLER, M.D.
- ---------------------------
Charles Miller, M.D.
/s/ VISHVANATH KARANDE, M.D.
- ---------------------------
Vishvanath Karande, M.D.
/s/ JOHN S. RINEHART, M.D. Dated: March 31, 1996.
- --------------------------
John S. Rinehart, M.D.
CORPORATION:
/s/ MARYBETH GERRITY, PH.D. GYNCOR, INC., a Delaware corporation
- --------------------------
Marybeth Gerrity, Ph.D.
/s/ DONNA HAVEMANN By:/s/ NORBERT GLEICHER, M.D.
- ------------------ -----------------------------
Donna Havemann Norbert G. Gleicher, M.D.
Its:President
-----------------------------
President
2
<PAGE> 1
EXHIBIT 10.57
OFFICE BUILDING LEASE
1. BASIC LEASE PROVISIONS AND IDENTIFICATION OF EXHIBITS
1.1 Basic Lease Provisions
A. Building and Address:
2301 West Howard
Chicago, Illinois 60645
B. Landlord and Address:
Norbert Gleicher, as successor to the interest of NorJan
Partnership, as sole beneficiary of Boulevard Bank National
Association, as Trustee under Trust Agreement dated April 15,
1988, and known as Trust Number 8757
Monthly rent checks are to be sent to the office of Norbert
Gleicher, 750 North Orleans, Chicago, Illinois 60610.
C. Date of Lease: January 1, 1993
D. Lease Term: Five years
E. Commencement Date of Term: January 1, 1993
F. Expiration Date of Term: December 31, 1998
G. Lease Purpose: Medical Office
H. Monthly Base Rent: $6,250.00 + 4% each year
I. Security Deposit: One (1) Month's Rent
J. Tenant's Proportionate Share: 100%
2. PREMISES AND TERM
2.l Lease of Premises
Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the commercial building (the "Building") located
at 2301 West Howard Street, Chicago, Illinois 60645, for the term and
upon the conditions provided in this lease (the "Lease").
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2.2 Term
The term of this Lease (the "Term") shall commence on January 1,
1993 (the "Commencement Date").
The Term shall expire on December 31, 1998 (the "Expiration
Date") unless sooner terminated as otherwise provided elsewhere in this
Lease.
2.3 Option
Provided that Tenant is not in default under this Lease, Tenant shall
have the option to renew this Lease for two additional Terms of
Five (5) years (the "Option Term"). Tenant shall exercise such option
by giving written notice not less than one hundred eighty (180) days
prior to the termination of this Term.
The Monthly Base Rent for the Option Term shall be the Rent as
determined by Landlord plus the Operating Expenses and Taxes of the
Building. However, the Monthly Base Rent for the Option Term shall in
no event be less than the Adjusted Monthly Base Rent payable during the
last month of the original term, as finally determined pursuant to the
provisions; of Sections 4.2. All other terms and conditions of this
Lease shall apply during such Option Term. Landlord shall notify
Tenant, prior to the expiration of the original Term and Option Term of
this Lease of the Rent applicable for each year of the Option Term.
If, within fifteen (15) days after receipt of such notice,
Tenant fails to notify Landlord, in writing, of Tenant's objections to
the Rent submitted by Landlord, Tenant shall be deemed to have accepted
such Rent. In the event Tenant does not agree in writing to the amount
of the Rent payable for each year of the Option term within the thirty
(30) day period immediately following Tenant's notice of objection to
the Rent, Tenant shall be deemed to have waived its option to extend
the term of this Lease and this Lease shall terminate as of the
expiration date.
3. RENT
3.1 Monthly Base Rent
Tenant agrees to promptly pay to Landlord at its office or at such
other place designated by Landlord, without any prior demand
therefor and without any deduction whatsoever, absolutely net
throughout the Lease Term, base rent at the monthly rate specified in
Subsection 1.1H ("Monthly Base Rent"). Monthly Base Rent is subject to
adjustment pursuant to Section 4.2, and as adjusted is hereinafter
called "Adjusted Monthly Base Rent." Monthly Base Rent and Adjusted
Monthly Base Rent shall be paid monthly in advance on the first day of
each month of the Term, except that the first payment shall be paid by
Tenant to Landlord on or before the Commencement Date. Adjusted Monthly
Base Rent shall be prorated for partial months within the Term.
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<PAGE> 3
3.2 Additional Rent
In addition to paying the Monthly Base Rent specified in
Section 3.1 hereof, Tenant shall pay as "Additional Rent" the amounts
described in Sections 4.4 and 4.5 hereof. It is the intention of
Landlord and Tenant that this Lease shall be deemed and construed to be
a "net lease" and Monthly Base Rent, Additional Rent and all other
charges, costs and sums to be paid by Tenant hereunder shall be paid
to Landlord absolutely net and without any charges, assessments,
impositions, expenses or deductions of any kind or nature whatsoever.
The Monthly Base Rent, the Additional Rent and all other charges, costs
and sums required to be paid by Tenant to Landlord under this Lease are
sometimes herein collectively referred to as the "Rent". All Additional
Rent shall be payable for the same periods and in the same manner,
time and place as the Monthly Base Rent. Without limitation on other
obligations of Tenant which shall survive the expiration of the Term,
the obligations of Tenant to pay Additional Rent shall survive the
expiration of the Term. For any partial Calendar Year (as hereinafter
defined), Tenant shall be obligated to pay only a pro rata share of the
Additional Rent for such Calendar Year based on the number of days of
the Term falling within such Calendar Year.
4. ADJUSTMENTS TO MONTHLY BASE RENT
4.1 Definitions
For the purposes of this Lease, the following words and phrases
shall have the following meanings:
A. "Calendar Year" shall mean each calendar year during
which any part of the Term falls, through and including the year
in which the Term expires.
B. "Anniversary Date" shall mean the date which is the first
day of the thirteenth (13th) month after the Commencement Date,
and each year thereafter throughout the Term.
C. "Operating Expenses" "shall mean all costs, expenses and
disbursements of every kind and nature which Landlord shall pay or
become obligated to pay in connection with the operation,
maintenance, replacement and repair of the Building including
without limitation the roof, foundation and structural components
or elements of the Building and of the personal property,
fixtures, machinery, equipment, systems and apparatus located in
or used in connection with the Building, ad valorem taxes, charges
for water, gas and other utility expenses, costs of labor and
current amortization of capital improvements reasonably necessary
for the operation and maintenance of the Building. Operating
Expenses shall not include charges for depreciation of the
Building; interest and principal payments on mortgages.
D. "Taxes" shall mean all federal, state and local
government taxes, assessments and charges (including transit or
transit district taxes or
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assessments) of every kind or nature, whether general, special,
ad valorem, ordinary or extraordinary, which Landlord shall,
during the Term of the Lease or any renewal thereof, pay or
become obligated to pay because of or in connection with the
ownership, leasing, management, control or operation of the
Building and the land upon which the Building is situated (the
"Land"), or of the personal property, fixtures, machinery,
equipment, systems and apparatus located therein or used in
connection therewith (including any rental or similar taxes
levied in lieu of or in addition to general real and/or personal
property taxes and any and all charges which may be levied or
assessed against the Building or any part thereof). For
purposes hereof, Taxes for any year shall be Taxes which may
now or hereafter be levied, imposed or assessed against the Land
and the Building. There shall be included in Taxes for any year
the amount of all fees, costs and expenses (including reasonable
attorneys' fees) paid by Landlord during such year in obtaining
any refund or reduction of Taxes. Taxes in any year shall be
reduced by the net amount of any tax refund received by Landlord
during such year. If a special assessment payable in
installments is levied against the Land or the Building, Taxes
for any year shall include the installment of such assessment
and any interest payable or paid during such year. If, at any
time during the Term of this Lease, a tax or excise on rents or
other tax, however described, is levied or assessed against
Landlord on account of or measured by, in whole or in part, the
rent expressly reserved hereunder or upon the Rent expressly
reserved under all leases or leasehold interests in the Building
as a substitute or addition to, in whole or in part, taxes
assessed or imposed on land and buildings or on land and
buildings, such tax or excise on rents or other tax shall be
included as part of the real property taxes covered herein, but
only to the extent of the amount thereof which is lawfully
assessed or improved as a direct result of Landlord's ownership
of this Lease or of the rentals accorded under this Lease.
Taxes shall not include any federal, state or local sales, use,
franchise, capital stock, inheritance, general income, gift or
estate taxes, except that if a change occurs in the method of
taxation resulting in whole or in part the substitution of any
such taxes, or any other assessment, for any Taxes as above
defined, such substituted taxes or assessments shall be included
in the Taxes.
E. "Tenant's Proportionate Share" shall mean the percentage set
forth in Subsection 1.1J.
4.2 Adjustments to Monthly, Base Rent
Effective as of each Anniversary Date, Monthly Base Rent shall be
increased by four (4%) percent.
4.3 Projections
For purposes of calculating Operating Expenses and Taxes for any
Calendar Year of this Lease, Landlord may, from time to time, make
reasonable estimates, forecasts or projections (collectively, the
"Projections") of Operating Expenses and Taxes,
which shall be communicated by written notice to Tenant.
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4.4 Operating Expense Adjustment
Tenant shall pay to Landlord as Additional Rent an amount ("Expense
Adjustment Amount") equal to Tenant's Proportionate Share of the amount
of Operating Expenses incurred with respect to each Calendar Year. The
Expense Adjustment Amount with respect to each Calendar Year shall be
paid in monthly installments during such Calendar Year in amounts
estimated by Landlord, from time to time, in accordance with Section
4.3 hereof.
At any time and from time to time following the end of each Calendar
Year, or at such later time as Landlord shall be able to determine the
actual amounts of Operating Expenses for the Calendar Year last ended,
Landlord shall notify Tenant in writing of such actual amounts. If the
total Operating Expenses paid by Tenant during such Calendar Year
exceeds the amount thereof payable for such year based upon actual
Operating Expenses for such Calendar Year, then Landlord shall credit
such excess to installments of the Expense Adjustment Amount payable
after the date of Landlord's notice until such excess has been
exhausted, or if this Lease shall expire prior to full application of
such excess, Landlord shall pay to Tenant within fourteen (14) days of
such expiration, the balance thereof not theretofore applied against
Rent. If such actual amounts exceed the Projections for such Calendar
Year, then Tenant shall, within fourteen (14) days after the date of
such written notice from Landlord, pay to Landlord an amount equal to
the excess of the actual Operating Expenses for such Calendar Year over
the total Operating Expenses paid by Tenant during such Calendar Year.
The obligation to make such payments shall survive the expiration or
earlier termination of the Term. No interest or penalties shall accrue
on any amounts which Landlord is obligated to credit or pay to Tenant
by reason of this Section 4.4.
4.5 Tax Adjustment
Tenant shall pay to Landlord as Additional Rent an amount ("Tax
Adjustment Amount") equal to Tenant's Proportionate Share of the amount
of Taxes payable for each Calendar Year. The Tax Adjustment Amount
with respect to each Calendar Year shall be paid in monthly
installments during such Calendar Year in amounts estimated by
Landlord, from time to time, in accordance with Section 4.3 hereof. At
any time, and from time to time, following the end of each Calendar
Year, or at such later time as Landlord shall be able to determine the
actual amounts of Taxes for the Calendar Year last ended, Landlord
shall notify Tenant in writing of such actual amounts. If the total
Taxes paid by Tenant during such Calendar Year exceeds the amount
thereof payable for such year based upon actual Taxes for such Calendar
Year, then Landlord shall credit such excess to installments of the Tax
Adjustment Amount, payable after the date of Landlord's notice until
such excess has been exhausted, or if this Lease shall expire prior to
full application of such excess, Landlord shall pay to Tenant within
fourteen (14) days of such expiration, the balance thereof not
theretofore applied against Rent. If such actual amounts exceed the
projections for such Calendar Year, then Tenant shall, within fourteen
(14) days after the date of such written notice from Landlord, pay to
Landlord an amount equal to the excess of the Taxes for such Calendar
Year over the total Taxes paid by Tenant during such Calendar Year. If
any portion
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of Taxes for any Calendar Year are payable in whole or in part before
the end of such Calendar Year, Tenant shall, within fourteen (14) days
after the written request of Landlord, promptly pay Tenant's
Proportionate Share of such payment as a special installment, after
deducting installments previously paid by Tenant under this Section 4.5
for such Calendar Year. The obligation to make such payments shall
survive the expiration or earlier termination of the Term. No interest
or penalty shall accrue on any amounts which Landlord is obligated to
credit or pay to Tenant by reason of this Section 4.5.
4.6 Books and Records
Landlord shall maintain books and records showing Operating Expenses in
accordance with sound accounting and management practices, which
records shall be available to Tenant for inspection at the offices of
the Building upon reasonable prior notice; provided, however, that
Tenant must exercise its right hereunder within fifteen (15) days
after receipt from Landlord of notice of increased rentals or sums due
hereunder.
4.7 No Decreases in Monthly Base Rent
Notwithstanding anything to the contrary contain in this Lease, Monthly
Base Rent shall not be adjusted or decreased below the amount set forth
in Subsection 1.1H.
5. SECURITY DEPOSIT.
As security for the performance of its obligations under this Lease,
Tenant upon its execution of this Lease has paid to Landlord a security
deposit (the "Security Deposit") in the amount specified in Subsection
1.1I. The Security Deposit may be applied by Landlord, who is not
obligated to do so, in whole or in part, to cure any default of Tenant
under this Lease, and upon notice by Landlord of such application,
Tenant shall replenish the Security Deposit in full by promptly paying
to Landlord the amount so applied. If Tenant shall faithfully
or fully comply with all of its obligations under this Lease and
regulations issued by Landlord, then within forty-five (45) days after
the Expiration Date, Landlord shall return to Tenant the balance, if
any, of the Security Deposit. The Security Deposit shall not be deemed
an advance payment of Rent or measure of damages for any default by
Tenant under this Lease, nor shall it be a bar or defense to any action
which Landlord may at any time commence against Tenant. No interest
shall be paid by Landlord on the Security Deposit.
6. SERVICES
6.1 Tenant's Utilities
Tenant shall make arrangements directly with the respective telephone
company and the public utility electric company servicing the Building
for telephone service and all electricity, gas, water and other utility
service to the Building. Tenant shall pay for the entire cost of all
such service, including installation of any additional separate meters
required in connection therewith, for the removal of any special
equipment installed in the Building upon
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expiration or termination of this Lease. Tenant shall pay for the
maintenance and replacement of all light fixtures, electrical switches,
electrical outlets and lamps located in the Building and all bulbs,
tubes, ballasts and starters utilized in the Building.
7. POSSESSION, USE AND ENJOYMENT OF BUILDING
7.1 Possession and Use of Premises
Tenant shall be entitled to possession of the Building upon the
Commencement Date. In the event of the failure of the Landlord to
deliver possession of the Building upon the Commencement Date, neither
the Landlord nor its agents shall be liable for any damages caused
thereby, nor shall this Lease thereby become void or voidable, nor
shall the term herein be in any way extended but in such event the
term shall begin when the Landlord does deliver possession of the
Building, and the Tenant shall not be liable for any rent until the
time that the Landlord delivers such possession. Tenant shall occupy
and use the Building for the purposes set forth in Subsection 1.1G
only. Tenant shall not occupy or use the Building (or permit the use
or occupancy of the Building) for any purpose or in any manner which:
(a) is unlawful or in violation of any applicable legal, governmental
or quasi-governmental requirement, ordinance or rule relating to the
use and occupancy of the Building (including the Board of Fire
Underwriters); (b) may be dangerous to persons or property; (c) may
invalidate or increase the amount of premiums for any policy of
Insurance affecting the Building, and if any additional amounts of
insurance premiums are so incurred, Tenant shall pay to Landlord the
additional amounts on demand; or (d) may create a nuisance, or the
occupants of neighboring property or injure the reputation of the
Building. Except as provided in Section 8, Tenant's acceptance of
possession of the Building shall be presumed to be Tenant's
acknowledgment that the Building are in satisfactory condition and that
no further changes in the condition of the Building shall be the
obligation of the Landlord.
7.2 Quiet Enjoyment
So long as Tenant shall not be in default under this Lease, Tenant
shall be entitled to peaceful and quiet enjoyment of the Building,
subject to the terms of this Lease.
8. CONDITION OF PREMISES
Tenant shall be conclusively deemed to have accepted the Building in
the condition existing on the date Tenant first takes possession, and
to have waived all claims relating to the condition of the Building.
No agreement of Landlord to alter, remodel, decorate, clean or
improve the Building, and no representation regarding the condition of
the Building has been made by or on behalf of Landlord to Tenant,
except as stated in this Lease.
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9. ASSIGNMENT AND SUBLETTING
9.1 Assignment and Subletting
Tenant shall not, without the prior written consent of Landlord:
(a) assign or convey this Lease or any interest under it;
(b) allow any transfer or offer any lien upon Tenant's interest
by operation of law;
(c) sublet the Building or any part thereof; or
(d) permit the use or occupancy of the Building or any part
thereof by anyone other than Tenant.
A transfer of a controlling interest of stock, if Tenant is a
corporation, or the transfer of any partnership interest, if Tenant is
a partnership, shall be deemed an act of assignment hereunder. Tenant
acknowledges and agrees that Landlord has a vital interest in the
nature, variety and location of tenants in the Building as a whole and
that Landlord's right to arbitrarily withhold its consent to any
proposed assignment or subletting is a material consideration for the
rental rate and the terms contained in this Lease. Should Tenant
propose to sublet all or less than all of the Building or assign this
Lease, Landlord may grant its consent, which consent shall not be
unreasonably withheld, to the subletting or assignment on such
conditions as it may determine, including, without limitation, the
condition that the profit derived by Tenant from the subletting or
assignment shall be paid by Tenant to Landlord as additional Rent. If
only a portion of the Building is being subletted, the excess of all
rent and other consideration due from the sublessee for the period of
the sublease over the portion of the Rent then payable to Landlord
pursuant to the provisions of this Lease for said period which is
allocable on a square footage basis to the space sublet, shall
constitute profit derived by Tenant. Tenant shall deliver to Landlord
a copy of each proposed sublease or assignment and all related
agreements within thirty (30) days prior to final execution of such
instruments. Landlord's consent to any assignment, subletting or
transfer or Landlord's election to accept any assignee, sublessee or
transferree as a tenant hereunder shall not release Tenant from any
covenant or obligation under this Lease, including, but not limited to,
any such covenant or obligation due and owing from and after the date
of any such assignment, subletting or transfer. Any assignee by
acceptance of the assignment or the taking possession of the Building
thereby assumes and agrees to perform all of Tenant's obligations under
this Lease. Landlord's consent to any assignment, subletting or
transfer shall not constitute a waiver of Landlord's right to withhold
its consent to any future assignment, subletting or transfer. Tenant
agrees that in no event will it attempt to assign or sublet to any
existing tenant or sublessee in the Building. Further, all advertising
with respect to leasing, subletting or assignment of space in the
Building shall be subject to Landlord's reasonable approval.
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9.2 Conditions Precedent to Assignment and Sublease
As conditions precedent to any consent by Landlord to any assignment of
the whole or any part of Tenant's interest in this Lease or the
subletting by Tenant of the whole or any part of the Building:
(a) At least thirty (30) days prior to any proposed
assignment or subletting, Tenant shall submit to Landlord a
statement containing:
(i) the name and address of the proposed
assignee or sublessee;
(ii) a financial statement of the proposed
assignee or sublessee containing therein bank and other
credit references;
(iii) a written description of the type of use
proposed for the Building; and
(iv) a written description of all the principal
terms and conditions of the proposed assignment or
subletting, including, but not limited to, the proposed
commencement and expiration dates of the term thereof and
the amount of rent to be payable by the assignee or
sublessee and, unless the proposed assignment or sublet
area of the Building constitutes an entire floor or floors,
such statement shall be accompanied by a floor plan
delineating the proposed assigned or sublet area; and
(b) Tenant shall deliver to Landlord an original assignment
or sublease executed by Tenant and the proposed assignee or
sublessee on a form approved by Landlord, which shall expressly
provide:
(i) for the assumption by such proposed assignee
or sublessee of all of Tenant's obligations under the terms
of this Lease;
(ii) that Tenant shall indemnify and hold Landlord
harmless from any and all claims, obligations and
liabilities, including attorneys' fees, arising from such
assignee's or sublessee's conduct, activity, work or any
other matter in, on or about the Building;
(iii) Tenant shall further indemnify and hold Landlord harmless
from any costs, obligations or liabilities, including
attorneys' fees, arising from any act or negligence of
such assignee or sublessee, or any officer, employee,
agent or invitee of such assignee or sublessee, and from
any claim, action or proceeding brought thereon;
(iv) that in no event shall Tenant, by reason of
Landlord's approval of the assignment or sublease, be
deemed relieved from any obligation or liability under
the Lease, including, but not limited to, the obligation
to obtain Landlord's consent to any further assignment or
subletting; and
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(v) that such proposed assignment or subletting
shall not be deemed effective for any purpose unless and
until Landlord's written consent thereto is obtained.
9.3 Recapture
In lieu of consenting or not consenting to a proposed
assignment or sublease, Landlord may, at its option:
(i) in the case of a proposed assignment or
subletting of Tenant's entire leasehold interest,
terminate the Lease; or
(ii) in the case of a proposed assignment or
subletting of less than the entire Building or Lease,
terminate the Lease as to that portion of the Building
which Tenant has proposed to assign or sublet.
If Landlord elects to terminate this Lease pursuant to clause (ii),
above, Tenant's obligations as to Rent shall be reduced in the same
proportion that the rentable area of the portion of the Building for
which the Lease is canceled bears to the total rentable area of the
Building.
10. MAINTENANCE
10.1 Tenant shall at its expense, shall (i) maintain and make necessary
repairs to the structural elements of the Building and the
electrical, plumbing, heating, ventilating and air-conditioning systems
in the Building and exterior windows; (ii) maintain and make necessary
repairs to the heating, ventilating and air conditioning systems in the
Building; and (iii) keep and maintain the Building in good order,
condition and repair (including the keeping of the Building in clean
and orderly condition) and in accordance with all applicable legal,
governmental and quasi-governmental and insurance carrier requirements,
ordinances and rules. If Tenant fails to perform any of its
obligations set forth in this Section 10.1, within the cure period set
forth in Section 13.1, Landlord, in addition to its other remedies with
respect to Tenant's breach of a covenant hereunder, may, in its sole
discretion, perform the same, and Tenant shall pay to Landlord the cost
therefor upon demand, plus interest from the date of performance until
paid at an annual rate of eighteen percent (18%).
11. ALTERATIONS AND IMPROVEMENTS
11.1 Tenant's Alterations
Tenant shall not, without the prior written consent of
Landlord, make or cause to be made any alterations, improvements,
additions, installations or decorations in or to the Building.
Landlord will require that Tenant's alterations, improvements and
signage of the Building be integrated with the total design concept of
the Building. Landlord shall exercise its judgment in this regard in
its sole discretion. If Landlord so consents, before commencement of
any such work or delivery of any materials into the Building, Tenant
shall furnish to Landlord for approval architectural plans and
specifications, names and
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addresses of all contractors, contracts, necessary permits and
licenses, certificates of insurance and instruments of indemnification
against any and all claims, costs, expenses, damages and liabilities
which may arise in connection with such work, all in such form and
amount as may be reasonably satisfactory to Landlord. In addition,
prior to commencement of any such work or delivery of any materials
into the Building, Tenant shall provide Landlord with appropriate
evidence of Tenant's ability to pay for such work and materials in
full, and, if requested by Landlord, shall deposit with Landlord at
such time such security for the payment of said work and materials as
Landlord may require. Landlord in its sole discretion may require that
a construction escrow be established at Tenant's expense at a title
insurance company of Landlord's choice into which Tenant shall deposit
funds to cover the cost of construction to be paid by Tenant. Tenant's
monies shall be the first funds disbursed from the construction escrow
to pay for improvements. Whether or not Tenant furnishes the
foregoing, Tenant agrees to hold Landlord and the beneficiary, and
their respective agents and employees forever harmless against all
claims and liabilities of every kind, nature and description which may
arise out of or in any way be connected with such work. All such work
shall be done only by contractors or mechanics approved by Landlord
(which approval shall not be unreasonably withheld) and at such time
and in such manner as Landlord may from time to time designate. Tenant
shall pay the cost of all such work and the cost of decorating the
Building occasioned thereby. Upon completion of such work, Tenant
shall furnish Landlord with contractor's affidavits and full and final
waivers of lien and receipted bills covering all labor and materials
expended and used in connection therewith. All such work shall be in
accordance with all applicable legal, governmental and
quasi-governmental requirements, ordinances and rules (including the
Board of Fire Underwriters), and all requirements of applicable
insurance companies. All such work shall be done in a good and
workmanlike manner and with the use of good grades of materials. If
Landlord shall elect to supervise Tenant's construction in connection
with such work, Tenant shall pay the cost of Landlord's supervision not
to exceed ten percent (10%) of construction costs. However, such
supervision or right to supervise by Landlord shall not constitute any
warranty by Landlord to Tenant of the adequacy of the design,
workmanship or quality of such work or materials for Tenant's intended
use or impose any liability upon Landlord in connection with the
performance of such work. All alterations, improvements, additions and
installations to or on the Building shall become part of the Building
at the time of their installation and shall remain in the Building at
the expiration or termination of this Lease, or termination of Tenant's
right of possession of the Building, without compensation or credit to
Tenant. Tenant shall not pledge, mortgage, hypothecate or in any way
create a security interest in and to any of the alterations and
improvements provided for herein to any creditor or third party without
the prior written consent of Landlord.
11.2 Liens
Tenant shall not permit any lien or claim for lien of any mechanic,
laborer or supplier or any other lien to be filed against the
Building, the Land, or any part thereof arising out of work performed
or, alleged to have been performed by, or at the direction of, or on
behalf of Tenant. If any such lien or claim for lien is filed, Tenant
shall immediately either have such lien or claim for lien released of
record or shall deliver to Landlord a bond in the form, content,
amount, and
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issued by a surety, satisfactory to Landlord indemnifying Landlord, the
beneficiary and others designated by Landlord against all costs and
liabilities resulting from such lien or claim for lien and the
foreclosure or attempted foreclosure thereof. If Tenant fails to have
such lien or claim for lien so released or to deliver such bond to
Landlord, Landlord, without investigating the validity of such lien,
may pay or discharge the same, and Tenant shall reimburse Landlord upon
demand for the amount so paid by Landlord, including Landlord's
expenses and reasonable attorneys' fees plus interest thereon at an
annual rate of eighteen percent (18%) until paid.
12. WAIVER OF CLAIMS AND INDEMNITY
12.1 Waiver
To the full extent now or hereafter permitted by law, Tenant waives all
claims it may have against Landlord, the beneficiary, and the agents
and employees of Landlord, and the beneficiary, for damage to person or
property sustained by Tenant or any occupant or other person resulting
from the Land, the Building or any part of the Land or Building
becoming out of repair or resulting from any accident within the
Building or Land or resulting directly or indirectly from any act or
omission of Landlord, the beneficiary, or the agents and employees of
Landlord and the beneficiary or resulting directly or indirectly from
any act or Omission of Tenant or any other person while in the
Building.
12.2 Indemnification
Tenant agrees to indemnify and hold harmless Landlord and the
beneficiary and said persons' agents and employees against any and all
liabilities, obligations, claims, demands, costs and expenses of every
kind and nature, including reasonable attorneys' fees, arising from
Tenant's occupancy of the Building or from any breach or default on the
part of Tenant in the performance of any agreement of Tenant to be
performed pursuant to the terms of this Lease, or from any act or
neglect of Tenant, any subtenant, their respective employees, agents,
guests, servants, invitees or customers in or about the Building. In
any case such proceeding is brought against any of said persons, Tenant
covenants to defend such proceeding at its sole cost and expense by
legal counsel reasonably satisfactory to Landlord, if requested by
Landlord.
13. LANDLORD'S REMEDIES
13.1 Events of Default
Each of the following shall constitute a breach of this Lease
by Tenant: (i) Tenant fails to pay any installment of Rent when such
installment of Rent shall be due; (ii) Tenant fails to observe or
perform any of the other covenants, conditions or provisions of this
Lease to be observed or performed by Tenant and fails to cure such
default within five (5) days after written notice thereof to Tenant;
however, if in Landlord's sole discretion, it is impracticable to cure
the default within five (5) days, then provided Tenant shall commence
to cure the default within the five (5) day period, the failure to
completely cure the default within the cure period shall not constitute
a breach of this Lease if
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Tenant diligently proceeds to cure the default and such default is cured
within a reasonable time period thereafter; (iii) the interest of Tenant
in this Lease is levied upon under execution or other legal process;
(iv) a petition is filed by or against Tenant to declare Tenant bankrupt
or seeking a plan of reorganization or arrangement under any Chapter of
the Bankruptcy Act, or any amendment, replacement or substitution
therefor, or to delay payment of, reduce or modify Tenant's debts, or
any petition is filed to reorganize or modify Tenant's capital
structure, or upon the dissolution of Tenant; (v) Tenant is declared
insolvent by law or any assignment of Tenant's property is made for the
benefit of creditors; (vi) a receiver is appointed for Tenant or
Tenant's property; or, (vii) Tenant abandons the Building.
13.2 Landlord's Remedies
In the event of any default of this Lease by Tenant, Landlord, at its
option, without further notice or demand to Tenant, may, in addition to
all other rights and remedies provided in this Lease, at law or in
equity:
(a) terminate this Lease and Landlord shall be entitled to
recover (1) all Rent due and payable by the Tenant at termination,
and (2) an amount equal to the then present value of the Rent for
the remainder of the Term, less the present value of the fair
market rent of the Building, for the remainder of the Term (taking
into account the time and expense necessary to obtain a replacement
tenant or tenants, including expenses relating to recovery of the
Building, preparation for reletting, (3) the cost of performing any
other covenant to be performed by Tenant, and (4) such damages, as
provided by law, resulting from Tenant's breach of the Lease. For
purposes of determining present value, Landlord and Tenant agree
that the interest rate shall be the rate applicable to the then-
current yield on obligations of the U.S. Treasury, having a
maturity date on or about the Expiration Date of the Term. If the
present value of the fair market rent for the Building, after
deducting all anticipated expenses of reletting for the balance of
the Term exceeds the present value of the Rent provided to be paid
by Tenant for the balance of the Term, Landlord shall have no
obligation to pay to Tenant the excess or any part thereof or to
credit such excess or any part thereof against any other sums or
damages for which Tenant may be liable to Landlord; or
(b) terminate Tenant's right of possession of the Building without
terminating this Lease, in which event Landlord shall make a
reasonable attempt to relet the Building, or any part thereof for
the account of Tenant, for such rent and term and upon such terms
and conditions as are acceptable to Landlord. For purposes of such
reletting, Landlord is authorized to decorate, repair, alter and
improve the Building to the extent reasonably necessary. If
Landlord is unable to relet the Building, or if the Building are
relet and a sufficient sum is not realized therefrom after payment
of all Landlord's expenses of reletting (including repairs,
alterations, improvements, additions, decorations, reasonable legal
fees and brokerage commissions) to satisfy the payment when due of
Rent reserved under this Lease for any monthly period (hereinafter
"Deficiency"), then Tenant shall pay Landlord a sum equal to the
amount of Rent due under this Lease for
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each such monthly period, or if the Building have been relet,
Tenant shall pay any such Deficiency monthly. Tenant agrees that
Landlord may file suit to recover any sums due to Landlord
hereunder from time to time and that such suit or recovery of any
amount due Landlord hereunder shall not be any defense to any
subsequent action brought for any amount not theretofore reduced to
judgment in favor of Landlord. In the event Landlord elects,
pursuant to this Subsection (b), to terminate Tenant's right of
possession only without terminating this Lease, Landlord may, at
Landlord's option, enter into the Building, remove Tenant's signs
and other evidences of tenancy, and take and hold possession
thereof, as provided in Article 14 hereof; provided, however, that
such entry and possession shall not terminate this Lease or release
Tenant, in whole or in part, from Tenant's obligation to pay the
Rent reserved hereunder for the full term or from any other
obligation of Tenant under this Lease.
In addition to its rights under this Section 13.2, Landlord may, at
Landlord's option, take possession of Tenant's furniture, fixtures and
equipment after a default, and Tenant hereby grants to Landlord a
security interest, as defined under the Uniform Commercial Code, as
security for the performance of its obligations under this Lease, in any
and all of Tenant's furniture, fixtures and equipment located in the
Building. At Landlord's request Tenant shall execute additional security
instruments including, but not limited to, appropriate Uniform
Commercial Code statements evidencing such security interest.
13.3 Attorneys' Fees
Tenant shall pay, upon demand, all costs and expenses, including
reasonable attorneys' fees, incurred by the Landlord in enforcing the
observance and performance by the responsible party of all covenants,
conditions and provisions of this Lease to be observed and performed by
the Tenant, or resulting from the Tenant's default under this Lease.
14. SURRENDER OF BUILDING
Upon expiration or termination of this Lease or termination of Tenant's
right of possession of the Building, or any part thereof, Tenant
shall surrender and vacate the Building immediately and deliver
possession thereof to Landlord in a clean, good and tenantable
condition, ordinary wear and tear excepted. Upon any termination which
occurs other than by reason of Tenant's default, Tenant shall be
entitled to remove from the Building all movable personal property of
Tenant, provided Tenant shall immediately repair all damage resulting
from such removal. In the event possession of the Building is not
immediately delivered to Landlord or if Tenant shall fail to remove all
of Tenant's movable personal property, as aforesaid, Landlord may remove
any of such property therefrom without any liability to Tenant, and at
Tenant's expense. All movable personal property which may be
removed from the Building by Landlord shall be conclusively presumed to
have been abandoned by Tenant, and title thereto shall pass to Landlord
without any cost or credit therefor, and
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Landlord may, at its option and at Tenant's expense, Store and/or
dispose of such property.
15. HOLDING OVER
Tenant shall pay Landlord double the latest Adjusted Monthly Base Rent
then applicable for each month or portion thereof Tenant retains
possession of the Building, or any portion thereof, after the
expiration or termination of this Lease, and also shall pay all damages
sustained by Landlord by reason of such retention of possession. The
provisions of this Article shall not constitute a waiver by Landlord
of any re-entry rights of Landlord hereinbefore or by law provided. If
Tenant retains possession of the Building, or any part thereof, for ten
(10) days after the expiration or termination of this Lease, then at
the sole option of Landlord expressed by written notice to Tenant, but
not otherwise, such holding over shall constitute a renewal of this
Lease for a period of one year (or less if specified by Landlord at
Landlord's option) on the same terms and conditions, except that the
Adjusted Monthly Base Rent shall be increased to one hundred and
twenty-five percent (125%) of the latest Adjusted Monthly Base Rent,
plus any subsequent escalations.
l6. DAMAGE BY FIRE OR OTHER CASUALTY
16.1 Substantial Untenantability
If the Building is made substantially untenantable by fire or
other casualty, Landlord may elect either to (i) terminate this Lease
as of the date of the fire or other casualty by giving Tenant written
notice thereof within ninety (90) days after said date; or (ii) proceed
to repair or restore the Building, other than leasehold improvements
and personal property paid for or installed by Tenant, by giving Tenant
written notice thereof within ninety (90) days after said date.
Restoration shall be commenced by the Landlord within ninety (90) days
after such damage shall have occurred and shall be substantially
completed with reasonable diligence, due allowance being made for
delay in the commencement or completion of restoration occasioned by
causes beyond the Landlord's control. If the Landlord does not
commence such restoration within such ninety (90) day period, and
proceed therewith with reasonable diligence, due allowance being made
for delays occasioned as aforesaid, Tenant may terminate this Lease as
of the date of such damage (as its sole and exclusive remedy) by
serving notice on the Landlord after the expiration of such period, and
while the Landlord (not being delayed in any aforesaid causes) is not
diligently proceeding with such restoration.
16.2 Insubstantial Untenantability
If the Building is damaged by fire or other casualty but
neither is rendered substantially untenantable, then Landlord shall
proceed to repair and restore the Building, other than the leasehold
improvements and personal property paid for and installed by Tenant,
unless such damage occurs during the last twelve (12) months of the
Term, in which event Landlord shall have the right to terminate this
Lease as of the date of such fire or other casualty by giving written
notice thereof to Tenant within thirty (30) days after the date of such
fire or other casualty.
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l6.3 No Rent Abatement
Tenant's obligation to pay Rent shall be absolute and unconditional and
shall not be subject to set-off or abatement, for all or any portion
of Rent, for any reason whatsoever including loss or damage due to fire
or other casualty.
17. EMINENT DOMAIN
17.1 Taking of Whole
In the event the whole or any substantial part of the Building is taken
or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation), this Lease
shall terminate as of the date title vests in such authority, and
Adjusted Monthly Base Rent shall be apportioned as of said date.
l7.2 Taking of Part
In the event a part of the Building is taken or condemned by any
competent authority for any public use or purpose (including a
deed given in lieu of condemnation), and this Lease is not terminated
pursuant to Section 17.1, Adjusted Monthly Base Rent shall be reduced
by that amount of Adjusted Monthly Base Rent which bears the same ratio
to the Adjusted Monthly Base Rent then in effect as the number of
square feet of usable in the Building so taken or condemned.
17.3 Compensation
Landlord shall be entitled to receive the entire price or award from
any such sale, taking or condemnation without any payment to
Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if
any, in such award; provided, however, Tenant shall have the right to
separately pursue against the condemning authority an award in respect
of the loss, if any, to leasehold improvements paid for by Tenant, and
for Tenant's cost of relocation without any credit or allowance from
Landlord.
18. TENANT'S INSURANCE
18.1 Insurance
Tenant, at Tenant's expense, agrees to maintain in force during the
Term: (i) Comprehensive General Liability Insurance on an occurrence
basis with minimum limits of liability in an amount of $1,000,000.00
for bodily injury, personal injury or death to any one person and
$2,000,000.00 for bodily injury, personal injury or death to more than
one person, and $100,000.00 with respect to damage to property,
including water and sprinkler damage; (ii) Fire Insurance, with
extended coverage and vandalism and malicious mischief endorsements, in
an amount adequate to cover the full replacement value of all leasehold
improvements and all fixtures, contents and wall and floor coverings in
the Building; and (iii) Rental Value Insurance for not less than a
twelve (12) month period in an amount not less than all amounts
payable hereunder by Tenant.
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18.2 Required Policy Provisions
The policies referred to in Section 18.1 shall name Landlord and
beneficiary, and their respective agents and employees as additional
insureds, as other interests may appear, and shall not provide for
deductible amounts in excess of $1,000.00. Each policy referred to in
Section 18.1 shall be issued by one or more responsible insurance
companies reasonably satisfactory to Landlord and shall contain the
following provisions and endorsements: (i) that such insurance may not
be cancelled or amended without thirty (30) days' prior written notice
to Landlord and the beneficiary; (ii) an express waiver of any right of
subrogation by the insurance company against Landlord and the
Beneficiary and their respective agents and employees; and (iii) that
the policy shall not be invalidated should the insured waive in writing
prior to a loss, any or all rights of recovery against any other party
for losses covered by such policy.
18.3 Release of Rights of Recovery
Tenant shall deliver to Landlord certificates of insurance of all
policies and renewals thereof to be maintained by Tenant hereunder,
not less than ten (10) days prior to the Commencement Date and not less
than ten (10) days prior to the expiration date of each policy.
Whenever (a) any loss, cost, damage, or expense resulting from fire,
explosion or any other casualty or occurrence is incurred by either of
the parties to this Lease, or by anyone claiming by, through or under
it in connection with the Building, and (b) such party is then covered
in whole or in part by insurance with respect to such loss, cost,
damage or expense or is required under this Lease to be so insured,
then, anything contained in this Lease to the contrary notwithstanding,
the party so insured (or so required) hereby releases the other party
from any liability said other party may have on account of such loss,
cost, damage or expense to the extent of any amount recovered by reason
of such insurance (or which could have been recovered had such
insurance been carried as so required) and waives any right of
subrogation which might otherwise exist in or accrue to any person on
account thereof, provided that such release of liability and waiver of
the right of subrogation shall not be operative in any case where the
effect thereof is to invalidate such insurance coverage or increase the
cost thereof (except that in the case of increased, cost, the other
party shall have the right, within thirty (30) days following written
notice, to pay such increased cost, thereby keeping such release and
waiver in full force and effect). If the party released from liability
hereunder is Landlord, the term "Landlord," for the purpose of this
Subsection 18.3 only, shall also include the beneficiary of Landlord
and the agents and employees of the Landlord and the beneficiary.
19. LANDLORD'S RIGHTS
Landlord shall have the following rights exercisable without notice
(except as expressly provided to the contrary in this Lease),
without liability to Tenant for damage or injury to persons, property
or business and without being deemed an eviction or disturbance of
Tenant's use or possession of the Building or giving rise to any claim
for setoff or abatement of Rent: (i) to change the Building's name or
street address upon thirty (30) days' prior written notice to Tenant;
(ii) to install, affix and maintain all signs on the exterior and/or
interior of the Building, provided that such installation shall not
substantially hinder Tenant's
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window views; (iii) to designate and/or approve prior to installation,
all types of signs, window shades, blinds, drapes, awnings or other
similar items, and all internal lighting that may be visible from the
exterior of the Building or the public corridors of the Building; (iv)
with notice to and consent of Tenant, which consent shall not be
unreasonably withheld, to display the Building to prospective tenants
at reasonable hours (which may include non-business hours if the
parties cannot reasonably schedule same during business hours) during
the last six (6) months of the Term; (v) to change the arrangement of
entrances, doors, corridors, elevators and stairs in the Building,
provided that no such change shall materially adversely affect access
to the Building; (vi) to grant to any party the exclusive right (to the
extent permitted by law) to conduct any business or render any service
in or to the Building, provided such exclusive right shall not operate
to prohibit Tenant from using the Building for the purposes permitted
hereunder; (vii) to prohibit the placing of vending or dispensing
machines of any kind in or about the Building; (viii) to close the
Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times,
under such regulations as Landlord prescribes for security purposes;
(ix) to take any and all reasonable measures, including inspections and
repairs to the Building, as may be necessary or desirable in the
operation or protection thereof; (x) to retain at all times master keys
or pass keys to all doors in and to the Building; (xi) to install,
operate and maintain a building security system, which monitors, by
closed circuit television or otherwise, all persons entering or leaving
the Building and all public areas of the Building including, but not
limited to, elevators and staircases; and (xii) to install and maintain
pipes, ducts, conduits, wires and structural elements located in the
Building provided that Landlord will not unreasonably interfere with
the operation of Tenant's business.
20. ESTOPPEL CERTIFICATE
Tenant shall from time to time, upon not less than ten (10) days' prior
written notice request by Landlord or any mortgagee holding a mortgage
on the Land, deliver to Landlord or such mortgagee a statement in
writing certifying: (i) that this Lease is unmodified and in full
force and effect or, if there have been modifications, that this Lease,
as modified, is in full force and effect; (ii) the amount of Adjusted
Monthly Base Rent then payable hereunder and the date to which Rent has
been paid; (iii) that Landlord is not in default under this Lease or, if
in default, a detailed description of such default(s); (iv) that
Tenant is or is not in possession of the Building, as the case may be;
and (v) such other information as Landlord may request. In the event
that Tenant shall fail to deliver the statement required hereunder
within fifteen (15) days after the request by Landlord or mortgagee,
Tenant hereby designates Landlord as its attorney-in-fact to execute
such a statement and grants Landlord the power of attorney to so act.
21. REAL ESTATE BROKERS
Tenant represents that Tenant has not dealt with any real estate
broker, salesperson, or finder in connection with this Lease, and no
such person initiated or participated in the negotiation of this Lease,
or showed the Building to Tenant. Tenant hereby agrees to indemnify
and hold harmless Landlord and the beneficiaries and said persons'
agents and employees from and against any and all liabilities and
claims for commissions and fees arising out of a breach of the
foregoing representation.
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22. NOTICES
All notices required or permitted to be given hereunder shall be in
writing and shall be deemed given and delivered, whether or not
received, when deposited in the United States Mail, first class postage
prepaid and properly addressed, certified mail, return receipt
requested, at the following addresses: (i) to Landlord: Norbert
Gleicher, 750 North Orleans, Chicago, Illinois 60610, or such other
address as Landlord shall designate by written notice to Tenant; and
(ii) to Tenant: at the Building address or such other address as
Tenant shall designate by written notice to Landlord.
23. MISCELLANEOUS
23.1 Late Charges
Tenant shall pay a late charge penalty of ten percent (10%) for
all Rent and other payments due from Tenant to Landlord, delinquent in
excess of ten (10) days.
23.1 Entire Agreement
This Lease and the Exhibits attached hereto contain the entire
agreement between Landlord and Tenant concerning the Building and there
are no other agreements, either oral or written.
23.3 No Option
The execution of this Lease by Tenant and delivery of same to Landlord
or the beneficiary does not constitute a reservation of or option for
the Building or an agreement to enter into a Lease, and this Lease
shall become effective only if and when Landlord executes and delivers
same to Tenant; provided, however, the execution and delivery by
Tenant of this Lease to Landlord shall constitute an irrevocable offer
by Tenant to lease the Building on the terms and conditions herein
contained, which offer may not be withdrawn or revoked for ten (10)
days after such execution and delivery. If Tenant is a corporation, it
shall deliver to Landlord concurrently with the delivery to Landlord of
an executed Lease, certified resolutions of Tenant's directors
authorizing execution and delivery of this Lease and the performance by
Tenant of its obligations hereunder.
23.4 Accord and Satisfaction
No payment by Tenant or receipt by Landlord of a lesser amount
than any installment or payment of Rent due shall be deemed to be other
than on account of the amount due, and no endorsement or statement on
any check or any letter accompanying any check or payment of Rent
shall be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover
the balance of such installment or payment of Rent or pursue any other
remedies available to Landlord. No receipt of money by Landlord from
Tenant after the termination of this Lease or Tenant's right of
possession of the Building shall reinstate, continue or extend the
Term.
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23.5 Landlord's Obligations on Sale of Building
In the event of any sale or transfer of the Building, Landlord
and the seller or transferor (and the beneficiaries of any selling or
transferring land trust) shall be entirely freed and relieved of all
agreements and obligations of Landlord hereunder accruing or to be
performed after the date of such sale or transfer, provided such
purchaser shall assume all obligations of Landlord occurring from and
after the date of such sale or transfer, including the holding and
disposition of the Security Deposit.
23.6 Limitation of Landlord's Liability
It is expressly understood and agreed by Tenant that none of Landlord's
covenants, undertakings or agreements are made or intended as personal
covenants, undertakings or agreements by Landlord or its beneficiary,
and any liability for damage or breach or nonperformance by Landlord
shall be collectible only out of Landlord's interest in the Building
and no personal liability is assumed by, nor at any time may be
asserted against, Landlord, its beneficiary nor any of its or their
officers, agents, employees, legal representatives, successors or
assigns, all such liability, if any, being expressly waived and
released by Tenant.
23.7 Binding Effect
This Lease shall be binding upon and inure to the benefit of
Landlord and Tenant and their respective heirs, legal representatives,
successors and permitted assigns.
23.8 Force Majeure
Landlord shall not be deemed in default with respect to any of the
terms, covenants and conditions of this Lease on Landlord's part to be
performed, if Landlord fails to timely perform same and such failure is
due in whole or in part to any strike, lockout, labor trouble (whether
legal or illegal), civil disorder, inability to procure materials,
failure of power, restrictive governmental laws and regulations, riots,
insurrections, war, fuel shortages, accidents, casualties, acts of God,
acts caused directly or indirectly by Tenant (or Tenant's agents,
employees or invitees) or any other cause beyond the reasonable control
of Landlord.
23.9 Captions
The Article and Section captions in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe,
or describe the scope or intent of such Articles and Sections.
23.10 Applicable Law
This Lease shall be construed in accordance with the laws of
the State of Illinois.
20
<PAGE> 21
23.11 Time
Time is of the essence of this Lease and the performance of all
obligations hereunder.
23.12 Landlord's Right to Perform Tenant's Duties
If Tenant fails to timely perform any of its duties under this Lease,
Landlord shall have the right (but not the obligation), after
the expiration of any grace period elsewhere under this Lease
expressly granted to Tenant for the performance of such duty, to
perform such duty on behalf and at the expense of Tenant without
further prior notice to Tenant, and all reasonable sums expended or
reasonable expenses incurred by Landlord in performing such duty shall
be deemed to be additional Rent under this Lease and shall be due and
payable upon demand by Landlord.
23.13 Amendments
This Lease may not be amended, modified or terminated, nor may any
obligation hereunder be waived orally, and no such amendment,
modification, termination or waiver shall be effective unless it is in
writing, signed by the party against whom enforcement thereof is
sought.
23.14 Riders
All Riders attached hereto and executed both by Landlord and
Tenant shall be deemed to be a part hereof and hereby incorporated
herein.
23.15 Severability
If any provision, term or condition of this Lease or any application
thereof shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision
to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each term
and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
21
<PAGE> 22
IN WITNESS WHEREOF, this Lease has been executed as of the date set
forth in Subsection 1.1D hereof.
LANDLORD:
NORBERT GLEICHER, as successor to the
interest of NorJan Partnership, as sole
beneficiary of Boulevard National Bank
Association, as Trustee under Trust
Agreement dated April 15, 1988, known as
Trust Number 8757
By: ____________________________
TENANT:
GLEICHER ASSOCIATES, M.D., S.C., an
Illinois corporation
By: ____________________________
Its: President
22
<PAGE> 1
EXHIBIT 10.58
GUARANTY AGREEMENT
This Guaranty Agreement ("Guaranty") is made by GynCor, Inc., a
Delaware corporation ("GynCor") to Charles E. Miller, M.D. ("Miller")
with reference to the following facts and circumstances:
A. GynCor, Miller and Center for Human Reproduction - Endoscopic,
M.D.S.C., an Illinois medical corporation ("CHR") entered into an
Employment Agreement dated April 1, 1996, attached hereto as Exhibit A.
B. GynCor and CHR have entered into a Management Services Agreement
dated April 1, 1996 pursuant to which GynCor has agreed to provide
management and administrative services to CHR in substantial part based
upon Miller's agreement to enter into the Employment Agreement.
C. Miller entered into the Employment Agreement attached hereto as
Exhibit A in reliance upon GynCor fulfilling its obligations under the
Management Services Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and agreed, Gyncor agrees as
follows:
1. Subject to the provisions of this Guaranty, GynCor unconditionally
and continuingly guarantees to Miller (i) CHR's prompt payment of
all obligations of CHR to Miller pursuant to the Employment Agreement
(collectively "CHR's Liabilities"); and (ii) CHR's performance of all
agreements and undertakings to be performed by CHR under the Employment
Agreement (collectively "CHR's Obligations").
2. As a condition to payment or performance of CHR's Liabilities and
CHR's Obligations, Miller is not required to prosecute collection, or
seek to enforce or resort to remedies against CHR on account of the
Employment Agreement. GynCor agrees that GynCor is directly and
primarily liable, jointly and severally with CHR, for the payment and
performance of CHR's Liabilities and CHR's Obligations.
3. This Guaranty shall remain and continue in full force and effect
notwithstanding the institution by or against CHR of bankruptcy,
reorganization, readjustment, receivership or insolvency proceedings of
any nature, or the rejection of the Employment Agreement in any such
proceedings or otherwise.
4. Notwithstanding anything to the contrary in this Guaranty,
GynCor may assert any defense of it or CHR arising under the
Employment Agreement of Miller with GynCor or CHR.
5. GynCor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of receivership or
bankruptcy of CHR, protest or notice with respect to CHR's Liabilities or
CHR's Obligations, the benefits of all statutes of limitation, and
<PAGE> 2
all demands whatsoever (and shall not require that the same be made on CHR as
a condition precedent to GynCor's obligations hereunder), and covenants that
this Guaranty will not be discharged, except by complete payment of CHR's
Liabilities and complete performance of CHR's Obligations, and any other
obligations contained herein.
6. No delay on the part of Miller in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Miller
of any right or remedy shall preclude any further exercise thereof; nor shall
any modification or waiver of any of the provisions of this Guaranty be binding
upon Miller, except as expressly set forth in a writing duly signed and
delivered by Miller. A waiver by Miller of any breach of this Guaranty by
GynCor shall not operate or be construed as a waiver by Miller of any
subsequent breach of this Guaranty by GynCor.
7. No release or discharge of any person or entity, whether primarily
and/or secondarily liable for CHR's Liabilities and/or CHR's Obligations, and
no amendment of, modification to or indulgence by Miller under the Employment
Agreement, shall release or discharge GynCor of its obligations under this
Guaranty unless and until all of CHR's Liabilities and CHR's Obligations have
been paid in full and all periods during which repayment could be demanded have
lapsed.
8. This Guaranty shall be binding upon GynCor and upon the successors and
assigns of GynCor and shall inure to the benefit of Miller's successors and
assigns; all references herein to CHR and to GynCor shall be deemed to include
their successors and assigns. GynCor's or CHR's successors and assigns shall
include, without limitation, a receiver, trustee or debtor in possession of or
for GynCor or CHR. All references to the singular shall be deemed to include
the plural where the context so requires.
9. This Guaranty shall be governed and controlled as to interpretation,
enforcement, validity, construction, effect and in all other respects by the
law, statutes and decisions of the State of Illinois, without regard to
conflicts of law principles.
GynCor, Inc., a Delaware corporation
By: /s/ NORBERT GLEICHER, M.D.
--------------------------------
Its President
2
<PAGE> 1
EXHIBIT 10.59
2/94
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
Agreement of Lease, made as of this day of May 22, 1996, between
IRONWOOD REALTY CORPORATION, a Delaware corporation, party of the first part,
hereinafter referred to as OWNER, and GYNCOR, INC., an Illinois corporation,
having its principal offices at 750 North Orleans St., Chicago, Illinois, party
of the second part, hereinafter referred to as TENANT.
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Entire 9th and 10th Floors and a portion of the Thirteen (13th) floor as shown
as the Cross hatched area on the attached plan in the building known as 635
Madison Avenue in the Borough of Manhattan, City of New York, for the term of
TEN (10) YEARS plus the period from the Term Commencement Date (hereafter
defined) to the Rent Start Date (hereafter defined) (or until such term shall
sooner cease and expire as hereinafter provided) to commence on the Term
Commencement Date and to end on ten (10) years after the Rent Start Date*
See Clause 53 both dates inclusive, at an annual rental rate of SEE CLAUSE
44.
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
<PAGE> 2
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
RENT: 1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY: 2. Tenant shall use and occupy demised premises for OB-GYN medical
office with special emphasis on infertility and assisted reproductive
technology (but not abortion on demand) and general office use and for no other
purpose.
TENANT 3. Except for Tenant's initial buildout, Tenant shall make no
ALTERATIONS: changes in or to the demised premises of any nature (other than
nonstructural decorations) without Owner's prior written consent not to be
unreasonably withheld or delayed. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may reasonably require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or
not done pursuant to this article, the same shall be discharged by Tenant
within thirty days thereafter, at Tenant's expense, by payment or filing the
bond required by law. All fixtures and all paneling, partitions, railings and
like installations, installed in the premises at any time, either by Tenant or
by Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than twenty days prior to the date fixed as
the termination of this lease, elects to relinquish Owner's right thereto and
to have them removed by Tenant other than Tenant's initial buildout in which
event the same shall be removed from the premises by Tenant prior to the
expiration of the lease, at Tenant's expense. Nothing in this Article shall be
construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation normal wear and tear
expected and repair any damage to the demised premises or the building due to
such removal. All property permitted or required to be removed, by Tenant at
the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or may be removed from the premises by Owner, at Tenant's
expense.
MAINTENANCE 4. Tenant shall, throughout the term of this lease, take good
AND care of the demised premises and the fixtures and appurtenances
REPAIRS: therein. Tenant shall be responsible for all damage or injury to
the demised premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs caused
by or resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's subtenants, agents, employees, invitees or licensees, or which
arise out of any work, labor, service or equipment done for or supplied to
Tenant or any subtenant or arising out of the installation, use or operation of
the property or equipment of Tenant or any subtenant, but not caused by or
resulting from the acts of omission of other tenants in the Building, Owner,
its agents and employees. Tenant
<PAGE> 3
shall also repair all damage to the building and the demised premises
caused by the moving of Tenant's fixtures, furniture and equipment. Tenant
shall promptly make, at Tenant's expense, all repairs in and to the demised
premises for which Tenant is responsible, using only the contractor for the
trade or trades in question, selected from a list of at least two contractors
per trade submitted by Owner. Any other repairs in or to the building or the
facilities and systems thereof for which Tenant is responsible shall be
performed by Owner at the Tenant's expense. Owner shall maintain in good
working order and repair the exterior and the structural portions of the
building, including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises and the roof and curtain walls. Tenant agrees to
give prompt notice of any defective condition in the premises for which Owner
may be responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures, appurtenances
or equipment thereof. It is specifically agreed that Tenant shall not be
entitled to any setoff or reduction of rent by reason of any failure of Owner
to comply with the covenants of this or any other article of this Lease.
Tenant agrees that Tenant's sole remedy at law in such instance will be by way
of an action for damages for breach of contract. The provisions of this Article
4 shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
WINDOW 5. Tenant will not clean nor require, permit, suffer
CLEANING: or allow any window in the demised premises to be
cleaned from the outside in violation of Section 202
of the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term, if
OF LAW, Tenant is then in possession, and at all times
FIRE INSURANCE, thereafter, Tenant, at Tenant's sole cost and expense,
FLOOR LOADS: shall promptly comply with all present and future laws,
orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters, Insurance Services
Office, or any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the demised premises, whether or not arising out
of Tenant's use or manner of use thereof, (including Tenant's permitted use) or,
with respect to the building if arising out of Tenant's use or manner of use of
the premises or the building (including the use permitted under the lease).
Nothing herein shall require Tenant to make structural repairs or alterations
unless Tenant has, by its manner of use of the demised premises or method of
operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Owner to
<PAGE> 4
Owner's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to, reasonable attorney's fees, by cash deposit or
by surety bond in an amount and in a company satisfactory to Owner, contest and
appeal any such laws, ordinances, orders, rules, regulations or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or
cause the demised premises or any part thereof to be condemned or vacated.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner with respect to the demised premises or the
building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now
or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may
be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure the fire insurance
rate shall, at the beginning of this lease or at any time thereafter, be higher
than it otherwise would be, then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of such failure by Tenant. In
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
SUBORDINATION: 7. This lease is subject and subordinate to all ground
or underlying leases and to all mortgages which may now
or hereafter affect such leases or the real property of which demised premises
are a part and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgagee, affecting any lease or the
real property of which the demised premises are a part. In confirmation of such
subordination. Tenant shall from time to time execute promptly any certificate
that Owner may request.
PROPERTY LOSS, 8. Owner or its agents shall not be liable for any
DAMAGE REIMBURSEMENT damage to property of Tenant or of others entrusted to
INDEMNITY: employees of the building, nor for loss of or damage to
any property of Tenant by theft or otherwise, nor for
any injury or damage to persons or property resulting from any cause of
whatsoever nature, unless caused by or due to the intentional act or negligence
of Owner, its agents, servants or employees. Owner or its agents will not be
liable for any such damage caused by other tenants or persons in, upon or about
said building or caused by operations in construction of any private, public or
quasi public work. Tenant shall indemnify and save harmless Owner against and
from all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Owner shall not be reimbursed by insurance, including
reasonable attorneys fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of
any covenant or condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under this lease extends to the acts
and omissions of any sub-tenant, and any agent, contractor, employee, invitee
or licensee of any sub-tenant. In case any action or proceeding is brought
against Owner by reason of any such claim, Tenant, upon written notice from
Owner, will, at Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be unreasonably
withheld:
DESTRUCTION, FIRE 9. (a) If the demised premises or any part thereof shall
AND OTHER CASUALTY: be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall
continue in full force and effect except as hereinafter set forth. (b) If the
demised premises are partially damaged or rendered partially unusable by fire
or other casualty, the damages thereto shall be repaired by and at the expense
of Owner and the rent and other items of additional rent, until such repair
shall be substantially completed and ready for Tenant's occupancy shall be
apportioned from the day of the casualty according to the part of the premises
which is usable. (c) If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty, then the rent and other items of
additional rent as hereinafter expressly provided shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the premises shall have been repaired and restored by Owner and ready for
Tenant's occupancy (or sooner reoccupied in part by Tenant then rent shall be
apportioned as provided in subsection (b) above), subject to Owner's right to
elect not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the demised premises
are damaged in whole or in part) if the building shall be so damaged that Owner
shall decide to demolish it or to rebuild it, then, in any of such events,
Owner may elect to terminate this lease by written notice to Tenant, given
within 30 days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall
Rider to be added if necessary.
<PAGE> 5
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the
termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Landlord's rights and
remedies against Tenant under the lease provisions in effect prior to such
termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall
serve a termination notice as provided for herein, Owner shall make the
repairs and restorations under the conditions of (b) and (c) hereof, with
all reasonable expedition, subject to delays due to adjustment of
insurance claims, labor troubles and causes beyond Owner's control. After
any such casualty, Tenant shall cooperate with Owner's restoration by
removing from the premises as promptly as reasonably possible, all of
Tenant's salvageable inventory and moveable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days
after written notice from Owner that the premises are substantially ready
for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve
Tenant or Owner from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look
first to any insurance in its favor before making any claim against the
other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Owner and Tenant each
hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d), and (e) above, against the other or any one
claiming through or under each of them by way of subrogation or otherwise.
The release and waiver herein referred to shall be deemed to include any
loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The
foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that
such waiver can be obtained only by the payment of additional premiums,
then the party benefiting from the waiver shall pay such premium within
ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation
under the provisions hereof with respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance on Tenant's furniture
and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be
obligated to repair any damage thereto or replace the same unless caused
by the acts or omissions of Owner. (f) Tenant hereby waives the provisions
of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
EMINENT 10. If the whole or any part of the demised premises
DOMAIN: shall be acquired or condemned by Eminent Domain for any
public or quasi public use or purpose, then and in that
event, the term of this lease shall cease and terminate from the date of
title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's
entire interest in any such award. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment,
provided Tenant is entitled pursuant to the terms of the lease to remove
such property, trade fixture and equipment at the end of the term and
provided further such claim does not reduce Owner's award.
ASSIGNMENT, 11. Tenant, for itself, its heirs, distributees,
MORTGAGE, ETC.: executors, administrators, legal representative,
successor and assigns, expressly covenants that it
shall not assign, mortgage or encumber this agreement, nor underlet, or
suffer or permit the demised premises or any part thereof to be used by
others, without the prior written consent of Owner in each instance not to
be unreasonably withheld or delayed. If this lease be assigned, or if the
demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from
the assignee, under-tenant or occupant, and apply the net amount collected
to the rent herein reserved, but no such assignment, underletting,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on
the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve
Tenant from obtaining the express consent in writing of Owner to any
further assignment or underletting.
ELECTRIC 12. Rates and conditions in respect to submetering or
CURRENT: rent inclusion, as the case may be, to be added in RIDER
attached hereto. Tenant covenants and agrees that at
all times its use of electric current shall not exceed
the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The
change at any time of the character of electric service shall in no wise
make Owner liable or responsible to Tenant, for any loss, damages or
expenses which Tenant may sustain.
ACCESS TO 13. Owner or Owner's agents shall have the right (but
PREMISES: shall not be obligated) to enter the demised premises
in any emergency at any time, and, at other times, upon reasonable advance
notice during normal business hours, to examine the same and to make
such repairs, replacements and improvements as Owner may deem necessary
and reasonably desirable to the demised premises or to any other portion
of the building or which Owner may elect to perform. Tenant shall permit
Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided
they are concealed within the walls, floor, or ceiling. Owner may, during
the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting
an eviction nor shall the Tenant be entitled to any abatement of rent
while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for
the purpose of showing the same to prospective purchasers or mortgagees of
the building, and during the last six months of the term for the purpose
of showing the
<PAGE> 6
same to prospective tenants. If Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
(in the event of emergencies) and provided reasonable care is exercised to
safeguard Tenant's property, such entry shall not render Owner or it agents
liable therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
VAULT, 14. No Vaults, vault space or area, whether or not enclosed or
VAULT SPACE, covered, not within the property line of the building is leased
AREA: hereunder, anything contained in or indicated on any sketch,
blueprint or plan, or anything contained elsewhere in this
lease to the contrary notwithstanding. Owner makes no representations as to the
location of the property line of the building. All vaults and vault space and
all such areas not within the property line of the building, which Tenant may be
permitted to use and/or occupy, is to be used and/or occupied under a revocable
license, and if any such license be revoked, or if the amount of such space or
area be diminished or required by any federal, state, or municipal authority or
public utility, Owner shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual eviction.
Any tax, fee or charge of municipal authorities for such vault or area shall be
paid by Tenant.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for
the building of which the demised premises are a part.
Tenant has inspected the premises and accepts them as is, subject to the riders
annexed hereto with respect to Owner's work, if any. In any event, Owner makes
no representations as to the condition of the premises and Tenant agrees to
accept the same subject to violations, whether or not of record.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the
sending of a written notice to Tenant within a reasonable time
after the happening of any one or more of the following events: (1) the
commencement of a case of bankruptcy or under the laws of any state naming
Tenant as the debtor, however, Tenant shall have sixty (60) days to dismiss
an involuntary bankruptcy petition; or (2) the making by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statue or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner
shall forthwith, notwithstanding any other provisions of this lease to the
contrary, be entitled to recover from Tenant [Insert 1].
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of
this lease other than the covenants for the payment of rent or
additional rent; or if any execution or attachment shall be
issued against Tenant or any of Tenant's property whereupon the demised premises
shall be taken or occupied by someone other than Tenant; or if this lease be
rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code); or if
Tenant shall fail to move into or take possession of the premises within thirty
(30) days after the commencement of the term of this lease, then, in any one or
more of such events, upon Owner serving a written thirty (30) days notice upon
Tenant specifying the nature of said default and upon the expiration of said
thirty (30) days, if Tenant shall have failed to comply with or remedy such
default, or if the said default or omission complained of shall be of a nature
that the same cannot be completely cured or remedied within said thirty (30) day
period, and if Tenant shall not have diligently commenced curing such default
within such thirty (30) day period, and shall not thereafter with reasonable
diligence and in good faith, proceed to remedy or cure such default, then Owner
may serve a written five (5) days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said five (5) days this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such five (5) day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain liable as
hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall
make default in the payment of the rent reserved herein or any
item of additional rent herein mentioned or any part of either or in making any
other payment herein required ten (10) days after notice from Landlord that such
amount is due and unpaid then and in any of such events Owner may with prior
notice, re-enter the demised premises, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made.
<PAGE> 7
If Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Owner may cancel and
terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings in accordance with applicable forcible entry and detainer
laws (a) the rent shall become due thereupon and be paid up to the time of such
re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or
any part or parts thereof, either in the name of Owner or otherwise, for a term
or terms, which may at Owner's option be less than or exceed the period which
would otherwise have constituted the balance of the term of this lease and may
grant concessions or free rent or charge a higher rental than that in this
lease. [Insert 2]. Owner, in putting the demised premises in good order or
preparing the same for re-rental may, at Owner's option, make such alterations,
repairs, replacements, and/or decorations in the demised premises as Owner, in
Owner's sole judgement, considers advisable and necessary for the purpose of
re-letting the demised premises, and the making of such alterations, repairs,
replacements, and/or decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. In the event of a breach by
Tenant of any of the covenants or provisions hereof, Owner shall have the right
of injunction and the right to invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this lease of any particular remedy, shall not preclude Owner
from any other remedy, in law or in equity.
FEES AND EXPENSES:
19. Except as otherwise provided herein, if Tenant shall default in the
observance or performance of any term or covenant on Tenant's part to be
observed or performed under or by virtue of any of the terms or provisions in
any article of this lease, after notice if required and upon expiration of any
applicable grace period if any, (except in an emergency), then, unless
otherwise provided elsewhere in this lease, Owner may immediately or at any
time thereafter and without notice perform the obligation of Tenant thereunder.
If Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
reasonable attorneys' fees, in instituting, prosecuting or defending any action
or proceeding, and prevails in any such action or proceeding then Tenant will
reimburse Owner for such sums so paid or obligations incurred with interest and
costs. The foregoing expenses incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable
by Owner, as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building
(provided Owner gives reasonable advance notice to Tenant if such changes affect
the demised premises) and to change the name, number or designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claim against Owner by reason of Owner's
reasonable imposition of such controls of the manner of access to the building
by Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Except as otherwise provided herein, neither Owner nor Owner's agents
have made any representations or promises with respect to the physical
condition of the building, the land upon which it is erected or the demised
premises, the rents, leases, expenses of operation or any other matter or thing
affecting or related to the premises except as herein expressly set forth and
no rights, easements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of this lease. Tenant
has inspected the building and the demised premises and is thoroughly
acquainted with their condition and agrees to take the same "as is" and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between
Owner and Tenant and any executory agreement
<PAGE> 8
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF 22. Upon the expiration or other termination of the term of this
TERM: lease, Tenant shall quit and surrender to Owner the demised
premises, in good order and condition, ordinary wear and damages
which Tenant is not required to repair as provided elsewhere in this
lease excepted, and Tenant shall remove all its property. Tenant's obligation
to observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this Lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
QUIET 23. Owner covenants and agrees with Tenant that upon Tenant
ENJOYMENT: paying the rent and additional rent and observing and
performing all the terms, covenants and conditions, on Tenant's
part to be observed and performed, Tenant may peaceably and quietly enjoy
the premises hereby demised, subject, nevertheless, to the terms and conditions
of this lease including, but not limited to, Article 31 hereof and to the
ground leases, underlying leases and mortgages hereinbefore mentioned.
FAILURE 24. If Owner is unable to give possession of the demised
TO GIVE premises on the date of the commencement of the term hereof,
POSSESSION: because of the holding-over or retention of possession of any
tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certificate of occupancy has not been procured or
for any other reason, Owner shall not be subject to any liability for failure
to give possession on said date and the validity of the lease shall not be
impaired under such circumstances, nor shall the same be construed in any wise
to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession or complete construction) until after Owner shall have given Tenant
written notice that the Owner is able to deliver possession in condition
required by this lease. If permission is given to Tenant to enter into the
possession of the demised premises or to occupy premises other than the demised
premises prior to the date specified as the commencement of the term of this
lease, Tenant covenants and agrees that such possession and/or occupancy shall
be deemed to be under all the terms, covenants, conditions and provisions of
this lease except the obligation to pay the fixed annual rent set forth in the
preamble to this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law.
NO WAVIER: 25. The failure of Owner to seek redress for violation of, or
to insist upon the strict performance of any covenant or
condition of this lease or of any of the Rules or Regulations, set
forth or hereafter adopted by Owner, shall not prevent a subsequent act which
would have originally constituted a violation from having all the force and
effect of an original violation. The receipt by Owner of rent and/or
additional rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver be in writing
signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payments as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. Except as otherwise provided by
applicable law, no act or thing done by Owner or Owner's agents during the term
hereby demised shall be deemed an acceptance of a surrender of said premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Owner. No employee of Owner or Owner's agent shall have any power to
accept the keys of said premises prior to the termination of the lease and the
delivery of keys to any such agent or employee shall not operate as a
termination of the lease or a surrender of the premises.
WAIVER OF 26. It is mutually agreed by and between Owner and Tenant that
TRIAL BY JURY: the respective parties hereto shall and they hereby do waive
trial by jury in any action proceeding or counterclaim brought
by either of the parties hereto against the other (except for personal
injury or property damage) on any matters whatsoever arising out of or in any
way connected with this lease, the relationship of Owner and Tenant, Tenant's
use of or occupancy of said premises, and any emergency statutory or any other
statutory remedy.
INABILITY TO 27. This Lease and the obligation of Tenant to pay rent
PERFORM: hereunder and perform all of the other covenants and agreements
hereunder on part of Tenant to be performed shall in no wise
be affected, impaired or excused because Owner is unable to fulfill any
of its obligations under this lease or to supply or is delayed in supplying any
service expressly or impliedly to be supplied or is unable to make, or is
delayed in making any repair, additions, alterations or decorations or is
unable to supply or is delayed in supplying any equipment, fixtures, or other
materials if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including, but not limited to,
government preemption or restrictions or by reason of any rule, order or
regulation of any department or subdivision thereof of any government agency
or by reason of the conditions which have been or are affected, either directly
or indirectly, by war or other emergency.
BILLS AND 28. Except as otherwise in this lease provided, a bill,
NOTICES: statement, notice or communication which Owner may desire or
be required to give to Tenant, shall be deemed
sufficiently given or rendered if, in writing, delivered to Tenant
registered or certified mail addressed to Tenant at the
_______________
RIDER TO BE ADDED IF NECESSARY.
<PAGE> 9
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant or such other address specified by Tenant in
writing and the time of the rendition of such bill or statement and of the
giving of such notice or communication shall be deemed to be the time when the
same is delivered to Tenant, mailed, or left at the premises as herein provided.
Any notice by Tenant to Owner must be served by registered or certified mail
addressed to Owner at the address first hereinabove given or at such other
address as Owner shall designate by written notice.
SERVICES 29. Owner shall provide: (a) necessary elevator facilities on
PROVIDED BY business days from 8 a.m. to 6 p.m. and have one elevator subject
OWNERS: to call at all other times; (b) heat to the demised premises
when and as required by law, on business days from 8 a.m. to 6 p.m.; (c) water
for ordinary lavatory purposes, but if Tenant uses or consumes water for any
other purposes or in unusual quantities (of which fact Owner shall be the sole
judge), Owner may install a water meter at Tenant's expense which Tenant shall
thereafter maintain at Tenant's expense in good working order and repair to
register such water consumption and Tenant shall pay for water consumed as
shown on said meter as additional rent as and when bills are rendered; (d)
cleaning service for the demised premises on business days at Owner's expense
provided that the same are kept in order by Tenant. If, however, said premises
are to be kept clean by Tenant, it shall be done at Tenant's sole expense, in a
manner reasonably satisfactory to Owner and no one other than persons approved
by Owner shall be permitted to enter said premises or the building of which
they are a part for such purpose. Tenant shall pay Owner the cost of removal of
any of Tenant's refuse and rubbish from the building; (e) If the demised
premises are serviced by Owner's air conditioning/cooling and ventilating
system, air conditioning/cooling will be furnished to tenant from May 15th
through September 30th on business days (Mondays through Fridays, holidays
excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be furnished on
business days during the aforesaid hours except when air conditioning/cooling
is being furnished as aforesaid. If Tenant requires air conditioning/cooling or
ventilation for more extended hours or on Saturdays, Sundays or on holidays, as
defined under Owner's contract with Operating Engineers Local 94-94A, Owner
will furnish the same at Tenant's expense. RIDER to be added in respect to
rates and conditions for such additional service; (f) Owner reserves the right
to stop services of the heating, elevators, plumbing, air-conditioning,
electric, power systems or cleaning or other services, if any, when necessary
by reason of accident or for repairs, alterations, replacements or improvements
necessary or desirable in the reasonable judgment of Owner for as long as may
be reasonably required by reason thereof. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner at any
time may substitute automatic control elevator service and proceed diligently
with alterations necessary therefor without in any wise affecting this lease or
the obligation of Tenant hereunder.
CAPTIONS: 30. The Captions are inserted only as a
matter of convenience and for reference and in no way define,
limit or describe the scope of this lease nor the intent of any provisions
thereof.
DEFINITIONS: 31. The term "office" or offices" wherever
used in this lease, shall not be construed to mean premises used
as a store or stores, for the sale or display, at any time, of
goods, wares or merchandise, of any kind, or as a restaurant, shop, booth,
bootblack or other stand, barber shop, or for other similar purposes or for
manufacturing. The term "Owner" means a landlord or lessor, and as used in this
lease means only the owner, or the mortgagee in possession, for the time being
of the land and building (or the owner of a lease of the building or of the land
and building) of which the demised premises form a part, so that in the event of
any sale or sales of said land and building or of said lease, or in the event of
a lease of said building, or of the land and building or said lease, or in the
event of a lease of said building, or the land and building, the said Owner
shall promptly notify Tenant of such sale and shall be and hereby is entirely
freed and relieved of all covenants and obligations of Owner hereunder arising
after the date of such sale or leasing and it shall be deemed and construed
without further agreement between the parties or their successors in interest,
or between the parties and the purchaser, at any such sale, or the said lessee
of the building, or of the land and building, that the purchaser or the lessee
of the building has assumed and agreed to carry out any and all covenants and
obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall exclude Saturdays, Sundays and all
days as observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable Operating Engineers contract with
respect to HVAC service. Wherever it is expressly provided in this lease that
consent shall not be unreasonably withheld, such consent shall not be
unreasonably delayed.
ADJACENT 32. If an excavation shall be made upon land
EXCAVATION- adjacent to the demised premises, or
SHORING: shall be authorized to be made, Tenant
shall afford to the person causing or
authorized to cause such excavation,
license to enter upon the demised
premises for the purpose of doing such work as said person shall deem necessary
to preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
RULES AND 33. Tenant and Tenant's servants, employees,
REGULATIONS: agents, visitors, and licensees shall
observe faithfully, and comply strictly
with, the Rules and Regulations and such
other and further reasonable Rules and Regulations as Owner or Owner's
agents may from time to time adopt provided such future Rules and Regulations do
not materially adversely affect Tenant's use and possession of the demised
premises. Notice of any additional rules or regulations shall be given in such
manner as Owner may elect. The right to dispute the reasonableness of any
additional Rule or Regulation upon Tenant's part shall be deemed waived unless
the same shall be asserted by service of a notice, in writing upon Owner within
thirty (30) days after the giving of notice thereof. Nothing
<PAGE> 10
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. Owner shall enforce the
rules on a non-discriminatory basis.
Security:
34. Tenant has deposited with Owner the sum of $ see
Rider 51 as security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and
additional rent, Owner may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any rent and
additional rent, or any other sum as to which Tenant is in default or for any
sum which Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the re-letting of
the premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Owner. In the event that Tenant shall
fully and faithfully comply with all of the terms, provisions, covenants and
conditions of this lease, the security shall be returned to Tenant after the
date fixed as the end of the Lease and after delivery of entire possession of
the demised premises to Owner. In the event of a sale of the land and building
or leasing of the building, of which the demised premises form a part, Owner
shall have the right to transfer the security to the vendee or lessee and
Owner shall thereupon be released by Tenant from all liability for the return
of such security; and Tenant agrees to look to the new Owner solely for the
return of said security, and it is agreed that the provisions hereof shall
apply to every transfer or assignment made of the security to a new Owner.
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the monies deposited herein as security and that neither
Owner not its successor or successors assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
Estopped Certificate
35. Tenant, at any time, and from time to time, upon at least 10
days' prior notice by Owner, shall execute, acknowledge and deliver to Owner,
and/or to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this
lease shall bind and insure to the benefits of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease their assigns. Tenant shall look
only to Owner's estate and interest in the land and building, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner hereunder,
and no other property or assets of such Owner (or any partner member, officer or
director thereof, disclosed or undisclosed), shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this lease, the relationship of Owner and Tenant hereunder,
or Tenant's use and occupancy of the demised premises.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: ____________________________
_____________________________ ____________________________
____________________________
Witness for Tenant: /s/Robert Bukala
____________________________
_________________________ Robert Bukala
Senior Vice President and
Chief Financial Officer
<PAGE> 11
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to me known, who being by me duly sworn, did depose and say that
he resides in
that he is the of
the corporation described in and which executed the foregoing
instrument, as OWNER; that he knows the seal of said corporation;
the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation,
and that he signed his name thereto by like order.
-------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as OWNER, executed the foregoing instru-
ment and acknowledged to me that he
executed the same.
--------------------------------------------------
CORPORATE TENANT
STATE OF ILLINOIS, SS.:
COUNTY OF COOK
On this 29th day of May, 1996,
before me personally came Robert Bukala
to me known, who being by me duly sworn, did depose and say that
he resides in
that he is the Senior Vice President and Chief Financial Officer of GynCor,
Inc., the corporation described in and which executed the foregoing
instrument, as TENANT; that he knows the seal of said corporation;
the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation,
and that he signed his name thereto by like order.
My Commission Expires July 12, 1996
--------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as TENANT, executed the foregoing
instrument and acknowledged to me that he
executed the same.
-------------------------------------------------
5
<PAGE> 12
RIDER to Lease between Ironwood Realty
Corporation, as Owner/Landlord, and Gyncor, Inc.,
as Tenant, dated May 22, 1996 for the entire 9th
and 10th floors and a portion of the 13th floor,
635 Madison Avenue, New York, New York
37. (a) During the term of this Lease, the annual rental rate
payable by Tenant, as hereinabove provided, shall be increased or decreased for
each twelve (12) month period (hereinafter called the "Comparison Year") or part
thereof commencing July 1st. and ending June 30th, subsequent to the Base Year
(as hereinafter defined) by an amount equal to .1681 of the amount of the
increase or decrease of Property Taxes (as hereinafter defined), over or under,
as the case may be, the amount of Property Taxes for the Base Year. "Property
Taxes" means all real estate taxes on the building, improvements, fixtures and
equipment and the land (entire plot) upon which they are situated, sewer rents
or any tax assessment or charge, general or special, foreseen or unforeseen,
which shall be levied in addition to, or in lieu of, real estate taxes, but
Property Taxes shall not include any income, franchise, capital stock, estate or
inheritance taxes.
If the Landlord shall be in default in the payment of Property Taxes
and shall thereby incur interest or penalty charges, Tenant shall not be
obligated to pay any portion of such interest or penalty charges.
If the Landlord shall receive a refund of Property Taxes, the proceeds
thereof, less the costs and expenses in obtaining the same, shall be apportioned
and allocated to the period for which the refund was obtained and proper
adjustments shall be made between the Landlord and Tenant.
"Base Year", for the purpose of this Article 37(a), means the twelve
(12) month period commencing July 1, 1996 and ending June 30, 1997.
(b) During the term of this Lease, the annual rental rate payable by
Tenant as hereinabove provided, shall be increased or decreased for each
Comparison Year or part thereof by an amount equal to .1681 of the amount of the
increase or decrease of Operating Costs (as hereinafter defined) over or under,
as the case may be, Operating Costs for the Base Year. "Operating Costs" means
<PAGE> 13
all of the direct expenses, including rent and other charges payable by
Landlord in accordance with the existing terms and provisions of the Ground
Lease and the premiums for all kinds of insurance carried by the Landlord
incurred or paid by or on behalf of the Landlord with respect to the operation
and maintenance of the said building, improvements, fixtures, equipment and
land which, in accordance with accepted principles of sound accounting practice
used by the Landlord as applied to the operation and maintenance of a
first-class office building, are properly chargeable to the operation and
maintenance thereof, but such expenses shall not include (i) the amount of
expenses for any services or installations furnished to a particular tenant in
excess of those furnished or available to the Tenant; (ii) the amount of any
expenses incurred in renting space in the building and altering any space in
the building for occupancy by any tenant; (iii) legal expenses which do not
relate to the operation and management of the building; (iv) the salaries of
the officers, directors and executives of the Landlord; (v) general overhead
expenses of the Landlord which do not relate to the operation and management of
the building; and (vi) Property Taxes.
"Base Year" for the purpose of this Article 37(b) means the twelve
(12) month period ending June 30, 1996.
(c) This Article 37 shall never operate to decrease the annual
rental rate payable under the Lease at any given time to an amount less than the
amount of base rent payable at such time as set forth in Article 44.
(d) In order to provide for current payments on account of the
additional rent which may be payable to the Landlord pursuant to this Article
for any Comparison Year, the Tenant agrees to make such payments on account of
said additional rent for and during such Comparison Year in twelve (12) monthly
installments, each in an amount equal to one-twelfth (1/12th) of the amount
which would have been payable by the Tenant to the Landlord pursuant to this
Article for the period of twelve (12) calendar months immediately preceding such
Comparison Year if said twelve (12) month period had been a Comparison Year
falling entirely within the term of this Lease, except that the installment for
each such month shall be appropriately adjusted to reflect the Property Taxes
actually payable for such month and, as reasonably estimated by the Landlord,
the Operating Costs for such Comparison Year, the installment for each calendar
month to be due and payable with the next
<PAGE> 14
ensuing monthly statement; it being understood that if, as finally determined,
the amount of additional rent payable by the Tenant to the Landlord pursuant to
this Article for such Comparison Year shall be greater than (resulting in an
underpayment) or be less than (resulting in an overpayment) the aggregate of all
the installments so paid on account to the Landlord by the Tenant for such
Comparison Year, then, after the receipt of the Escalation Statement (as
hereinafter defined) for such Comparison Year, the Tenant shall, in the case of
such underpayment, pay with the next ensuing monthly statement to the Landlord
an amount equal to such underpayment or the Landlord shall, in the case of such
an overpayment, pay to the Tenant an amount equal to such overpayment.
"Escalation Statement" means a statement delivered by the Landlord to the Tenant
within six (6) months after the end of a Comparison Year, setting forth the
amount payable by the Tenant or the Landlord, as the case may be, for such
Comparison Year pursuant to this Article,
(e) Upon the date of any expiration or termination of this
Lease, whether the same be the date hereinafter set forth for the expiration of
the term (hereinafter called "Lease Expiration Date") or any prior or subsequent
date, the entire additional rent for the preceding calendar year and a
proportionate share of the additional rent for the calendar year during which
such expiration or termination occurs shall immediately become due and payable
by Tenant to Landlord. The said proportionate share shall be based upon the
length of time that this Lease shall have been in existence during such latter
calendar year. Promptly after said expiration or termination, Landlord shall
compute the additional rent due from Tenant, as aforesaid, which computation
shall be an estimate based upon the most recent Escalation Statement theretofore
prepared by Landlord and furnished to Tenant under paragraph (d) above. Within
ten (10) days after the next Escalation Statement is prepared by Landlord and
furnished to Tenant, Landlord and Tenant shall make appropriate adjustments of
said estimated payments.
(f) Notwithstanding any expiration or termination of this Lease
prior to the Lease Expiration Date (except in the case of a cancellation by
mutual agreement), Tenant's obligation to pay any and all additional rent under
this Lease shall continue and shall cover all periods up to the Lease Expiration
Date. Tenant's obligation to pay any and all additional rent under this Lease
and Landlord's and Tenant's obligation to make the adjustments referred to
<PAGE> 15
above, shall survive any expiration or termination of this Lease.
38. Nothing in this Lease shall be deemed to constitute the Landlord
and Tenant as partners, or business associates, or in any way responsible for
the other. The Landlord and Tenant are not partners or joint ventures.
39. If the Landlord or any successor in interest be an individual,
joint venture, tenancy in common, co-partnership, unincorporated association, or
other unincorporated aggregate of individuals (all of which are referred to
below, individually and collectively as an "unincorporated Landlord"), then,
anything elsewhere to the contrary notwithstanding, Tenant shall look solely to
the estate and property of such unincorporated Landlord in the land and building
of which the leased premises are a part, for the satisfaction of Tenant's
remedies for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default or breach by
Landlord with respect to any of the terms, covenants and conditions of the
Lease to be observed and/or performed by Landlord, and no other property or
assets of such unincorporated Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies.
40. (a) Landlord shall furnish air cooling on business days from
8:00 a.m. to 6:00 p.m. when reasonably required for the comfortable occupancy of
the demised premises based upon the occupancy of the demised premises by not
more than 1 person for any 100 square feet of space. The base cooling system
shall be operational and available no later than May 15 of each year and the
base heating system shall be operational and available no later than October 1.
(b) The minimum fresh air supply and return delivered from the
existing base building central air handling system located in the penthouse
shall be 5,100 CFM supply and 3,300 CFM of return air for each floor, and the
supply air temperature delivered and discharged to each floor shall be a
minimum of 55 degrees dry bulb. The minimum fresh air delivered to each floor
shall be in compliance with all local code requirements and shall not be less
than 15% of total air supply, and minimum filtration shall be 30%. The minimum
toilet exhaust shall be a minimum of 400 CFM per floor.
<PAGE> 16
(c) The existing perimeter fan coil units shall deliver a
minimum heating and cooling capacity of the following:
1. Cooling: Based on 78 degree F dry bulb entering air and 65.2
degree F wet bulb:
Supply Air: 300 CFM
Sensible cooling: 5,500 BTUH
Latent cooling: 1,000 BTUH
2. Heating: Based on 72 degree F dry bulb entering air, 13,250
BTUH.
(d) Landlord shall provide Tenant, at its sole cost and expense,
openings in the building envelope in each floor, but Landlord reserves the right
to approve the design and location of any such openings.
41. [Intentionally Deleted]
42. It is understood and agreed that any names to be placed on the
door of the demised premises shall be affixed to a plaque which can be screwed
to said door and cost of said plaque, lettering and installation to be at the
sole cost of Tenant.
43. The electric current for the demised premises shall be arranged
for and paid for by the Tenant at regular Consolidated Edison Company rates
through a meter located on the demised premises, and shall be paid directly to
the Consolidated Edison Company.
44. It is understood and agreed that the annual base rent for the
Entire 9th and 10th and portion of 13th Floors shall be at the rate of: SEVEN
HUNDRED FORTY-TWO THOUSAND FIVE HUNDRED & 00/100 ($742,500.00) DOLLARS payable
in equal monthly installments of SIXTY ONE THOUSAND EIGHT HUNDRED SEVENTY FIVE &
00/100 ($61,875.00) DOLLARS for the first five (5) years after the Rent Start
Date; and EIGHT HUNDRED TEN THOUSAND & 00/100 ($810,000.00) DOLLARS, payable in
equal monthly installments of SIXTY SEVEN THOUSAND FIVE HUNDRED & 00/100
($67,500.00) DOLLARS, for the period beginning with the sixth (6) year through
tenth (10th) year after the Rent Start Date.
45. (a) The Tenant shall have the option to renew this Lease for a
first 5 year renewal term at ninety five percent (95%) of the then fair market
rental rent for
<PAGE> 17
the demised premises by giving the Landlord written notice of the intent
to renew given nine (9) months before the end of the term of the Lease.
(b) The Tenant shall have the option to renew this Lease for
a second 5-year renewal term at ninety five percent (95%) of the then fair
market rent for the demised premises by giving the Landlord written notice
of the intent to renew given nine (9) months before the end of the then
existing term of the lease.
(c) The then fair market rent shall be based upon the rent for
other first class buildings located in the same geographic location of
the Building within the Borough of Manhattan, New York City, New York offering
similar concessions and allowances.
(d) If the parties fail, within sixty (60) days after Tenant
gives a notice provided for above, to agree on the then fair market rent for
the demised premises, then, and in that event, the fair market rent
shall be determined by arbitration in New York City by three arbitrators
according to the then current rules of the American Arbitration Association
("AAA"), provided, however, that (i) each party will appoint an arbitrator who
is a competent expert in the New York City/plaza District office rental market,
and the two arbitrators so appointed will jointly appoint a third arbitrator,
who is also such an expert, within 10 days (failing which the AAA shall select
such third arbitrator), and (ii) the decision of the arbitrators shall state
that the base years for Real Estate Taxes and Operating Escalator shall be the
fiscal year ending June 30, 2006 in the case of the first renewal period and
shall be the fiscal year ending June 30, 2011 in the case of the second renewal
period.
46. (a) It is agreed between the parties hereto that the Landlord
will contribute the sum of One Million Three Hundred Fifty Thousand Dollars
($1,350,000.00) (the Work Allowance") to be used to cover expenses involved in
the Tenant's alteration costs, including architectural fees, telephone and
computer cabling, furniture and fixture costs, and such alterations shall be
substantially in accordance with the plans and specifications heretofore
delivered to Landlord. The Landlord will issue checks directly to vendors on a
weekly basis, if necessary, upon invoices certified by Tenant's architect,
reflecting completed work, until the Work Allowance is expended. In the event
at the
<PAGE> 18
end of all construction, there are any monies remaining from the Work
Allowance, the Landlord will pay over the said balance to Tenant for Tenant to
use at its sole discretion. Tenant shall have a right of offset against the
rent payable hereunder to the extent Landlord does not disburse the Work
Allowance as aforesaid.
(b) Tenant shall have the right to bid the construction of
Tenant's initial and future expansion build out to two non-union general
contractors, one of which shall be selected by Landlord. In addition, Landlord
will not charge Tenant any supervision or coordination fee in connection with
Tenant's initial and future expansion build out.
(c) Tenant shall have the right to utilize the existing base
building stair for access between floors, and Tenant may at Tenant's sole
cost, improve said stairwell with lighting, paint and carpeting (Landlord shall
specify the pile height and flame spread rating of such carpeting). Tenant may
restrict access by installing key card access provided the same does not
interfere with the building's alarm and security systems and further provided
that such installation complies with current and future fire regulations and
other laws.
47. In addition to the Tenant's Work Allowance, the Landlord will supply
and install at its sole cost and expense the following:
A) Demolish all existing walls, interior column enclosures (excluding
window wall column enclosures), ceilings, electrical and other items
not to be utilized in Tenant's new construction and leave broom clean. Such
demolition shall be in accordance with plans heretofore delivered to Landlord
by Tenant's architect. Notwithstanding the foregoing, Landlord shall not be
required to demolish any item that would affect the structural integrity of
the building or impair the building base electrical, plumbing, HVAC and other
mechanical systems.
B) One (1) 150 KW standby engine generator to service certain vital
functions in the building. Landlord shall provide one (1) 100 amp, 24
circuit, 208 (three phase)/120 volt located in the 9th/lOth floor electrical
closet, and Tenant shall have the right to tie in certain critical items
(specifically not to
<PAGE> 19
include Tenant's computer systems or other components that may be affected by a
spike in electric power) that require 24-hour constant electricity. This right
to tie into the generator shall extend through the entire term of this Lease
plus any renewal period. Landlord make no representation or warranty regarding
the quality or quantity of electric service provided by the standby generator,
and Landlord shall have no liability to Tenant or any third party in connection
therewith.
C) Supply and install up to thirty (30) tons of new supplemental
air-cooled air conditioning per floor to run independently of the existing
building central system. Such supplemental system shall be capable of
delivering 55 degree supply air temperature, the minimum amount of fresh air
required by code and minimum of 30% air filtration. It is understood that each
supplemental system will be located at a window on the floor it is to service
and will tie into the ductwork that will be installed by or modified by the
Tenant's contractor. The electricity to operate said equipment shall be at the
Tenant's cost and expense. Repairs and maintenance to said equipment, after
the initial installation, shall be at the Tenant's expense unless the same are
caused by the acts or omissions of Landlord, it agents or employees.
D) Supply and install a building standard connecting staircase
between floors 9 and 10, at a location adjacent to existing steel framing in
accordance with plans and specifications, and installation as per N.Y.C. Code
requirements. In the event Tenant's plans do not require that Landlord install
a stairway, the Landlord work credit shall be increased by $18,000.
E) Landlord to supply and install key operated elevator
lock-out on each elevator serving both the 9th and 10th floors.
F) Landlord shall patch and level, if necessary, the base
concrete floors of the demised premises, to provide a smooth and level surface
with no more than a one-quarter inch (1/4") variation in any ten foot (10')
lineal direction, non-cumulative.
G) Unless Tenant requires new blinds, Landlord shall, at
Landlord's cost, install building standard
<PAGE> 20
blinds for the exterior windows in the demised premises.
Notwithstanding the provisions of Article 15 of this Lease, any latent defects
in Landlord's work, described above, discovered by Tenant, and provided
Landlord is notified of such defect by Tenant in writing within one (1) year
following the Rent Start Date, shall be promptly repaired by Landlord. If
Tenant leases additional full floors in the building, Landlord shall provide an
elevator lock-out for such additional full floor.
48. Landlord will request a non-disturbance agreement from its current
and future mortgagees. In the event Landlord is unsuccessful in obtaining any
such agreement, such failure will not be deemed a default by the Landlord.
49. Landlord agrees to supply tenant with the necessary ACP5 (not an
Asbestos Project) Form necessary for Tenant's architect to file for a work
permit from N.Y.C. Department of Buildings.
50. (a) During the first two (2) years after the Rent Start Date and
provided that Tenant is not in default under this Lease, Tenant shall have the
right, as hereinafter provided, to lease any vacant office space (excluding the
first, second and nineteenth floors) in the Building that becomes available.
Landlord shall notify Tenant that such vacant space is available and Tenant
shall have five (5) days after receipt of such notice by Landlord to accept the
vacant space for lease. The term of the lease of such vacant space shall
expire coterminously with the term of this lease and the lease of such vacant
space shall otherwise be based on the same terms and conditions as this Lease,
on a pro rata square footage basis, except that (i) the Landlord will not be
required to supply and install (A) supplemental air-cooled air conditioning
unless Tenant leases at least one half a full floor or (B) a building standard
interconnecting stairway unless Tenant leases at least a full floor contiguous
to one of its existing floors and (ii) any construction work allowance shall be
an amount equal to $60.00 multiplied by the number of rentable square feet of
such additional space, multiplied by a fraction, the numerator of which is the
number of days remaining in the initial term of this Lease and the denominator
of which is 3,650. It is also agreed that in the event Tenant elects not to
have Landlord install a building standard connecting
<PAGE> 21
stairway, $18,000 shall be added to the Landlord work allowance. Landlord and
Tenant shall execute a modification to this Lease confirming the foregoing
within thirty (30) days after Tenant delivers notice to Landlord accepting the
space, and the commencement date of such lease shall be the date such
modification is executed.
(b) It is further agreed that commencing on the third (3rd)
year after the Rent Start Date and provided that Tenant is not in default
under this Lease, Tenant shall have the continuous right, as hereinafter
provided, to lease any vacant office space (excluding the first, second and
nineteenth floors) in the Building that may become available. It is understood
that Landlord must first offer said vacant space to Tenant at rental rates,
terms and conditions as it would to any other potential tenant. All offerings
by Landlord to Tenant must be in writing and contain all material terms. If
Landlord does not receive a written acceptance from Tenant within five (5) days
after Landlord's delivery of such offer, Landlord may rent said vacant space to
another third party but only on terms materially no more favorable to such
third party. The term "material", as used in this Article, shall mean a change
to any term or terms of an offer to a third party that varies more than five
(5) from the corresponding term or terms of the latest offer to Tenant
hereunder.
51. (a) Concurrent with the execution of this Lease, the Tenant
is delivering to Landlord, an irrevocable, clean letter of credit effective
for one year in the amount of $250,000.00 issued by American National Bank and
Trust Company of Chicago, 33 North LaSalle Street, Chicago, Illinois 60690 (the
"Bank"), against which letter of credit Landlord shall be entitled to draw on
the terms specified herein. If, by June 30, 1996, Tenant does not deliver to
Landlord, financial statements, duly certified by L.J. Soldinger & Associates,
certified public accountants, showing (according to generally accepted
accounting principles) Tenant having a net worth of $20 million, Tenant
shall, no later than July 10, 1996, deliver an additional letter of credit
issued by the Bank in the amount of $250,000 and such additional letter of
credit shall otherwise comply with the requirements of this Article. Failure to
deliver such additional letter of credit shall constitute a default under this
Lease permitting Landlord to, without notice to Tenant, (i) immediately draw
down on the first letter of credit and (ii) exercise any remedies available to
Landlord under Article 18 or otherwise permitted under this Lease or by law.
If Tenant shall
<PAGE> 22
deliver financial statements (prepared in accordance with the provisions of
this Article) to Landlord showing Tenant having a net worth of $20 million at
any time while letter(s) of credit are outstanding hereunder and Tenant is not
otherwise in default under this Lease, then Landlord shall return the
outstanding letter of credit(s) to Tenant within thirty (30) days and the terms
of this Article shall be of no further effect.
(b) Each letter of credit shall be renewed or replaced annually
in an amount as shown on the schedule below so that until April 30, 1999,
there shall continue to be outstanding letter(s) of credit. Each renewal or
replacement letter(s) of credit shall be delivered to Landlord not less than 30
days prior to the expiration date of the then current letter(s) of credit to be
renewed or replaced; any failure so to deliver the renewal or replacement
letter(s) of credit shall give Landlord the right to draw down the full amount
of the then current letter(s) of credit as security hereunder.
The amount of the required letter(s) of credit shall be as follows:
<TABLE>
<S> <C>
November 1, 1996 $415,000.00
May 1, 1997 $330,000.00
November 1, 1997 $247,500.00
May 1, 1998 $165,000.00
November 1, 1998 $ 82,500.00
May 1, 1999 -0-
</TABLE>
(c) In the event of any other default under this Lease,
Landlord shall also have the right to draw down the full amount of the
letter(s) of credit in effect at that time. Such rights shall be absolute as
against the Bank which issued the letter(s) of credit, and Tenant shall take no
action to interfere with the drawing by Landlord against the letter(s) of
credit shall be deemed an immediate default under this Lease. In the event of
any wrongful drawing by Landlord of the letter(s) of credit, the extent of
Landlord's liability to Tenant shall be limited to compelling repayment to the
Bank which made payment against the letter(s) of credit of the amount
wrongfully drawn down, in which event Tenant shall immediately deliver to
Landlord a replacement letter(s) of credit in all respects identical to the
letter(s) of credit wrongfully drawn down and thereafter Tenant shall continue
to comply with its obligations hereunder as if no wrongful drawn down has
<PAGE> 23
occurred. Any sums drawn by Landlord upon the letter(s) of credit shall be
deposited in a bank headquartered in New York City selected by Landlord, in an
interest-bearing account and shall be held as security under Article 34 of this
Lease, and Landlord may draw against such account for amounts payable to
Landlord as a result of any default by Tenant under this Lease.
52. Tenant represents and warrants that it has dealt with no brokers in
connection with this Lease other than Grubb & Ellis New York, Inc., represented
by David Schneck, and Goldie B. Wolfe & Co., represented by Diana Dunbar, and
Tenant agrees to indemnify Landlord against any commission claims asserted by
any other broker, including reasonable attorneys' fees.
53. (a) The commencement date of the term of this lease (the "Term
Commencement Date") shall be the date of delivery of the Premises to Tenant
with the work described in Article 47(A) substantially completed.
(b) The payment of base rent (as set forth in Article 44) shall
commence (the "Rent Start Date") upon the substantial completion of Tenant's
Work but in no event later than one hundred and twenty (120) days after the
Term Commencement Date. If Landlord shall not have substantially completed its
work described in Article 47(B),(C),(D),(E) and (F) the Rent Start Date shall
be extended until the date Landlord shall have substantially completed such
work unless and to the extent any delays in the completion of Landlord's work
are caused by acts or omissions of Tenant, its employees or agents.
(c) In the event Landlord fails to deliver the demised premises
within thirty (30) days after Landlord has received a fully executed copy of
this Lease and provided that Tenant is not otherwise in default under the terms
of this Lease, Tenant shall have the right to terminate this Lease by written
notice to Landlord given within five (5) days after the expiration of such
thirty (30) day period. This lease shall terminate upon receipt of such notice
by Landlord, and Landlord shall promptly return to Tenant the letter(s) of
credit delivered pursuant to Article 51 and shall refund to Tenant all funds
paid by Tenant to Landlord on account of this Lease.
54. Landlord represents to Tenant that Tenant's use of the premises, as
set forth in Article 2 of this
<PAGE> 24
Lease, is permitted under existing applicable zoning laws and under any
covenants, conditions or other restrictions of record. In the event applicable
zoning laws or any covenants, conditions or regulations prohibit such use,
Tenant shall have the right to terminate this Lease by written notice
to Landlord delivered (i) within thirty (30) days after such law is to be
effective, in the case of a zoning restriction, or (ii) within thirty (30) days
after Tenant acquires knowledge that a covenant, condition or restriction
prohibits the use permitted hereunder, in the case of a restriction of record.
This lease shall terminate on the later to occur of (i) the date such ordinance
or regulation is effective (only in the case of a zoning restriction) or (ii)
thirty (30) days after Landlord's receipt of such notice.
55. Supplementing Article 3 of this Lease, Tenant shall not be
required to remove any improvements, installations or fixtures, approved by
Landlord, at the end of the term or earlier termination of this Lease if
Landlord, at the time its approval was given, shall have waived its right to
require that Tenant remove such improvements, installations or fixtures.
56. Supplementing Article 4 of this Lease, Landlord shall maintain
all the common areas of the building and perform its other maintenance and
repair obligations under this Lease in accordance with the practices of other
owners of first class office buildings located in the same geographic area. All
maintenance, replacements and repairs performed by either Landlord or Tenant
shall be done in a good and workmanlike manner, and all defective workmanship
and materials shall be replaced or corrected by such party at its sole cost.
57. Supplementing Article 6 of this Lease, Landlord represents and
warrants to Tenant that the floor load capacity of the demised premises is at
least 50 lbs. per square foot.
58. Landlord shall indemnify and hold harmless Tenant against and
from all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Tenant shall not be reimbursed by insurance, including
reasonable attorney's fees, paid, suffered or incurred as a result of any
breach by Landlord, Landlord's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this Lease, or the negligence or
<PAGE> 25
willful misconduct of the Landlord, Landlord's agents, contractors, employees,
invitees, or licensees. In case any action or proceeding is brought against
Tenant by reason of any such claim, Landlord, upon written notice from Tenant,
will, at Landlord's expense, resist or defend such proceeding by counsel
approved by Tenant in writing, such approval not to be unreasonably withheld.
59. Supplementing Article 9 of this Lease:
(a) if the demised premises shall be totally damaged and
rendered wholly unusable by a fire or other casualty, either Tenant or Landlord
shall have the right to terminate this lease upon within notice to the other
party given within thirty (30) days after the date of such fire or casualty, and
such termination shall be effective upon receipt by the other party of such
notice. Tenant shall forthwith quit, surrender and vacate the premises without
prejudice however, to Landlord's rights and remedies against Tenant under the
lease provisions in effect prior to such termination, and any rent owing shall
be paid up to the date of casualty and any rent paid by Tenant on account of a
period subsequent to such date shall be returned to Tenant.
(b) If the demised premises shall be partially damaged and such
damage or casualty materially interferes with Tenant's use of the demised
premises and Landlord shall have failed to repair such damage within ninety (90)
days after the date of such casualty, Tenant shall have the right to terminate
this Lease upon written notice to Landlord delivered within five (5) days after
the end of such ninety (90) day period, and such termination shall be effective
upon receipt by Landlord. Tenant shall forthwith quit, surrender and vacate the
premises without prejudice however, to Landlord's rights and remedies against
Tenant under the lease provisions in effect prior to such termination, and any
rent owing shall be paid up to such date and any rent paid by Tenant on account
of a period subsequent to such date shall be returned to Tenant.
(c) If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty, and if neither Tenant nor Landlord
elects to terminate this Lease, as aforesaid, and if Landlord fails to
substantially complete repairs to the demised premises within 180 days after the
date of such fire or casualty and further provided Tenant has not occupied the
demised premises during such period, Tenant may terminate this lease
<PAGE> 26
upon written notice to Landlord, delivered within five (5) days after the end
of such 180 day period, and such termination shall be effective upon receipt by
Landlord. In the event of a termination of this Lease, the provisions
regarding the rights and obligations of Tenant and Landlord set forth in the
last sentence of the clause (a), above, shall likewise control.
60. (a) Supplementing and notwithstanding anything to the contrary
in Article 11 of this Lease, Tenant may, without the consent of Landlord, sublet
or permit occupancy of all or part of the demised premises or assign this Lease
to any party which directly or indirectly (including the shareholders of Tenant)
(i) wholly owns or controls Tenant; (ii) is wholly owned or controlled by
Tenant; (iii) is under common control or ownership with Tenant; or (iv) to which
Tenant or any of the foregoing parties have merged, consolidated or reorganized
or to which all or substantially all of Tenant's assets or such parties assets
are sold, assigned or transferred. In such event and no such permitted transfer
shall be effective until: (i) Landlord shall receive an executed original of the
transfer documents promptly after execution; and (ii) any such transferee shall
expressly assume all of Tenant's obligations under this Lease arising both prior
to and after the date of such transfer. In addition, independent contractors
and affiliates of Tenant shall be deemed invitees of Tenant and shall be
permitted to use and occupy part of the demised premises from time to time
provided such parties do not violate the terms of this Lease.
(b) Any profits derived by any subletting or assignment
permitted by this Lease shall be split equally between Landlord and Tenant after
any leasing costs and brokerage fees are deducted. Any profits derived by any
subletting or assignment not permitted by this Lease shall be the sole property
of and promptly paid to Landlord.
61. Supplementing Article 12 of this Lease, Landlord represents and
warrants to Tenant that the two electrical feeders serving the premises are
capable of delivering 350 amps and 400 amps, respectively, at 220 (3 phase)/120
volts to the demised premises. Landlord represents and warrants that the
Building is serviced by a 550 ton air conditioning unit.
62. Supplementing Article 19 of this Lease, if Tenant prevails in any
action or proceeding between Landlord
<PAGE> 27
and Tenant with respect to this Lease, Landlord shall pay the reasonable
attorneys' fees and expenses incurred by Tenant in presenting or defending such
action or proceeding.
63. Supplementing Article 13 of this Lease, Landlord shall not be
permitted, except in an emergency, to enter examination and treatment rooms
without supervision and approval by Tenant. Landlord shall be liable to Tenant
for the actual cost of replacement, excluding any consequential damages, if
Landlord's acts or omissions during entry to the premises causes damages to any
of Tenant's property.
64. If Landlord changes the name, number or designation of the
building in which the demised premises are located, Landlord shall reimburse
Tenant for the cost replacing Tenant's stationery not to exceed $1,000.
65. Landlord warrants and represents to Tenant that the Building is
currently in compliance with all applicable environmental laws, rule and
regulations and that there are no Hazardous Substances (as that term is defined
by applicable environmental laws) in the Building in violation of applicable
law. Landlord shall indemnify and hold Tenant harmless from and against any
liability, cost or expense, excluding any consequential damages, arising from a
breach of the foregoing representation and warranty.
66. Copies of all notice delivered pursuant to Article 28, shall be
delivered to the following addresses:
If to Tenant to:
GYNCOR, INC.
750 North Orleans Street
Chicago, Illinois 60610
Attention: Norbert Gleicher
with copy to:
Robbins, Saloman & Patt, Ltd.
25 East Washington Street
Suite 1000
Chicago, Illlnois 60602
Attention: Andrew M. Sachs
<PAGE> 28
If to Landlord to:
IRONWOOD REALTY CORPORATION
c/o West Land Corporation
280 Madison Avenue
New York, New York 10016
Attention: David L. Crowley
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: H. Hedley Stothers, Jr.
67. Tenant shall be excused from performing its obligations under
this Lease other than the payment of rent or other monies, but only to the
extent and for the duration that such non-performance is caused by an event of
force majeure (as such event is described in Article 27 of this Lease).
68. The specifications for cleaning services provided by Landlord
under this Lease are attached as Schedule A hereto.
69. Supplementing Article 37 of this Lease, in the event the building
is less than 95% occupied for any Comparison Year or Base Year, the Operating
Costs actually incurred during such Comparison Year or Base Year shall be
appropriately grossed up to reflect what Operating Costs would have been
incurred had the building been 95 percent occupied. In addition, the following
items shall be excluded from the definition of operating Costs:
(a) Repairs or other work occasioned by (i) fire, windstorm or other
casualty of an insurable nature to the extent typically insured by owners
of first class office buildings in the same geographic location of the
Building within the Borough of Manhattan, New York City, New York or (ii)
the exercise of the right of eminent domain to the extent landlord is
reimbursed by the portion of any condemnation award attributable to such
repairs or other work.
(b) Leasing commissions, attorneys' fees, costs and disbursements
incurred in connection with
<PAGE> 29
negotiations and disputes with tenants, occupants and prospective tenants
of the Building.
(c) Landlord's costs of electricity and other services sold to Tenant
and for which Landlord is entitled to be reimbursed by other tenants as an
additional charge or rental over and above the basic rent payable under the
lease with such tenant.
(d) Costs incurred by Landlord for alterations, additions and
replacements which are considered capital improvements and replacements
under generally accepted accounting principles.
(e) Overhead and profit increment paid to subsidiaries or affiliates
of Landlord for services on or to the Building, only to the extent that the
cost of such service exceed the competitive cost of such services were they
not so rendered by a subsidiary or affiliate.
(f) Interest on debt or amortization payments on any mortgages.
(g) Any rentals or other related expenses incurred in leasing air
conditioning systems, elevators or other equipment ordinarily considered to
be of a capital nature, except equipment which is used in providing
janitorial services and which is not fixed to the Building.
(h) Items and services for which and to the extent that Tenant
reimburses Landlord or pays third persons.
(i) Advertising and promotional expenditures.
(j) Any costs, fines, penalties, legal fees or costs of litigations
incurred due to violations by Landlord, or its employees, agents,
contractors or assigns of any governmental rule or authority.
(k) Costs for sculptures, paintings or other objects of art.
(l) Interest or penalties due to late payment of taxes, utility bills
and other costs.
<PAGE> 30
(m) Costs incurred due to violation by Landlord or by any tenant of
the terms and conditions of any lease to which they are a party.
(n) Repairs or replacements of the roof, foundation, structure and
exterior walls necessitated by the negligence of Landlord.
(o) Repairs or replacements of any equipment or any component of the
Building necessitated by the negligence of Landlord.
70. Provided Tenant occupies full floors, Tenant shall be allowed to
use sign age, consistent with the first class nature of the building, on such
floors without Landlord's prior approval. Tenant shall have the right, to place
one (1) plaque on one column at the main entrance of the Building, one (1)
plaque in the lobby of the building and one (1) sign next to the elevator button
for each full floor constituting the demised premises in each elevator (other
than freight and service elevators), the size and location of such plaques and
signs shall be reasonably prescribed by Landlord and the design of such plaques
shall be accordance with the design attached as Schedule B to this Lease.
71. During the term of this Lease, Landlord shall not lease premises
in the Building to any other entity whose primary business is the operation of
an infertility clinic, but this shall not preclude Landlord from leasing to
medical professionals (whether practicing individually or as part of a group)
practicing infertility or ob-gyn, provided, however, that if as part of a group,
the primary focus of the group's practice is not infertility.
72. After the operation of the fifth (5th) year of this Lease,
Landlord shall provide Tenant with a cash allowance not to exceed $10,000 to
repaint the Premises and clean the carpeting.
73. Landlord shall provide access 24-hours a day for Tenant and its
licensees and invitees provided they use passes provided by Landlord and comply
with other reasonable security measures imposed by Landlord form time to time.
Landlord shall provide a 24-hour security guard in the Building.
<PAGE> 31
74. Landlord shall provide Tenant with access to the Building Class E
System on the 9th or 10th Floor electrical closet. The capacity should support
five strobes and enunciators pursuant to Tenant's layout.
75. During the period of Tenant's initial construction, Landlord
shall provide, at no cost to Tenant or Tenant's contractor, on an as needed
basis, periods for delivery of materials to Premises at times reasonable
designated by Landlord.
76. (a) If (i) Landlord shall fail to provide services to Tenant, as
required under this Lease, (ii) Tenant is denied access to the demised premises
by acts or omissions of Landlord, or (iii) Landlord's exercise of its rights and
obligations or to perform repairs under Articles 4 or 13 prevents Tenant from
conducting its business within the demised premises and the events described in
(i), (ii) and (iii) are not caused by an event of force majeure (as such event
is described in Article 27) or by any casualty (in the event of a casualty, the
provisions of Article 8 shall control), for any period longer than two (2)
consecutive days, Tenant shall be entitled to an equitable abatement of the rent
for each day such event continues after such consecutive two (2) day period. In
no event shall the per diem amount of any abatement under this Article exceed
the per diem amount of the base rent set forth in Article 44 of this Lease.
(b) If any of the events described in (i), (ii) and (iii) of clause
(a), above, continues for any period greater than thirty (30) consecutive days
and such failure is not caused by any event of force majeure (as such event is
described in Article 27) or by any casualty (in the event of a casualty, the
provisions of Article 8 shall control), Tenant shall have the right to terminate
this Lease by written notice to Landlord delivered within forty five (45) days
after the first day such event occurred. This Lease shall terminate within (15)
days after Landlord's receipt of such notice. Tenant shall forthwith quit,
surrender and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and
<PAGE> 32
any rent owing shall be paid up to such date and any rent paid by Tenant on
account of a period subsequent to such date shall be returned to Tenant.
IRONWOOD REALTY CORPORATION,
Owner/landlord
By:
-----------------------------
Name:
Title:
GYNCOR, INC., Tenant
By: Robert Bukala
------------------------------
Name: Robert Bukala
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
SIX MONTH PERIOD MARCH 31,
YEAR ENDED ENDED -------------------------
JUNE 30, 1995 DECEMBER 31, 1995 1995 1996
------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
(COMBINED) (COMBINED) (UNAUDITED) (UNAUDITED)
Historical:
Weighted average common shares
outstanding.......................... 3,671,508 3,966,666 3,428,409 3,967,124
============ =========== =========== ===========
Net loss................................ $ (2,358,951) $ (236,397) $(1,350,483) $(2,269,983)
============ =========== =========== ===========
Net loss per share...................... $ (.64) $ (.06) $ (.39) $ (.57)
============ =========== =========== ===========
Pro Forma:
Weighted average common shares
outstanding.......................... 3,671,508 3,966,666 3,428,409 3,967,124
Net effect of dilutive stock options.... 32,111 370,218 370,218 370,061
------------ ----------- ----------- -----------
Total................................... 3,703,619 4,336,884 3,798,627 4,337,185
============ =========== =========== ===========
Net loss................................ $ (2,358,951) $ (236,397) $(1,350,483) $(2,269,983)
============ =========== =========== ===========
Pro forma net loss per share............ $ (.64) $ (.05) $ (.36) $ (.52)
============ =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENT DATED JUNE 7, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FEDERAL FILING S-1 DATED JUNE 7, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 20,207
<SECURITIES> 0
<RECEIVABLES> 3,417,076
<ALLOWANCES> 756,000
<INVENTORY> 515,915
<CURRENT-ASSETS> 3,407,546
<PP&E> 5,616,559
<DEPRECIATION> 1,639,652
<TOTAL-ASSETS> 7,960,801
<CURRENT-LIABILITIES> 8,054,222
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,582,364)
<TOTAL-LIABILITY-AND-EQUITY> 7,960,801
<SALES> 13,881,508
<TOTAL-REVENUES> 13,881,508
<CGS> 0
<TOTAL-COSTS> 16,161,727
<OTHER-EXPENSES> 32,092
<LOSS-PROVISION> 269,000
<INTEREST-EXPENSE> 231,640
<INCOME-PRETAX> (2,812,951)
<INCOME-TAX> (454,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,358,951)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS DATED JUNE 7, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH REGISTRATION STATEMENT S-1 DATED JUNE 7, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 132,965
<SECURITIES> 0
<RECEIVABLES> 4,526,066
<ALLOWANCES> 590,000
<INVENTORY> 467,614
<CURRENT-ASSETS> 6,366,428
<PP&E> 6,461,195
<DEPRECIATION> 1,947,630
<TOTAL-ASSETS> 11,614,395
<CURRENT-LIABILITIES> 6,347,242
<BONDS> 5,000,000
0
0
<COMMON> 0
<OTHER-SE> (1,701,760)
<TOTAL-LIABILITY-AND-EQUITY> 11,614,395
<SALES> 12,059,876
<TOTAL-REVENUES> 12,059,876
<CGS> 0
<TOTAL-COSTS> 11,968,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 163,000
<INTEREST-EXPENSE> 164,793
<INCOME-PRETAX> (236,397)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (236,397)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS DATED JUNE 7, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH REGISTRATION STATEMENT S-1 DATED JUNE 7, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 655,437
<SECURITIES> 0
<RECEIVABLES> 5,366,136
<ALLOWANCES> 623,000
<INVENTORY> 482,644
<CURRENT-ASSETS> 8,284,140
<PP&E> 6,673,477
<DEPRECIATION> 2,142,511
<TOTAL-ASSETS> 13,938,072
<CURRENT-LIABILITIES> 9,014,895
<BONDS> 5,000,000
0
0
<COMMON> 0
<OTHER-SE> (1,971,943)
<TOTAL-LIABILITY-AND-EQUITY> 13,938,072
<SALES> 5,978,921
<TOTAL-REVENUES> 5,978,921
<CGS> 0
<TOTAL-COSTS> 8,032,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,000
<INTEREST-EXPENSE> 183,357
<INCOME-PRETAX> (2,269,983)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,269,983)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
