As filed with the Securities and Exchange Commission on June 20, 1997
Registration No. 333-26551
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
To
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
INTEGRAMED AMERICA, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 8011 06-1150326
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation) classification code number) identification number)
One Manhattanville Road
Purchase, New York 10577
(914) 253-8000
(Address and telephone number of Registrant's principal executive offices)
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GERARDO CANET
Chairman and President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
(914) 253-8000
(Name, address and telephone number of agent for service)
----------
Copies to:
STEVEN A. FISHMAN, ESQ. JAMES R. TANENBAUM, ESQ.
ALISON S. NEWMAN, ESQ. Stroock & Stroock & Lavan LLP
Bachner, Tally, Polevoy & Misher LLP 180 Maiden Lane
380 Madison Avenue New York, New York 10038-4982
New York, New York 10017 (212) 806-5400
(212) 687-7000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
----------
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, please 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, please check the following box
and list the Securities Act registration statement number of the earlier
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 said Section 8(a),
may determine.
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<PAGE>
INTEGRAMED AMERICA, INC.
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Item and Caption Location in Prospectus
---------------- ----------------------
1. Forepart of Registration
Statement and Outside
Front Cover Page of Prospectus .... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus ......... Front and Outside
Back Cover Pages
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges ......... Prospectus Summary; Risk Factors;
Consolidated Financial Statements
4. Use of Proceeds ................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ... Outside Front Cover Page; Risk Factors;
Plan of Distribution
6. Dilution .......................... Risk Factors; Dilution
7. Selling Security Holders .......... *
8. Plan of Distribution .............. Outside Front Cover Page; Plan of
Distribution
9. Description of Securities
to be Registered .................. Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts
and Counsel ....................... *
11. Information With Respect
to the Registrant ................. Prospectus Summary; Risk Factors;
Selected Consolidated 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
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities .... *
- ----------
* Not applicable.
<PAGE>
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 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 20, 1997
PROSPECTUS
6,400,000 Shares
[LOGO]
INTEGRAMED(R)
AMERICA
Common Stock
----------
All of the 6,400,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby are being sold by IntegraMed America, Inc. (the
"Company"). The Common Stock is quoted on the Nasdaq National Market under the
symbol "INMD." On June 18, 1997, the last reported sale price of the Common
Stock, as quoted on the Nasdaq National Market, was $1.77 per share. See "Price
Range of Common Stock."
----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "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.
================================================================================
Price to Placement Agent Proceeds to
Public Fees (1) Company (2)(3)
- --------------------------------------------------------------------------------
Per Share................ $ $ $
- --------------------------------------------------------------------------------
Total ................... $ $ $
================================================================================
(1) The Common Stock is being offered on an all or none basis by the Company to
selected institutional investors. Vector Securities International, Inc.
(the "Placement Agent") has been retained to act, on a best efforts basis,
as agent for the Company in connection with the arrangement of this
transaction. The Company has agreed to pay the Placement Agent a fee in
connection with the arrangement of this transaction and reimburse the
Placement Agent for certain out-of-pocket expenses. The Company has agreed
to indemnify the Placement Agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution."
(2) The termination date of the offering is ________, 1997, subject to
extension by mutual agreement of the Company and the Placement Agent. Prior
to the closing date of this best efforts, all or nothing, offering all
investor funds will promptly be placed in escrow with Citibank, N.A., as
escrow agent for funds collected in connection with the offering (the
"Escrow Agent"), in an escrow account established for the benefit of the
investors. Upon receipt of notice from the Escrow Agent that investors have
affirmed purchase of the Common Stock and deposited the requisite funds in
the escrow account, the Company will deposit with The Depository Trust
Company ("DTC") the shares of Common Stock to be credited to the accounts
of the investors and will collect the investor funds from the Escrow Agent.
In the event that investor funds are not received in the full amount
necessary to satisfy the requirements of the offering, all funds deposited
with the Escrow Agent will promptly be returned to the investors. See "Plan
of Distribution."
(3) Before deducting expenses payable by the Company estimated at $________.
----------
Vector Securities International, Inc.
The date of this Prospectus is ______________, 1997
<PAGE>
[GRAPHIC OMITTED]
2
<PAGE>
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PROSPECTUS SUMMARY
The statements in this Prospectus that relate to future plans, events or
performance are forward-looking statements. Actual results could differ
materially due to a variety of factors, including the factors described under
"Risk Factors" and the other risks described in this Prospectus. The following
summary is qualified in its entirety by the more detailed information and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus, including information under "Risk Factors."
The Company
IntegraMed America, Inc. (the "Company") is a physician practice
management company specializing in women's health care, with a focus on
infertility and assisted reproductive technology ("ART") services as well as
health care services to peri- and post-menopausal women. The Company provides
management services to a nationwide network of medical providers that currently
consists of ten sites (each, a "Network Site"). Each Network Site consists of a
location or locations where the Company has a management agreement with a
physician group or hospital (each, a "Medical Practice") which employs the
physicians or where the Company directly employs the physicians. In February
1997, the Company entered into a management agreement, effective following the
completion of this offering, with Fertility Centers of Illinois, S.C. ("FCI"),
one of the largest providers of infertility and ART services in the United
States (the "Pending Acquisition"). Upon consummation of the Pending
Acquisition, the Company's network will consist of 11 Network Sites and 21
locations.
Until 1996, the Company was focused exclusively on providing management
services to Medical Practices in the area of infertility and ART services.
During 1996, the Company, with the acquisition of a medical practice in Florida,
broadened its focus to include health care services to peri- and post-menopausal
women (ages 40-50 and over 50, respectively). As a result, the Company
established two divisions: the Reproductive Science Center Division (the "RSC
Division"), which provides management services to Medical Practices focused on
infertility and ART services, and the Adult Women's Medical Division (the "AWM
Division"), which provides management services to Medical Practices focused on
health care services for peri- and post-menopausal women.
The Company provides comprehensive management services to support the
Medical Practices in each of its divisions. In particular, the Company provides
(i) administrative services, including accounting and finance, human resource
functions and purchasing supplies and equipment, (ii) access to capital, (iii)
marketing and practice development, (iv) information systems and assistance in
developing clinical strategies and (v) access to technology. These services
allow the physicians to devote a greater portion of their efforts and time to
meeting the medical needs of their patients, which the Company believes leads to
improved clinical outcomes and greater patient satisfaction at lower costs.
The market for infertility and reproductive health care services is large
and fragmented. In the United States, approximately 9% of women between the ages
of 15 and 44, or 5.3 million women, have impaired fertility and approximately
2.3 million of these women seek care in any year. Expenditures in 1995 relating
to infertility exceeded $1 billion. In the United States, approximately 38,000
obstetricians and gynecologists ("OB/GYNs") provide initial diagnostic and first
line treatment services, while approximately 600 reproductive endocrinologists
practicing at approximately 300 facilities provide ART services. The Company
believes that the large number of potential patients and fragmented nature in
which infertility and ART services are provided create a significant opportunity
to expand the number of Network Sites in the RSC Division.
The RSC Division currently provides management services to nine Network
Sites. The Medical Practices at these Network Sites provide conventional
infertility and ART services to infertile couples seeking to have a baby.
Conventional infertility services include diagnostic tests performed on the
female, such as endometrial biopsy, laparoscopy/hysteroscopy examinations and
hormone tests, and diagnostic tests performed on the male, such as semen
analysis and tests for sperm antibodies. The physicians at the RSC Network Sites
consult with a couple and advise them as to the treatment that has the greatest
probability of success in light of the couple's specific infertility problem. At
this point, the couple may undergo conventional infertility treatment
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
or, if appropriate, may directly undergo ART treatment. Conventional infertility
treatments include fertility drug therapy, tubal surgery, and intrauterine
insemination, while ART services include, among others, in vitro fertilization,
frozen embryo transfer and donor egg programs.
The Company's efforts in the adult women's health care area are focused on
peri- and post-menopausal women. In the United States, there are over 30 million
peri-menopausal women and over 47 million post-menopausal women. An additional
39 million women in the United States will reach age 50 over the next ten years.
When many women reach menopause, they suffer from estrogen deficiency, a
condition that has been associated with osteoporosis, cardiovascular disease,
and metabolic and endocrine disorders. In addition, women in menopause are at
increased risk for various cancers, urinary incontinence, and visual and hearing
disorders. Furthermore, women in menopause frequently experience psychological
disorders, such as depression. Traditionally, estrogen deficiency has been
treated by OB/GYNs with hormone replacement therapy, while the additional
conditions associated with menopause have been treated by a disconnected array
of other physicians, often leading to increased patient inconvenience and higher
costs. As a result, the Company believes there is a significant unmet medical
need for a comprehensive diagnostic and treatment approach to the broad range of
medical conditions that emerge in peri- and post-menopausal women.
The AWM Division currently consists of one Network Site that represents
the clinical care model for future Network Sites. The AWM Network Site focuses
on the identification and treatment needs of peri- and post-menopausal women and
incorporates both preventative and curative health care. The AWM Network Site
combines specialty physicians and other health professionals to offer a
multi-disciplinary approach to the diagnosis and treatment of health care
problems common to peri- and post-menopausal women. The AWM Division also
contracts with major pharmaceutical companies to conduct clinical testing of new
drugs to treat adult women's health care problems and promotes educational
programs for women relating to menopausal issues.
In establishing a Network Site, the Company typically acquires certain
assets of a Medical Practice and enters into a long-term management agreement
with such Medical Practice. Typically, a management agreement obligates the
Company to pay a fixed sum for the exclusive right to manage the Medical
Practice. A typical management agreement further provides that all patient
medical care at a Network Site is provided by the physicians at the Medical
Practice and that the Company generally is responsible for the management and
operation of all other aspects of the Network Site.
Concerns over the accelerating costs of health care have resulted in
increased pressures from payors, including governmental entities and managed
care organizations, on providers of physician services to provide cost-effective
health care. In addition, such payors typically desire to share the risk of
providing services with the medical provider. This focus on cost-containment and
financial risk sharing has placed physician groups and sole practitioners at a
significant competitive disadvantage, particularly in the fields of infertility
and ART services as well as adult women's health care. Physicians providing
health care in these areas are challenged by the increasingly high level of
specialized skills and technology required for comprehensive patient treatment,
the capital-intensive nature of acquiring and maintaining state-of-the-art
medical equipment and facilities, the need to develop and maintain management
information systems, and the need for seven-days-a-week service to optimize the
outcomes of patient treatments. As a result, physicians are increasingly seeking
to affiliate with larger organizations, including physician practice management
companies.
The Company's strategy is to develop, manage and integrate a nationwide
network of Medical Practices providing high quality, cost-effective women's
health care services. The primary elements of the Company's strategy include
establishing additional Network Sites, further developing the AWM Division,
increasing revenues and operating efficiencies at the Network Sites, and
developing a nationwide, integrated information system.
The Company was incorporated in Delaware on June 4, 1985 under the name
IVF Australia (USA), Ltd. Its name was changed to IVF America, Inc. in April
1992 and to IntegraMed America, Inc. in June 1996. As used in this Prospectus,
unless the context otherwise requires, the "Company" refers to IntegraMed
America, Inc., a Delaware corporation, and its six wholly-owned subsidiaries.
The Company's executive offices are located at One Manhattanville Road,
Purchase, New York 10577, and its telephone number is (914) 253-8000.
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4
<PAGE>
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The Offering
Common Stock offered .................. 6,400,000 shares
Common Stock to be outstanding
after the offering ................... 17,317,009 shares (1)
Use of proceeds ....................... To consummate the Pending Acquisition
and for working capital and general
corporate purposes, including possible
future acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol ......... INMD
Summary Consolidated and Pro Forma Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues, net .......... $ 13,806 $ 16,025 $ 17,578 $ 16,711 $ 18,343 $ 4,175 $ 5,088
Medical Practice
retainage ........... 3,936 4,605 3,824 3,063 2,680 794 396
-------- -------- -------- -------- -------- ------- -------
Revenues after
Medical Practice
retainage ........... 9,870 11,420 13,754 13,648 15,663 3,381 4,692
Costs of services
rendered ............ 7,257 10,222 10,998 9,986 12,398 2,563 3,615
-------- -------- -------- -------- -------- ------- -------
Network Sites'
contribution ........ 2,613 1,198 2,756 3,662 3,265 818 1,077
-------- -------- -------- -------- -------- ------- -------
General and
administrative
expenses ............ 2,071 3,079 3,447 3,680 4,339 855 918
Equity in loss of
Partnerships (4) .... 876 1,793 -- -- -- -- --
Total other (income)
expenses (including
income taxes) ....... 1,622 923 123 (88) 416 37 204
-------- -------- -------- -------- -------- ------- -------
Net (loss) income ...... (1,956) (4,597) (814) 70 (1,490) (74) (45)
Less: Dividends
accrued and/or
paid on
Preferred Stock ..... -- 748 1,146 600 132 154 33
-------- -------- -------- -------- -------- ------- -------
Net (loss) income
applicable
to Common Stock ..... $ (1,956) $ (5,345) $ (1,960) $ (530) $ (1,622) $ (228) $ (78)
======== ======== ======== ======== ======== ======= =======
Net (loss) income
per share
of Common Stock
before
consideration
for induced
conversion of
Preferred
Stock (5) ........... $ (0.94)(6) $ (2.01) $ (0.32) $ (0.09) $ (0.21) $ (0.04) $ (0.01)
======== ======== ======== ======== ======== ======= =======
Weighted average
number of shares
of Common Stock
outstanding ......... 2,042(6) 2,654 6,081 6,087 7,602 6,087 9,544
======== ======== ======== ======== ======== ======= =======
</TABLE>
Pro Forma
-------------------------------------------------
Combined Company,
Combined Recent Combined
Company Acquisitions Company
and Recent and Pending and Pending
Acquisitions(2) Acquisition(3) Acquisition(3)
--------------- -------------- --------------
Year Ended Three Months Ended
December 31, 1996 March 31, 1997
----------------- --------------
(Unaudited) (Unaudited)
Statement of
Operations Data:
Revenues, net .......... $ 21,665 $ 27,685 $ 6,480
Medical Practice
retainage ........... 2,680 2,680 396
-------- -------- -------
Revenues after
Medical Practice
retainage ........... 18,985 25,005 6,084
Costs of services
rendered ............ 15,534 20,428 4,661
-------- -------- -------
Network Sites'
contribution ........ 3,451 4,557 1,423
-------- -------- -------
General and
administrative
expenses ............ 4,339 4,339 918
Equity in loss of
Partnerships (4) .... -- -- --
Total other (income)
expenses (including
income taxes) ....... 727 1,194 325
-------- -------- -------
Net (loss) income ...... (1,615) (956) 180
Less: Dividends
accrued and/or
paid on
Preferred Stock ..... 132 132 33
-------- -------- -------
Net (loss) income
applicable
to Common Stock ..... $ (1,747) $ (1,088) $ 147
======== ======== =======
Net (loss) income
per share
of Common Stock
before
consideration
for induced
conversion of
Preferred
Stock (5) ........... $ (0.21) $ (0.08) $ 0.01
======== ======== =======
Weighted average
number of shares
of Common Stock
outstanding ......... 8,224 13,598(7) 14,918(7)
======== ======== =======
<TABLE>
<CAPTION>
December 31,
1996 March 31, 1997
------------- --------------------------------------------
Pro Forma
Combined
Company
and Pending Pro Forma
Actual Actual Acquisition(8) As Adjusted(9)
------ ---------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (10) ......... $ 7,092 $ 5,791 $ 5,441 $ 7,641
Total assets (10) ............ 20,850 20,989 29,939 31,789
Total indebtedness (11) ...... 2,553 2,769 2,769 2,769
Accumulated deficit .......... (21,190) (21,235) (21,235) (21,235)
Shareholders' equity ......... 14,478 14,997 23,597 25,797
</TABLE>
(See footnotes on following page)
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5
<PAGE>
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(1) Includes an estimated 1,142,857 shares of Common Stock to be issued in
connection with the Pending Acquisition. Does not include (i) 478,445
shares of Common Stock issuable upon conversion of the Company's Series A
Cumulative Convertible Preferred Stock, $1.00 par value per share (the
"Convertible Preferred Stock"), (ii) 394,530 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $10.11 per share, (iii) 1,083,316 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average
exercise price of $1.86 per share, (iv) 378,311 shares of Common Stock
reserved for future option grants under the Company's stock option plans,
(v) 125,000 shares of Common Stock reserved for issuance pursuant to the
Company's 1994 outside director stock purchase plan (the "Outside Director
Stock Purchase Plan"), (vi) an estimated 101,587 shares issuable upon
exercise of a warrant (the "Advisor Warrant") to be granted to Vector
Securities International, Inc. in connection with advisory services
provided to the Company relating to the Pending Acquisition and (vii)
shares which may be issued, at the physician's option, in partial payment
of the contingent purchase price relating to the acquisition of certain
assets of and the right to manage a physician group practice in San Diego,
California in June 1997 (the "San Diego Acquisition"). See "Management --
Stock Option Plans," "-- Outside Director Stock Purchase Plan,"
"Description of Capital Stock," "Plan of Distribution," "Shares Eligible
For Future Sale" and Note 11 of Notes to the Company's Consolidated
Financial Statements.
(2) Gives effect to the acquisitions described under "Business -- The Network
Sites -- Recent Acquisitions" (the "Recent Acquisitions") (other than the
San Diego Acquisition) as if each had occurred on January 1, 1996. See
"Unaudited Pro Forma Combined Financial Information" and "Business -- The
Network Sites -- Recent Acquisitions."
(3) Gives effect to the Pending Acquisition as if it had occurred on January 1,
1996, with respect to the year ended December 31, 1996, and January 1,
1997, with respect to the three months ended March 31, 1997. There can be
no assurance that the Pending Acquisition will be consummated. See
"Unaudited Pro Forma Combined Financial Information" and "Business -- The
Network Sites -- Pending Acquisition."
(4) In 1993, the Company dissolved its 50% interests in two partnerships which
had been accounted for under the equity method. The management fees
therefrom were reported under "Revenues, net" in the Consolidated Statement
of Operations.
(5) See Note 10 to the Company's Consolidated Financial Statements regarding
the impact of the Company's conversion offer of the Convertible Preferred
Stock in July 1996 on net loss per share in 1996.
(6) Includes a reduction of $29,000 to net loss related to interest on
promissory notes and an adjustment of 35,000 shares to the weighted average
number of shares of Common Stock outstanding related to outstanding stock
options.
(7) Includes 5,373,626 shares of Common Stock assumed to be issued by the
Company at the beginning of the applicable period to finance the entire
cost of the Pending Acquisition. See "Unaudited Pro Forma Combined
Financial Information."
(8) Gives effect to the Pending Acquisition as if it had occurred on March 31,
1997. There can be no assurance that the Pending Acquisition will be
consummated. See "Use of Proceeds," "Unaudited Pro Forma Combined Financial
Information" and "Business -- The Network Sites -- Pending Acquisition."
(9) Adjusted to give effect to the sale of 6,400,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $1.56
per share) and the application of the net proceeds therefrom of $8.8
million as if this offering occurred on March 31, 1997. Assumes that the
net proceeds of this offering are applied as follows: (i) $6.6 million to
finance the Pending Acquisition and (ii) payment of $350,000 in costs
related to the Pending Acquisition. The remainder of the net proceeds will
be used for working capital and general corporate purposes.
(10) Includes controlled assets of certain Medical Practices of $650,000 and
$425,000 at December 31, 1996 and March 31, 1997, respectively.
(11) Includes approximately $1.4 million of exclusive management rights
obligation.
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6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered by potential investors in evaluating an
investment in the shares of Common Stock offered hereby. These factors may cause
actual results, events or performance to differ materially from those expressed
in any forward-looking statements made by the Company in this Prospectus.
History of Losses; Accumulated Deficit; Future Charges to Income. Since
its inception in June 1985, the Company has experienced significant losses from
operations. At March 31, 1997, the Company had an accumulated deficit of
approximately $21.2 million. For the three months ended March 31, 1997 and 1996,
the Company incurred net losses of $45,000 and $74,000, respectively. For the
fiscal years ended December 31, 1996 and 1994, the Company incurred net losses
of approximately $1.5 million and $814,000, respectively, as compared to net
income of $70,000 for the fiscal year ended December 31, 1995. Prior to 1996,
such losses principally resulted from the establishment and development of the
Network Sites, the increase in administrative overhead to support expansion of
the Company's operations, and the 1993 dissolution of two partnerships in which
the Company had had a fifty percent interest. The losses for the fiscal year
ended December 31, 1996 were due in large part to non-recurring charges and
operating losses of $581,000 associated with the closing of the Company's
Westchester Network Site and non-recurring charges and operating losses of
$522,000, associated with the establishment of the AWM Division in June 1996.
There can be no assurance that the Company will ever achieve and sustain
profitability. In addition, at March 31, 1997, the Company's consolidated
financial statements reflect goodwill and other intangible assets of
approximately $7.9 million which are being amortized over periods ranging from
three to 40 years. Amortization expenses related to the Company's acquisitions,
including the acquisition in January 1997 of certain assets of and the right to
manage a physician group practices in the San Francisco area (the "Bay Area
Acquisition"), the San Diego Acquisition and the Pending Acquisition, as well as
similar amortization expenses arising out of future acquisitions, may adversely
affect operating results of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risks Relating to Acquisitions and Managing Growth. A key element of the
Company's strategy is to expand through acquisitions and through the expansion
of services offered by affiliated Medical Practices. Identifying physician
practice candidates to be affiliated with the Company's network of Medical
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
affiliations with additional Medical Practices. In particular, there can be no
assurance that the Company will be able to acquire assets of, enter into
management services agreements with, or profitably manage, additional Medical
Practices or successfully integrate additional Medical 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. In
addition, there can be no assurance that any anticipated benefits of the
Company's acquisitions will be realized, or that there will not be substantial
unanticipated costs associated with such acquisitions.
As the Company expands its operations, the Company will be required to
hire and retain additional management and administrative personnel and develop
and expand operational systems to support related growth. This growth will
continue to place significant demands on the Company's management, technical,
financial and other resources. Continued growth may impair the Company's ability
to efficiently provide management services to the Medical Practices and to
adequately manage and supervise its employees. The failure to manage growth
effectively could have a material adverse effect on the Company's business,
financial condition and operating results.
Although the Company intends to use a substantial portion of the net
proceeds of this offering for the Pending Acquisition, it will require
significant additional funds for future acquisitions. The Company has no
commitments for any additional financing and there can be no assurance such
financing will be available on acceptable terms, or at all. An inability to
obtain such financing on favorable terms could limit the Company's growth.
Further, 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 on management's judgment with respect to such
transactions. These acquisitions may involve the issuance of a significant
number
7
<PAGE>
of additional shares, the assumption or issuance by the Company of indebtedness
and the undertaking by the Company of material obligations, including long-term
management agreements. See "-- Need for Additional Financing," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Company Strategy" and "-The Network Sites."
Need for Additional Financing. The Company anticipates that its
acquisition strategy will continue to require substantial capital investment.
Capital is needed not only for additional acquisitions, but also for the
effective integration, operation and expansion of the existing Network Sites.
Under certain of its management agreements, the Company has committed to provide
a clinical laboratory. The Medical 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 remaining
net proceeds from this offering after consummation of the Pending Acquisition
and available borrowings under the Company's bank line of credit will be
sufficient to meet the Company's anticipated working capital needs in connection
with its current operations for at least approximately the next 18 months.
However, the Company will be required to obtain additional financing to pursue
its acquisition strategy and intends to seek significant additional financing
over the next two years to fund such acquisition strategy. 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 hereby. 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, its ability to pursue its acquisition strategy and its operating results
for future periods may be negatively impacted. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Company Strategy."
Risks Associated with Managed Care Contracts. The Company's ability to
expand its operations is dependent, in part, on Medical Practices managed by the
Company renewing their contracts with managed care organizations and
contracting, on a favorable basis, with additional managed care organizations.
Obtaining new contracts, which increasingly involves a competitive bidding
process, requires that the Company assist the Medical Practices in accurately
anticipating the costs of providing services so that the Medical Practices
undertake contracts where they can expect to realize adequate profit margins or
otherwise meet their objectives. There can be no assurance that Medical
Practices will be successful in contracting with sufficient numbers of managed
care organizations or in negotiating contracts with managed care organizations
on terms favorable to the Company and the Medical Practices.
In connection with managed care contracts, the Medical Practices may be
required to enter into contracts under which services will be provided on a
fee-for-service or risk-sharing/capitated basis. Under certain capitated
contracts, the Medical Practice accepts a predetermined amount per patient, per
month in exchange for providing all necessary covered services. Such contracts
shift much of the risk of providing health care from the payor to the provider.
As such, the Medical Practices would be at risk to the extent costs of providing
medical services to patients exceed the fixed fee reimbursement amount. Medical
costs are affected by a variety of factors that are difficult to predict and not
within the Company's control. To the extent medical costs for services performed
by physicians at the Medical Practices exceed reimbursement amounts, the
revenues and earnings of the respective Medical Practices would decrease.
Accordingly, the Company's management fees for managing such Medical Practices
which are based on revenues and/or earnings of the respective Medical Practices
would decrease. Any such decrease would adversely effect the Company's business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Effects of Third-Party Payor Contracts."
Dependence Upon Reimbursement by Third-Party Payors; Potential Reductions
in Reimbursement by Third-Party Payors. Approximately 45%, 48% and 54% of the
Company's revenues for the three months ended March 31, 1997 and for the fiscal
years ended December 31, 1996 and 1995, respectively, were derived from revenues
received by the Medical Practices from third-party payors. In addition, the
Company receives substantial reimbursed costs which are indirectly derived from
third-party payors. Cost containment pressures are increasing in the health care
industry as third-party payors institute measures designed to limit payments to
health care providers. Such cost containment measures include reducing
reimbursement rates, limiting services covered, increasing utilization review of
services, negotiating prospective or discounted contract pricing, adopting
capitation strategies and seeking competitive bids. There can be no assurance
that such
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measures will not adversely affect the amounts or types of services that may be
reimbursable to the Medical Practices in the future. In particular, there can be
no assurance that ART services will be reimbursable to the Medical Practices in
the future. The Company believes that this trend will continue to result in a
reduction from historical levels in per-patient revenue for Medical Practices at
the Network Sites. Furthermore, government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and government restrictions, all of which could materially decrease the
range of services covered by such programs or the reimbursement rates paid to
the Medical Practices for its services. Such future reductions or changes would
have a material adverse effect on the Company's business, financial condition
and operating results. Reimbursement rates vary depending on the type of
third-party payors. Changes in the composition of third-party payors reimbursing
the Medical Practices from higher reimbursement rate payors to lower
reimbursement rate payors could have an adverse effect on the Company's
operating results. In addition, although a few states, including Massachusetts
and Illinois, mandate that insurance companies provide coverage for certain
infertility and ART services, efforts have been made to limit or repeal these
requirements. It cannot be determined what effect, if any, changes in the levels
of state mandated insurance coverage would have on the Company's revenues.
Uncertainty of Market Acceptance of Adult Women's Health Services. The
Company has historically focused on the management of Medical Practices
specializing in infertility and ART services. The Company recently established
the AWM Division to provide diagnostic and treatment services to peri- and
post-menopausal women. However, there can be no assurance that the Company's
strategy relating to adult women's health care will ever gain market acceptance.
In order for the services offered through the AWM Division to achieve market
acceptance, the Company must create awareness of and demand for a comprehensive
diagnostic and treatment approach for the broad range of medical conditions that
emerge in peri- and post-menopausal women. The Company must also educate women,
as well as managed care organizations and other third-party payors, as to the
benefits that may potentially be derived from a comprehensive approach to the
diagnosis and treatment of peri- and post-menopausal women. In addition, the
Company's success in expanding its AWM Division will depend on its ability to
acquire the practices of and enter into management contracts with gynecologists
and other specialty physicians focused on adult women's health care. Failure by
the Company to identify and enter into arrangements with such physicians could
prevent the Company from expanding and developing its AWM Division.
Reliance on Medical Practices, Physicians and Third-Party Vendors. The
Company's revenues will depend on the revenues generated by the Medical
Practices with which the Company has entered into management agreements. The
management agreements define the responsibilities of both the Medical Practices
and the Company and govern the principal terms and conditions of their
relationship. Although the management agreements with the Medical Practices are
for terms generally ranging from ten to 20 years and generally may be terminable
only for cause, there can be no assurance that a Medical Practice will not
terminate its agreement with the Company. Further, there can be no assurance
that any Medical Practice will maintain a successful medical practice or that
any of the key physicians will continue practicing with such Medical Practice.
The Company's business depends, to a significant degree, on the Medical
Practice's ability to recruit and retain qualified physicians. In addition,
Medical Practices enter into non-competition agreements with the physicians or,
in connection with the Bay Area Acquisition and the San Diego Acquisition, the
Company has entered into Professional Responsibility Agreements with the
physicians containing covenants not to compete. However, there can be no
assurance that any such agreement would be enforceable if challenged in court or
would prevent 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 practice of medicine. In addition, these agreements restrict
competition for a limited period of time (which may vary depending upon
particular state law requirements). Therefore, a 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 Medical Practice could have
a material adverse effect on the Company. See "Business -- Network Site
Agreements."
The RSC Network Sites are dependent on third-party vendors that produce
fertility medications that are vital to the provision of infertility and ART
services. Should any of these vendors experience a supply shortage of
medication, it may have an adverse impact on the operations of the Company and
the Medical Practices. See "Business -- Reliance on Third-Party Vendors."
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Competition. The business of providing health care 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. The Company experiences competitive
pressures for the acquisition of the assets of, and the provision of management
services to, additional Medical Practices. Although the Company focuses on
physician practices that provide infertility, ART and adult women's health care
services, it competes for management contracts with other physician practice
management companies, including those focused on infertility and ART 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 seeking 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, Medical Practices on terms
beneficial to the Company.
The infertility industry is highly competitive and characterized by
technological improvements. New ART services and techniques may be developed
that may render obsolete the ART services and techniques currently employed at
the RSC Network Sites. Competition between Medical Practices in the areas of
infertility and ART services is largely based on pregnancy rates and other
patient outcomes. Accordingly, the ability of a Medical Practice to compete is
largely dependent on its ability to achieve adequate pregnancy rates and patient
satisfaction levels.
A number of physician practice management companies have emerged with a
focus on obstetrics and gynecology. In addition, other health care corporations,
medical providers and physician practice management companies also may decide to
enter into the adult women's health care market, particularly if the Company's
concept to establish a multi-disciplinary approach to treat peri- and
post-menopausal women gains market acceptance. Further, private practice
physician groups often contract with pharmaceutical companies to perform
clinical trials relating to women's health care. These physician group practices
compete with the AWM Network Site in obtaining contracts for clinical trials.
See "Business -- Competition."
Government Regulation. As a participant in the health care industry, the
Company's operations and its relationships with the Medical Practices are
subject to extensive and increasing regulation by various governmental entities
at the federal, state and local levels. The Company believes its operations and
those of the Medical Practices are in material compliance with applicable health
care laws. Nevertheless, the laws and regulations in this area are extremely
complex and subject to changing interpretation and many aspects of the Company's
business and business opportunities have not been the subject of federal or
state regulatory review or interpretation. Accordingly, there is no assurance
that the Company's operations have been in compliance at all times with all such
laws and regulations. In addition, there is no assurance that a court or
regulatory authority will not determine that the Company's past, current or
future operations violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, there could
be a material adverse effect on the Company's business, financial condition and
operating results. Thus, there can be no assurance that such laws will be
interpreted in a manner consistent with the Company's practices. There can be no
assurance that a review of the Company or the Medical Practices by courts or
regulatory authorities will not result in a determination that would require the
Company or the Medical Practices to change their practices. There also can be no
assurance that the health care regulatory environment will not change so as to
restrict the Company's or the Medical Practices' existing operations or their
expansions. Any significant restructuring or restriction could have a material
adverse effect on the Company's business, financial condition and operating
results.
Corporate Practice of Medicine Laws. The Company's operations in
Massachusetts, New York, New Jersey, Pennsylvania, District of Columbia, Texas,
California, and potentially Illinois, are subject to prohibitions relating to
the corporate practice of medicine. The laws of these states prohibit
corporations other than professional corporations or associations from
practicing medicine or exercising control over physicians, prohibit physicians
from practicing medicine in partnership with, or as employees of, any person not
licensed to practice medicine and prohibit a corporation other than professional
corporations or associations from acquiring the goodwill of a medical practice.
In the context of management contracts between a corporation
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not authorized to practice medicine and the physicians or their professional
entity, the laws of most of these states focus on the extent to which the
corporation exercises control over the physicians and on the ability of the
physicians to use their own professional judgment as to diagnosis and treatment.
The Company believes its operations are in material compliance with applicable
state laws relating to the corporate practice of medicine. The Company performs
only non-medical administrative services, and in certain circumstances, clinical
laboratory services. It does not represent to the public that it offers medical
services, and the Company does not exercise influence or control over the
practice of medicine by physicians with whom it contracts in these states. In
each of these states, the Medical Practice is the sole employer of the
physicians, and the Medical Practice retains the full authority to direct the
medical, professional and ethical aspects of its medical practice. However,
although the Company believes its operations are in material compliance with
applicable state corporate practice of medicine laws, the laws and their
interpretations vary from state to state, and they are enforced by regulatory
authorities that have broad discretionary authority. There can be no assurance
that these laws will be interpreted in a manner consistent with the Company's
practices or that other laws or regulations will not be enacted in the future
that could have a material adverse effect on the Company's business, financial
condition and operating results. If a corporate practice of medicine law is
interpreted in a manner that is inconsistent with the Company's practices, the
Company could be required to restructure or terminate its relationship with the
applicable Medical Practice in order to bring its activities into compliance
with such law. The termination of, or failure of the Company to successfully
restructure, any such relationship could result in fines or a loss of revenue
that could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, expansion of the Company's
operations to new jurisdictions could require structural and organizational
modifications of the Company's relationships with the Medical Practices in order
to comply with additional state statutes.
Fee-Splitting Laws. The Company's operations in the states of New York,
California and Illinois (in the event the Pending Acquisition is consummated)
are subject to express fee-splitting prohibitions. The laws of these states
prohibit physicians from splitting professional fees with non-physicians and
health care professionals not affiliated with the physician performing the
services generating the fees. In New York, this prohibition includes any fee the
Company may receive from the Medical Practices which is set in terms of a
percentage of, or otherwise dependent on, the income or receipts generated by
the physicians. In certain states, such as California and New York, any fees
that a non-physician receives in connection with the management of a physician
practice must bear a reasonable relationship to the services rendered, based
upon the fair market value of such services. Under Illinois law, the courts have
broadly interpreted the fee-splitting prohibition in that state to prohibit
compensation arrangements that include (i) fees that a management company may
receive based on a percentage of net profits generated by physicians, despite
the performance of legitimate management services, (ii) fees received by a
management company engaged in obtaining referrals for its physician where the
fees are based on a percentage of certain billings collected by the physician
and (iii) purchase price consideration to a seller of a medical practice based
on a percentage of the buyer's revenues following the acquisition. Several of
the other states where the Company has operations, such as Texas and New Jersey,
do not expressly prohibit fee-splitting but do have corporate practice of
medicine prohibitions. In these states, regulatory authorities frequently
interpret the corporate practice of medicine prohibition to encompass
fee-splitting, particularly in arrangements where the compensation charged by
the management company is not reasonably related to the services rendered.
The Company believes that its current operations are in material
compliance with applicable state laws relating to fee-splitting prohibitions.
However, there can be no assurance that these laws will be interpreted in a
manner consistent with the Company's practices or that other laws or regulations
will not be enacted in the future that could have a material adverse effect on
the Company's business, financial condition and operating results. If a
fee-splitting law is interpreted in a manner that is inconsistent with the
Company's practices, the Company could be required to restructure or terminate
its relationship with the applicable Medical Practice in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could have a material
adverse effect on the Company's business, financial condition and operating
results. In addition, expansion of the Company's operations to new jurisdictions
could require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with additional
state statutes.
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With respect to the Pending Acquisition in Illinois, the management
agreement between the Company and the affiliated Medical Practice provides that
the Company will be paid a base fee equal to a fixed percentage of the revenues
at the Network Site and, as additional compensation, an additional variable
percentage of such revenues that declines to zero to the extent the costs
relating to the management of the Medical Practice increase as a percentage of
total revenues. The Company and the Medical Practice have agreed that if such
compensation arrangement were found to be illegal, unenforceable, against public
policy or forbidden by law, the management fee would be an annual fixed fee to
be mutually agreed upon, not less than $1,000,000 per year, retroactive to the
effective date of the agreement. In such event, there is likely to be a decrease
in the management fees derived from this Medical Practice. There is a
substantial risk that the compensation arrangement, being based upon a
percentage of revenues, would not be upheld if challenged. Moreover, if the
management agreement were amended to provide for an annual fixed fee payable to
the Company, the contribution from this Network Site could be materially
reduced.
Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
Currently less than 5% of the revenues of the Medical Practices are derived from
Medicare and none of such revenues are derived from Medicaid. Federal law (the
"Federal Antikickback Law") prohibits, with some exceptions, the solicitation or
receipt of remuneration in exchange for, or the offer or payment of remuneration
to induce, the referral of federal health care program beneficiaries, including
Medicare or Medicaid patients, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by Medicare,
Medicaid and other federal and state health programs.
Although the Company believes that it is in material compliance with the
Federal Antikickback Law, there can be no assurance that such law or the safe
harbor regulations promulgated thereunder will be interpreted in a manner
consistent with the Company's practices. The breadth of the Federal Antikickback
Law, the paucity of court decisions interpreting the law and the safe harbor
regulations, and the limited nature of regulatory guidance regarding the safe
harbor regulations have resulted in ambiguous and varying interpretations of the
Federal Antikickback Law. The Office of the Inspector General of the U.S.
Department of Health and Human Services ("OIG") or the Department of Justice
("DOJ") could determine that the Company's past or current policies and
practices regarding its contracts and relationships with the Medical Practices
violate the Federal Antikickback Law. In such event, no assurance can be given
that the Company's interpretation of these laws will prevail. The failure of the
Company's interpretation of the Federal Antikickback Law to prevail could have a
material adverse effect on the Company's business, financial condition and
operating results.
Federal Referral Laws. Federal law also prohibits, with some exceptions,
physicians from referring Medicare or Medicaid patients to entities for certain
enumerated "designated health services" with which the physician (or members of
his or her immediate family) has an ownership or investment relationship, and an
entity from filing a claim for reimbursement under the Medicare or Medicaid
programs for certain enumerated designated health services if the entity has a
financial relationship with the referring physician. Significant prohibitions
against physician referrals were enacted by the United States Congress in the
Omnibus Budget Reconciliation Act of 1993. These prohibitions, known as "Stark
II," amended prior physician self-referral legislation known as "Stark I" by
dramatically enlarging the field of physician-owned or physician-interested
entities to which the referral prohibitions apply. The designated health
services enumerated under Stark II include: clinical laboratory services,
radiology services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services.
Significantly, certain "in-office ancillary services" furnished by group
practices are excepted from the physician referral prohibitions of Stark II. The
Company believes that its practices either fit within this and other exceptions
contained in such statutes, or has been structured so as to not implicate the
statute in the first instance, and therefore, the Company believes it is in
compliance with such legislation. Nevertheless, future regulations or
interpretations of current regulations could require the Company to modify the
form of its relationships with the Medical Practices. Moreover, the violation of
Stark I or Stark II by the Medical Practices could result in significant fines,
loss of reimbursement and exclusion from the Medicare and Medicaid programs
which could have a material adverse effect on the Company.
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False Claims. Under separate federal statutes, submission of claims for
payment that are "not provided as claimed" may lead to civil money penalties,
criminal fines and imprisonment and exclusion from participation in the
Medicare, Medicaid and other federally-funded health care programs. These false
claims statutes include the Federal False Claims Act, which allows any person to
bring suit alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and to share in any amounts paid by the entity to the
government in fines or settlement. Such qui tam actions have increased
significantly in recent years and have increased the risk that a health care
company will have to defend a false claims action, pay fines or be excluded from
participation in the Medicare and Medicaid programs as a result of an
investigation arising out of such an action. The Company is currently not
subject to any such claim.
State Antikickback and Self-Referral Laws. The Company is also subject to
state statutes and regulations that prohibit kickbacks in return for the
referral of patients in each state in which the Company has operations. Several
of these laws apply to services reimbursed by all payors, not simply Medicare of
Medicaid. Violations of these laws may result in prohibition of payment for
services rendered, loss of licenses as well as fines and criminal penalties.
In addition, New York, New Jersey, California, Florida, Pennsylvania and
Illinois have enacted laws on self-referrals that apply generally to the health
profession, and the Company believes it is likely that more states will follow.
The Company's operations in New York, New Jersey, California and Illinois have
laboratories which are or will be subject to such prohibitions on referrals for
services in which the referring physician has a beneficial interest. However,
New York, New Jersey and California have an exception for "in-office ancillary
services" similar to the federal exception and in Illinois, the self-referral
laws do not apply to services within the health care worker's office or group
practice or to outside services as long as 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. The Company believes that the
laboratories in its operations fit within the exceptions contained in such
statutes or are not subject to the statute at all. Each of the laboratories in
the states in which these self-referral laws apply are owned by the Medical
Practice in that state and are located in the office of such Medical Practice.
However, there can be no assurance that these laws will be interpreted in a
manner consistent with the Company's practices or that other laws or regulations
will not be enacted in the future that could have a material adverse effect on
the Company's business, financial condition or operating results. In addition,
expansion of the Company's operations to new jurisdictions could require
structural and organizational modifications of the Company's relationships with
the Medical Practices in order to comply with new or revised state statutes.
Antitrust Laws. In connection with corporate practice of medicine laws
referred to above, the Medical Practices with whom the Company is affiliated
necessarily are organized as separate legal entities. As such, the Medical
Practices may be deemed to be persons separate both from the Company and from
each other under the antitrust laws and, accordingly, subject to a wide range of
laws that prohibit anti-competitive conduct among separate legal entities. The
Company believes it is in compliance with these laws and intends to comply with
any state and federal laws that may affect its development of health care
networks. There can be no assurance, however, that a review of the Company's
business by courts or regulatory authorities would not have a material adverse
effect on the operation of the Company and the Medical Practices.
Government Regulation of ART Services. With the increased utilization of
ART services, government oversight of the ART industry has increased and
legislation has been adopted or is being considered in a number of states
regulating the storage, testing and distribution of sperm, eggs and embryos. The
Company believes it is currently in compliance with such legislation where
failure to comply would subject the Company to sanctions by regulatory
authorities, which could have a material adverse effect on the Company's
business, financial condition and operating results.
Regulation of Clinical Laboratories. The Company's and the Medical
Practices' endocrine and embryology clinical laboratories are subject to
governmental regulations at the federal, state and local levels. The Company
and/or the Medical Practices at each Network Site have obtained, and from time
to time renew, federal and/or state licenses for the laboratories operated at
the Network Sites.
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The Clinical Laboratory Improvement Amendments of 1988 ("CLIA 88")
extended federal oversight to all clinical laboratories, including those that
handle biological matter, such as eggs, sperm and embryos, by requiring that all
laboratories be certified by the government, meet governmental quality and
personnel standards, undergo proficiency testing, be subject to biennial
inspections, and remit fees. The sanctions for failure to comply with CLIA and
these regulations include suspension, revocation or limitation of a laboratory's
CLIA certificate necessary to conduct business, significant fines or criminal
penalties. The Company believes it is in material compliance with the foregoing
standards. Nevertheless, the loss of license, imposition of a fine or future
changes in such federal, state and local laws and regulations (or in the
interpretation of current laws and regulations) could have a material adverse
effect on the Company.
Health Care Reform. Political, economic and regulatory influences are
subjecting the health care industry in the United States to fundamental change.
Changes in the law, new interpretations of existing laws, or changes in payment
methodology or amounts, may have a dramatic effect on the relative costs
associated with doing business and the amount of reimbursement provided by
government and other third party payors. In addition to specific health care
legislation, both the President and the Congress have expressed an interest in
controlling the escalation of health care expenditures and using health care
reimbursement policies to help control the federal deficit. In recent years,
there have been numerous initiatives on the federal and state levels for
comprehensive reforms affecting the payment for and availability of health care
services. The Company believes that such initiatives will continue during the
foreseeable future. Aspects of certain of these reforms as proposed in the past,
such as further reductions in Medicare and Medicaid payments and additional
prohibitions on physician ownership, directly or indirectly, of facilities to
which they refer patients, if adopted, could adversely affect the Company. In
addition, some states in which the Company operates or may operate in the future
are also considering various health care reform proposals. The Company
anticipates that federal and state governments will continue to review and
assess alternative health care delivery systems and payment methodologies, and
that public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted or what impact they
may have on the Company; however, the exclusion of ART services as a
reimbursable health care benefit would have a material adverse effect on the
Company's business, financial condition and operating results. In addition, the
announcement of reform proposals and the investment community's reaction to such
proposals, as well as announcements by competitors and third-party payors of
their strategies to respond to such initiatives, could adversely effect the
market price of the Common Stock.
Potential Liability and Insurance; Legal Proceedings. The provision of
health care services entails the substantial risk of potential claims of medical
malpractice and similar claims. The Company does not, itself, engage in the
practice of medicine or assume responsibility for compliance with regulatory
requirements directly applicable to physicians and requires associated Medical
Practices to maintain medical malpractice insurance. In general, the Company has
established a program that provides the Medical Practices with such required
insurance. However, in the event that services provided at the Network Sites or
any affiliated Medical Practice are alleged to have resulted in injury or other
adverse effects, the Company is likely to be named as a party in a legal
proceeding.
Although the Company currently maintains liability insurance that it
believes is adequate as to both risk and amount, successful malpractice claims
could exceed the limits of the Company's insurance and could have a material
adverse effect on the Company's business, financial condition or operating
results. Moreover, there can be no assurance that the Company will be able to
obtain such insurance on commercially reasonable terms in the future or that any
such insurance will provide adequate coverage against potential claims. In
addition, a malpractice claim asserted against the Company could be costly to
defend, could consume management resources and could adversely affect the
Company's reputation and business, regardless of the merit or eventual outcome
of such claim. Further, in connection with the acquisition of the assets of
certain Medical Practices, the Company may assume certain of the stated
liabilities of such practice. Therefore, claims may be asserted against the
Company for events related to such practice prior to the acquisition by the
Company. The Company maintains insurance coverage related to those risks that it
believes is adequate as to both risk and amount, although there can be no
assurance that any successful claims will not exceed applicable policy limits.
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There are inherent risks specific to the provision of infertility and ART
services. For example, the long-term effects on women of the administration of
fertility medication, integral to most infertility and ART services are of
concern to certain physicians and others who fear the medication may prove to be
carcinogenic or cause other medical problems. Currently, fertility medication is
critical to most infertility and ART services and a ban by the United States
Food and Drug Administration or any limitation on its use would have a material
adverse effect on the Company. Further, ART services increase the likelihood of
multiple births, which are often premature and may result in increased costs and
complications.
Dependence on Key Personnel. The Company is substantially dependent on the
efforts and skills of its current executive management for the management of the
Company and the implementation of its business strategy. Because of the
difficulty in finding adequate replacements for the executive management, the
loss, incapacity or unavailability of any of these individuals could adversely
affect the Company's operations. In addition, the Company's success is also
dependent upon its ability to attract and retain additional qualified personnel
to support the Company's anticipated growth. With the exception of Gerardo
Canet, the Company's Chairman and President, the Company does not have
employment agreements with its executive officers. See "Management -- Employment
Agreements."
Possible Volatility of Stock Price. The market price of the Common Stock
following the offering could be subject to significant fluctuations in response
to a number of factors, including variations in the Company's quarterly
operating results, changes in estimates of the Company's earnings, perceptions
about market conditions in the health care industry, adverse publicity relating
to infertility or ART services, the impact of various health care reform
proposals and general economic conditions, some of which are unrelated to the
Company's operating performance. In addition, the stock market generally has
experienced significant price and volume fluctuations. These market fluctuations
could have an adverse effect on the market price or liquidity of the Common
Stock.
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock in the public market after the offering, or the
possibility of such sales occurring, could adversely affect prevailing market
prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. After this offering, the
Company will have 17,317,009 shares of Common Stock outstanding (including an
estimated 1,142,857 shares of Common Stock to be issued in the Pending
Acquisition). Of these shares, the 6,400,000 shares of Common Stock offered
hereby and an additional 8,587,641 shares of Common Stock outstanding will be
freely tradable in the public market without restriction unless such shares are
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 2,329,368 shares of Common Stock outstanding
on completion of this offering are restricted securities under the Securities
Act and may be sold in the public market only if they are registered or if they
qualify for exemption from registration under Rule 144 under the Securities Act.
Pursuant to "lock-up" agreements, all of the Company's executive officers,
directors and certain holders of shares of the outstanding Common Stock, who
collectively hold 1,183,581 shares of Common Stock, have agreed not to offer,
sell, contract to sell, or grant any option, right or warrant to purchase or
otherwise dispose of any of their shares for a period of 90 days from the date
of this Prospectus without the prior written consent of Vector Securities
International, Inc. The Company has agreed that it will not offer, sell,
contract to sell, or grant any option, right or warrant to purchase or otherwise
dispose of Common Stock for a period of 90 days from the date of this
Prospectus, other than pursuant to outstanding warrants and options, existing
stock option plans, and in connection with corporate collaborations and
acquisitions, without the prior written consent of Vector Securities
International, Inc. Upon termination of such lock-up agreements, 850,248 of the
"locked-up" shares will be eligible for immediate sale in the public market
subject to certain volume, manner of sale and other limitations under Rule 144.
Vector Securities International, Inc. may, at its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements.
As of the date of this Prospectus, the Company had outstanding options and
warrants to purchase a total of 1,477,846 shares of Common Stock, of which
options and warrants to purchase 834,239 shares are currently exercisable. Of
such shares subject to options and warrants, approximately 509,631 shares are
subject to lock-up agreements for a period of 90 days from the date of this
Prospectus. As of the date of this Prospectus, an additional 246,303 shares were
available for future option grants under the Company's stock option plans. All
of the shares issued, issuable or reserved for issuance under the Company's
stock option plans or upon the
15
<PAGE>
exercise of options issued or issuable under such plans are covered or will be
covered by an effective registration statement. Shares issued upon exercise of
such options generally will be freely tradeable in the public market after the
effective date of a registration statement covering such shares without
restriction or further registration under the Securities Act, subject, in the
case of certain holders, to the Rule 144 limitations applicable to affiliates,
the above-referenced lock-up agreements and vesting restrictions imposed by the
Company. In addition, 478,445 shares of Common Stock are issuable upon
conversion of the Convertible Preferred Stock (giving effect to this offering
and the Pending Acquisition). Upon conversion, such shares of Common Stock will
be freely tradable in the public market.
After the offering, holders of an aggregate of 2,329,368 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares for resale under the Securities Act (including the shares to be
issued in the Pending Acquisition). In addition, the 496,117 shares issuable
upon exercise of outstanding warrants (including the Advisor Warrant) have
similar registration rights. If such registrations cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Common Stock. See "Management --
Stock Option Plans," "-- Outside Director Stock Purchase Plan," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Plan of Distribution."
Potential Anti-Takeover Provisions. The Company's Board of Directors is
authorized to issue from time to time, without stockholder authorization, shares
of preferred stock with such terms and conditions as the Board of Directors may
determine in its sole discretion. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. The Company is also subject to Section 203 of the Delaware General
Corporation Law (the "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. Any
of these provisions could discourage, hinder or preclude an unsolicited
acquisition of the Company and could make it less likely that stockholders
receive a premium for their shares as a result of any such attempt. See
"Management," "Principal Stockholders" and "Description of Capital Stock."
Failure to Pay Dividends on Convertible Preferred Stock. In May 1995, as a
result of the Company's Board of Directors suspending four quarterly dividend
payments, holders of the Convertible Preferred Stock became entitled to one vote
per share of Convertible Preferred Stock, voting, together with the Common
Stock, on all matters submitted to a vote of stockholders, including election of
directors; once in effect, such voting rights are not terminated by the payment
of all accrued dividends. The Company does not anticipate the payment of any
dividends on the Convertible Preferred Stock in the foreseeable future. As of
June 16, 1997, 12 quarterly dividend payments have been suspended resulting in
approximately $397,000 of dividend payments being in arrears. The Company will
continue to accrue cumulative dividends at the rate of approximately $33,000 per
quarter based on the 165,644 shares of Convertible Preferred Stock currently
outstanding. No dividends may be paid on any shares of capital stock ranking
junior to the Convertible Preferred Stock (including the Common Stock) unless
and until all accrued and unpaid dividends on the Convertible Preferred Stock
have been declared and paid in full. In addition, the failure of the Company to
pay a dividend on the Convertible Preferred Stock within 30 days of a dividend
payment date results in a reduction of the conversion price by $0.18 per share,
and the sale of Common Stock at a price, or the issuance of options, warrants or
convertible securities with an exercise or conversion price, below $8.00 per
share, including the shares sold in this offering, will also result in an
adjustment of the conversion price of the Convertible Preferred Stock.
Immediate and Substantial Dilution. The purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
pro forma net tangible book value of their shares of Common Stock in the amount
of $1.02 per share, after giving effect to the issuance of 186,512 shares of
Common Stock subsequent to March 31, 1997, including the 145,454 shares issued
in the San Diego Acquisition, the sale of the 6,400,000 shares of Common Stock
and the consummation of the Pending Acquisition. In the event that options and
warrants 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
16
<PAGE>
future acquisitions, purchasers of Common Stock in this offering may experience
further dilution in the pro forma net tangible book value per share of Common
Stock. See "Dilution."
Possible Delisting of Securities from The Nasdaq Stock Market. The
Company's Common Stock is currently quoted on the Nasdaq National Market. The
Company will have to maintain certain minimum financial requirements for
continued inclusion on the Nasdaq National Market which require that (i) the
Company maintain at least $4.0 million in "net tangible assets" (total tangible
assets less total liabilities), (ii) the minimum bid price of the Common Stock
be $1.00 or more per share, (iii) the Common Stock have at least two active
market makers and (iv) the Common Stock be held by at least 400 holders.
On November 6, 1996, the Nasdaq National Market proposed changes to the
listing and maintenance requirements which will be submitted to the Commission
for final approval. If the current proposal is approved without modification,
the Company's qualification for continued listing on the Nasdaq National Market
would require that (i) the Company maintain at least $4.0 million in net
tangible assets, (ii) the minimum bid price of the Common Stock be $1.00 or more
per share, (iii) there be at least 750,000 shares in the public float, valued at
a minimum $5.0 million or more, (iv) the Common Stock have at least two active
market makers and (v) the Common Stock be held by at least 400 holders.
If the Company is unable to satisfy the Nasdaq National Market's
maintenance requirements, the Company's securities may be delisted from the
Nasdaq National Market. In such event, trading, if any, in the Common Stock
would thereafter be conducted in the over-the-counter markets in the so-called
"pink sheets" or the National Association of Securities Dealers, Inc.'s
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of shares that could be
bought and sold, but also through delays in the timing of the transactions and a
reduction in the number and quality of security analysts' and the news media's
coverage of the Company. In addition, if the Company's securities were to be
delisted from the Nasdaq National Market, the Company's securities could become
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses).
----------
The statements in "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" contain certain forward-looking information within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the attainment of which involve various risks and uncertainties. The
Company's actual results may differ materially from those described in these
forward-looking statements due to certain factors including, but not limited to,
the following: the success of the Company in acquiring additional management
agreements, including the Company's ability to finance future growth, increases
in overhead due to expansion, the possibility of loss of significant management
contract(s), the profitability or lack thereof at Network Sites, the exclusion
of infertility, ART and adult women's health care services from third-party
reimbursement, government laws and regulation regarding health care, changes in
managed care contracting, and the timely development of and acceptance of new
infertility, ART and adult women's health care technologies and techniques.
Investors are directed to the other risks discussed under the heading "Risk
Factors" and elsewhere herein.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,400,000 shares of
Common Stock offered hereby are estimated to be approximately $8.8 million,
assuming a public offering price of $1.56 per share, and after deducting the
Placement Agent's fee and other estimated offering expenses payable by the
Company.
The Company intends to use approximately $6.6 million of the net proceeds
to finance the Pending Acquisition. The aggregate purchase price for the Pending
Acquisition is approximately $8.6 million and approximately $2.0 million of the
purchase price will be paid in shares of the Company's Common Stock. The closing
of the Pending Acquisition is conditioned upon the Company raising at least $6.0
million in capital by August 28, 1997 and other customary closing conditions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Pending Acquisition" and "Business--Pending Acquisition."
The balance of the proceeds of this offering will be used for working
capital and general corporate purposes, including possible future acquisitions
of the assets of, and the right to manage, additional Medical Practices. The
Company believes that its existing cash resources, together with the remaining
net proceeds from this offering and available borrowings under the Company's
bank line of credit, will be sufficient to meet the Company's anticipated
working capital needs in connection with its current operations for at least
approximately the next 18 months. However, the Company will be required to
obtain additional financing to pursue its acquisition strategy and intends to
seek significant additional financing over the next two years to fund such
acquisition strategy. Although the Company is evaluating and is engaged in
discussions with regard to several potential acquisitions, except with respect
to the Pending Acquisition, the Company has no agreements relating to any
acquisitions and there can be no assurance that any definitive agreements will
ever be entered into by the Company or that any such acquisitions will be
consummated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Pending such uses, the Company will invest the net proceeds in short term,
interest bearing, investment grade instruments, certificates of deposit, or
direct or guaranteed obligations of the United States.
18
<PAGE>
DIVIDEND POLICY
The Company currently anticipates that it will retain all available funds
for use in the operation of its business and for potential acquisitions, and
therefore does not anticipate paying any cash dividends on its Common Stock for
the foreseeable future. In addition, no dividends may be paid on the Common
Stock until full dividends have been paid on the Convertible Preferred Stock.
Dividends on the Convertible Preferred Stock are payable at the rate of
$.80 per share per annum, quarterly on the fifteenth day of August, November,
February and May of each year commencing August 15, 1993. In May 1995, as a
result of the Company's Board of Directors suspending four quarterly dividend
payments, holders of the Convertible Preferred Stock became entitled to one vote
per share of Convertible Preferred Stock on all matters submitted to a vote of
stockholders, including election of directors; once in effect, such voting
rights are not terminated by the payment of all accrued dividends. The Company
does not anticipate the payment of any cash dividends on the Convertible
Preferred Stock in the foreseeable future. As of June 16, 1997, 12 quarterly
dividend payments had been suspended resulting in approximately $397,000 of
dividend payments being in arrears. See "Description of Capital Stock --
Preferred Stock."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "INMD" since the Company's formal name change in June 1996 and
prior to the name change under the symbol "IVFA" since May 21, 1993. Prior
thereto, the Common Stock had been trading on The Nasdaq SmallCap Market since
October 8, 1992. The following table sets forth, for the periods indicated, the
high and low closing sales price per share of the Common Stock, as reported on
the Nasdaq National Market.
1995 High Low
---- ----- -----
First Quarter ................................... $1.88 $0.94
Second Quarter .................................. 2.44 1.31
Third Quarter ................................... 3.25 1.81
Fourth Quarter .................................. 3.81 1.94
1996
----
First Quarter ................................... $3.75 $2.31
Second Quarter .................................. 4.18 2.00
Third Quarter ................................... 3.50 2.25
Fourth Quarter .................................. 2.62 1.25
1997
----
First Quarter ................................... $2.50 $1.50
Second Quarter (through June 16, 1997) .......... 1.88 1.34
On June 16, 1997, there were approximately 271 holders of record of the
Common Stock, excluding beneficial owners of shares registered in nominee or
street name.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization giving effect
to the Pending Acquisition and (iii) the pro forma capitalization as adjusted to
give effect to the sale of the 6,400,000 shares of Common Stock offered hereby
at an assumed public offering price of $1.56 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------
(In thousands)
Pro Forma
Combined
Company
and Pending Pro Forma
Actual Acquisition As Adjusted
------------ ------------------ -----------
<S> <C> <C> <C>
Exclusive management rights obligation-long term.. $ 1,213 $ 1,213 $ 1,213
Long-term debt ................................... 681 681 681
Shareholders' equity:
Preferred Stock, $1.00 par value;
3,165,644 shares authorized; 665,644
shares designated as Series A Cumulative
Convertible of which 165,644 shares are
issued and outstanding ....................... 166 166 166
Common Stock, $.01 par value; 25,000,000
shares authorized; 9,587,640 shares
issued and outstanding actual; 14,961,266
shares issued and outstanding - pro forma
combined Company and Pending Acquisition;
and 17,130,497 shares issued and
outstanding - pro forma as adjusted (1) ...... 96 150 171
Capital in excess of par ......................... 35,970 44,516 46,695
Accumulated deficit .............................. (21,235) (21,235) (21,235)
-------- -------- --------
Total shareholders' equity ..................... 14,997 23,597 25,797
-------- -------- --------
Total capitalization ......................... $ 16,891 $ 25,491 $ 27,691
======== ======== ========
</TABLE>
- ----------
(1) Does not include (i) 478,445 shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock (giving effect to this
offering and the Pending Acquisition), (ii) 394,530 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $10.11 per share, (iii) 1,083,316 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average
exercise price of $1.86 per share, (iv) 378,311 shares of Common Stock
reserved for future option grants under the Company's stock option plans,
(v) 125,000 shares of Common Stock reserved for issuance pursuant to the
Outside Director Stock Purchase Plan, (vi) an estimated 101,587 shares
issuable upon exercise of the Advisor Warrant, (vii) 186,512 shares issued
subsequent to March 31, 1997, including the 145,454 shares issued in the
San Diego Acquisition and (viii) shares which may be issued, at the
physician's option, in partial payment of the contingent purchase price
relating to the San Diego Acquisition. See "Management -- Stock Option
Plans," "-- Outside Director Stock Purchase Plan," "Description of Capital
Stock" and "Plan of Distribution."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997,
after giving effect to the issuance of 186,512 shares of Common Stock subsequent
to March 31, 1997, including the 145,454 shares issued in connection with the
San Diego Acquisition, was approximately $6.9 million, or approximately $0.71
per share. Net tangible book value per share is equal to the Company's net
tangible assets (tangible assets less total liabilities), divided by the number
of shares of Common Stock outstanding. After giving effect to the sale of the
6,400,000 shares of Common Stock offered hereby at an assumed public offering
price of $1.56 per share, the application of the estimated net proceeds
therefrom, the consummation of the Pending Acquisition and the related issuance
of an estimated 1,142,857 shares of Common Stock, the adjusted pro forma net
tangible book value at March 31, 1997 would have been approximately $9.4
million, or approximately $0.54 per share. This represents an immediate decrease
in such net tangible book value of approximately $0.17 per share to existing
stockholders and an immediate dilution in net tangible book value of
approximately $1.02 per share to new investors. The following table sets forth
the per share dilution to new investors in the offering:
Assumed public offering price per share ...................... $ 1.56
Pro Forma net tangible book value per share as of
March 31, 1997 ........................................... $ 0.71
Decrease per share attributable to new investors ........... $ 0.17
------
Pro forma net tangible book value per share upon
consummation of the Pending Acquisition and
after this offering ........................................ 0.54
------
Dilution per share to new investors .......................... $ 1.02
======
The following table summarizes, on a pro forma basis as of March 31, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders, and by new investors in the offering (assuming a public offering
price of $1.56 per share and before deducting the Placement Agent's fee and
estimated offering expense payable by the Company):
Total Average
Shares Purchased Consideration Price
------------------ ------------------ Per
Number Percent Amount Percent Share
------- ------- ------- ------- -----
Existing
Shareholders(1) 10,917,009 63.0% $38,322,000 79.3% $3.51
New Investors 6,400,000 37.0 10,000,000 20.7 1.56
---------- ----- ----------- -----
Total 17,317,009 100.0% $48,322,000 100.0%
========== ===== =========== =====
- ----------
(1) Includes (i) 186,512 shares of Common Stock issued subsequent to March 31,
1997, including the 145,454 shares issued in connection with the San Diego
Acquisition, (ii) an estimated 1,142,857 shares of Common Stock issuable in
connection with the Pending Acquisition and (iii) 3,408,366 and 2,432,936
shares of Common Stock issued in connection with the Company's preferred
stock conversion offers in November 1994 and July 1996, respectively.
The foregoing table does not include the issuance of (i) 478,445 shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock (giving
effect to this offering and the Pending Acquisition), (ii) 394,530 shares of
Common Stock issuable upon exercise of outstanding warrants at a weighted
average exercise price of $10.11 per share, (iii) 1,083,316 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $1.86 per share, (iv) 378,311 shares of Common Stock reserved
for future option grants under the Company's stock option plans, (v) 125,000
shares of Common Stock reserved for issuance pursuant to the Outside Director
Stock Purchase Plan, (vi) an estimated 101,587 shares issuable upon exercise of
the Advisor Warrant and (vii) shares which may be issued, at the physician's
option, in partial payment of the contingent purchase price relating to the San
Diego Acquisition. See "Management -- Stock Option Plans," "-- Outside Director
Stock Purchase Plan," "Description of Capital Stock" and "Plan of Distribution."
21
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data have been derived from the Company's
consolidated financial statements and should be read in conjunction with the
financial statements, related notes, and other financial information included
elsewhere in this Prospectus. The selected historical consolidated financial
data set forth below as of December 31, 1996 and for each of the years ended
December 31, 1994, 1995 and 1996 have been derived from the consolidated
financial statements of the Company for such periods which have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is included
elsewhere in this Prospectus. The selected historical financial data for each of
the years ended December 31, 1992 and 1993 have been derived from audited
financial statements of the Company which are not included in this Prospectus.
The selected historical financial data set forth below as of March 31, 1997 and
for the three months ended March 31, 1996 and 1997 have been derived from the
Company's unaudited consolidated 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 financial information for such
interim periods. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of results that may be expected for the year ending
December 31, 1997. The selected pro forma combined financial data set forth
below at March 31, 1997 and for the year ended December 31, 1996 and for the
three months ended March 31, 1997 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
(other than the San Diego Acquisition), the Pending Acquisition and this
offering been completed at the beginning of the applicable period, nor are the
statements indicative of the Company's future results of operations or financial
position. See "Unaudited Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues, net .......... $ 13,806 $ 16,025 $ 17,578 $ 16,711 $ 18,343 $ 4,175 $ 5,088
Medical Practice
retainage ........... 3,936 4,605 3,824 3,063 2,680 794 396
-------- -------- -------- -------- -------- ------- -------
Revenues after
Medical Practice
retainage ........... 9,870 11,420 13,754 13,648 15,663 3,381 4,692
Costs of services
rendered ............ 7,257 10,222 10,998 9,986 12,398 2,563 3,615
-------- -------- -------- -------- -------- ------- -------
Network Sites'
contribution ........ 2,613 1,198 2,756 3,662 3,265 818 1,077
-------- -------- -------- -------- -------- ------- -------
General and
administrative
expenses ............ 2,071 3,079 3,447 3,680 4,339 855 918
Equity in loss of
Partnerships (4) .... 876 1,793 -- -- -- -- --
Total other (income)
expenses (including
income taxes) ....... 1,622 923 123 (88) 416 37 204
-------- -------- -------- -------- -------- ------- -------
Net (loss) income ...... (1,956) (4,597) (814) 70 (1,490) (74) (45)
Less: Dividends
accrued and/or
paid on
Preferred Stock ..... -- 748 1,146 600 132 154 33
-------- -------- -------- -------- -------- ------- -------
Net (loss) income
applicable
to Common Stock ..... $ (1,956) $ (5,345) $ (1,960) $ (530) $ (1,622) $ (228) $ (78)
======== ======== ======== ======== ======== ======= =======
Net (loss) income
per share
of Common Stock
before
consideration
for induced
conversion of
Preferred
Stock (5) ........... $ (0.94)(5) $ (2.01) $ (0.32) $ (0.09) $ (0.21) $ (0.04) $ (0.01)
======== ======== ======== ======== ======== ======= =======
Weighted average
number of shares
of Common Stock
outstanding ......... 2,042(5) 2,654 6,081 6,087 7,602 6,087 9,544
======== ======== ======== ======== ======== ======= =======
</TABLE>
Pro Forma
-------------------------------------------------
Combined Company,
Combined Recent Combined
Company Acquisitions Company
and Recent and Pending and Pending
Acquisitions(1) Acquisition(2) Acquisition(2)
--------------- -------------- --------------
Year Ended Three Months Ended
December 31, 1996 March 31, 1997
----------------- --------------
(Unaudited) (Unaudited)
Statement of
Operations Data:
Revenues, net .......... $ 21,665 $ 27,685 $ 6,480
Medical Practice
retainage ........... 2,680 2,680 396
-------- -------- -------
Revenues after
Medical Practice
retainage ........... 18,985 25,005 6,084
Costs of services
rendered ............ 15,534 20,428 4,661
-------- -------- -------
Network Sites'
contribution ........ 3,451 4,557 1,423
-------- -------- -------
General and
administrative
expenses ............ 4,339 4,339 918
Equity in loss of
Partnerships (4) .... -- -- --
Total other (income)
expenses (including
income taxes) ....... 727 1,194 325
-------- -------- -------
Net (loss) income ...... (1,615) (956) 180
Less: Dividends
accrued and/or
paid on
Preferred Stock ..... 132 132 33
-------- -------- -------
Net (loss) income
applicable
to Common Stock ..... $ (1,747) $ (1,088) $ 147
======== ======== =======
Net (loss) income
per share
of Common Stock
before
consideration
for induced
conversion of
Preferred
Stock (5) ........... $ (0.21) $ (0.08) $ 0.01
======== ======== =======
Weighted average
number of shares
of Common Stock
outstanding ......... 8,224 13,598(6) 14,918(6)
======== ======== =======
22
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 March 31, 1997
---------- ---------------------------------------------
Pro Forma
Combined
Company
and Pending Pro Forma
Actual Actual Acquisition(7) As Adjusted(8)
-------- ------------- -------------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (9) ............. $ 7,092 $ 5,791 $ 5,441 $ 7,641
Total assets (9) ................ 20,850 20,989 29,939 31,789
Total indebtedness (10) ......... 2,553 2,769 2,769 2,769
Accumulated deficit ............. (21,190) (21,235) (21,235) (21,235)
Shareholders' equity ............ 14,478 14,997 23,597 25,797
</TABLE>
(1) Gives effect to the Recent Acquisitions (other than the San Diego
Acquisition) as if each had occurred on January 1, 1996. See "Unaudited Pro
Forma Combined Financial Information" and "Business -- The Network Sites --
Recent Acquisitions."
(2) Gives effect to the Pending Acquisition as if it had occurred on January 1,
1996, with respect to the year ended December 31, 1996, and January 1,
1997, with respect to the three months ended March 31, 1997. There can be
no assurance that the Pending Acquisition will be consummated. See
"Unaudited Pro Forma Combined Financial Information" and "Business -- The
Network Sites -- Pending Acquisition."
(3) In 1993, the Company dissolved its 50% interests in two partnerships which
had been accounted for under the equity method. The management fees
therefrom were reported under "Revenues, net" in the Consolidated Statement
of Operations.
(4) See Note 10 to the Company's Consolidated Financial Statements regarding
the impact of the Company's conversion offer of the Convertible Preferred
Stock in July 1996 on net loss per share in 1996.
(5) Includes a reduction of $29,000 to net loss related to interest on
promissory notes and an adjustment of 35,000 shares to the weighted average
number of shares of Common Stock outstanding related to outstanding stock
options.
(6) Includes 5,373,626 shares of Common Stock assumed to be issued by the
Company at the beginning of the applicable period to finance the entire
cost of the Pending Acquisition. See "Unaudited Pro Forma Combined
Financial Information."
(7) Gives effect to the Pending Acquisition as if it had occurred on March 31,
1997. There can be no assurance that the Pending Acquisition will be
consummated. See "Use of Proceeds," "Unaudited Pro Forma Combined Financial
Information" and "Business -- The Network Sites -- Pending Acquisition."
(8) Adjusted to give effect to the sale of 6,400,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $1.56
per share) and the application of the net proceeds therefrom of $8.8
million as if this offering occurred on March 31, 1997. Assumes that the
net proceeds of this offering are applied as follows: (i) $6.6 million to
finance the Pending Acquisition and (ii) payment of $350,000 in costs
related to the Pending Acquisition. The remainder of the net proceeds will
be used for working capital and general corporate purposes.
(9) Includes controlled assets of certain Medical Practices of $650,000 and
$425,000 at December 31, 1996 and March 31, 1997, respectively.
(10) Includes approximately $1.4 million of exclusive management rights
obligation.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet at March 31, 1997
and the Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 and the three months ended March 31, 1997 have been prepared
to reflect adjustments to the Company's historical results of operations and
financial position to give effect to the Recent Acquisitions (other than the San
Diego Acquisition) and the Pending Acquisition. The Unaudited Pro Forma Combined
Balance Sheet reflects the Pending Acquisition as if it had occurred on March
31, 1997 and the Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1996 reflects the Recent Acquisitions (other than the
San Diego Acquisition) and the Pending Acquisition as if they had occurred on
January 1, 1996. The Unaudited Pro Forma Combined Statement of Operations for
the three months ended March 31, 1997 reflects the Pending Acquisition as if it
had occurred on January 1, 1997.
The unaudited pro forma combined financial information gives effect to the
Recent Acquisitions (other than the San Diego Acquisition) and the Pending
Acquisition using the purchase method of accounting, and is based upon an
allocation (or, in the case of the Pending Acquisition, a preliminary
allocation) of the acquisition costs to the tangible and intangible assets
acquired and the liabilities assumed based upon the estimated fair values at the
respective date of acquisition and includes the adjustments described in the
notes to the unaudited pro forma combined financial information. Such allocation
of the acquisition costs may change upon final appraisal of the fair value of
the net assets acquired. Any resulting changes are not expected to be material
to the pro forma combined financial information.
The unaudited pro forma combined financial information has been prepared
by the Company based on the financial statements of the Company, Bay Area
Fertility and Gynecology Medical Group, a California partnership ("Bay Area
Fertility") acquired in the Bay Area Acquisition and FCI to be acquired in the
Pending Acquisition, which statements are included elsewhere in this Prospectus,
and the financial statements of other Medical Practices acquired in the Recent
Acquisitions (other than the San Diego Acquisition), which statements are not
included in this Prospectus. For purposes of preparing the unaudited pro forma
combined financial information, the results of operations of the Company have
been adjusted to combine the actual results of operations of the Company with
the estimated results of the Company's operations derived from the historical
results of the Medical Practices adjusted in accordance with the terms of the
related management agreement, if applicable. The unaudited pro forma combined
financial information is presented for illustrative purposes only and is not
necessarily indicative of the results that would have been obtained if the
acquisitions occurred on the dates indicated or that may be realized in the
future. The pro forma adjustments are based upon certain assumptions and
estimates that management of the Company believes are reasonable. The Company
believes that all adjustments considered necessary for a fair presentation have
been included in the unaudited pro forma combined financial information. The
unaudited pro forma combined financial information should be read in conjunction
with the Company's audited Consolidated Financial Statements and the notes
thereto and the historical financial statements of Bay Area Fertility and FCI
and the notes thereto included elsewhere in this Prospectus.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------
Pro Forma Pending Acquisition
--------------------------------------
Assets
Historical (a) Acquired Adjustments Combined
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term
investments ....................................... $ 3,401 $-- $ -- $ 3,401
Accounts receivable, net ............................. 3,728 -- -- 3,728
Management fees receivable, net ...................... 1,757 -- -- 1,757
Other current assets ................................. 1,003 -- -- 1,003
-------- ---- ------- --------
Total current assets ............................... 9,889 -- -- 9,889
-------- ---- ------- --------
Fixed assets, net ....................................... 2,947 600(b) -- 3,547
Intangible assets, net .................................. 7,937 -- 8,350(c) 16,287
Other assets ............................................ 216 -- -- 216
-------- ---- ------- --------
Total assets ....................................... $ 20,989 $600 $ 8,350 $ 29,939
======== ==== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 575 $-- $ -- $ 575
Accrued liabilities and due to
Medical Practices ................................. 1,703 -- 350(d) 2,053
Dividends accrued on preferred stock ................. 364 -- -- 364
Current portion of exclusive management
rights obligation ................................. 222 -- -- 222
Note payable and current portion
of long-term debt ................................. 653 -- -- 653
Patient deposits ..................................... 581 -- 581
-------- ---- ------- --------
Total current liabilities .......................... 4,098 -- 350 4,448
-------- ---- ------- --------
Exclusive management rights obligation .................. 1,213 -- -- 1,213
Long-term debt .......................................... 681 -- -- 681
Shareholders' equity:
Preferred Stock ...................................... 166 -- -- 166
Common Stock ......................................... 96 -- 54(e) 150
Capital in excess of par ............................. 35,970 -- 8,546(e) 44,516
Accumulated deficit .................................. (21,235) 600 (600) (21,235)
-------- ---- ------- --------
Total shareholders' equity ......................... 14,997 600 8,000 23,597
-------- ---- ------- --------
Total liabilities and shareholders' equity ......... $ 20,989 $600 $ 8,350 $ 29,939
======== ==== ======= ========
</TABLE>
Notes to Unaudited Pro Forma Combined Balance Sheet
(a) Reflects the Company's actual consolidated balance sheet as of March 31,
1997.
(b) Represents the estimated historical book value of assets to be acquired
pursuant to the Pending Acquisition.
(c) Represents the purchase price to be paid by the Company in excess of the
estimated fair value of assets to be acquired in the Pending Acquisition.
(d) Represents estimated accrued costs and expenses associated with the closing
of the Pending Acquisition. (e) Represents the issuance of 5,373,626 shares
of Common Stock that would have been issued on March 31, 1997 to finance
the entire cost of the Pending Acquisition.
25
<PAGE>
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------------------------
Pro Forma Recent Acquisitions (a)(b)
--------------------------------------------------------------
RSC Division
Recent
Acquisitions
-------------------- AWM
RSC of Bay Division
Dallas Area Recent
Acqui- Acqui- Acqui- Adjust-
Historical(e) sition sition sitions ments Combined
------------- ------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net ....................... $ 18,343 $650(f) $ 1,441(f) $ 1,231(g) $ -- $ 21,665
Medical Practice retainage .......... 2,680 -- -- -- -- 2,680
-------- ---- ------- ------- -------- --------
Revenues after Medical Practice
retainage ........................ 15,663 650 1,441 1,231 -- 18,985
Cost of services rendered ........... 12,398 615 1,151(i) 1,370(j) -- 15,534
-------- ---- ------- ------- -------- --------
Network Sites' contribution ......... 3,265 35 290 (139) -- 3,451
-------- ---- ------- ------- -------- --------
General and administrative
expenses ......................... 4,339 -- -- -- -- 4,339
Clinical service development
expenses ......................... 323 -- -- -- -- 323
Amortization of intangible assets ... 331 -- -- -- 197(l) 528
Interest (income) expense, net ...... (379) -- -- -- 93(n) (286)
-------- ---- ------- ------- -------- --------
Total other expenses ................ 4,614 -- -- -- 290 4,904
-------- ---- ------- ------- -------- --------
(Loss) income before income taxes ... (1,349) 35 290 (139) (290) (1,453)
Provision for taxes ................. 141 -- -- -- 21(o) 162
-------- ---- ------- ------- -------- --------
Net (loss) income ................... (1,490) 35 290 (139) (311) (1,615)
Less: Dividends accrued on
Preferred Stock .................. 132 -- -- -- -- 132
-------- ---- ------- ------- -------- --------
Net (loss) income applicable to
Common Stock before
consideration for induced
conversion of Preferred Stock ... $(1,622) $ 35 $ 290 $ (139) $ (311) $ (1,747)
======== ==== ======= ======= ======== ========
Net (loss) income per share of Common
Stock before consideration
for induced conversion of
Preferred Stock .................. $ (0.21) $ (0.21)
======== ========
Weighted average number
of shares of Common Stock
outstanding ...................... 7,602 333(p) 289(q) 8,224
======== ======= ======= ========
</TABLE>
Year Ended December 31, 1996
-------------------------------------
Pro Forma
Pending Acquisition(c)(d)
-------------------------------------
Pending
Acqui- Adjust-
sition ments Combined
------- ------- ---------
Revenues, net ....................... $ 6,020(h) $ -- $ 27,685
Medical Practice retainage .......... -- -- 2,680
------- -------- --------
Revenues after Medical Practice
retainage ........................ 6,020 -- 25,005
Cost of services rendered ........... 4,894(k) -- 20,428
------- -------- --------
Network Sites' contribution ......... 1,126 -- 4,577
------- -------- --------
General and administrative
expenses ......................... -- -- 4,339
Clinical service development
expenses ......................... -- -- 323
Amortization of intangible assets ... -- 418(m) 946
Interest (income) expense, net ...... -- -- (286)
------- -------- --------
Total other expenses ................ -- 418 5,322
------- -------- --------
(Loss) income before income taxes ... 1,126 (418) (745)
Provision for taxes ................. -- 49(o) 211
------- -------- --------
Net (loss) income ................... 1,126 (467) (956)
Less: Dividends accrued on
Preferred Stock .................. -- -- 132
------- -------- --------
Net (loss) income applicable to
Common Stock before
consideration for induced
conversion of Preferred Stock ... $ 1,126 $ (467) $ (1,088)
======= ======== ========
Net (loss) income per share of Common
Stock before consideration
for induced conversion of
Preferred Stock .................. $ (0.08)
========
Weighted average number
of shares of Common Stock
outstanding ...................... 5,374(r) 13,598
======== ========
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
--------------------------------------------------
Pro Forma
Pending Acquisition(c)(d)
--------------------------------------------------
Pending
Acqui- Adjust-
Historical(e) sition ments Combined
------------ ------- ----- --------
<S> <C> <C> <C> <C>
Revenues, net ....................... $ 5,088 $1,392(h) $ -- $ 6,480
Medical Practice retainage .......... 396 -- -- 396
------- ------ ------- -------
Revenues after Medical Practice
retainage ........................ 4,692 1,392 -- 6,084
Cost of services rendered ........... 3,615 1,046(k) -- 4,661
------- ------ ------- -------
Network Sites' contribution ......... 1,077 346 -- 1,423
------- ------ ------- -------
General and administrative
expenses ......................... 918 -- -- 918
Clinical service development
expenses ......................... 59 -- -- 59
Amortization of intangible assets ... 137 104(m) 241
Interest (income) expense, net ...... (24) -- -- (24)
------- ------ ------- -------
Total other expenses ................ 1,090 -- 104 1,194
------- ------ ------- -------
(Loss) income before income taxes ... (13) 346 (104) 229
Provision for taxes ................. 32 -- 17(o) 49
------- ------ ------- -------
Net (loss) income ................... (45) 346 (121) 180
Less: Dividends accrued on
Preferred Stock .................. 33 -- -- 33
------- ------ ------- -------
Net (loss) income applicable to
Common Stock before
consideration for induced
conversion of Preferred Stock ... $ (78) $ 346 $ (121) $ 147
======= ====== ======= =======
Net (loss) income per share of Common
Stock before consideration
for induced conversion of
Preferred Stock .................. $ (0.01) $ 0.01
======= =======
Weighted average number
of shares of Common Stock
outstanding ...................... 9,544 5,374(r) 14,918
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
26
<PAGE>
Notes to Unaudited Pro Forma Combined Statement of Operations
(a) In May 1996, the Company acquired certain assets of and the right to manage
the Reproductive Science Center of Dallas (the "RSC of Dallas"). The
aggregate purchase price was approximately $701,500, consisting of $244,000
in cash and a $457,500 promissory note. The aggregate purchase price for
the RSC of Dallas was allocated as follows: $144,000 to fixed assets and
the balance of $557,500 to exclusive management rights, which will be
amortized over the ten year term of the management agreement.
In June 1996, the Company acquired all of the outstanding stock of the
three related Florida corporations (collectively, the "Merger Companies"),
and 51% of the outstanding stock of the National Menopause Foundation, Inc.
("NMF"), a related Florida corporation. In exchange for the shares of the
Merger Companies, the Company paid an aggregate of approximately $2.9
million, consisting of $350,000 in cash and 666,666 shares of Common Stock.
In exchange for 51% of the outstanding stock of NMF, the Company paid cash
in an aggregate amount of $50,000 and issued a $600,000 promissory note.
The aggregate purchase price for the Merger Companies was allocated to
assets acquired and liabilities assumed as follows: $338,000 to current
assets, $99,000 to fixed assets, $214,000 to research contracts which will
be amortized over a three-year period, $235,000 to accrued liabilities,
$97,000 to debt and the balance of approximately $2.5 million to goodwill,
which will be amortized over a forty-year period. The aggregate purchase
price of NMF was allocated as follows: $2,000 to current assets, $30,000 to
fixed assets, $10,000 to current liabilities and the balance of $628,000 to
goodwill, which will be amortized over a 40-year period.
In December 1996, the Company acquired W. Banks Hinshaw, Jr., M.D., P.A., a
Florida professional association ("Hinshaw"), and merged Hinshaw's
operations into the AWM Division. The aggregate purchase price for Hinshaw
was $465,200, of which $235,200 was paid in cash and the balance is payable
in four equal installments of $55,000 commencing December 31, 1997. The
aggregate purchase price for Hinshaw was allocated as follows: $145,000 to
fixed assets and the balance of $320,000 to goodwill, which will be
amortized over a 40-year period.
In January 1997, the Company acquired certain assets of the Bay Area
Fertility, and acquired the right to manage the Bay Area Fertility and
Gynecology Medical Group, Inc., a California professional corporation which
is the successor to Bay Area Fertility medical practice (the "Bay Area
Acquisition"). The aggregate purchase price was approximately $2.1 million,
consisting of $1.5 million in cash and 333,333 shares of Common Stock. The
aggregate purchase price for the Bay Area Acquisition was allocated as
follows: $29,000 to fixed assets, $500,000 to the trade name of "Bay Area
Fertility" and the balance of approximately $1.6 million to exclusive
management rights, which will be amortized over the 20 year term of the
management agreement.
(b) Reflects the pro forma operating results of the Company derived from the
historical statements of operations of the Recent Acquisitions (other than
the San Diego Acquisition) from January 1, 1996 through the respective date
of consummation of each of the Recent Acquisitions (other than the Bay Area
Acquisition) and, in the case of the Bay Area Acquisition, from January 1,
1996 through December 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- Recent Acquisitions" and
"Business -- The Network Sites-- Recent Acquisitions" for a summary of the
Recent Acquisitions. The audited financial statements of Bay Area Fertility
for the year ended December 31, 1996 are included elsewhere in this
Prospectus.
(c) In February 1997, the Company entered into agreements to acquire certain
assets of and the right to manage FCI. The aggregate purchase price for the
Pending Acquisition is approximately $8.6 million, approximately $6.6
million of which is payable in cash and approximately $2.0 million of which
is payable in shares of the Company's Common Stock, the exact number of
which to be determined based on the average market price of the Common
Stock for the ten trading day period prior to the third business day prior
to closing of the Pending Acquisition. The closing of the Pending
Acquisition is conditioned upon the Company's raising at least $6.0 million
in capital by August 28, 1997 and other customary closing conditions. If
consummated, the Pending Acquisition will be the largest acquisition by the
Company to date as part of its series of acquisitions over the last
eighteen months.
(d) Reflects the pro forma operating results of the Company derived from the
historical statements of operations of FCI for the year ended December 31,
1996 and for the three months ended March 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Pending Acquisition" and "Business -- The Network Sites -- Pending
Acquisition" for a summary of the Pending Acquisition. The audited
financial statements of FCI for the year ended December 31, 1996 and the
unaudited financial statements of FCI for the three months ended March 31,
1997 are included elsewhere in this Prospectus.
(e) Reflects the Company's actual consolidated statement of operations for the
year ended December 31, 1996, including the results of the Recent
Acquisitions other than the Bay Area Acquisition and the San Diego
Acquisition from each of their respective acquisition dates and the
Company's actual consolidated statement of operations for the three months
ended March 31, 1997, including the results of Bay Area Fertility from the
date of acquisition.
27
<PAGE>
(f) Reflects the Company's fees that would have been earned under its
management agreements with (i) Bay Area Fertility for the year ended
December 31, 1996 and (ii) the RSC of Dallas for the period from January 1,
1996 through the date of its acquisition. The Company's management fee of
approximately $1.4 million related to the Bay Area Acquisition would have
been comprised of the following: (i) 6% of Bay Area Fertility's actual
revenues of approximately $2.1 million for the year ended December 31,
1996, (ii) reimbursed cost of services which would have been paid by the
Company on behalf of Bay Area Fertility equal to approximately $1.2 million
consisting of $923,000 and $228,000 in cost of services rendered and
general and administrative expenses, respectively, of Bay Area Fertility
for the year ended December 31, 1996, and (iii) 20% of Bay Area Fertility's
actual net income after deducting the Company's 6% base management fee for
the year ended December 31, 1996, or 20% of $821,080. The Company's
management fee of $650,000 related to the RSC of Dallas Acquisition was
calculated in the same manner as the management fee related to the Bay Area
Acquisition.
(g) Reflects 100% of the revenues earned by Hinshaw, the Merger Companies and
NMF for the period from January 1, 1996 through the respective dates of
acquisition.
(h) Reflects the Company's fee that would have been earned for the year ended
December 31, 1996 and for the three months ended March 31, 1997 under its
management agreement with FCI. The Company's management fee of
approximately $6.0 million and $1.4 million related to the Pending
Acquisition for the year ended December 31, 1996 and three months ended
March 31, 1997, respectively, would have been comprised of the following:
(i) 6% of FCI's actual revenues of approximately $8.3 million and $2.2
million for the year ended December 31, 1996 and the three months ended
March 31, 1997, respectively, (ii) reimbursed expenses which would have
been paid by the Company on behalf of FCI equal to approximately $4.9
million and $1.0 million for the year ended December 31 1996 and the three
months ended March 31, 1997, respectively, (which includes all expenses of
FCI before income taxes, excluding physician compensation and certain
physician benefits of approximately $3.0 million and $590,000,
respectively), and (iii) an additional fee of 7.5% and 9.5%, respectively,
of FCI's actual revenues of approximately $8.3 million and $2.2 million for
the year ended December 31, 1996 and the three months ended March 31, 1997,
respectively; the percentage used in determining such additional fee varies
based upon the ratio of FCI's cost of services (after the calculation of
the Company's management fee) to revenues.
(i) Represents all direct costs that would have been incurred by the Company in
the operation of (i) the RSC of Dallas for the period from January 1, 1996
through the date of its acquisition and (ii) Bay Area Fertility for the
year ended December 31, 1996. Pursuant to the Company's management
agreements with the RSC of Dallas and Bay Area Fertility, the respective
costs of services rendered are reimbursed to the Company and are included
in the Company's revenues. See notes (b) and (f) above and "Business --
Network Site Agreements -- Management Agreements."
(j) Represents all direct costs that would have been incurred by the Company in
the operation of Hinshaw, the Merger Companies and NMF for the period from
January 1, 1996 through the respective dates of acquisition. See note (b)
above and "Business -- Network Site Agreements -- Management Agreements."
(k) Represents all direct costs that would have been incurred by the Company in
the operation of FCI for the year ended December 31, 1996 for the three
months ended March 31, 1997. Pursuant to the Company's management agreement
with FCI, such costs of services rendered will be reimbursed to the Company
and will be included in the Company's revenues. See notes (d) and (h) above
and "Business -- Network Site Agreements -- Management Agreements."
(l) Reflects additional amortization of exclusive management rights, goodwill
and other intangible assets that are being amortized over periods ranging
from three to 40 years, as detailed in the following table:
<TABLE>
<CAPTION>
Pro Rata
Amorti- Annual Amorti-
Asset zation Amortization Pro Rata zation
Type of Value Period in Expense Amortization Expense
Asset (000's omitted) Years (000's omitted) Period (000's omitted)
----- --------------- ----- --------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Bay Area Fertility Exclusive Management $1,556 20 $ 78 1/1/96-12/31/96 $ 78
Right
Bay Area Fertility Trade Name 500 20 25 1/1/96-12/31/96 25
RSC of Dallas Exclusive Management 557 10 56 1/1/96-5/15/96 20
Right
Merger Companies Goodwill 2,531 40 63 1/1/96-6/6/96 28
Merger Companies Research Contracts 214 3 71 1/1/96-6/6/96 31
NMF Goodwill 628 40 16 1/1/96-6/6/96 7
Hinshaw Goodwill 320 40 8 1/1/96-12/31/96 8
---- ----
$317 $197
==== ====
</TABLE>
28
<PAGE>
(m) Reflects amortization of the exclusive management right that will be
amortized over the twenty year term of the management agreement.
(n) Reflects the decrease in interest income assuming $1.5 million in cash was
paid on January 1, 1996 for the right to manage Bay Area Fertility assuming
a 5.0% annual interest rate, which represents the approximate average
interest rate earned by the Company on commercial paper investments during
the year ended December 31, 1996. Also reflects the pro rata increased
interest expense related to a note payable of $600,000 at an interest rate
of 4.16% and assumed debt in connection with the establishment of the AWM
Division in June 1996.
(o) Represents state income and capital taxes that would have been payable by
the Company on the income derived from the Recent Acquisitions (other than
the San Diego Acquisition) and the Pending Acquisition. No adjustment has
been made for federal income taxes because the Company would have utilized
its net operating loss carryforwards.
(p) Represents the weighted average shares outstanding related to the issuance
of 333,333 shares of Common Stock issued in connection with the Bay Area
Acquisition.
(q) Represents the weighted average shares outstanding related to the issuance
of 666,666 shares of Common Stock for the acquisition of the Merger
Companies.
(r) Assumes that 5,373,626 shares of Common Stock were issued by the Company at
the beginning of the applicable period to finance the entire cost of the
Pending Acquisition.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended March 31, 1996 and 1997 and
for the three years ended December 31, 1996. It should be read in conjunction
with the Company's Consolidated Financial Statements, the related notes thereto
and other financial and operating information included elsewhere in this
Prospectus.
The following discussion contains certain forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the attainment of which involve various risks and
uncertainties. The Company's actual results may differ materially from those
described in these forward-looking statements due to certain factors including,
but not limited to, the following: the success of the Company in acquiring
additional management agreements, including the Company's ability to finance
future growth, increases in overhead due to expansion, the possibility of loss
of significant management contract(s), the profitability or lack thereof at
Network Sites, the exclusion of infertility, ART and adult women's health care
services from third-party reimbursement, government laws and regulation
regarding health care, changes in managed care contracting, and the timely
development of and acceptance of new infertility, ART and adult women's health
care technologies and techniques. Investors are directed to the other risks
discussed under the heading "Risk Factors" and elsewhere herein.
Overview
The Company has historically focused its efforts on providing management
support services to Medical Practices in the area of infertility and ART
services. During 1996, the Company broadened its focus from infertility and ART
services to include adult women's health care services. In connection therewith,
the Company established two divisions: the RSC Division, which concentrates on
infertility and ART services, and the AWM Division, which concentrates on
comprehensive diagnostic and treatment alternatives for peri- and
post-menopausal women. To more accurately reflect its broadened focus, in 1996,
the Company changed its name from "IVF America, Inc." to "IntegraMed America,
Inc."
For the three months ended March 31, 1997, the Company had a net loss of
$45,000. In 1996, the Company had a net loss of approximately $1.5 million,
largely due to non-recurring charges and operating losses of $581,000 associated
with the closing of the Westchester Network Site and to non-recurring charges
and operating losses of $522,000 associated with the establishment of the AWM
Division. The Westchester Network Site had a hospital-based agreement with the
Company that required the Company to rely on the hospital for the provision of
medical and support services, space and utilities. The Company determined to
terminate this arrangement at the Westchester Network Site because the Network
Site contribution at the Westchester Network Site did not compare favorably to
the Network Site contribution at other Medical Practices managed by the Company,
due, in part, to the lack of a formal management agreement with the physicians
and the Company's inability to provide both infertility and ART services at this
Network Site. Costs incurred for the AWM Division primarily related to physician
severance and to the development of two new medical office locations.
During the three months ended March 31, 1997, the Company derived
substantially all of its revenue pursuant to eight management agreements and
from the AWM Division. For the three months ended March 31, 1997, one of these
management agreements provided 32.5% of revenues and one other management
agreement and the AWM Division each comprised over 10% of the Company's
revenues. During 1996, the Company derived substantially all of its revenue
pursuant to eight management agreements, the Westchester Network Site agreement
and from the AWM Division. For the year ended December 31, 1996, one of these
management agreements provided 38.5% of revenues and two other agreements,
including the Westchester Network Site agreement which was terminated in
November 1996, each comprised over 10% of the Company's revenues.
Recent Acquisitions
During 1996 and the first half of 1997, the Company completed several
significant acquisition transactions. In May 1996, the Company acquired certain
assets of and the right to manage the Reproductive Science Center of Dallas in
Carrollton, Texas, a provider of conventional infertility and ART services. The
aggregate purchase
30
<PAGE>
price was approximately $701,500, consisting of $244,000 in cash and a $457,000
promissory note. In June 1996, the Company acquired all of the outstanding stock
of three related Florida corporations (collectively, the "Merger Companies") and
51% of the outstanding stock of the National Menopause Foundation, Inc. ("NMF"),
a related Florida corporation, to establish the AWM Division. In exchange for
the shares of the Merger Companies, the Company paid an aggregate of
approximately $2.9 million, consisting of $350,000 in cash and 666,666 shares of
Common Stock. In exchange for 51% of the outstanding stock of NMF, the Company
paid cash in an aggregate amount of $50,000 and issued a $600,000 promissory
note. In December 1996, the Company acquired W. Banks Hinshaw, Jr., M.D., P.A.,
a Florida professional association ("Hinshaw"), and merged Hinshaw's operations
into the AWM Division. The aggregate purchase price for Hinshaw was $465,200, of
which $235,200 was paid in cash and the balance is payable in four equal
installments of $55,000 commencing December 31, 1997. In January 1997, the
Company acquired certain assets of the Bay Area Fertility and acquired the right
to manage the Bay Area Fertility and Gynecology Medical Group, Inc., a
California professional corporation which is the successor to Bay Area
Fertility's medical practice (the "Bay Area Acquisition"). The aggregate
purchase price for the Bay Area Acquisition was approximately $2.1 million,
consisting of $1.5 million in cash and 333,333 shares of Common Stock.
In June 1997, the Company acquired certain assets of and the right to
manage the Reproductive Science Medical Center ("RSMC"), a California
professional corporation located near San Diego (the "San Diego Acquisition").
The aggregate purchase price for the San Diego Acquisition was approximately
$900,000, consisting of $50,000 in cash and 145,454 shares of Common Stock. An
additional $650,000 is payable upon the achievement of certain specified
milestones, at RSMC's option, in cash or in shares of the Company's Common
Stock, based on the closing market price of the Common Stock on the third
business day prior to issuance.
Pending Acquisition
In February 1997, the Company entered into agreements to acquire certain
assets of and the right to manage the Fertility Centers of Illinois, S.C.
("FCI"), a five physician group practice with six locations in the Chicago area
(the "Pending Acquisition"). The aggregate purchase price for the Pending
Acquisition is approximately $8.6 million, consisting of approximately $6.6
million in cash and approximately $2.0 million in shares of Common Stock (an
estimated 1,142,857 shares based on a per share price of $1.75), the exact
number of which will be determined based on the average market price of the
Common Stock for the ten trading day period prior to the third business day
prior to closing of the Pending Acquisition; but not more than $3.25 per share
or less than $1.75 per share. The Company intends to use a substantial portion
of the net proceeds of this offering to finance the Pending Acquisition. The
Pending Acquisition will be the largest acquisition by the Company to date. The
Company believes that the Pending Acquisition will represent a significant
revenue source for the Company. See "Use of Proceeds" and "Business -- The
Network Sites."
RSC Division
The operations of the RSC Division are currently conducted pursuant to
nine management agreements.
Under five of the Company's management agreements, the Company receives a
three-part management fee as compensation for its management services comprised
of: (i) a fixed percentage of net revenues generally equal to 6%, (ii)
reimbursed cost of services (costs incurred in managing a Network Site and any
costs paid on behalf of the Network Site) and (iii) a fixed or variable
percentage of earnings after the Company's management fees and any guaranteed
physician compensation, or an additional fixed or variable percentage of net
revenues which generally results in the Company receiving up to an additional
15% of net revenues. Direct costs incurred by the Company in performing its
management services and costs incurred on behalf of the Network Site are
recorded as cost of services rendered. The physicians receive as compensation
all earnings remaining after payment of the Company's management fee. The
Company's compensation pursuant to the management agreement relating to the
Pending Acquisition will also be determined and recorded in this manner.
Under the Company's management agreements for the Boston and Long Island
Network Sites, the Company consolidates its revenues and expenses with those of
the respective Network Sites. Under these agreements, the Company records all
clinical revenues and, out of such revenues, the Company pays the Medical
Practices' operating expenses including physicians' and other medical fees,
direct materials and
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certain hospital contract fees (the "Medical Practice retainage"). Remaining
revenues, if any, are used by the Company for other direct administrative
expenses which are recorded as cost of services or are retained by the Company
as a management fee. Under this arrangement, the Company is liable for payment
of all liabilities incurred by the Medical Practice and is at risk for any
losses incurred in the operation thereof. The Company has recently entered into
an agreement with respect to the Long Island Network Site pursuant to which the
Company will receive a fixed fee (initially equal to $240,000 per annum) and
reimbursed cost of services. The Company anticipates that this agreement will
become effective during the second half of 1997, subject to applicable
regulatory approvals and certain other conditions. If such approvals are not
obtained and conditions not met, the current agreement relating to the Long
Island Network Site will remain in effect.
Under the Company's management agreement for the New Jersey Network Site,
the Company primarily provides endocrine testing and administrative and finance
services for a fixed percentage of revenues, equal to 15% of net revenues, and
reimbursed costs of services. Under the management agreement for the Walter Reed
Network Site, the Company's revenues are derived from certain ART laboratory
services performed, and the Company bills patients directly for these services.
The Company's direct costs are reimbursed out of these revenues with the balance
representing the Company's Network Site contribution. All direct costs incurred
by the Company are recorded as cost of services.
The management agreements are typically for terms of ten to 20 years and
are generally subject to termination due to insolvency, bankruptcy or material
breach of contract by the other party. See "Business -- Management Services --
Network Site Agreements."
AWM Division
The AWM Division's operations are currently conducted through and owned by
the Women's Medical & Diagnostic Center, Inc., a Florida corporation and a
wholly-owned subsidiary of the Company. The Company bills and records all
clinical revenues of the AWM Division and records all direct costs incurred as
cost of services rendered. The Company retains as Network Site contribution an
amount determined using the three-part management fee calculation described
above. The remaining balance is paid as compensation to the employed physicians
and is recorded by the Company as cost of services rendered. The employed
physicians receive a fixed monthly draw which may be adjusted quarterly by the
Company based on the Network Site's actual operating results.
Revenues in the AWM Division also include amounts earned under contracts
relating to clinical trials performed by the AWM Division. The AWM Division has
contracted with major pharmaceutical companies to participate in clinical trials
to determine the safety and efficacy of drugs under development. Research
revenues are recognized pursuant to each respective contract in the period in
which the medical services (as stipulated by the clinical trial protocol) are
performed and collection of such fees is considered probable. Net realization is
dependent upon final approval by the sponsor that procedures were performed
according to trial protocol. Payments collected from sponsors in advance for
services are included in accrued liabilities, and costs incurred in performing
the clinical trials are included as cost of services rendered.
The Company's 51% interest in NMF is included in the Company's
consolidated financial statements. The Company records 100% of the revenues and
costs of NMF and reports 49% of any profits of NMF as minority interest on the
Company's consolidated balance sheet.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues for the three months ended March 31, 1997 (the "first quarter of
1997") were approximately $5.1 million as compared to approximately $4.2 million
for the three months ended March 31, 1996 (the "first quarter of 1996"), an
increase of 21.9%. This increase was directly attributable to revenues related
to new management agreements entered into the second quarter of 1996 and the
first quarter of 1997 under the RSC Division and to revenues related to the AWM
Division which was established in June 1996. In addition, certain existing
Network Sites had an increase in revenues in the first quarter of 1997 compared
to the first quarter of 1996. These favorable variances were partially offset by
the absence of the Westchester Network Site agreement which the Company
terminated in November 1996 and by an 8.8% decrease in revenues related to the
Boston Network Site attributable to lower volume at such Network Site.
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Medical Practice retainage, which represents physicians' and other medical
fees, direct materials, and certain hospital contract fees related to the Boston
and Long Island Network Sites in the first quarter of 1997 and to the Boston,
Long Island and Westchester Network Site in the first quarter of 1996, was
approximately $396,000 in the first quarter of 1997 as compared to approximately
$794,000 in the first quarter of 1996, a decrease of 50.1%, primarily due to the
absence of the Westchester Network Site agreement.
The increase in revenues and the decrease in Medical Practice retainage
resulted in an increase of approximately 38.8% in revenues after Medical
Practice retainage in the first quarter of 1997 compared to the first quarter of
1996.
Costs of services rendered were approximately $3.6 million in the first
quarter of 1997 as compared to approximately $2.6 million in the first quarter
of 1996, an increase of 41.0%. This increase was directly attributable to new
management agreements entered into in the second quarter of 1996 and the first
quarter of 1997 under the RSC Division and to the establishment of the AWM
Division. This increase was partially offset by the absence of costs from the
Westchester Network Site agreement. As a percentage of revenues, net costs of
services rendered increased to 71.0% in the first quarter of 1997 compared to
61.4% in the first quarter of 1996 primarily due to the costs incurred in
establishing the AWM Division.
Network Sites' contribution was approximately $1.1 million in the first
quarter of 1997 compared to $818,000 in the first quarter of 1996, an increase
of 31.7%, as a result of the revenue and cost variances discussed above. As a
percentage of revenues, Network Sites' contribution increased to 21.2% in the
first quarter of 1997 as compared to 19.6% in the first quarter of 1996.
General and administrative expenses for the first quarter of 1997 were
$918,000 compared to $855,000 in the first quarter of 1996, an increase of 7.4%.
Such increase was primarily attributable to costs associated with the new AWM
Division, partially offset by the absence of costs associated with the closing
of a regional office in late 1996.
Clinical service development expenses were $59,000 in the first quarter of
1997 compared to $67,000 in the first quarter of 1996, a decrease of 11.9%. Such
decrease was primarily due to a decrease in development costs related to genetic
and immature oocyte testing.
Amortization of intangible assets was $137,000 in the first quarter of
1997 as compared to $42,000 in the first quarter of 1996. This increase was
attributable to the Company's acquisitions in the second and fourth quarter of
1996 and the first quarter of 1997.
Interest income for the first quarter of 1997 was $34,000 compared to
$120,000 in the first quarter of 1996. This decrease was due to a lower cash
balance and to lower short-term interest rates.
The provision for income taxes primarily reflected Massachusetts income
taxes and New York capital taxes in the first quarter of 1997 and in the first
quarter of 1996, respectively.
Net loss was $45,000 in the first quarter of 1997 compared to a net loss
of $74,000 in the first quarter of 1996. This decrease in net loss was primarily
due to a $259,000 increase in contribution, partially offset by an increase of
$95,000 in amortization of intangible assets, an $86,000 decrease in interest
income, and a $63,000 increase in general and administrative expenses.
Calendar Year 1996 Compared to Calendar Year 1995
Revenues for 1996 were approximately $18.3 million as compared to
approximately $16.7 million for 1995, an increase of 9.8%. The increase in
revenues was due to revenues related to Network Sites acquired in the second and
fourth quarters of 1995 and the second quarter of 1996. In addition, the Company
experienced a 7.1% increase in revenue at the Boston Network Site and a 11.7%
increase in revenue at the Long Island Network Site, both of which were
attributable to an increase in volume at such Network Sites. The increase in
volume at the Long Island Network Site in 1996 was primarily attributable to
increased revenues generated from additional facility agreements entered into
with physicians at such Network Site in 1996. Also, the 1996 results reflect a
full year of operations at the Long Island Network Site as compared to 1995,
during which
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period such Network Site was closed for approximately five months to implement
operational changes at such Network Site. These increases were partially offset
by a 52.9% decrease in revenues related to the Westchester Network Site, which
closed in November 1996, and the effects of the Company's new management
contract related to the New Jersey Network Site, pursuant to which the Company's
revenues now consist of a fixed percentage of the New Jersey Network Site's
revenues and reimbursed costs of services, as opposed to a 100% of this Network
Site's revenues.
Medical Practice retainage for 1996 was approximately $2.7 million as
compared to approximately $3.1 million in 1995, a decrease of 12.5%, primarily
due to the decrease in volume and a negotiated reduction in hospital contract
fees at the Westchester Network Site, management contract changes related to the
New Jersey Network Site and to operational changes at the Long Island Network
Site. This decrease was partially offset by an increase in physician
compensation at the Boston Network Site attributable to the addition of a
physician who commenced services at such Network Site in July 1995 and to
renegotiated physician compensation at such Network Site.
The increase in revenues and the decrease in Medical Practice retainage
resulted in an increase of 14.8% in revenues after Medical Practice retainage in
1996 compared to 1995.
Cost of services rendered were approximately $12.4 million in 1996 as
compared to approximately $10.0 million in 1995, an increase of 24.2%. Such
increase was primarily due to the Network Sites acquired by the Company in the
second and fourth quarters of 1995 and the second quarter of 1996, and to a
$365,000 charge recorded in the third quarter of 1996 associated with closing
the Westchester Network Site. These increases were partially offset by the
effects of the new management contract related to the New Jersey Network Site,
which included the reversal of $120,000 in deferred rent, and lower occupancy
and direct material costs related to the Long Island Network Site due to the
relocation and operational changes effected at this Network Site in the second
quarter of 1995.
General and administrative expenses were approximately $4.3 million in
1996 as compared to approximately $3.7 million in 1995, an increase of 17.9%.
Such increase was primarily attributable to $522,000 of costs incurred primarily
in establishing the AWM Division and administrative costs attributable to the
opening of regional offices in the third quarter of 1995 and in 1996.
Clinical service development expenses, consisting of costs incurred under
the Company's development contracts, were approximately $323,000 in 1996 as
compared to approximately $290,000 in 1995, an increase of 11.4%. Such increase
was due to funding requirements pursuant to the Company's new collaborative
agreement with Monash University, which expenses were partially offset by a
decrease in development costs related to genetic and immature oocyte testing.
Amortization of intangible assets was approximately $331,000 in 1996 as
compared to approximately $73,000 in 1995 and principally represented the
amortization of the purchase price paid by the Company for the exclusive right
to manage Network Sites that were acquired in the second and fourth quarters in
1995 and the second quarter of 1996. The 1996 expense amount also included
goodwill and other intangible asset amortization related to the establishment of
the AWM Division in June 1996. At December 31, 1996, the Company's consolidated
financial statements reflect goodwill and other intangible assets of
approximately $5.9 million, which is being amortized over periods ranging from
three to 40 years. The Company anticipates that the Bay Area Acquisition and the
Pending Acquisition, as well as any future acquisitions, will involve the
recording of a significant amount of goodwill and intangible assets on its
balance sheet.
Interest income for 1996 was approximately $415,000 compared to
approximately $626,000 in 1995. This decrease was due to a lower cash balance
and lower short-term interest rates. See "-- Liquidity and Capital Resources."
The provision for income taxes primarily reflected Massachusetts income
taxes and New York capital taxes in 1996 and 1995.
Net loss was approximately $1.5 million in 1996 as compared to net income
of approximately $70,000 in 1995. This net loss was primarily due to a $397,000
decrease in Network Site contribution attributable to a $1.4 million decrease in
contribution related to the Westchester Network Site, inclusive of a $365,000
non-recurring charge to account for the closing of this Network Site, and a
decrease in contribution from the Boston
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Network Site, partially offset by significant increases in contribution from the
New Jersey and Long Island Network Sites. In addition, general and
administrative expenses increased by $659,000 largely due to non-recurring
charges associated with the establishment of the AWM Division, a $258,000
increase in amortization of intangible assets, and a $211,000 decrease in
interest income.
Calendar Year 1995 Compared to Calendar Year 1994
Revenues for 1995 were approximately $16.7 million as compared to
approximately $17.6 million for 1994, a decrease of 4.9%. The decrease in
revenues was attributable to two significant events. The first event was the
temporary closing in late February 1995 of the Long Island Network Site for
implementation of certain changes in its operational structure, including
relocating the facility and modifying certain agreements it has with Medical
Practices. The Long Island Network Site reopened in July 1995 at a new location
in Mineola. The second event was the new management contract with Saint Barnabas
Medical Center, effective in May 1995, involving the New Jersey Network Site,
pursuant to which the Company's revenues now consist of a fixed percentage of
the New Jersey Network Site's revenues and reimbursed costs of services, as
opposed to 100% of this Network Site's revenues. Unfavorable revenue variances
were partially offset by higher revenues associated with the Boston and
Westchester Network Sites, primarily attributable to increased volume and
patient service mix, respectively, and by revenues recorded pursuant to the
Company's management agreements with the Philadelphia, Kansas City and
Longmeadow Network Sites, all of which were acquired in 1995.
Medical Practice retainage for 1995 was approximately $3.1 million as
compared to approximately $3.8 million in 1994, a decrease of 19.9%, primarily
due to the two significant events described above.
The majority of the decrease in revenues was offset by the decrease in
Medical Practice retainage which resulted in less than a 1.0% decrease in
revenues after Medical Practice retainage earned in 1995 compared to 1994.
Cost of services rendered were approximately $10.0 million in 1995 as
compared to approximately $11.0 million in 1994, a decrease of 9.2%. Such
decrease was primarily due to the temporary closing of both the Long Island and
New Jersey Network Sites and to the new management contract with the New Jersey
Network Site, partially offset by additional costs recorded by the Company
pursuant to its management contracts with the Network Sites acquired in 1995. As
a percentage of revenues, cost of services decreased to 59.8% in 1995 compared
to 62.6% in 1994 due to the favorable variance in cost of services partially
offset by the unfavorable variance in revenues.
General and administrative expenses for 1995 were approximately $3.7
million as compared to approximately $3.4 million in 1994, an increase of 6.8%.
Such increase was primarily attributable to new regional offices and higher
marketing costs, partially offset by a decrease in consulting fees.
Clinical service development expenses were approximately $290,000 in 1995
as compared to approximately $452,000 in 1994, a decrease of 35.8%. Such
decrease was primarily due to lower expenses pursuant to the Company's
collaborative agreements with Monash University under which the Company made its
final funding in July 1994 under its original agreement and made its initial
funding under a new agreement entered into in July 1995, and a decrease in
development costs related to genetic and immature oocyte testing.
Amortization of intangible assets of $73,000 in 1995 represented the
amortization of the purchase price paid by the Company for the exclusive right
to manage certain of the Network Sites acquired in 1995 over the ten-year term
of each management agreement.
Interest income for 1995 was approximately $626,000 as compared to
approximately $519,000 in 1994 due to higher short-term interest rates.
The provision for income taxes in 1995 reflected Massachusetts income
taxes and New York capital taxes, and, in 1994, reflected Massachusetts income
taxes and Connecticut capital taxes.
Net income was approximately $70,000 in 1995 compared to a net loss of
approximately $814,000 in 1994. Such increase was primarily due to a $906,000
increase in Network Site contribution, a $162,000 decrease in clinical service
development expenses, and a $107,000 increase in interest income, partially
offset by a $233,000 increase in general and administrative costs and a $73,000
increase in amortization of intangible assets.
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Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. At March 31, 1997, the Company had working capital
of approximately $5.8 million (including $425,000 of controlled assets of
Medical Practices), approximately $3.4 million of which consisted of cash and
cash equivalents (including $65,000 of controlled cash) compared to working
capital of $7.1 million at December 31, 1996 (including $650,000 of controlled
assets of Medical Practices), approximately $6.0 million of which consisted of
cash and cash equivalents (including $191,000 of controlled cash) and short term
investments. The net decrease in working capital at March 31, 1997 was
principally due to payments of $1.5 million in cash as part of the purchase
price of the Bay Area Acquisition in addition to cash required to fund
operations, partially offset by an aggregate increase in receivables and other
current assets. See Note 2 of Notes to Consolidated Financial Statements.
In January 1997, the Company acquired certain assets of Bay Area Fertility
and the right to manage Bay Area Fertility and Gynecology Medical Group, Inc., a
California professional corporation which is the successor to Bay Area
Fertility's medical practice for an aggregate purchase price of approximately
$2.0 million, consisting of $1.5 million in cash and 333,333 shares of Common
Stock. In February 1997, the Company entered into agreements with respect to the
purchase of certain assets of and the right to manage FCI. The aggregate
purchase price for the Pending Acquisition is approximately $8.6 million, of
which approximately $6.6 million is payable in cash and approximately $2.0
million is payable in shares of Common Stock based on the average market price
of the Common Stock for the ten trading day period prior to the third business
day prior to closing, subject to a minimum and maximum price per share. The
Company intends to use a substantial portion of the net proceeds of this
offering to finance the Pending Acquisition. In June 1997, the Company acquired
certain assets of and the right to manage RSMC for an aggregate purchase price
of $900,000, consisting of $50,000 in cash and 145,454 shares of Common Stock.
An additional $650,000 is payable upon the achievement of certain specified
milestones, at RSMC's option, in cash or in shares of the Company's Common Stock
based on the closing market price of the Common Stock on the third business day
prior to issuance.
The Company anticipates that its acquisition strategy will continue to
require substantial capital investment. Capital is needed not only for
additional acquisitions, but also for the effective integration, operation and
expansion of the existing Network Sites. Under certain of its management
agreements, the Company has committed to provide a clinical laboratory. The
Medical Practices may require capital for renovation and expansion and for the
addition of medical equipment and technology. The Company expects that it will
need to obtain additional financing to pursue its acquisition strategy and
intends to obtain significant additional financing over the next two years to
fund such strategy.
Under certain of its management agreements, the Company is obligated to
advance funds to the Medical Practices to provide a minimum physician draw (up
to an aggregate of approximately $1.3 million per annum) and to provide new
services, utilize new technologies, fund projects, purchase the net accounts
receivable of the Medical Practice and for other purposes. Any advances are to
be repaid monthly and will bear interest at the prime rate used by the Company's
primary bank in effect at the time of the advance.
In November 1996, the Company obtained a $1.5 million revolving credit
facility (the "Credit Facility") issued by First Union National Bank (the
"Bank"). Borrowings under the Credit Facility bear interest at the Bank's prime
rate plus 0.75% per annum, which at June 5, 1997, was 9.25%. The Credit Facility
terminates on April 1, 1998 and is secured by the Company's assets. At June 5,
1997, $250,000 was outstanding under the Credit Facility. On a short-term basis,
the Company will continue to finance its operations from its current working
capital and may, from time to time, make additional borrowings under the Credit
Facility.
The Company has commitments to fund clinical services development pursuant
to various collaboration agreements. Effective July 1, 1995, the Company entered
into a new three-year agreement with Monash University that provides for Monash
to conduct research in ART services and techniques to be funded by a minimum
annual payment of 220,000 Australian dollars, the results of such research to be
jointly owned by the Company and Monash. If certain milestones are met as
specified in this agreement, the Company's annual payment may be a maximum of
300,000 Australian dollars in year two and 380,000 Australian dollars in year
three. Minimum payments of 55,000 Australian dollars and payments for the
attainment of certain research milestones will be made quarterly throughout the
term of this agreement. The Company expensed approximately $36,000, $48,000,
$189,000 and $88,000 under this agreement in the three months ended March 31,
1997 and 1996 and in the fiscal years ended December 31, 1996 and 1995,
respectively.
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In July 1996, the Company made a conversion offer to holders of the
Convertible Preferred Stock in order to strengthen the Company's capital
structure by reducing the number of shares of Convertible Preferred Stock
outstanding, with the concomitant elimination on all shares of Convertible
Preferred Stock converted of (i) the need to pay or accrue the $0.80 per share
cumulative annual dividend thereon and (ii) the $10.00 per share liquidation
preference thereon plus accumulated and unpaid dividends. As a result of the
conversion offer of the Convertible Preferred Stock, pursuant to which
approximately 78.6% of the Convertible Preferred Stock then outstanding was
converted into Common Stock, the Company reversed approximately $973,000 in
accrued dividends from its balance sheet and reversed the required accrual of
$486,000 in annual dividends and the requirement to include these dividends in
earnings per share calculations. As of June 16, 1997, dividend payments of
$397,000 were in arrears as a result of the suspension by the Board of Directors
of 12 consecutive quarterly dividend payments on the Convertible Preferred
Stock. The Company does not anticipate the payment of any dividends on the
Convertible Preferred Stock in the foreseeable future. See "Description of
Capital Stock -- Preferred Stock."
New Accounting Standards
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. The Company
periodically reviews the fair value of long-lived assets, the results of which
have had no material effect on the Company's financial position or results of
operations.
The Company also adopted SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), on January 1, 1996. Under SFAS 123, companies can,
but are not required to, elect to recognize compensation expense for all stock
based awards using a fair value method. The Company has adopted the disclosure
only provisions, as permitted by SFAS 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("SFAS 128"). The Company will adopt SFAS 128 for its
fiscal year ending December 31, 1997. The Company does not anticipate the effect
on earnings to be material.
Fluctuations in Quarterly Results
The Company's revenues are typically lower during the first quarter of the
Company's fiscal year. This lower level of revenues is primarily attributable to
the commencement of fertility treatment by the patients of the Medical Practices
at the beginning of the calendar year. Quarterly results also may be materially
affected by the timing of acquisitions and the timing and magnitude of costs
related to acquisitions. Therefore, results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.
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BUSINESS
Company Overview
IntegraMed America, Inc. (the "Company") is a physician practice
management company specializing in women's health care, with a focus on
infertility and assisted reproductive technology ("ART") services as well as
health care services to peri- and post-menopausal women. The Company provides
management services to a nationwide network of medical providers that currently
consists of ten sites (each, a "Network Site"). Each Network Site consists of a
location or locations where the Company has a management agreement with a
physician group or hospital (each, a "Medical Practice") which employs the
physicians or where the Company directly employs the physicians. In February
1997, the Company entered into a management agreement, effective following the
completion of this offering, with Fertility Centers of Illinois, S.C. ("FCI"),
one of the largest providers of infertility and ART services in the United
States (the "Pending Acquisition"). Upon consummation of the Pending
Acquisition, the Company's network will consist of 11 Network Sites and 21
locations.
Until 1996, the Company was focused exclusively on providing management
services to Medical Practices in the area of infertility and ART services.
During 1996, the Company, with the acquisition of a medical practice in Florida,
broadened its focus to include health care services to peri- and post-menopausal
women (ages 40-50 and over 50, respectively). As a result, the Company
established two divisions: the Reproductive Science Center Division (the "RSC
Division"), which provides management services to Medical Practices focused on
infertility and ART services, and the Adult Women's Medical Division (the "AWM
Division"), which provides management services to Medical Practices focused on
health care services for peri- and post-menopausal women.
Industry
Physician Practice Management
The health care industry in the United States is undergoing significant
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. Historically, health care in the United
States has been delivered through a fragmented system of health care providers.
Concerns over the accelerating costs of health care have resulted in
increased pressures from payors, including governmental entities and managed
care organizations, on providers of medical services to provide cost-effective
health care. Many payors are increasingly expecting providers of medical
services to develop and maintain quality outcomes through utilization review and
quality management programs. In addition, such payors typically desire that
physician practices share the risk of providing services through capitation and
other arrangements that 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 physician groups and sole practitioners at a significant
competitive disadvantage because they typically have high operating costs,
limited purchasing power with suppliers and limited abilities to purchase
expensive state-of-the-art equipment and invest cost- effectively in
sophisticated information systems.
In response to reductions in the levels of reimbursement by third-party
payors and the cost-containment pressures on health care providers, physicians
are increasingly seeking to affiliate with larger organizations, including
physician practice management companies, which manage the nonmedical aspects of
physician practices, such as billing, purchasing and contracting with payor
entities. In addition, affiliation with physician practice management companies
provides physician groups and sole practitioners with improved access to (i)
state-of-the-art laboratory facilities, equipment and supplies, (ii) the latest
technology and diagnostic and clinical procedures, (iii) capital and
informational, managerial and administrative resources and (iv) access to
managed care relationships.
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The trends that are leading physicians to affiliate with physician
practice management companies are magnified in the fields of reproductive
medicine and adult women's health care due to several factors, including (i) the
increasingly high level of specialized skills and technology required for
comprehensive patient treatment, (ii) the capital intensive nature of acquiring
and maintaining state of-the-art 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
seven-days-a-week service to respond to patient needs and to optimize the
outcomes of patient treatments.
Reproductive Medicine
Reproductive medicine encompasses several medical disciplines that focus
on male and female reproductive systems and processes. Within the field of
reproductive medicine, there are several subspecialties, such as obstetrics and
gynecology, infertility and reproductive endocrinology. While there are many
reasons why couples have difficulty conceiving, the single most prominent course
of infertility therapy involves management of the women's endocrine system to
optimize an opportunity for pregnancy. Most obstetricians perform ovulation
induction, and many gynecologists perform conventional infertility treatments.
Infertility specialists are gynecologists who perform more sophisticated medical
and surgical infertility treatments. Reproductive endocrinology refers to the
diagnosis and treatment of all hormonal problems that lead to abnormal
reproductive function or have an effect on the reproductive organs. 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.
Conventional infertility services include diagnostic tests performed on
the female, such as endometrial biopsy, laparoscopy/hysteroscopy examinations
and hormone screens, and diagnostic tests performed on the male, such as semen
analysis and tests for sperm antibodies. Depending on the results of the
diagnostic tests performed, conventional treatment options may include, among
others, fertility drug therapy, artificial insemination and infertility
surgeries. These conventional infertility services are not classified as ART
services. Current types of ART services include in vitro fertilization, gamete
intrafallopian transfer, zygote intrafallopian transfer, tubal embryo transfer,
frozen embryo transfer and donor egg programs. Current ART techniques used in
connection with ART services include intra-cytoplasmic sperm injection, assisted
hatching and cryopreservation of embryos.
According to The American Society for Reproductive Medicine, it is
estimated that approximately 9% of women between the ages of 15 and 44, or 5.3
million women, have impaired fertility and approximately 2.3 million of these
women seek care in any year. According to industry sources, expenditures related
to infertility services in 1995 exceeded $1 billion. The Company believes that
multiple factors over the past several decades have affected fertility levels. A
demographic shift in the United States toward the deferral of marriage and first
birth has increased the age at which women are first having children. This, in
turn, makes conception more difficult and increases the risks associated with
pregnancy, thereby increasing the demand for ART services. In addition, the
technological advances in the diagnosis and treatment of infertility have
enhanced treatment outcomes and the prognoses for many couples.
Traditionally, conventional infertility services generally have been
covered by managed care payors and indemnity insurance, while ART services have
been paid for directly by patients. Currently, there are several states that
mandate offering benefits of varying degrees for infertility services, including
ART services. In some states, the mandate is limited to an obligation on the
part of the payor to offer the benefit to employers. In Massachusetts, Rhode
Island, Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage
of conventional infertility services as well as ART services.
In the United States, there are approximately 38,000 OB/GYNs and
approximately 600 reproductive endocrinologists. There are approximately 300
facilities providing ART services in the United States, of which approximately
half are hospital-affiliated and half are free-standing physician practices.
Increasingly, hospital affiliated programs are moving out of the hospital and
into lower cost physician practice settings.
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Adult Women's Health Care
The wide range of medical conditions that frequently emerge in women in
menopause comprise a critical element of adult women's health care. When many
women reach menopause, they begin to experience a number of associated physical
and psychological conditions. For example, women entering menopause frequently
have a condition known as estrogen deficiency. Low levels of estrogen have been
associated with osteoporosis, cardiovascular disease, and metabolic and
endocrine disorders. Furthermore, women in menopause are at increased risk for a
number of other conditions, including various cancers, arthritis, urinary
incontinence and visual and hearing disorders. In addition to the range of
physical symptoms, women in menopause frequently experience psychological
disorders, including depression and other emotional problems.
In the United States, there are over 30 million peri-menopausal women
(ages 40-50) and over 47 million post-menopausal women (over age 50). An
additional 39 million women in the United States will reach age 50 over the next
10 years. Most women in the peri-menopausal range are asymptomatic, but have
underlying health issues that begin to emerge with the onset of menopause.
Traditionally, women in menopause have been treated by their OB/GYN with hormone
replacement therapy and are referred to a specialist if there is suspicion of
more complicated health problems. The additional conditions and symptoms
associated with menopause are typically treated by a disconnected array of other
physicians, including those specializing in primary care, endocrinology,
internal medicine, orthopedic medicine, psychiatry and others, often leading to
increased patient inconvenience and higher costs.
The Company believes there is a significant unmet medical need for a
comprehensive diagnostic and treatment approach to the broad range of medical
conditions that emerge in peri- and post-menopausal women. While a number of
physician practice management companies have developed a focus on obstetrics and
gynecology, the Company believes that there are currently no well organized
medical delivery systems that fully address the preventative and therapeutic
needs of peri- and post-menopausal woman. The Company believes that peri- and
post-menopausal women's health and well being can be vastly improved through a
comprehensive program of preventative and curative treatment and guidance.
Company Strategy
The Company's objective is to develop, manage and integrate a nationwide
network of Medical Practices specializing in the provision of high quality,
cost-effective women's health care services. The primary elements of the
Company's strategy include (i) establishing additional Network Sites, (ii)
further developing the AWM Division, (iii) increasing revenues at the Network
Sites, (iv) increasing operating efficiencies at the Network Sites and (v)
developing a nationwide, integrated information system.
Establishing Additional Network Sites
The Company intends to further develop its nationwide network of Medical
Practices by acquiring certain assets of and the right to manage leading
physician practices in the Company's two areas of focus. The Company will
primarily focus its acquisition activities on larger group practices operating
in major cities. The Company believes that a number of beneficial factors will
contribute to the successful expansion of its network. These factors include (i)
the high quality reputation of the Company in providing management services in
the areas of infertility and ART services and adult women's health care, (ii)
the Company's experience and expertise in increasing revenues and lowering costs
at its Medical Practices, (iii) the Company's success in improving patient
outcomes by providing management services to its Medical Practices and (iv) the
Company's affiliations and relationships with leading academic institutions,
health care companies and managed care organizations and other third-party
payors.
Further Developing the AWM Division
With the establishment of its current AWM Network Site, the Company has
developed a clinical care model whereby it can effectively provide the broad
range of medical services necessary for the treatment of peri- and
post-menopausal women. The Company's AWM Network Site offers a multidisciplinary
approach, integrating "under one roof" the physicians and other medical
specialists necessary for the prevention, diagnosis and treatment of peri- and
post-menopausal conditions. The Company intends to acquire and manage the
practices of leading gynecologists and integrate these practices with other
specialty physicians and
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professionals focused on adult women's health care. In addition, the Company
intends to continue to expand the participation of the AWM Division in the
clinical testing of new drugs to treat women's health care conditions and the
promotion of educational programs relating to menopause.
Increasing Revenues at the Network Sites
The Company intends to increase revenues derived under its management
agreement by assisting the Medical Practices in (i) adding additional physicians
to achieve multi-physician group practices with sizable market presence, (ii)
adding services offered at the Medical Practices which have previously been
outsourced, such as laboratory and ART services, (iii) increasing marketing and
practice development efforts and (iv) increasing the participation of the
Medical Practices in clinical trials of new drugs under development.
Increasing Operating Efficiencies at the Network Sites
The Company intends to increase the operating efficiencies of its current
Network Sites as well as future Network Sites to be acquired. By consolidating
the overhead of the Network Sites, including staffing, purchasing and financial
reporting and controls, the Company believes that it can significantly reduce
the time and costs associated with managing the operating and financial aspects
of individual Medical Practices. For example, Medical Practices will be able to
reduce the costs of supplies, drugs, equipment, services and insurance by
contracting through the Company on a consolidated group basis. In addition, by
eliminating the administrative and management burdens of running a Medical
Practice, the Company enables physicians to devote a greater portion of their
efforts and time to meeting the medical needs of their patients, which the
Company believes leads to improved clinical outcomes and greater patient
satisfaction at lower costs.
Develop a Nationwide, Integrated Information System
The Company plans to utilize its established base of Network Sites to
develop a nationwide, integrated information system to collect and analyze
clinical, patient, administrative and financial data. The Company believes it
will be able to use this data to control expenses, measure patient outcomes,
improve patient care, develop and manage utilization rates and maximize
reimbursements. The Company also believes an integrated information system will
allow the Medical Practices to more effectively compete for and price managed
care contracts, in large part because an information network can provide these
managed care organizations with access to patient outcomes and cost data.
Management Services
The Company provides comprehensive management services to support the
Medical Practices in each of its divisions. In particular, the Company provides
(i) administrative services, including accounting and finance, human resource
functions and purchasing supplies and equipment, (ii) access to capital, (iii)
marketing and practice development, (iv) information systems and assistance in
developing clinical strategies and (v) access to technology. These services
allow the physicians to devote a greater portion of their efforts and time to
meeting the medical needs of their patients, which the Company believes leads to
improved outcomes and greater patient satisfaction at lower costs.
Administrative Services
The Company provides all of the administrative services necessary for the
non-medical aspects of the Medical Practices, including (i) accounting and
finance services, such as billing and collections, accounts payable, payroll,
and financial reporting and planning, (ii) recruiting, hiring, training and
supervising all non-medical personnel, and (iii) purchasing of supplies,
pharmaceuticals, equipment, services and insurance. By providing the Medical
Practices relief from increasingly complex administrative burdens, the Company
enables physicians at the Medical Practices to devote their efforts on a
concentrated and continuous basis to the rendering of medical services.
Furthermore, the economies of scale inherent in a network system enable the
Company to reduce the operating costs of its affiliated Medical Practices by
centralizing certain management functions and by contracting for group
purchases.
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Access to Capital
The Company provides the Network Sites increased access to capital.
Increased access to capital allows for expansion and growth of the Medical
Practices, as well as the acquisition of state-of-the-art laboratory, diagnostic
and clinical facilities needed to conduct advanced procedures and to achieve
successful clinical outcomes. For example, many ART procedures, which are being
performed in hospital settings, result in higher costs and less revenues to the
physicians. By providing ART facilities, the Company enables Medical Practices
to reduce costs and increase revenues by removing these procedures from hospital
settings.
Marketing and Practice Development
In today's highly competitive health care environment, marketing and
practice development are essential for the growth and success of physician
practices. However, these marketing and development efforts are often too
expensive for many physician practice groups. Affiliation with the Company's
network provides physicians access to significantly greater marketing and
practice development capabilities than would otherwise be available. The
Company's marketing services focus on revenue and referral enhancement,
relationships with local physicians, media and public relations and managed care
contracting.
The Company believes that participation in its network will assist Medical
Practices in establishing contracts with managed care organizations. With
respect to the RSC Division, the Company believes that integrating infertility
physicians with ART facilities produces a full service Medical Practice that can
compete more effectively for managed care contracts. With respect to the AWM
Division, the Company believes that the clinical care model developed at the AWM
Network Site and the preventative nature of the services offered will be well
received by managed care organizations.
Information Systems and Clinical Strategies
The Company provides the Medical Practices with information systems and
assists Medical Practices in developing clinical strategies and implementing
quality assurance and risk management programs in order to improve patient care
and clinical outcomes. For example, the RSC Division has instituted a pregnancy
rate improvement program that focuses the physicians and laboratory technicians
on the principal elements necessary to achieve successful outcomes and
incorporates periodic quality review programs. The Company believes that this
program has contributed to improved pregnancy rates at the RSC Network Sites.
Physicians at the Medical Practices also can access a number of customized
practice and research based systems designed by the Company for analyzing
clinical data.
Access to Technology
By affiliating with the Company's network, Medical Practices gain access
to advanced technologies, as well as diagnostic and clinical procedures. For
example, through participation in clinical trials of new drugs under development
for major pharmaceutical companies, Medical Practices have the opportunity to
apply technologies developed in a research environment to the clinical setting.
Additionally, participation in clinical trials gives Medical Practices
preferential involvement in cutting edge therapies and provide these practices
with an additional source of revenue. Furthermore, the Company sponsors research
conducted at leading ART programs, including Monash University, Australia.
The Network Sites
Each of the Company's Network Sites consists of a location or locations
where the Company has a management agreement with a Medical Practice, which in
turn employs the physicians or where, in the case of the AWM Network Site, the
Company owns the Medical Practice and directly employs the physicians. All of
the Network Sites are managed by the Company except for the AWM Network Site
which is owned by the Company. At certain Network Sites, Medical Practices have
agreements with physicians who are not employed by the particular Medical
Practices or the Company for such physicians to use the Network Sites'
facilities.
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Current Network Sites
The Company currently has a nationwide network consisting of ten Network
Sites with 14 locations in eight states and the District of Columbia and 45
physicians. Upon consummation of the Pending Acquisition, the Company's network
will consist of 11 Network Sites with 21 locations in nine states and the
District of Columbia and 50 physicians. The following table describes in detail
each Network Site:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Initial
Number of Number of Management
Network Site City Locations Physicians(1) Contract Date
------------ ---- --------- ------------- -------------
<S> <C> <C> <C> <C>
RSC DIVISION
Reproductive Science Center of Boston Waltham, MA 2 6 July 1988
Reproductive Science Associates Mineola, NY 1 10 June 1990
(Long Island)
Institute of Reproductive Medicine and
Science of Saint Barnabas Medical Center Livingston, NJ 1 5 December 1991
Reproductive Science Center of
Greater Philadelphia Wayne, PA 2 7 May 1995
Reproductive Science Associates Kansas City, MO 1 2 November 1995
Reproductive Science Center of Walter Reed
Army Medical Center Washington, DC 1 5 December 1995
Reproductive Science Center of Dallas Carrollton, TX 1 1 May 1996
Reproductive Science Center of the Bay Area
Fertility and Gynecology Medical Group San Ramon, CA 1 3 January 1997
Fertility Centers of Illinois, S.C. Chicago, IL 6 5 Pending(2)
Reproductive Sciences Medical
Center of San Diego La Jolla, CA 2 2 June 1997
AWM DIVISION
Women's Medical & Diagnostic Center Gainesville, FL 3 4 June 1996 (3)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Includes physicians employed by the Medical Practices or the Company, as
well as physicians who have arrangements to utilize the Company's
facilities.
(2) On February 28, 1997, the Company entered into agreements to acquire
certain assets of and the right to manage FCI. See "-- Pending
Acquisition."
(3) Represents the date of acquisition of the AWM Network Site.
Recent Acquisitions
Since May 1996, the Company has acquired certain assets of four Medical
Practices to establish three new RSC Network Sites and directly acquired two
Medical Practices to establish the AWM Network Site.
In May 1996, the Company acquired certain assets of and the right to
manage the Reproductive Science Center of Dallas in Carrollton, Texas, a
provider of conventional infertility and ART services. The aggregate purchase
price was approximately $701,500, consisting of $244,000 in cash and a $457,500
promissory note.
In June 1996, the Company, through its wholly-owned subsidiary INMD
Acquisition Corp., acquired the Merger Companies and 51% of the outstanding
stock of NMF to establish the AWM Division. In exchange for the shares of the
Merger Companies, the Company paid cash in an aggregate amount of $350,000 and
issued 666,666 shares of Common Stock. In addition, Gerardo Canet was granted an
irrevocable proxy to vote the shares of Common Stock issued in the transaction
through September 30, 1997. In exchange for 51% of the outstanding stock of NMF,
the Company paid $50,000 and issued a $600,000 promissory note. In December
1996, the Company acquired Hinshaw and merged Hinshaw's operations into the AWM
Division. The aggregate purchase price for Hinshaw was $465,200, of which
$235,200 was paid in cash and the balance is
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payable in four equal installments of $55,000 commencing December 31, 1997.
Effective March 31, 1997, Morris Notelovitz, M.D., Ph.D., the principal
stockholder of the Merger Companies, terminated his employment arrangement with
the Company. See "Management -- Executive Officers and Directors."
In January 1997, the Company acquired certain assets of the Bay Area
Fertility and acquired the right to manage the Bay Area Fertility and Gynecology
Medical Group, Inc., a California professional corporation which is the
successor to Bay Area Fertility's medical practice. The aggregate purchase price
was approximately $2.1 million, consisting of $1.5 million in cash and 333,333
shares of Common Stock.
In June 1997, the Company acquired certain assets of and the right to
manage RSMC. The aggregate purchase price for the San Diego Acquisition was
approximately $900,000, consisting of $50,000 in cash and 145,454 shares of
Common Stock. An additional $650,000 is payable upon the achievement of certain
specified milestones, at RSMC's option, in cash or in shares of the Company's
Common Stock, based on the closing market price of the Common Stock on the third
business day prior to issuance. In addition, RSMC granted Gerardo Canet an
irrevocable proxy to vote the shares of Common Stock issued to it in the San
Diego Acquisition with respect to the election of directors and certain other
matters for a two year period from the date of issuance of such shares.
Pending Acquisition
In February 1997, the Company entered into agreements to acquire certain
assets of and the right to manage FCI, a physician group practice comprised of
five physicians and six locations in the Chicago, Illinois area. The aggregate
purchase price for the Pending Acquisition is approximately $8.6 million,
approximately $6.6 million of which is payable in cash and approximately $2.0
million of which is payable in shares of Common Stock, the exact number of which
will be determined based on the average market price of the Common Stock for the
ten trading day period on the third business day prior to closing of the Pending
Acquisition, subject to a minimum and maximum price per share. The Company has
agreed to cause a nominee of FCI to be appointed as a director of the Company
upon consummation of the Pending Acquisition and nominated as a director of the
Company at the first annual meeting of stockholders after consummation of the
Pending Acquisition. In addition, FCI will grant Gerardo Canet an irrevocable
proxy to vote the Common Stock issued to it in the Pending Acquisition with
respect to the election of directors and certain other matters for a two-year
period following the closing of the Pending Acquisition. The closing of the
Pending Acquisition is conditioned upon the Company's raising at least $6.0
million in capital by August 28, 1997 and other customary closing conditions.
The Company intends to use a substantial portion of the proceeds of this
offering to finance the Pending Acquisition. The Pending Acquisition will be the
largest acquisition by the Company to date. The Company's net revenues for the
three months ended March 31, 1997 and for the fiscal year ended December 31,
1996, giving pro forma effect to the acquisitions completed in 1996 and 1997
(other than the San Diego Acquisition) and the Pending Acquisition as if such
acquisitions were consummated as of January 1, 1996 and 1997, respectively,
would have been approximately $6.4 million and $27.5 million, respectively, an
increase of 28.0% and 49.4% as compared to the Company's actual revenues for the
three months ended March 31, 1997 and for the fiscal year ended December 31,
1996 of approximately $5.0 million and $18.3 million, respectively. See
"Selected Consolidated and Pro Forma Combined Financial Data."
The Company is evaluating and is engaged in discussions with regard to
several potential acquisitions. However, except with respect to the Pending
Acquisition, the Company has no agreements relating to any acquisitions and
there can be no assurance that any definitive agreements will be entered into by
the Company or that any additional acquisitions will be consummated. See "--
Company Strategy."
Clinical and Medical Services
RSC Network Sites
The RSC Network Sites offer conventional infertility and ART services and
the majority of the RSC Network Sites have a state-of-the-art laboratory
providing the necessary diagnostic and therapeutic services. Multi-disciplinary
teams help infertile couples identify and address distinct physical, emotional,
psychological and financial issues related to infertility. Following a
consultation session, a patient couple is advised as to the treatment that has
the greatest probability of success in light of the couple's specific
infertility problem. At this point, a couple may undergo conventional
infertility treatment or, if appropriate, may directly undergo ART treatment.
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Infertility and ART Services
Conventional infertility procedures include diagnostic tests performed on
the female, such as endometrial biopsy, post-coital test, laparoscopy
examinations as well as hormone screens, and diagnostic tests performed on the
male, such as semen analysis and tests for sperm antibodies. Depending on the
results of the diagnostic tests performed, conventional services may include
fertility drug therapy, tubal surgery and intrauterine insemination ("IUI"). IUI
is a procedure utilized generally to address male factor or unexplained
infertility. Depending on the severity of the condition, the man's sperm is
processed to identify the most active sperm for insemination into the woman, who
must have a normal reproductive system for this procedure. Such conventional
infertility services are not classified as ART services and are traditionally
performed by infertility specialists.
Current types of ART services include in vitro fertilization ("IVF"),
gamete intrafallopian transfer ("GIFT"), zygote intrafallopian transfer
("ZIFT"), tubal embryo transfer ("TET"), frozen embryo transfer ("FET") and
donor egg programs. IVF 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 inserting an egg and sperm
directly into a woman's fallopian tube with a resulting embryo floating into the
uterus. ZIFT and TET are procedures in which an egg is fertilized in the
laboratory and the resulting embryo is then transferred to the woman's fallopian
tube. ZIFT and TET are identical except for the timing of the transfer of the
embryo. FET is a procedure whereby previously harvested embryos are transferred
to the woman's uterus. 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. Current techniques used in connection with ART services include
intra-cytoplasmic sperm injection, assisted hatching and cryopreservation of
embryos.
Development of New Clinical Services
Since 1989, the Company has sponsored research by Monash University in
Melbourne, Australia ("Monash") relating to the development of new ART services
and techniques. In July 1995, the Company entered into a three-year agreement
with Monash University which provides for Monash to conduct research in ART and
human fertility to be funded by a minimum annual payment of 220,000 Australian
dollars by the Company, the results to be jointly owned by the Company and
Monash. If certain milestones are met as specified in the agreement, the
Company's annual payment may be a maximum of 300,000 Australian dollars in year
two and 380,000 Australian dollars in year three. Minimum payments of 55,000
Australian dollars and payments for the attainment of certain research
milestones will be made quarterly throughout the term of the agreement from July
1, 1995 until June 30, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." This research led to the world's first birth of a healthy infant
from immature oocyte (egg) technology in 1994. Immature oocyte services involve
using transvaginal ultrasound-guided aspiration to obtain immature oocytes from
a woman's ovaries, maturing and fertilizing of the oocytes in vitro and
transferring one or more of the resulting embryos into the woman's uterus for
development of a possible pregnancy. The Company anticipates that this
technology may, in certain circumstances, facilitate treatment of infertility by
stimulating follicular development without the use of drugs.
The Company also has sponsored research by Genzyme Genetics, a division of
Genzyme Corp., relating to preimplantation embryo genetic testing (the fusion of
advances in genetic testing and embryology). Pursuant to the terms of the
agreement, each party was required to fund certain costs relating to the
research projects as well as to contribute up to an aggregate of $300,000 to
fund the joint development program. This agreement terminated in December 1996.
The Company retains the right to technology developed prior to the termination.
The Company believes that preimplantation embryo genetic testing could
potentially offer infertile couples utilizing ART services a higher probability
of the birth of a healthy baby after fertilization, as well as offer fertile
couples at high risk of transmitting a genetic disorder the option to utilize
ART services to achieve pregnancy with a higher degree of certainty that the
fetus will be free of the genetic disorder for which it was tested.
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Laboratory Services
At a majority of the RSC Network Sites, facilities are available for
Medical Practices to perform diagnostic endocrine and andrology laboratory tests
on patients receiving infertility and ART services. Endocrine tests assess
female hormone levels in blood samples, while andrology tests analyze semen
samples. These tests are often used by the physician to determine an appropriate
treatment plan. In addition, the majority of the RSC Network Sites generate
additional revenue by providing such endocrine and andrology laboratory tests
for non-affiliated physicians in the geographic area.
AWM Network Site
The Company's AWM Network Site represents the clinical care model for
future AWM Network Sites. The AWM Network Site focuses on the identification and
treatment needs of peri- and post-menopausal women and incorporates both
preventative and curative health care. The AWM Network Site combines specialty
physicians and other health professionals to offer a multidisciplinary approach
to the diagnosis and treatment of health care problems common to peri- and
post-menopausal women. Such problems include cardiovascular disease,
incontinence, osteoporosis, metabolic and endocrine conditions, and emotional
and psychological disorders. The Company currently employs two OB/GYNs, one
family practice physician and one radiologist at the AWM Network Site and has
entered into arrangements with a nutritionist, a physical therapist and a
psychologist.
The AWM Division concentrates its efforts in the following three areas:
clinical care, clinical research and educational programs.
Clinical Care
The AWM Division has adopted a clinical care model based on the fact that
the health risk factors of peri- and post-menopausal women can be objectively
measured and once identified, treated. Clinical services include complete
cardiovascular assessment, urodynamic analysis, bone densitometry, hormone
replacement therapy, physical therapy, exercise stress testing, nutrition
assessment/dietary recommendation, psychological/sexual counseling, as well as
mammography and laboratory tests designed to provide early detection of cancers
of the breast, colon and reproductive organs.
Recent studies have indicated that with proper preventive medical care,
lifestyle changes, diet and exercise, the health risk factors of women aged 40
to 65 can be significantly reduced. Early intervention can reduce the risk
factors for osteoporosis and heart disease, and early detection of problems such
as breast and other cancers can increase survival rates.
Clinical services are provided at the AWM Network Site by physicians and
health professionals who specifically focus on peri- and post-menopausal women.
The Company believes that the provision of medical services by physicians
familiar with the diagnosis and treatment of the symptoms and conditions that
develop at menopause will result in improved quality of patient care.
Additionally, the Company believes that having physicians with a number of
specializations available at the same location should lead to improved patient
convenience and satisfaction. The Company also believes that the focus on
preventive treatment and cost-containment at the AWM Network Site will be well
received by managed care organizations and other third-party payors.
Clinical Research
The AWM Division contracts with major pharmaceutical companies to perform
clinical trials on new drugs under development to determine the safety and
efficacy of such drugs. Since June 1996, the AWM Division has been involved in
24 clinical trials with 14 pharmaceutical companies. The Company believes that
participation in these clinical trials provides access to advanced therapies for
patients not otherwise readily available and generates additional revenue for
the Company and the Medical Practices. The Company believes that pharmaceutical
companies retain the physicians at the Medical Practices to conduct clinical
trials due to the quality of such physicians, the Company's ability to recruit
subjects for the clinical trials, and the Company's experience with the clinical
protocols and record keeping necessary for such clinical trials.
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Educational Programs
The AWM Division offers multifaceted educational programs designed to
increase patient compliance, attract new patients and educate peri- and
post-menopausal women on related health care and quality of life issues. For
example, the AWM Division offers support groups, lectures, resource materials
and products designed specifically for the needs of adult women. The AWM
Division also publishes the Women's Health Digest, a quarterly publication which
is distributed nationally and includes articles on traditional and
non-traditional medical therapies as well as important breakthroughs in women's
health care and topics that enhance the quality of life. In addition, the AWM
Division has a 1-900 number available to answer common questions women have
regarding their own health.
Network Site Agreements
In establishing a Network Site in states in which there are prohibitions
restricting commercial enterprises from owning medical service companies, the
Company typically (i) acquires certain assets of a Medical Practice, (ii) enters
into a long-term management agreement with the Medical Practice under which the
Company provides comprehensive management services to the Medical Practice,
(iii) requires that the Medical 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 Medical Practice. Typically, the Medical Practice contracting
with the Company is a professional corporation of which the physicians are the
sole shareholders.
Management Agreements
Typically, the management agreements obligate the Company to pay a fixed
sum for the exclusive right to manage the Medical Practice, a portion or all of
which is paid at the contract signing with any balance to be paid in future
annual installments. The agreements are typically for terms of ten to 20 years
and are generally subject to termination due to insolvency, bankruptcy or
material breach of contract by the other party. Generally, no shareholder of the
Medical Practice may assign his interest in the Medical Practice without the
Company's prior written consent.
The management agreements provide that all patient medical care at a
Network Site is provided by the physicians at the Medical Practice and that the
Company generally is responsible for the management and operation of all other
aspects of the Network Site. The Company provides the equipment, facilities and
support necessary to operate the Medical Practice and employs substantially all
such other non physician personnel as are necessary to provide technical,
consultative and administrative support for the patient services at the Network
Site. Under certain management agreements, the Company is committed to provide a
clinical laboratory. Under the management agreements, the Company may also
advance funds to the Medical Practice to provide new services, utilize new
technologies, fund projects, purchase the net accounts receivable, provide
working capital or fund mergers with other physicians or physician groups.
Under the Company's current form of management agreement, which is in use
at five Network Sites and is the form used in the Pending Acquisition, the
Company receives as compensation for its management services a three-part
management fee comprised of: (i) a fixed percentage of net revenues generally
equal to 6%, (ii) reimbursed cost of services (costs incurred in managing a
Network Site and any costs paid on behalf of the Network Site) and (iii) a fixed
or variable percentage of earnings after the Company's management fees and any
guaranteed physician compensation, or an additional fixed or variable percentage
of net revenues which generally results in the Company receiving up to an
additional 15% of net revenues.
Under another form of management agreement, which is in use at two Network
Sites, the Company is entitled to receive all clinical revenues and, out of such
revenues, the Company pays all expenses of the Medical Practice relating to the
operation of the Network Site including physicians' and other medical fees,
direct materials and certain hospital contract fees. The Company has recently
entered into an agreement with respect to the Long Island Network Site pursuant
to which the Company will receive a fixed fee (initially equal to $240,000 per
annum) and reimbursed cost of services. The Company anticipates that this
agreement will become effective during the second half of 1997, subject to
applicable regulatory approvals and certain other conditions. If such approvals
are not obtained and conditions not met, the current agreement relating to the
Long Island Network Site will remain in effect.
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In addition, two of the Company's Network Sites are affiliated with
medical centers. Under one of these management agreements, the Company primarily
provides endocrine testing and administrative and finance services for a fixed
percentage of revenues, equal to 15% of net revenues, and reimbursed costs of
services. Under the second of these management agreements, the Company's
revenues are derived from certain ART laboratory services performed; the Company
directly bills patients for these services, and out of these revenues, the
Company pays its direct costs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview -- RSC Division."
Physician Employment Agreements
Physician employment agreements between the Medical Practices and the
physicians generally provide for an initial term ranging from three to five
years, which may be automatically renewed for successive intervals unless the
physician or the Medical Practice elects not to renew or such agreement is
otherwise terminated for cause or the death or disability of a physician. The
physicians are paid based upon either the number of procedures performed or
other negotiated formulas agreed upon between the physicians and the Medical
Practices, and the Medical Practices provide the physicians with health, death
and disability insurance and other benefits. The Medical Practices are obligated
to obtain and maintain professional liability insurance coverage which is
procured on behalf of the physicians. Pursuant to the employment agreements, the
physicians agree not to compete with the Medical Practices with whom they have
contracted during the term of the agreement and for a certain period following
the termination of such employment agreement. In addition, the agreements
contain customary confidentiality provisions.
In Florida, where the Company's current AWM Network Site is located, there
are currently no prohibitions restricting commercial enterprises from owning
medical service companies. As a result, the Company was able to acquire a direct
ownership interest in the Medical Practice at the AWM Network Site. The Company
entered into employment agreements (containing customary non-compete provisions)
directly with the physicians at the AWM Network Site. In the event a physician's
employment agreement is terminated for any reason other than death or permanent
disability of the physician during the first five years, the Company is entitled
to receive from the physician any unamortized purchase price paid by the Company
to acquire the exclusive right to manage the Medical Practice.
Personal Responsibility Agreements
In order to protect its investment and commitment of resources, the
Company has entered into a Personal Responsibility Agreement (a "PR Agreement")
with each of the physicians in connection with the Bay Area Acquisition and with
the physician shareholder in connection with the San Diego Acquisition. If the
physician should cease to practice medicine through the respective contracted
Medical Practice during the first five years of the related management
agreement, except as a result of death or permanent disability, the PR Agreement
obligates the physician to repay a ratable portion of the fee paid by the
Company to the Medical Practice for the exclusive right to manage such Medical
Practice. The PR Agreement also contains covenants for the physician not to
compete with the Company during the term of his or her employment agreement with
the Medical Practice and for a certain period thereafter. Upon consummation of
the Pending Acquisition, the Company will have PR Agreements with each of the
physicians at FCI. In appropriate circumstances, the Company may enter into such
agreements with physicians in connection with future acquisitions.
Affiliate Care/Satellite Service Agreements
Medical Practices at the Network Sites may also have affiliate care
agreements and satellite service agreements with physicians who are not employed
by the Medical Practices or the Company located in the geographic area of the
Network Sites. Under an affiliate care agreement, the Medical Practice contracts
with a physician for the Medical Practice to provide certain ART services for
the physician's patients. Under a satellite service agreement, the Medical
Practice contracts with a physician for such physician to provide specific
services for the Medical Practice's patients, such as ultrasound monitoring,
blood drawing and endocrine testing.
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Reliance on Third-Party Vendors
The RSC Network Sites are dependent on three third-party vendors that
produce fertility medications (Lupron, Metrodin and Fertinex) that are vital to
the provision of infertility and ART services. Should any of these vendors
experience a supply shortage, it may have an adverse impact on the operations of
the RSC Network Sites. To date, the RSC Network Sites have not experienced any
such adverse impacts.
Competition
The business of providing health care 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. The Company experiences competitive pressures for
the acquisition of the assets of, and the provision of management services to,
additional Medical Practices. Although the Company focuses on physician
practices that provide infertility, ART and adult women's health care services,
it competes for management contracts with other physician practice management
companies, including those focused on infertility and ART 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 seeking 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, Medical Practices on terms beneficial to the
Company.
The infertility industry is highly competitive and characterized by
technological improvements. New ART services and techniques may be developed
that may render obsolete the ART services and techniques currently employed at
the RSC Network Sites. Competition between Medical Practices in the areas of
infertility and ART services is largely based on pregnancy rates and other
patient outcomes. Accordingly, the ability of a Medical Practice to compete is
largely dependent on its ability to achieve adequate pregnancy rates and patient
satisfaction levels.
A number of physician practice management companies have emerged with a
focus on routine obstetrics and gynecology. In addition, other health care
corporations, medical providers and physician practice management companies may
decide to enter into the adult women's health care market, particularly if the
Company's concept to establish a multi-disciplinary approach to treat peri- and
post-menopausal women gains market acceptance. In addition, private practice
physician groups often contract with pharmaceutical companies to perform
clinical trials relating to women's health care. These physician group practices
compete with the AWM Network Site in obtaining contracts for clinical trials.
Effects of Third-Party Payor Contracts
Traditionally, ART services have been paid for directly by patients and
conventional infertility services have been largely covered by indemnity
insurance or managed care payors. Currently, there are several states that
mandate offering certain benefits of varying degrees for infertility and ART
services. In some cases, the mandate is limited to an obligation on the part of
the payor to offer the benefit to employers. In Massachusetts, Rhode Island,
Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage of
conventional infertility services as well as certain ART services.
Over the past few years much attention has been focused on clinical
outcomes in managed care. Infertility is a disorder which naturally lends itself
to developing a managed care plan. First, infertility has a clearly defined
endpoint: an infertile couple either conceives or does not conceive. Second, the
treatment regimens and protocols used for treating infertile couples have
predictable outcomes that make it possible to develop statistical tables for the
probability of success. Third, it is possible to develop rational treatment
plans over a limited period of time for infertile couples. However, there can be
no assurance that third-party payors will increase reimbursement coverage for
ART services. See "-- Government Regulation."
The RSC Division has invested in information technology that takes into
consideration the cost structure of a full service practice, the probability of
achieving clinical success, and defined treatment plans which result in improved
outcomes and reduced costs. The Company estimates that the majority of the
couples participating
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in infertility and ART services at an RSC Network Site, other than in
Massachusetts, have greater than 50% of their costs reimbursed by their health
care insurance carrier. In Massachusetts, where comprehensive infertility and
ART services insurance reimbursement is mandated, virtually all patient costs
are reimbursed.
The majority of diagnostic and therapeutic services offered through the
Company's AWM Division are currently covered by third-party payors. As these
services emphasize prevention and screening, the Company believes that they will
continue to be covered by third-party payors.
Government Regulation
As a participant in the health care industry, the Company's operations and
its relationships with the Medical Practices are subject to extensive and
increasing regulation by various governmental entities at the federal, state and
local levels. The Company believes its operations and those of the Medical
Practices are in material compliance with applicable health care laws.
Nevertheless, the laws and regulations in this area are extremely complex and
subject to changing interpretation and many aspects of the Company's business
and business opportunities have not been the subject of federal or state
regulatory review or interpretation. Accordingly, there is no assurance that the
Company's operations have been in compliance at all times with all such laws and
regulations. In addition, there is no assurance that a court or regulatory
authority will not determine that the Company's past, current or future
operations violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, there could
be a material adverse effect on the Company's business, financial condition and
operating results. Thus, there can be no assurance that such laws will be
interpreted in a manner consistent with the Company's practices. There can be no
assurance that a review of the Company or the Medical Practices by courts or
regulatory authorities will not result in a determination that would require the
Company or the Medical Practices to change their practices. There also can be no
assurance that the health care regulatory environment will not change so as to
restrict the Company's or the Medical Practices' existing operations or their
expansions. Any significant restructuring or restriction could have a material
adverse effect on the Company's business, financial condition and operating
results.
Corporate Practice of Medicine Laws. The Company's operations in
Massachusetts, New York, New Jersey, Pennsylvania, District of Columbia, Texas,
California and Illinois (in the event the Pending Acquisition is consummated),
are subject to prohibitions relating to the corporate practice of medicine. The
laws of these states prohibit corporations other than professional corporations
or associations from practicing medicine or exercising control over physicians,
and prohibit physicians from practicing medicine in partnership with, or as
employees of, any person not licensed to practice medicine and prohibit a
corporation other than professional corporations or associations from acquiring
the goodwill of a medical practice. In the context of management contracts
between a corporation not authorized to practice medicine and the physicians or
their professional entity, the laws of most of these states focus on the extent
to which the corporation exercises control over the physicians and on the
ability of the physicians to use their own professional judgment as to diagnosis
and treatment. The Company believes its operations are in material compliance
with applicable state laws relating to the corporate practice of medicine. The
Company performs only non-medical administrative services, and in certain
circumstances, clinical laboratory services. The Company does not represent to
the public that it offers medical services, and the Company does not exercise
influence or control over the practice of medicine by physicians with whom it
contracts in these states. In each of these states, the Medical Practice is the
sole employer of the physicians, and the Medical Practice retains the full
authority to direct the medical, professional and ethical aspects of its medical
practice. However, although the Company believes its operations are in material
compliance with applicable state corporate practice of medicine laws, the laws
and their interpretations vary from state to state, and they are enforced by
regulatory authorities that have broad discretionary authority. There can be no
assurance that these laws will be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in the
future that could have a material adverse effect on the Company's business,
financial condition and operating results. If a corporate practice of medicine
law is interpreted in a manner that is inconsistent with the Company's
practices, the Company would be required to restructure or terminate its
relationship with the applicable Medical Practice in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could result in fines
or a loss of revenue that could have a material adverse
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effect on the Company's business, financial condition and operating results. In
addition, expansion of the Company's operations to new jurisdictions could
require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with additional
state statutes.
Fee-Splitting Laws. The Company's operations in the states of New York,
California and, potentially, Illinois are subject to express fee-splitting
prohibitions. The laws of these states prohibit physicians from splitting
professional fees with non-physicians and health care professionals not
affiliated with the physician performing the services generating the fees. In
New York, this prohibition includes any fee the Company may receive from the
Medical Practices which is set in terms of a percentage of, or otherwise
dependent on, the income or receipts generated by the physicians. In certain
states, such as California and New York, any fees that a non-physician receives
in connection with the management of a physician practice must bear a reasonable
relationship to the services rendered, based upon the fair market value of such
services. Under Illinois law, the courts have broadly interpreted the
fee-splitting prohibition in that state to prohibit compensation arrangements
that include (i) fees that a management company may receive based on a
percentage of net profits generated by physicians, despite the performance of
legitimate management services, (ii) fees received by a management company
engaged in obtaining referrals for its physician where the fees are based on a
percentage of certain billings collected by the physician and (iii) purchase
price consideration to a seller of a medical practice based on a percentage of
the buyer's revenues following the acquisition. Several of the other states
where the Company has operations, such as Texas and New Jersey, do not expressly
prohibit fee-splitting but do have corporate practice of medicine prohibitions.
In these states, regulatory authorities frequently interpret the corporate
practice of medicine prohibition to encompass fee-splitting, particularly in
arrangements where the compensation charged by the management company is not
reasonably related to the services rendered.
The Company believes that its current operations are in material
compliance with applicable state laws relating to fee-splitting prohibitions.
However, there can be no assurance that these laws will be interpreted in a
manner consistent with the Company's practices or that other laws or regulations
will not be enacted in the future that could have a material adverse effect on
the Company's business, financial condition and operating results. If a
fee-splitting law is interpreted in a manner that is inconsistent with the
Company's practices, the Company could be required to restructure or terminate
its relationship with the applicable Medical Practice in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could have a material
adverse effect on the Company's business, financial condition and operating
results. In addition, expansion of the Company's operations to new jurisdictions
could require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with additional
state statutes.
With respect to the Pending Acquisition in Illinois, the management
agreement between the Company and the affiliated Medical Practice provides that
the Company will be paid a base fee equal to a fixed percentage of the revenues
at the Network Site and, as additional compensation, an additional variable
percentage of such revenues that declines to zero to the extent the costs
relating to the management of the Medical Practice increase as a percentage of
total revenues. The Company and the Medical Practice have agreed that if such
compensation arrangement were found to be illegal, unenforceable, against public
policy or forbidden by law, the management fee would be an annual fixed fee to
be mutually agreed upon, not less than $1,000,000 per year, retroactive to the
effective date of the agreement. In such event, the management fees derived from
this Medical Practice may decrease. There is a substantial risk that the
compensation arrangement, being based upon a percentage of revenues, would not
be upheld if challenged. Moreover, if the management agreement were amended to
provide for an annual fixed fee payable to the Company, the contribution from
this Network Site could be materially reduced.
Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
Currently less than 5% of the revenues of the Medical Practices are derived from
Medicare and none of such revenues are derived from Medicaid. Federal law (the
"Federal Antikickback Law") prohibits, with some exceptions, the solicitation or
receipt of remuneration in exchange for, or the offer or payment of remuneration
to induce, the referral of federal health care program beneficiaries, including
Medicare or Medicaid patients, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by Medicare,
Medicaid and other federal and state health programs.
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With respect to the Federal Antikickback Law, the OIG has promulgated
regulatory "safe harbors" under the Federal Antikickback Law that describe
payment practices between health care providers and referral sources that will
not be subject to criminal prosecution and that will not provide the basis for
exclusion from the federal health care programs. Relationships and arrangements
that do not fall within the safe harbors are not illegal per se, but will
subject the activity to greater governmental scrutiny. Many of the parties with
whom the Company contracts refer or are in a position to refer patients to the
Company. Although the Company believes that it is in material compliance with
the Federal Antikickback Law, there can be no assurance that such law or the
safe harbor regulations promulgated thereunder will be interpreted in a manner
consistent with the Company's practices. The breadth of the Federal Antikickback
Law, the paucity of court decisions interpreting the law and the safe harbor
regulations, and the limited nature of regulatory guidance regarding the safe
harbor regulations have resulted in ambiguous and varying interpretations of the
Federal Antikickback Law. The OIG or the Department of Justice ("DOJ") could
determine that the Company's past or current policies and practices regarding
its contracts and relationships with the Medical Practices violate the Federal
Antikickback Law. In such event, no assurance can be given that the Company's
interpretation of these laws will prevail. The failure of the Company's
interpretation of the Federal Antikickback Law to prevail could have a material
adverse effect on the Company's business, financial condition and operating
results.
Federal Referral Laws. Federal law also prohibits, with some exceptions,
physicians from referring Medicare or Medicaid patients to entities for certain
enumerated "designated health services" with which the physician (or members of
his or her immediate family) has an ownership or investment relationship, and an
entity from filing a claim for reimbursement under the Medicare or Medicaid
programs for certain enumerated designated health services if the entity has a
financial relationship with the referring physician. Significant prohibitions
against physician referrals were enacted by the United States Congress in the
Omnibus Budget Reconciliation Act of 1993. These prohibitions, known as "Stark
II," amended prior physician self-referral legislation known as "Stark I" by
dramatically enlarging the field of physician-owned or physician-interested
entities to which the referral prohibitions apply. The designated health
services enumerated under Stark II include: clinical laboratory services,
radiology services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services.
Significantly, certain "in-office ancillary services" furnished by group
practices are excepted from the physician referral prohibitions of Stark II. The
Company believes that its practices either fit within this and other exceptions
contained in such statutes, or have been structured so as to not implicate the
statute in the first instance, and therefore, the Company believes it is in
compliance with such legislation. Nevertheless, future regulations or
interpretations of current regulations could require the Company to modify the
form of its relationships with the Medical Practices. Moreover, the violation of
Stark I or Stark II by the Medical Practices could result in significant fines,
loss of reimbursement and exclusion from the Medicare and Medicaid programs
which could have a material adverse effect on the Company.
Recently, Congress enacted the Health Insurance Portability and Accounting
Act of 1996, which includes an expansion of certain fraud and abuse provisions
(including the Federal Antikickback Law and Stark II) to other federal health
care programs and a separate criminal statute prohibiting "health care fraud."
Due to the breadth of the statutory provisions of the fraud and abuse laws and
the absence of definitive regulations or court decisions addressing the type of
arrangements by which the Company and its Medical Practices conduct and will
conduct their business, from time to time certain of their practices may be
subject to challenge under these laws.
False Claims. Under separate federal statutes, submission of claims for
payment that are "not provided as claimed" may lead to civil money penalties,
criminal fines and imprisonment and/or exclusion from participation in the
Medicare, Medicaid and other federally-funded health care programs. These false
claims statutes include the Federal False Claims Act, which allows any person to
bring suit alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and to share in any amounts paid by the entity to the
government in fines or settlement. Such qui tam actions have increased
significantly in recent years and have increased the risk that a health care
company will have to defend a false claims action, pay fines or be excluded from
participation in the Medicare and/or Medicaid programs as a result of an
investigation arising out of such an action.
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State Antikickback and Self-Referral Laws. The Company is also subject to
state statutes and regulations that prohibit kickbacks in return for the
referral of patients in each state in which the Company has operations. Several
of these laws apply to services reimbursed by all payors, not simply Medicare or
Medicaid. Violations of these laws may result in prohibition of payment for
services rendered, loss of licenses as well as fines and criminal penalties.
State statutes and regulations that prohibit payments intended to induce
the referrals of patients to health care providers range from statutes and
regulations that are substantially the same as the federal laws and the safe
harbor regulations to regulations regarding unprofessional conduct. These laws
and regulations vary significantly from state to state, are often vague, and, in
many cases, have not been interpreted by courts or regulatory agencies. Adverse
judicial or administrative interpretations of such laws could require the
Company to modify the form of its relationships with the Medical Practices or
could otherwise have a material adverse effect on the Company's business,
financial condition and operating results.
In addition, New York, New Jersey, California, Florida, Pennsylvania and
Illinois have enacted laws on self-referrals that apply generally to the health
profession, and the Company believes it is likely that more states will follow.
These state self-referral laws include outright prohibitions on self-referrals
similar to Stark or a simple requirement that physicians or other health care
professionals disclose to patients any financial relationship the physicians or
health care professionals have with a health care provider that is being
recommended to the patients. The Company's operations in New York, New Jersey,
California and Illinois have laboratories which are or will be subject to
prohibitions on referrals for services in which the referring physician has a
beneficial interest. However, New York, New Jersey and California have an
exception for "in-office ancillary services" similar to the federal exception
and in Illinois, the self-referral laws do not apply to services within the
health care worker's office or group practice or to outside services as long as
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.
The Company believes that the laboratories in its operations fit within
exceptions contained in such statutes or are not subject to the statute at all.
Each of the laboratories in the states in which these self-referral laws apply
are owned by the Medical Practice in that state and are located in the office of
such Medical Practice. However, there can be no assurance that these laws will
be interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business, financial condition or operating
results. In addition, expansion of the Company's operations to new jurisdictions
could require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with new or revised
state statutes.
Antitrust Laws. In connection with corporate practice of medicine laws
referred to above, the Medical Practices with whom the Company is affiliated
necessarily are organized as separate legal entities. As such, the Medical
Practices may be deemed to be persons separate both from the Company and from
each other under the antitrust laws and, accordingly, subject to a wide range of
laws that prohibit anti-competitive conduct among separate legal entities. The
Company believes it is in compliance with these laws and intends to comply with
any state and federal laws that may affect its development of health care
networks. There can be no assurance, however, that a review of the Company's
business by courts or regulatory authorities would not have a material adverse
effect on the operation of the Company and the Medical Practices.
Government Regulation of ART Services. With the increased utilization of
ART services, government oversight of the ART industry has increased and
legislation has been adopted or is being considered in a number of states
regulating the storage, testing and distribution of sperm, eggs and embryos. The
Company believes it is currently in compliance with such legislation where
failure to comply would subject the Company to sanctions by regulatory
authorities, which could have a material adverse effect on the Company's
business, financial condition and operating results.
Regulation of Clinical Laboratories. The Company's and the Medical
Practices' endocrine and embryology clinical laboratories are subject to
governmental regulations at the federal, state and local levels. The Company
and/or the Medical Practices at each Network Site have obtained, and from time
to time renew, federal and/or state licenses for the laboratories operated at
the Network Sites.
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The Clinical Laboratory Improvement Amendments of 1988 ("CLIA 88")
extended federal oversight to all clinical laboratories, including those that
handle biological matter, such as eggs, sperm and embryos, by requiring that all
laboratories be certified by the government, meet governmental quality and
personnel standards, undergo proficiency testing, be subject to biennial
inspections, and remit fees. For the first time, the federal government is
regulating all laboratories, including those operated by physicians in their
offices. Rather than focusing on location, size or type of laboratory, this
extended oversight is based on the complexity of the test the laboratories
perform. CLIA 88 and the 1992 implementing regulations established a more
stringent proficiency testing program for laboratories and increased the range
and severity of sanctions for violating the federal licensing requirements. A
laboratory that performs highly complex tests must meet more stringent
requirements, while those that perform only routine "waived" tests may apply for
a waiver from most requirements of CLIA 88.
The sanctions for failure to comply with CLIA and these regulations
include suspension, revocation or limitation of a laboratory's CLIA certificate
necessary to conduct business, significant fines or criminal penalties. The loss
of license, imposition of a fine or future changes in such federal, state and
local laws and regulations (or in the interpretation of current laws and
regulations) could have a material adverse effect on the Company.
In addition, the Company's clinical laboratory activities are subject to
state regulation. CLIA 88 permits a state to require more stringent regulations
than the federal law. For example, state law may require that laboratory
personnel meet certain more stringent qualifications, specify certain quality
control standards, maintain certain records, and undergo additional proficiency
testing.
The Company believes it is in material compliance with the foregoing
standards.
Other Licensing Requirements. Every state imposes licensing requirements
on individual physicians, and some regulate facilities and services operated by
physicians. In addition, many states require regulatory approval, including
certificates of need, before establishing certain types of health care
facilities, offering certain services, or making certain capital expenditures in
excess of statutory thresholds for health care equipment, facilities or
services. To date, the Company has not been required to obtain certificates of
need or similar approvals for its activities. In connection with the expansion
of its operations into new markets and contracting with managed care
organizations, the Company and the Medical Practices may become subject to
compliance with additional regulations. Finally, the Company and the Medical
Practices are subject to federal, state and local laws dealing with issues such
as occupational safety, employment, medical leave, insurance regulation, civil
rights and discrimination, medical waste and other environmental issues.
Increasingly, federal, state and local governments are expanding the regulatory
requirements for businesses, including medical practices. The imposition of
these regulatory requirements may have the effect of increasing operating costs
and reducing the profitability of the Company's operations.
Future Legislation and Regulation. As a result of the continued escalation
of health care costs and the inability of many individuals to obtain health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures relating to health care reform. There can
be no assurance as to the ultimate content, timing or effect of any health care
reform legislation, nor is it possible at this time to estimate the impact of
potential legislation, which may be material, on the Company.
Liability and Insurance
The provision of health care services entails the substantial risk of
potential claims of medical malpractice and similar claims. The Company does
not, itself, engage in the practice of medicine or assume responsibility for
compliance with regulatory requirements directly applicable to physicians and
requires associated Medical Practices to maintain medical malpractice insurance.
In general, the Company has established a program that provides the Medical
Practices with such required insurance. However, in the event that services
provided at the Network Sites or any affiliated Medical Practice are alleged to
have resulted in injury or other adverse effects, the Company is likely to be
named as a party in a legal proceeding.
Although the Company currently maintains liability insurance that it
believes is adequate as to both risk and amount, successful malpractice claims
could exceed the limits of the Company's insurance and could have a material
adverse effect on the Company's business, financial condition or operating
results. Moreover, there can be no assurance that the Company will be able to
obtain such insurance on commercially reasonable terms
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in the future or that any such insurance will provide adequate coverage against
potential claims. In addition, a malpractice claim asserted against the Company
could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, in connection with the
acquisition of the assets of certain Medical Practices, the Company may assume
certain of the stated liabilities of such practice. Therefore, claims may be
asserted against the Company for events related to such practice prior to the
acquisition by the Company. The Company maintains insurance coverage related to
those risks that it believes is adequate as to the risks and amounts, although
there can be no assurance that any successful claims will not exceed applicable
policy limits.
There are inherent risks specific to the provision of ART services. For
example, the long-term effects of the administration of fertility medication,
integral to most infertility and ART services, on women and their children are
of concern to certain physicians and others who fear the medication may prove to
be carcinogenic or cause other medical problems. Currently, fertility medication
is critical to most ART services and a ban by the United States Food and Drug
Administration or any limitation on its use would have a material adverse effect
on the Company. Further, ART services increase the likelihood of multiple
births, which are often premature and may result in increased costs and
complications.
Employees
As of June 1, 1997, the Company had 203 employees, six of whom are
executive management, 180 are employed at the Network Sites and 23 are employed
at the Company's headquarters. Of the Company's employees, 26 persons at the
Network Sites and five at the Company's headquarters are employed on a part-time
basis. The Company is not party to any collective bargaining agreement and
believes its employee relationships are good.
Properties
In January 1995, the Company relocated its headquarters and executive
offices to an office building in Purchase, New York where it occupies
approximately 8,000 square feet under a lease expiring April 14, 2000 at a
monthly rental of $12,671, increasing annually to $15,339 per month in January
1999. The Company leases, subleases, and/or occupies, pursuant to its management
agreements, each Network Site space from either third-party landlords or from
the Medical Practices. The Company believes its executive offices and the space
occupied by the Network Sites are adequate.
Legal Proceedings
In November 1994, the Company was served with a complaint in a matter
captioned Karlin v. IVF America, et. al., filed in the Supreme Court of the
State of New York, County of Westchester. The suit also named, as co-defendants,
Vicki L. Baldwin, a Director of the Company, United Hospital and Dr. John
Stangel. The action purported to be a class action, initiated by plaintiffs on
behalf of themselves and a class of persons similarly situated. The complaint
alleged that the defendants, individually and collectively, had, in the
communication of clinical outcome statistics, inaccurately stated success rates
or failed to communicate medical risks attendant to ART procedures. These
allegations gave rise to the central issue of the case, that of informed
consent. The plaintiffs' application for class certification was denied by the
court. The court ruled that the potential class of patients treated at the
Westchester Network Site did not meet the criteria for class action status as
required by New York law. The plaintiffs appealed this decision. In June 1997,
the Appellate Division of the Supreme Court of the State of New York, Second
Department affirmed the lower court decision.
There are several other legal proceedings to which the Company is a party.
In the Company's view, the claims asserted and the outcome of these proceedings
will not have a material adverse effect on the financial position or the
operating results of the Company.
55
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company:
Name Age Position
- -------------------------------- --- -----------------------------------------
Gerardo Canet .................. 52 Chairman of the Board, President, Chief
Executive Officer and Director
Peter O. Callan ................ 39 Vice President, Central Region
Jay Higham ..................... 38 Vice President, Marketing and Development
Dwight P. Ryan ................. 39 Vice President, Chief Financial Officer,
Treasurer and Secretary
Glenn G. Watkins ............... 45 Vice President, President of the AWM
Division
Donald S. Wood, Ph.D. .......... 52 Vice President, Chief Operating Officer
of the RSC Division
Vicki L. Baldwin ............... 51 Director
Elliott D. Hillback, Jr. (1) ... 52 Director
Sarason D. Liebler (1) (3) ..... 60 Director
Patricia M. McShane, M.D. ...... 48 Director
Lawrence J. Stuesser (1) (2) ... 54 Director
- ----------
(1) Member of Audit Committee and Compensation Committee.
(2) Chairman of Compensation Committee.
(3) Chairman of Audit Committee.
Mr. Canet became President, Chief Executive Officer and a director of the
Company effective February 14, 1994 and the Chairman of the Board effective
April 19, 1994. For approximately five years prior to joining the Company, Mr.
Canet held various executive management positions with Curative Health Services,
Inc., most recently as Executive Vice President and President of its Wound Care
Business Unit. From 1979 to 1989, Mr. Canet held various management positions
with Kimberly Quality Care, Inc. ("Kimberly") (and a predecessor company), a
provider of home health care services, most recently from 1987 to 1989 as
Executive Vice President, Chief Operating Officer and director. Mr. Canet earned
an M.B.A. from Suffolk University and a B.A. in Economics from Tufts University.
Mr. Canet has been a director of Curative Health Services, Inc. since July 1991.
Mr. Callan became Vice President of Operations for the Central Region in
August 1995. For two years prior to joining the Company, Mr. Callan performed
volunteer services in Papua, New Guinea teaching health and business management.
From 1990 to 1993, Mr. Callan held the position of Regional Vice President with
Kimberly. For six years prior thereto, Mr. Callan held various management
positions with Kimberly. Mr. Callan earned his R.N. at Davnets School of
Nursing, Ireland and a diploma in gerontology from Queens University, Belfast,
Ireland.
Mr. Higham became Vice President of Marketing and Development in October
1994. For four years prior to joining the Company, Mr. Higham held a variety of
executive positions, the most recent of which was as Vice President of Health
Systems Development for South Shore Hospital and South Shore Health and
Education Corporation where he developed and implemented a strategy for
integration with physician group practices and managed care payors. Mr. Higham
earned an M.H.S.A. from George Washington University.
Mr. Ryan became Secretary of the Company in March 1994, Vice President in
November 1993, Chief Financial Officer in February 1993, and has been Treasurer
since December 1990. Mr. Ryan served as Controller from December 1989 through
January 1993 and as an executive employee of the Company from December 1987 to
December 1989. For more than two years prior to joining the Company, Mr. Ryan
was financial manager of CenterCore Incorporated, a manufacturer of office
furniture. Mr. Ryan holds a B.A. from Lynchburg College.
56
<PAGE>
Mr. Watkins joined the Company in February 1997 as a corporate Vice
President and as its President of the AWM Division. During 1996, Mr. Watkins
headed his own health care consulting firm specializing in physician integration
and practice management services. Previously, Mr. Watkins held numerous
executive management positions over his 24-year career at Morton Plant Mease
Health Care, Inc., a provider of integrated health services in Tampa Bay,
Florida, including the position of President for various subsidiaries from 1988
through 1996. Mr. Watkins holds an M.S. in Management from the University of
South Florida, a B.A. from the University of South Florida and an A.R.R.T.
certification in Radiological Technology.
Dr. Wood joined the Company in April 1991 as its Vice President of
Genetics and in October 1992 was promoted to Vice President, Science and
Technology. In 1997, Dr. Wood was promoted to Vice President, Chief Operating
Officer of the RSC Division. From 1989 through March 1991, Dr. Wood was the
Executive Vice President and Chief Scientific Officer of Odyssey Biomedical
Corp., a genetic testing company which he co-founded and which was acquired by
IG Labs, Inc. in December 1990. Dr. Wood received a Ph.D. in Physiology from
Washington State University and completed a post-doctoral fellowship in
neurology at the Columbia/Presbyterian Medical Center in New York, where he
subsequently was appointed an Assistant Professor of Neurology.
Ms. Baldwin is the mother of two children conceived at the Monash IVF
Program in Melbourne, Australia, and a founder of the Company. Ms. Baldwin is
currently a director of the Company and was an executive officer and a director
from its inception through December 1995. Prior to founding the Company, Ms.
Baldwin worked as a management consultant for McKinsey and Company, Inc. in
Australia. Ms. Baldwin has recently joined Oxford Health Plans, Inc. where she
is focusing on an initiative aimed at implementing a new model for developing
and financing specialty women's health services. Ms. Baldwin earned a B.A. in
Biology and Chemistry with High Honors from the University of Delaware, received
an M.Ed. from the University of Houston, and an M.B.A. in International Business
and Finance from New York University. Ms. Baldwin is a past president of Women
in Management and serves on the Board of Directors of RESOLVE, Inc., a national,
nonprofit organization serving the needs of infertile couples.
Mr. Hillback was elected a director of the Company in June 1992. Mr.
Hillback is a Senior Vice President of Genzyme Corp., a position he has held
since July 1990, and from July 1991 to September 1996, Mr. Hillback has also
served as the President and Chief Executive Officer of Genzyme Genetics, a
division of Genzyme Corp. Mr. Hillback is currently a director of Aquila
Biopharmaceuticals, Inc. Mr. Hillback has a B.A. from Cornell University and an
M.B.A. from Harvard Business School.
Mr. Liebler was elected a director of the Company in August 1994. Mr.
Liebler is President of SDL Consultants, a privately-owned consulting firm
engaged in rendering general business advice. From February 1985 to December 1,
1991, Mr. Liebler served as Chief Executive Officer of American Equine Products,
Inc. and served as a director of that company from February 1985 to November
1992. American Equine Products, Inc., manufactured and distributed horse health
care products and was a franchisor of retail pet stores and a distributor of pet
products. American Equine Products, Inc. filed for bankruptcy in September 1991.
During the past 20 years, Mr. Liebler has been a director and/or officer of a
number of companies in the fields of home health care, clinical diagnostics,
high density optical storage and sporting goods.
Dr. McShane was elected a director of the Company in March 1997 and was a
Vice President of the Company in charge of medical affairs from September 1992
through February 28, 1997. Since May 1988, Dr. McShane has been, and currently
is, the Medical Director of the Boston Network Site where she is engaged in the
private practice of medicine, specializing in infertility. For four years prior
thereto, Dr. McShane was the Director of the IVF program at Brigham and Women's
Hospital in Boston. Dr. McShane has held various positions at Harvard University
School of Medicine, including Assistant Professor of Obstetrics and Gynecology.
Dr. McShane graduated from Tufts University School of Medicine and is board
certified in reproductive endocrinology and infertility.
Mr. Stuesser was elected a director of the Company in April 1994. Since
June 1996, Mr. Stuesser has held the position of President and Chief Executive
Officer of Computer People Inc., the U.S. subsidiary of London-based Delphi
Group. From July 1993 to May 1996, he was a private investor and business
consultant. Mr. Stuesser was elected Chairman of the Board in July 1995 and has
been a director of Curative Health Services, Inc. since 1993. Mr. Stuesser was
Chief Executive Officer of Kimberly from 1986 to July 1993, at which time
Kimberly was acquired by the Olsten Company. Mr. Stuesser holds a B.B.A. in
accounting from St. Mary's University.
57
<PAGE>
In connection with the Company's acquisition of the Merger Companies in
June 1996, Morris Notelovitz, M.D., Ph.D. became a member of the Company's Board
of Directors, and under two long term employment agreements (the "Employment
Agreements"), one with the Company and the other with the AWM Division, Dr.
Notelovitz agreed to serve as Vice President for Medical Affairs and Medical
Director of the AWM Division and agreed to provide medical services under the
AWM Division. Effective January 1, 1997, Dr. Notelovitz resigned from his
position as a director of the Company and terminated the Employment Agreements
(the medical services under the Employment Agreement with the AWM Division
terminated effective March 31, 1997). Currently, Dr. Notelovitz is a greater
than 5% shareholder of the Company's outstanding Common Stock.
The Board of Directors currently consists of six members. The Board of
Directors are elected by the Company's stockholders at each annual meeting or,
in the case of a vacancy, are appointed by the directors then in office, to
serve until the next annual meeting or until their successors are elected and
qualified. Officers are appointed by and serve at the discretion of the Board of
Directors.
The Company has agreed to cause a nominee of FCI to be appointed as a
director of the Company upon consummation of the Pending Acquisition and
nominated as a director of the Company at the first annual meeting of
stockholders after consummation of the Pending Acquisition.
Board Committees
The Audit Committee consists of Messrs. Hillback, Liebler and Stuesser.
The Audit Committee is authorized by the Board of Directors to review, with the
Company's independent accountants, the annual financial statements of the
Company; to review the work of, and approve non-audit services performed by,
such independent accountants; and to make annual recommendations to the Board
for the appointment of independent public accountants for the ensuing year. The
Audit Committee also reviews the effectiveness of the financial and accounting
functions, organization, operations and management of the Company.
The Compensation Committee consists of Messrs. Hillback, Liebler and
Stuesser. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company, reviews
general policy matters relating to compensation and benefits of employees of the
Company, administers the issuance of stock options to the Company's officers,
employees and consultants and also has authority to grant options to directors
who are not employees of the Company.
Director Compensation
In 1996, in addition to stock option compensation discussed below,
non-employee directors of the Company received an annual retainer of $10,000, a
fee of $750 for each meeting of the Board attended and $2,500 per year for
membership on a committee of the Board and were reimbursed for expenses actually
incurred in attending meetings. Directors who are also executive officers are
not compensated for their services as directors.
Under the Outside Director Stock Purchase Plan, there are 125,000 shares
of Common Stock reserved for issuance, pursuant to which directors who are not
full-time employees of the Company may elect to receive all or a part of their
annual retainer fees, the fees payable for attending meetings of the Board of
Directors and the fees payable for serving on Committees of the Board, in the
form of shares of Common Stock rather than cash, provided that any such election
be made at least six months prior to the date that the fees are to be paid. No
such elections were made as of the date of this Prospectus.
On June 11, 1996, the Board of Directors granted stock options to purchase
6,000 shares of Common Stock to each of Messrs. Hillback, Liebler and Stuesser,
and to Ms. Vicki Baldwin, the non-employee directors, each such option being
exercisable at $3.75 per share, 50% of which shares become exercisable in June
1997 and the balance of such shares become exercisable in June 1998. On October
24, 1995, the Board of Directors granted stock options to purchase 6,000 shares
of Common Stock to each of Messrs. Hillback, Liebler and Stuesser, each such
option being exercisable at $2.56 per share, 50% of which shares became
exercisable in June 1996 and the balance of such shares become exercisable in
June 1997. On November 15, 1994, the Board of Directors granted stock options to
purchase 30,000 shares of Common Stock to each of Messrs. Hillback, Liebler and
Stuesser, each such option being exercisable at $1.25 per share, 25% of which
shares become exercisable one year from the date of the grant; thereafter the
shares become exercisable at the rate of 6.25%
58
<PAGE>
of the total number of shares subject to the option every three months. New
non-employee directors will be granted options to purchase 30,000 shares of
Common Stock under the Company's 1992 Incentive and Non-Incentive Stock Option
Plan (the "1992 Plan") and, annually upon re-election, non-employee directors
will be granted options to purchase 6,000 shares of Common Stock under the 1992
Plan.
SDL Consultants, a company owned by Sarason D. Liebler, who became a
director of the Company in August 1994, rendered consulting services to the
Company for aggregate fees of approximately $17,000, $22,000 and $40,000 during
the fiscal years ended December 31, 1996, 1995 and 1994, respectively.
Limitation on Liability
The DGCL permits a corporation through its certificate of incorporation to
eliminate the personal liability of its directors to the corporation or its
stockholders for monetary damages for breach of fiduciary duty of loyalty and
care as a director, with certain exceptions. The exceptions include a breach of
the director's duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law, improper
declarations of dividends, and transactions from which the directors derived an
improper personal benefit. The Company's Amended and Restated Certificate of
Incorporation exonerates the Company's directors from monetary liability to the
fullest extent permitted by this statutory provision but does not restrict the
availability of non-monetary and other equitable relief. See "Description of
Capital Stock."
Executive Compensation
The following table sets forth a summary of the compensation paid or
accrued by the Company during the years ended December 31, 1996, 1995 and 1994
for the Company's Chief Executive Officer and for the five most highly
compensated executive officers (the "Named Executive Officers"), including three
who are no longer serving as officers of the Company, effective January 1, 1997,
February 28, 1997 and April 16, 1997, respectively.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Securities
Annual Compensation Underlying
------------------------ Options
Name and Principal Position Year Salary ($) Bonus ($) Granted(#)
--------------------------- ---- ---------- --------- ----------
Gerardo Canet .................. 1996 220,000 -- 120,000
President and 1995 215,000 53,750 --
Chief Executive Officer 1994 189,000(1) 27,000 315,500
Peter O. Callan ................ 1996 108,000 10,000 --
Vice President, 1995 41,545(1) 9,375 40,000
Central Region
Lois A. Dugan .................. 1996 120,000 -- --
Vice President, 1995 113,000 28,250 --
Northeast Region (2) 1994 78,750(1) 12,495 40,000
Jay Higham ..................... 1996 125,000 -- 40,000
Vice President, Marketing 1995 110,000 19,250 --
and Development 1994 27,500(1) 4,609 40,000
Patricia M. McShane, M.D. ...... 1996 238,000 29,000 --
Vice President, Medical 1995 173,600 15,190 --
Affairs (3) 1994 203,000 8,000 37,293
Morris Notelovitz, M.D., Ph.D. . 1996 179,000(1) -- 40,000
Vice President for Medical
Affairs and Medical Director
of the AWM Division (4)
59
<PAGE>
- ----------
(1) Gerardo Canet, Peter Callan, Lois Dugan, Jay Higham and Morris Notelovitz
commenced employment with the Company on February 14, 1994, August 14,
1995, April 5, 1994, October 3, 1994 and June 7, 1996, respectively.
(2) Effective April 16, 1997, Ms. Dugan resigned as Vice President of the
Company's Northeast Region.
(3) Amount represents aggregate compensation earned for serving as an executive
officer of the Company and as the Medical Director of the Boston Network
Site. Effective February 28, 1997, Dr. McShane resigned as Vice President
of the Company in charge of Medical Affairs. Dr. McShane was elected a
director in March 1997 and remains the Medical Director at the Boston
Network Site.
(4) Annual compensation amount represents aggregate compensation earned for
serving as an executive officer of the Company and as the Medical Director
of the Women's Medical & Diagnostic Center, Inc. Effective January 1, 1997
and March 31, 1997, Dr. Notelovitz resigned as an executive officer of the
Company and as the Medical Director at the AWM Division, respectively. As a
result of his resignation, the options granted to Dr. Notelovitz in 1996
were canceled.
Stock Option Information
The following table sets forth certain information concerning grants of
stock options made during 1996 to each of the Named Executive Officers:
OPTIONS GRANTED IN 1996
<TABLE>
<CAPTION>
Percentage
of Shares Potential Realizable
Underlying Value at Assumed
Number of Total Annual Rates of Stock
Shares Options Market Price Appreciation
Underlying Granted to Price on for Option Term(2)
Options Employees Exercise Date of ------------------
Name Granted in 1996(1) Price Grant Expiration Date 5% 10%
----- ------- --------- ----- ----- -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerardo Canet 120,000(3) 35% $2.37 $2.34 August 1, 2006 $173,715 $445,073
Jay Higham 40,000(3) 12% $2.37 $2.34 August 1, 2006 $ 57,905 $148,357
Morris Notelovitz, M.D., Ph.D. 40,000(4) 12% $3.75 $3.75 June 11, 2006(4 )$ 94,333 $239,061
</TABLE>
- ----------
(1) Based on an aggregate of 344,500 options granted to employees in 1996,
including options granted to the Named Executive Officers and to outside
directors.
(2) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set
forth in accordance with the rules and regulations adopted by the
Commission and do not represent the Company's estimate of future stock
price appreciation.
(3) Each such option being exercisable at $2.37 per share, 25% of which shares
become exercisable one year from the date of grant; thereafter the shares
become exercisable at the rate of 6.25% of the total number of shares
subject to the option every three months.
(4) Exercisable, with respect to 25% of the underlying shares, one year from
the date of grant; thereafter the options become exercisable every three
months at the rate of 6.25% of the total number of shares subject to each
such options. These options were cancelled as a result of Dr. Notelovitz's
resignation as an executive officer of the Company in January 1997.
60
<PAGE>
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers
who held unexercised options at December 31, 1996:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Number of Securities Underlying In-the-Money
Shares Unexercised Options at Options at
Acquired December 31, 1996 (#) December 31, 1996($)(1)
Upon Value -------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerardo Canet .............. -- -- -- 19,001 -- 19,001
-- -- 71,249 4,750 71,249 4,750
-- -- 34,125 11,375 -- --
20,000 43,750(2) 67,500 87,500 25,650 33,250
-- -- -- 120,000(3) -- --
Peter O. Callan ............ -- -- 12,500 27,500 -- --
Lois A. Dugan .............. -- -- 15,625 9,375 -- --
-- -- 7,500 7,500 2,812 2,812
Jay Higham ................. -- -- 12,500 12,500 6,687 6,687
-- -- 7,500 7,500 2,812 2,812
-- -- -- 40,000(3) -- --
Patricia M. McShane, M.D.(4) -- -- 15,475 9,285 -- --
-- -- 2,707 -- 1,936 --
-- -- 6,266 6,267 2,350 2,350
Morris Notelovitz,
M.D., Ph.D. (5) ......... -- -- -- 40,000 -- --
</TABLE>
- ----------
(1) Based upon the closing sales price of the Common Stock on the Nasdaq
National Market on December 31, 1996 of $1.625 per share.
(2) Represents the positive spread between the respective exercise prices of
the exercised options and the closing sales price of the Common Stock on
the Nasdaq National Market on June 28, 1996, the date of exercise, of $3.44
per share.
(3) These options were granted by the Company in August 1996, each such option
being exercisable at $2.37 per share, 25% of which shares become
exercisable one year from the date of grant; thereafter, the shares become
exercisable at the rate of 6.25% of the total number of shares subject to
the option every three months.
(4) These options were canceled as a result of Dr. McShane's resignation as an
executive officer of the Company in February 1997.
(5) These options were canceled as a result of Dr. Notelovitz's resignation as
an executive officer of the Company in January 1997.
Stock Option Plans
The Company has in effect the 1988 Stock Option Plan (the "1988 Plan")
which has 161,627 shares of Common Stock reserved for issuance thereunder and
the 1992 Plan, which has 1,300,000 shares of Common Stock reserved for issuance
thereunder. The 1988 Plan and the 1992 Plan are referred to herein collectively
as the "Plans."
The purposes of the Plans are to further the growth and development of the
Company, its direct and indirect subsidiaries and the entities with which the
Company collaborates to deliver services. The grant of options by the Company is
intended to encourage selected employees, directors, consultants, agents,
independent contractors and other persons who contribute and are expected to
contribute materially to the Company's success to obtain a proprietary interest
in the Company through ownership of its stock. The Plans provide such persons
with an added incentive to promote the best interests of the Company and afford
the Company a means of attracting persons of outstanding ability.
61
<PAGE>
The Plans are administered by the Board of Directors or a committee of the
Board of Directors (the "Committee"); provided, however, that with respect to
"officers" and "directors," as such terms are defined for purposes of Rule 16b-3
("Rule 16b-3") promulgated under the Exchange Act, such committee, shall consist
of "disinterested" directors as defined in Rule 16b-3, but only if at least two
directors meet the criteria of "disinterested" directors as defined in Rule
16b-3.
Options granted under the Plans may be either incentive options or
non-incentive options. Under both the 1988 and 1992 Plans, incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, may be granted only to employees and non-incentive stock options may be
granted to employees, directors and such other persons as the Board of Directors
or the Committee determines will contribute to the Company's success at exercise
prices equal to at least 100%, or 110% for a ten percent shareholder, of the
fair market value of the Common Stock on the date of grant with respect to
incentive stock options and at exercise prices determined by the Board of
Directors or the Committee with respect to non-incentive stock options. The 1988
Plan provides for the payment of a cash bonus to eligible employees in an amount
equal to that required to exercise incentive stock options granted.
The 1992 Plan provides for the automatic grant to outside directors of the
Company of non-incentive stock options to purchase 30,000 shares of Common Stock
on the date such person is first elected or appointed a director, at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
Stock options issued under the Plans are exercisable, subject to such
conditions and restrictions as determined by the Board of Directors or the
Committee, during a ten-year period, or a five-year period for incentive stock
options granted to a ten percent shareholder, following the date of grant;
however, the maturity of any incentive stock option may be accelerated at the
discretion of the Board of Directors or the Committee. Under the 1992 Plan, the
Board of Directors or the Committee determines the exercise dates of options
granted; however, in no event may incentive stock options be exercised prior to
one year from date of grant.
Under the 1988 Plan, options expire one month after the date of the
holder's termination of employment with the Company or six months following
disability or death. Under the 1992 Plan, options expire three months from the
date of the holder's termination of employment with the Company or twelve months
in the event of disability or death.
On April 19, 1994, the Compensation Committee of the Board of Directors of
the Company approved a stock option exchange program under which incentive stock
options to purchase an aggregate of 107,992 shares of Common Stock at an
exercise price of $2.50 per share were granted to employees holding options to
purchase an identical number of shares at exercise prices ranging from $8.00 to
$11.75, contingent upon the surrender of the old stock options. The new stock
options expire on April 18, 2004 and are exercisable, with respect to 25% of the
underlying shares, one year from the date of grant; thereafter the options
become exercisable every three months at the rate of 6.25% of the total number
of shares subject to each such option. Stock options to purchase an aggregate of
105,559 shares of Common Stock were surrendered.
As of the date of this Prospectus, there were outstanding under the 1988
Plan options to purchase 105,772 shares at exercise prices ranging from $0.625
to $1.55 per share and there were outstanding under the 1992 Plan options to
purchase 977,544 shares at exercise prices ranging from $0.625 to $3.75 per
share.
Outside Director Stock Purchase Plan
On April 19, 1994, the Board of Directors approved the 1994 Outside
Director Stock Purchase Plan (the "Outside Director Stock Purchase Plan"),
reserving for issuance thereunder 125,000 shares of Common Stock, pursuant to
which directors who are not full-time employees of the Company may elect to
receive all or part of their annual retainer fees, the fees payable for
attending meetings of the Board of Directors and the fees payable for serving on
Committees of the Board, in the form of shares of Common Stock rather than cash,
provided that any such election be made at least six months prior to the date
that the fees are to be paid. At December 31, 1996 and 1995, there were no
options outstanding under the Outside Director Stock Purchase Plan.
62
<PAGE>
Employment Agreements
On February 14, 1994, Gerardo Canet entered into an employment agreement
with the Company to serve as its President and Chief Executive Officer and was
appointed a director. Pursuant to the employment agreement, Mr. Canet receives
an annual salary of $215,000 subject to increases and in February 1994 was
granted options to purchase an aggregate of 140,500 shares of Common Stock.
Under Mr. Canet's employment agreement, the Company may terminate his employment
without cause on thirty days' notice, in which event Mr. Canet will receive, as
severance pay, twelve months' salary payable monthly. In the event Mr. Canet's
employment is terminated by reason of his permanent disability or death, Mr.
Canet (or his legal representative) will receive six months' base salary
(reduced by any payments following termination received under any long-term
disability policy maintained by the Company for Mr. Canet's benefit).
The employment agreement further provides that in the event that (i)
within one year after a "Change of Control" (as defined therein) of the Company,
Mr. Canet's employment terminates or there occurs a material reduction in his
duties (other than by reason of his disability) or a material interference by
the Company's Board of Directors with the exercise of his authority or (ii) the
Company is acquired for cash in excess of $10.00 per share of Common Stock, the
stock options granted to Mr. Canet under the agreement would accelerate and
become exercisable as of the date of such termination, material reduction,
material interference, or cash acquisition, or, with respect to the incentive
options, the earliest date thereafter consistent with certain restrictions set
forth in the agreement.
Under the employment agreement, Mr. Canet has agreed not to compete with
the Company while employed by the Company and for a period of one year
thereafter.
The Company is a party to Change in Control Severance Agreements with
Gerardo Canet, the Chairman of the Board, President and Chief Executive Officer
of the Company, and Dwight Ryan, Vice President and Chief Financial Officer of
the Company providing for severance pay to certain members of senior management
if their employment is terminated upon a change in control of the Company.
The Company is also a party to Executive Retention Agreements with each of
Dr. Wood and Messrs. Higham, Callan and Watkins, Vice Presidents of the Company.
The Change in Control Severance Agreement and the Executive Retention
Agreements (together referred to herein as the "Agreements") provide for certain
severance payments and benefits to the named executive in the event of a
termination of their employment, either by the Company without cause, or by the
executive for "Good Reason" (as defined therein), at any time within eighteen
(18) months following a "Change in Control" (as defined therein) of the Company
(any such termination, a "Qualifying Termination"). More specifically, the
Agreements provide the named executive with one additional year of salary, bonus
(if applicable), and benefits (or equivalent), more than he or she would
previously have been entitled to receive upon a termination without cause (or,
additionally, in the case of Mr. Canet, certain terminations by Mr. Canet for
Good Reason which would be deemed equivalent to a termination without cause
under his current employment agreement). Pursuant to the terms of the
Agreements, all incentive options granted to the respective executive would
become fully vested upon a Qualifying Termination, subject to certain terms and
conditions. Also, pursuant to the Agreements, the Company would be required to
pay each respective executive for all reasonable fees and expenses incurred by
the respective executive in litigating his or her rights, thereunder, to the
extent the executive is successful in any such litigation.
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CERTAIN TRANSACTIONS
Dr. Patricia M. McShane, became a director of the Company in March 1997
and was a Vice President of the Company in charge of medical affairs from
September 1992 through February 28, 1997. Since May 1988, Dr. McShane has been,
and currently is, the Medical Director of the Boston Network Site and has also
been, and currently is, engaged in the private practice of medicine,
specializing in infertility. Dr. McShane's aggregate compensation earned in 1996
for serving as an executive officer of the Company and as the Medical Director
of the Boston Network Site was $239,000. In June 1997, the Company granted Dr.
McShane 30,000 options to purchase Common Stock, exercisable at $2.38 per share,
in connection with her appointment to the Board of Directors of the Company.
SDL Consultants, a company owned by Sarason D. Liebler, a director of the
Company, rendered consulting services to the Company during 1996 and 1995 for
aggregate fees of approximately $17,000 and $22,000, respectively. SDL
Consultants is paid a daily rate (determined prior to each consulting project)
plus reasonable out-of-pocket expenses.
Under an agreement relating to preimplantation embryo genetic testing with
Genzyme Genetics, a division of Genzyme Corp., the Company funded research in
the amount of approximately $56,000 and $134,000 in 1996 and 1995, respectively.
Genzyme Genetics and the Company mutually agreed to terminate the agreement
effective December 31, 1996. Elliott D. Hillback, Jr., a director of the
Company, is Senior Vice President of Genzyme Corp. See "Business--Clinical and
Medical Services."
In connection with the Company's acquisition of the Merger Companies in
June 1996, Morris Notelovitz, M.D., Ph.D. became a member of the Company's Board
of Directors, and under the Employment Agreements, Dr. Notelovitz agreed to
serve as Vice President for Medical Affairs and Medical Director of the AWM
Division and agreed to provide medical services under the AWM Division.
Effective January 1, 1997, Dr. Notelovitz resigned from his position as a
director of the Company and terminated the Employment Agreements (the medical
services under the Employment Agreements terminated effective March 31, 1997).
Currently, Dr. Notelovitz is a greater than 5% shareholder of the Company's
outstanding Common Stock.
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PRINCIPAL STOCKHOLDERS
The following table sets forth at June 10, 1997 and as adjusted to reflect
the sale by the Company of the shares of Common Stock offered hereby and giving
effect to the Pending Acquisition, certain information with respect to the
beneficial ownership of the Common Stock (i) by each person who is known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of Common Stock, (ii) by each of the Named Executive Officers, (iii) by
each of the directors of the Company and (iv) by all directors and executive
officers of the Company as a group. Unless otherwise indicated below, the
business address of each person listed is c/o IntegraMed America, Inc., One
Manhattanville Road, Purchase, NY 10577.
Percentage
Beneficially
Number of Owned
Shares -----------------------
Beneficially Prior to the After the
Name and Address Owned(1) Offering Offering
- ---------------------------------- -------- ------- -------
Alphi Investment Management Company
155 Pfingsten Road, Suite 360
Deerfield, IL 60013 ............... 820,600(2) 8.40% 4.74%
FMR Corp.
82 Devonshire Street
Boston, MA 02109 .................. 805,500(3) 8.24 4.65
Morris Notelovitz
2801 N.W. 58th Blvd.
Gainesville, FL 32605 ............. 666,666(4) 6.82 3.85
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
Chicago, IL 60657 .................. 1,142,857(5) -- 6.60
Gerardo Canet ......................... 2,250,801(6)(7) 11.06 12.82
Peter O. Callan ....................... 17,500(6) * *
Lois A. Dugan ......................... 32,125(6) * *
Jay Higham ............................ 38,562(6) * *
Donald S. Wood, Ph.D. ................. 35,050(6) * *
Vicki L. Baldwin ...................... 56,132(6) * *
Elliott D. Hillback, Jr. .............. 27,750(6)(8) * *
Patricia M. McShane, M.D. ............. -- -- --
Sarason D. Liebler .................... 38,200(6) * *
Lawrence J. Stuesser .................. 119,350(6)(9) 1.22 *
All executive officers and directors
as a group (11 persons) ............ 2,618,746(10) 14.44 14.74
- ----------
* Represents less than 1%
(1) As of June 10, 1997, there were 165,644 shares of Convertible Preferred
Stock outstanding of which 150,000 shares, or 90.6%, were owned by Barry
Blank (Box 32056, Phoenix, AZ 85064) as reported on his Schedule 13D filed
with the Securities and Exchange Commission (the "Commission") on June 6,
1994. Upon the conversion of each share of Convertible Preferred Stock
owned by Mr. Blank into 2.89 shares of Common Stock, giving effect to the
sale by the Company of the shares of Common Stock offered hereby and giving
effect to the Pending Acquisition, he would own approximatley 2.8% of the
Company's outstanding Common Stock.
(2) As reported on its Schedule 13G filed with the Commission on February 11,
1997, Alphi Investment Management Company ("AIMCO") may be deemed to be
beneficial owners of these shares which include 666,800 shares, or 6.95%,
of the Company's Common Stock, owned by Alphi Fund L.P. of which AIMCO is
the general partner.
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(3) As reported on their Schedule 13G filed with the Commission on February 14,
1997, FMR Corp. and its wholly-owned subsidiary, Fidelity Management &
Research Company may be deemed to be beneficial owners of these shares,
which include 605,500 shares of the Company's outstanding Common Stock,
owned by Fidelity VIP Equity-Income Fund. In addition, as reported on such
Schedule 13G, Edward C. Johnson, III, Chairman of FMR Corp., and certain
Johnson family members through their ownership of voting Common Stock, form
a controlling group with respect to FMR Corp., and, as such, may be deemed
to be beneficial owners of such shares of Common Stock.
(4) Represents shares issued by the Company in its acquisition of the Merger
Companies in June 1996. Gerardo Canet has an irrevocable proxy to vote
these shares through September 30, 1997.
(5) Represents shares to be issued by the Company to FCI in connection with the
Pending Acquisition. FCI is an entity owned directly or indirectly by Aaron
Lifchez, M.D., Jacob Moise, M.D., Jorge Valle, M.D. and Brian Kaplan, M.D.
Pursuant to an agreement, an estimated 1,142,857 shares of Common Stock
will be issued in connection with the Pending Acquisition. FCI will grant
Gerardo Canet an irrevocable proxy to vote these shares for the election of
directors and certain matters for a two year period following the closing
of the Pending Acquisition.
(6) Includes (or consists of) currently exercisable options to purchase Common
Stock as follows: Gerardo Canet -- 245,824; Peter Callan -- 17,500; Lois
Dugan -- 28,125; Jay Higham -- 36,562; Donald Wood-- 33,050; Elliott
Hillback, Jr. -- 27,750; Lawrence Stuesser -- 27,750; and Sarason Liebler
-- 27,750.
(7) Includes (i) 666,666 shares of Common Stock owned by Morris Notelovitz,
M.D., Ph.D. for which Gerardo Canet has an irrevocable proxy to vote
through September 30, 1997 and (ii) 145,454 shares of Common Stock owned by
RSMC for which Mr. Canet has an irrevocable proxy to vote for the election
of directors and certain other matters through June 6, 1999. In addition,
upon consummation of the Pending Acquisition, Mr. Canet will have an
irrevocable proxy to vote an estimated 1,142,857 shares of Common Stock to
be issued to FCI in the Pending Acquisition with respect to the election of
directors and certain other matters for a two year period following the
closing of the Pending Acquisition.
(8) Excludes 136,612 shares of Common Stock owned by Genzyme Genetics, a
division of Genzyme Corp., that Elliott D. Hillback, Jr., as a Senior Vice
President of Genzyme Corp., may be deemed to beneficially own as to which
Mr. Hillback has disclaimed beneficial ownership.
(9) Includes 31,600 shares of Common Stock held by family members of Lawrence
Stuesser for which Mr. Stuesser has disclaimed beneficial ownership.
(10) Includes currently exercisable options to purchase 448,587 shares of Common
Stock. If all of the shares described in note (8) were included, the number
of shares owned would be 1,612,501 and 2,755,358 shares and the percentage
ownership, would be 15.77% prior to the offering and 15.51% after the
offering, respectively.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock").
Preferred Stock
The Board of Directors is authorized to establish and designate the
classes, series, voting powers, designations, preferences and relative,
participating, optional or other rights, and such qualifications, limitations
and restrictions of the Preferred Stock as the Board, in its sole discretion,
may determine without further vote or action by the stockholders.
The rights, preferences, privileges, and restrictions or qualifications 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 issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock or could adversely affect the rights and
powers, including voting rights, of holders of Common Stock.
The existence of the Preferred Stock and the power of the Board of
Directors of the Company to set its terms and issue a series of Preferred Stock
at any time without stockholder approval, could have certain anti-takeover
effects. These effects include that of making the Company a less attractive
target for a "hostile" takeover bid or rendering more difficult or discouraging
the making of a merger proposal, assumption of control through the acquisition
of a large block of Common Stock or removal of incumbent management, even if
such actions could be beneficial to the stockholders of the Company.
Convertible Preferred Stock
The issuance of 2,500,000 shares of Convertible Preferred Stock has been
authorized by resolutions adopted by the Board of Directors and is set forth in
a Certificate of Designations of Series A Cumulative Convertible Preferred Stock
filed with the Secretary of State of the State of Delaware, which contains the
designations, rights, powers, preferences, qualifications and limitations of the
Convertible Preferred Stock. All outstanding shares of Convertible Preferred
Stock are fully paid and nonassessable.
The following is a summary of the terms of the Convertible Preferred
Stock. This summary is not intended to be complete and is subject to, and
qualified in its entirety by reference to, the Certificate of Designations filed
with the Secretary of State of the State of Delaware amending the Company's
Certificate of Incorporation and setting forth the rights, preferences and
limitations of the Convertible Preferred Stock, filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
On November 30, 1994, the Company announced it may purchase up to 300,000
shares of its outstanding Convertible Preferred Stock at such times and prices
as it deems advantageous. The Company has no commitment or obligation to
purchase any particular number of shares, and it may suspend the program at any
time. As of the date hereof, there were 165,644 shares of Convertible Preferred
Stock outstanding.
Dividends
The holders of the Convertible Preferred Stock are entitled to receive if,
when and as declared by the Board of Directors out of funds legally available
therefor, dividends at the rate of $.80 per share per annum, payable quarterly
on the fifteenth day of August, November, February and May of each year,
commencing August 15, 1993, to the holders of record as of a date, not more than
sixty days prior to the dividend payment date, as may be fixed by the Board of
Directors. Dividends accrue from the first day of the quarterly period in which
such dividend may be payable, except with respect to the first quarterly
dividend which shall accrue from the date of issuance of the Convertible
Preferred Stock.
No dividends may be paid on any shares of capital stock ranking junior to
the Convertible Preferred Stock (including the Common Stock) unless and until
all accumulated and unpaid dividends on the Convertible Preferred Stock have
been declared and paid in full.
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<PAGE>
In May 1995, as a result of the Company's Board of Directors suspending
four quarterly dividend payments, holders of the Convertible Preferred Stock
became entitled to one vote per share of Convertible Preferred Stock, voting,
together with the Common Stock, on all matters submitted to a vote of
stockholders, including election of directors; once in effect, such voting
rights are not terminated by the payment of all accrued dividends. The Company
does not anticipate the payment of any dividends on the Convertible Preferred
Stock in the foreseeable future. As of June 16, 1997, 12 quarterly dividend
payments have been suspended resulting in $397,000 of dividend payments being in
arrears.
Conversion
At the election of the holder thereof, each share of Convertible Preferred
Stock will be convertible into Common Stock at any time prior to redemption at a
conversion rate of 1.1 shares of Common Stock for each share of Convertible
Preferred Stock (equivalent to a conversion price of $9.0909 per share). The
conversion rate is subject to adjustment from time to time in the event of (i)
the issuance of Common Stock as a dividend or distribution on any class of
capital stock of the Company; (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders of
Common Stock of evidences of the Company's indebtedness or assets (including
securities, but excluding cash dividends or distributions paid out of earned
surplus); (iv) the failure of the Company to pay a dividend on the Convertible
Preferred Stock within 30 days of a dividend payment date, which will result in
each instance in a reduction of $.18 per share; or (v) the sale of Common Stock
at a price, or the issuance of options, warrants or convertible securities with
an exercise or conversion price, below $8.00 per share, except upon exercise of
options and/or warrants outstanding on the date of this Prospectus and options
thereafter granted to employees. No adjustment in the conversion rate will be
required until cumulative adjustments require an adjustment of at least 1.5% in
the conversion rate. No fractional shares will be issued upon conversion, but
any fractions will be adjusted in cash on the basis of the then current market
price of the Common Stock. Payment of accumulated and unpaid dividends will be
made upon conversion to the extent of legally available funds. The right to
convert the Convertible Preferred Stock terminates on the date fixed for
redemption.
On October 7, 1994, the Company offered to the holders of the 2,000,0000
outstanding shares of the Convertible Preferred Stock the ability to convert
each share of Convertible Preferred Stock into 3.0 shares of Common Stock, and
$.20 in cash (the "Offer"). Upon expiration of the Offer on November 10, 1994
and pursuant to its terms 1,136,122 shares of Convertible Preferred Stock were
accepted for conversion into 3,408,366 shares of Common Stock and $227,224 in
cash. In connection with the Offer, five-year warrants to purchase 70,826 shares
of Common Stock at $1.25 per share were issued to Raymond James & Associates,
Inc.
On June 6, 1996, the Company made a new conversion offer (the "Second
Offer") to the holders of the 773,878 outstanding shares of the Convertible
Preferred Stock. Under the Second Offer, holders of Convertible Preferred Stock
received four shares of Common Stock upon conversion of each share of
Convertible Preferred Stock and respective accrued dividends subject to the
terms and conditions set forth in the Second Offer. The Second Offer was
conditioned upon a minimum of 400,000 shares of Convertible Preferred Stock
being tendered; provided that the Company reserved the right to accept fewer
shares. Upon expiration of the Second Offer on July 17, 1996, and pursuant to
its terms, 608,234 shares of Convertible Preferred Stock were accepted for
conversion into 2,432,936 shares of Common Stock, or 78.6% of the Convertible
Preferred Stock outstanding, constituting all the shares validly tendered. Upon
consummation of the Second Offer, there were 9,198,375 shares of Common Stock
outstanding and 165,644 shares of Convertible Preferred Stock outstanding. As a
result of the conversion, the Company reversed approximately $973,000 in accrued
dividends from its balance sheet and $6.1 million of liquidation preference has
been eliminated.
Redemption
The Company may, at its option, redeem the Convertible Preferred Stock, in
whole and not in part, at any time at a redemption price of $10.00 per share,
plus accumulated and unpaid dividends, if the market price of the Common Stock
(the closing sale price as reported by The Nasdaq SmallCap Market or, if not
traded thereon, the high bid price as reported by Nasdaq or, if not quoted
thereon, the high bid price in the National Quotation Bureau sheet listing for
the Common Stock) equals or exceeds $12.00 per share for twenty consecutive
trading days ending no more than ten days prior to the date of notice of
redemption.
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In addition, the Company may, at its option, redeem the Convertible
Preferred Stock, in whole and not in part, at any time on or after May 20, 1997
at the redemption prices set forth below, plus accumulated and unpaid dividends:
Redemption Price
Date of Redemption Per Share
----------------- --------
May 20, 1997 to May 19, 1999 ..................... $10.70
May 20, 1999 to May 19, 2001 ..................... $10.50
May 20, 2001 to May 19, 2003 ..................... $10.30
May 20, 2003 and thereafter ...................... $10.00
Notice of redemption must be mailed to each holder of Convertible
Preferred Stock to be redeemed at his last address as it appears upon the
Company's registry books at least thirty days prior to the record date of such
redemption. On and after the redemption date, dividends will cease to accumulate
on shares of Convertible Preferred Stock called for redemption.
On or after the redemption date, holders of shares of Convertible
Preferred Stock which have been redeemed shall surrender their certificates
representing such shares to the Company at its principal place of business or as
otherwise specified and thereupon the redemption price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof; provided, that a holder of Convertible
Preferred Stock may elect to convert such shares into Common Stock at any time
prior to the date fixed for redemption.
From and after the redemption date, all rights of the holders of such
shares shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever.
Voting Rights
The holders of the Convertible Preferred Stock are not entitled to vote,
except as set forth below and as provided by applicable law. On matters subject
to a vote by holders of the Convertible Preferred Stock, the holders are
entitled to one vote per share.
The affirmative vote of at least a majority of the shares of Convertible
Preferred Stock voting as a class, shall be required to authorize, effect or
validate the creation and issuance of any class or series of stock ranking equal
or superior to the Convertible Preferred Stock with respect to the declaration
and payment of dividends or distribution of assets on liquidation, dissolution
or winding up. In the event that the Company has the right to redeem the
Convertible Preferred Stock no such vote is required if, prior to the time such
class is issued, provision is to be made for the redemption of all shares of the
Convertible Preferred Stock and such Convertible Preferred Stock is redeemed on
or prior to the issuance of such class.
In the event that the Company fails to pay any dividends for four
quarterly dividend payment periods, whether or not consecutive, the holders of
the Convertible Preferred Stock shall be entitled to one vote per share of
Convertible Preferred Stock on all matters submitted to the Company's
stockholders, including election of directors; once in effect, such voting
rights are not terminated by the payment of all accrued dividends. In May 1995,
as a result of the Company's Board of Directors suspending four quarterly
dividend payments, holders of Convertible Preferred Stock became entitled to one
vote per share of Convertible Preferred Stock voting, together with the Common
Stock, on all matters submitted to a vote of stockholders, including election of
directors.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, before any payment or distribution of the assets of
the Company (whether capital or surplus), or the proceeds thereof, may be made
or set apart for the holders of Common Stock or any stock ranking junior to the
Convertible Preferred Stock the holders of Convertible Preferred Stock will be
entitled to receive, out of the assets of the Company available for distribution
to stockholders, a liquidating distribution of $10.00 per share, plus any
accumulated and unpaid dividends. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the assets of the Company
are insufficient to make the full payment of $10.00 per share, plus all
accumulated and unpaid dividends on the Convertible Preferred Stock and similar
payments, any other class of stock ranking on a parity with the Convertible
Preferred Stock upon liquidation, then the holders of the Convertible Preferred
Stock or such other shares will share ratably in any such distribution of the
Company's assets in proportion to the full respective distributable amounts to
which they are entitled.
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Miscellaneous
The Company is not subject to any mandatory redemption or sinking fund
provisions with respect to the Convertible Preferred Stock. The holders of the
Convertible Preferred Stock are not entitled to preemptive rights to subscribe
for or to purchase any shares or securities of any class which may at any time
be issued, sold or offered for sale by the Company. Shares of Convertible
Preferred Stock redeemed or otherwise reacquired by the Company shall be retired
by the Company and shall be unavailable for subsequent issuance.
Transfer Agent
American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005 is the transfer agent for the Convertible Preferred Stock.
Common Stock
The holders of outstanding shares of Common Stock are entitled to share
ratably on a share-for-share basis with respect to any dividends paid on the
Common Stock when, as and if declared by the Board of Directors out of funds
legally available therefor. Each holder of Common Stock is entitled to one vote
for each share held of record. The Common Stock is not entitled to conversion or
preemptive rights and is not subject to redemption. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in the net assets legally available for distribution
after the liquidating distribution to the holders of the Convertible Preferred
Stock. All outstanding shares of Common Stock are fully paid and nonassessable.
Gerardo Canet, President and Chief Executive Officer of the Company has an
irrevocable proxy to vote (i) 666,666 shares of Common Stock owned by Morris
Notelovitz, on all matters subject to a vote of the stockholders through
September 30, 1997 and (ii) 145,454 shares of Common Stock currently owned by
RSMC and any shares subsequently issued to RSMC in connection with the San Diego
Acquisition, with respect to the election of directors and certain other matters
for two years from the date of issuance. In addition, upon consummation of the
Pending Acquisition, FCI will grant Mr. Canet an irrevocable proxy to vote the
shares of Common Stock issued to it in the Pending Acquisition (estimated to be
1,142,857 shares) with respect to the election of directors and certain other
matters. There are no transfer restrictions on the shares, other than those
imposed by federal and state securities law.
Transfer Agent
American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005 is the transfer agent and registrar for the Common Stock.
Limitation of Liability
As permitted by the DGCL, the Company's Amended and Restated Certificate
of Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for damages for the breach of any duty
owed to the Company or its stockholders except for liability for any breach of
duty based upon an act or omission (i) in breach of the director's duty of
loyalty to the Company or its stockholders, (ii) not in good faith or involving
a knowing violation of law or (iii) resulting in the receipt by such director of
an improper personal benefit.
As a result of the provision, the Company and its stockholders may be
unable to obtain monetary damages from a director for breach of his duty of
care. Although stockholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, stockholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
In addition, the Company's Amended and Restated Certificate of
Incorporation and By-Laws provide that the Company will indemnify any and all
corporate agents, including any director, officer, employee or agent of the
Company, to the fullest extent permitted by the DGCL. Accordingly, the Company
will be required to indemnify any such corporate agent against his expenses and
liabilities in connection with proceedings other than those by or in the right
of the Company involving the corporate agent by reason of his being such, if (i)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and (ii) with respect to any
criminal proceedings, he had no reasonable cause to believe his conduct was
unlawful.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
the offering, or the possibility of such sales occurring, could adversely affect
prevailing market prices for the Common Stock or the future ability of the
Company to raise capital through an offering of equity securities. After this
offering, the Company will have 17,317,009 shares of Common Stock outstanding
(including an estimated 1,142,857 shares to be issued in the Pending
Acquisition). Of these shares, the 6,400,000 shares of Common Stock offered
hereby and an additional 8,587,641 shares of Common Stock outstanding will be
freely tradable in the public market without restriction unless such shares are
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 2,329,368 shares of Common Stock outstanding
on completion of this offering are restricted securities under the Securities
Act and may be sold in the public market only if they are registered or if they
qualify for exemption from registration under Rule 144 under the Securities Act.
Pursuant to "lock-up" agreements, all of the Company's executive officers,
directors and certain holders of shares of the outstanding Common Stock, who
collectively hold 1,183,581 shares of Common Stock, have agreed not to offer,
sell, contract to sell, or grant any option, right or warrant to purchase or
otherwise dispose of any of their shares for a period of 90 days from the date
of this Prospectus without the prior written consent of Vector Securities
International, Inc. The Company also has agreed that it will not offer, sell,
contract to sell, or grant any option, right or warrant to purchase or otherwise
dispose of Common Stock for a period of 90 days from the date of this
Prospectus, other than pursuant to outstanding warrants and options, existing
stock option plans, and in connection with corporate collaborations and
acquisitions, without the prior written consent of Vector Securities
International, Inc. Upon termination of such lock-up agreements, 850,248 of the
"locked-up" securities will be eligible for immediate sale in the public market
subject to certain volume, manner of sale and other limitations under Rule 144.
Vector Securities International, Inc. may, at its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements.
As of the date of this Prospectus, the Company had outstanding options and
warrants to purchase a total of 1,477,846 shares of Common Stock, of which
options and warrants to purchase 834,239 shares are currently exercisable. Of
such shares subject to options and warrants, approximately 509,631 shares are
subject to lock-up agreements for a period of 90 days from the date of this
Prospectus. As of the date of this Prospectus, an additional 246,303 shares were
available for future option grants under the Company's stock option plans. All
of the shares issued, issuable or reserved for issuance under the Company's
stock option plans or upon the exercise of options issued or issuable under such
plans are covered or will be covered by an effective registration statement.
Shares issued upon exercise of such options generally will be freely tradeable
in the public market after the effective date of a registration statement
covering such shares without restriction or further registration under the
Securities Act subject, in the case of certain holders, to the Rule 144
limitations applicable to affiliates, the above-referenced lock-up agreements
and vesting restrictions imposed by the Company. In addition, 478,445 shares of
Common Stock are issuable upon conversion of the Convertible Preferred Stock
(giving effect to this offering and the Pending Acquisition). Upon conversion,
such shares of Common Stock will be freely tradable in the public market.
After the offering, holders of an aggregate of 2,329,368 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares for resale under the Securities Act (including the shares to be
issued in the Pending Acquisition). In addition, the 496,117 shares issuable
upon exercise of outstanding warrants (including the Advisor Warrant) have
similar registration rights. If such registrations cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Common Stock. See "Management --
Stock Option Plans," "-- Outside Director Stock Purchase Plan," "Description of
Capital Stock" and "Plan of Distribution."
71
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock is being offered for sale by the Company on a best
efforts, all or nothing, basis to selected institutional investors. Vector
Securities International, Inc., the Placement Agent, has been retained pursuant
to a placement agency agreement to act as the exclusive agent for the Company in
connection with the arrangement of offers and sales of the Common Stock on a
best efforts basis.
The Placement Agent is not obligated to and does not intend to itself take
(or purchase) any of the shares of Common Stock. It is anticipated that the
Placement Agent will obtain indications of interest from potential investors for
the amount of the offering and that effectiveness of the Registration Statement
will not be requested until indications of interest have been received for the
amount of the offering. No investor funds will be accepted until indications of
interest have been received for the amount of the offering, and no investor
funds will be accepted prior to effectiveness of the Registration Statement.
Notifications of intention to purchase and definitive prospectuses will be
distributed to all investors at the time of pricing, informing investors of the
closing date, which will be scheduled for three business days after pricing.
After the Registration Statement is declared effective and prior to the closing
date, all investor funds will promptly be placed in escrow with Citibank, N.A.,
as Escrow Agent, in an escrow account established for the benefit of the
investors. The Escrow Agent will invest such funds in accordance with Rule
15c2-4 promulgated under the Exchange Act. Prior to the closing date, the Escrow
Agent will advise the Company that payment for the purchase of the shares of
Common Stock offered hereby has been affirmed by the investors and that the
investors have deposited the requisite funds in the escrow account at the Escrow
Agent. Upon receipt of such notice, the Company will deposit with DTC the shares
of Common Stock to be credited to the respective accounts of the investors.
Investor funds, together with interest thereon, if any, will be collected by the
Company through the facilities of the Escrow Agent on the scheduled closing
date. The offering will not continue after the closing date. In the event that
investor funds are not received in the full amount necessary to satisfy the
requirements of the offering, all funds deposited in the escrow account will
promptly be returned.
The Company has agreed (i) to pay to the Placement Agent 7.0% of the
proceeds of this offering as the selling commission, (ii) to indemnify the
Placement Agent against certain liabilities, including liabilities under the
Securities Act and (iii) to reimburse the Placement Agent for up to $125,000 for
certain expenses incurred by it in connection with the offering.
Vector Securities International, Inc. has acted as the Company's financial
advisor in connection with the Pending Acquisition. The Company has agreed to
pay Vector Securities International, Inc., in cash upon consummation of the
Pending Acquisition, a transaction fee equal to 3.0% of the aggregate
consideration to be paid in the Pending Acquisition for the right to manage FCI.
The Company also has agreed to sell to Vector Securities International, Inc.,
for an aggregate of $50, the Advisor Warrant, which permits Vector to purchase
up to that number of shares of Common Stock equal to 2.0% of the aggregate
consideration paid by the Company with respect to the right-to-manage fee in the
Pending Acquisition ($8.0 million) divided by the average closing bid price per
share of the Common Stock for the ten day trading period prior to closing of the
Pending Acquisition, at an exercise price equal to $1.81. In addition, the
Company has agreed to reimburse Vector Securities International, Inc. for its
out-of-pocket expenses in connection with the Pending Acquisition and to
indemnify Vector Securities International, Inc. against certain losses, claims,
damages, liabilities and expenses.
The Company has agreed not to issue, and certain officers and directors
and other shareholders of the Company have agreed that they will not, directly
or indirectly, offer, sell, contract to sell, or grant any option, right or
warrant to purchase or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for, or any rights to purchase or
acquire, Common Stock for a period of 90 days from the date of this Prospectus,
without the prior written consent of Vector Securities International, Inc. See
"Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bachner, Tally, Polevoy & Misher LLP, New York, New
York. Certain legal matters in connection with this offering will be passed upon
for the Placement Agent by Stroock & Stroock & Lavan LLP, New York, New York.
72
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 included in this Prospectus and the financial statement schedule included
in the Registration Statement have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Bay Area Fertility and Gynecology Medical
Group as of December 31, 1996 and for the year ended December 31, 1996 included
in this Prospectus and the Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Fertility Centers of Illinois, S.C. as of
December 31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996 included in this Prospectus and the Registration Statement
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the offices of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the following regional offices of the Commission: Seven World Trade Center,
13th Floor, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet (http://www.sec.gov). In addition, such reports, proxy statements
and other information concerning the Company can be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form
S-1, including amendments thereto, under the Securities Act 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, certain parts of which were omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and such Common Stock, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. 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, if
such contract or document is filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's Public Reference Section, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any part
of such material may be obtained from the Commission at its principal office
above after payment of fees prescribed by the Commission.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTEGRAMED AMERICA, INC. Page
----
Report of Independent Accountants ................................ F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996
and March 31, 1997 (unaudited) ................................ F-3
Consolidated Statement of Operations for the years ended
December 31, 1994, 1995 and 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited) .................... F-4
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1994, 1995 and 1996 and for the
three months ended March 31, 1996 and 1997 (unaudited) ....... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited) .................... F-6
Notes to Consolidated Financial Statements ....................... F-7
Bay Area Fertility and Gynecology Medical Group
Report of Independent Accountants ................................ F-24
Balance Sheet as of December 31, 1996 ............................ F-25
Statement of Operations for the year ended
December 31, 1996 ............................................. F-26
Statement of Cash Flows for the year ended
December 31, 1996 ............................................. F-27
Notes to Financial Statements .................................... F-28
Fertility Centers of Illinois, S.C .....................................
Report of Independent Accountants ................................ F-30
Combined Balance Sheet as of December 31, 1995 and 1996
and March 31, 1997 (unaudited) ................................ F-31
Combined Statement of Operations for the years ended
December 31, 1995 and 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited) .................... F-32
Combined Statement of Stockholders' Equity for the years
ended December 31, 1995 and 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited) .................... F-33
Combined Statement of Cash Flows for the years ended
December 31, 1995 and 1996 and for the three months ended
March 31, 1996 and 1997 (unaudited) .......................... F-34
Notes to Combined Financial Statements ........................... F-35
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IntegraMed America, Inc.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of IntegraMed
America, Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Stamford, Connecticut
February 24, 1997
F-2
<PAGE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all amounts in thousands)
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1995 1996 1997
---- ---- ----
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... $ 7,883 $ 3,761 $ 3,336
Short term investments ......................................................... 1,500 2,000 --
Patient accounts receivable, less allowance for doubtful accounts
of $64, $113 and $127 in 1995, 1996 and 1997, respectively ................... 1,271 2,770 3,146
Management fees receivable, less allowance for doubtful accounts
of $0, $50 and $147 in 1995, 1996 and 1997, respectively ..................... 1,125 1,249 1,757
Research fees receivable ....................................................... -- 232 222
Other current assets ........................................................... 508 897 1,003
Controlled assets of Medical Practices (see Note 2)
Cash ......................................................................... 296 191 65
Accounts receivable, less allowance for doubtful accounts
of $25, $146 and $92 in 1995, 1996 and 1997, respectively .................. 1,449 459 360
Other current assets ........................................................... 14 -- --
-------- -------- --------
Total controlled assets of Medical Practices ........................... 1,759 650 425
Total current assets ................................................... 14,046 11,559 9,889
-------- -------- --------
Fixed assets, net ................................................................. 2,266 3,186 2,947
Intangible assets, net ............................................................ 1,761 5,894 7,937
Other assets ...................................................................... 198 211 216
-------- -------- --------
Total assets ........................................................... $ 18,271 $ 20,850 $ 20,989
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... $ 181 $ 1,020 $ 575
Accrued liabilities ............................................................ 1,307 1,652 1,275
Due to Medical Practices-- (see Notes 2 and 5) ................................. 606 326 428
Dividends accrued on Preferred Stock ........................................... 946 331 364
Current portion of exclusive management rights obligation ...................... 297 222 222
Note payable and current portion of long-term debt ............................. 274 426 653
Patient deposits ............................................................... 411 490 581
-------- -------- --------
Total current liabilities .............................................. 4,022 4,467 4,098
-------- -------- --------
Exclusive management rights obligation ............................................ 978 1,213 1,213
Long-term debt .................................................................... 340 692 681
Commitments and Contingencies -- (see Note 14) .................................... -- -- --
Shareholders' equity:
Preferred Stock, $1.00 par value --
3,785,378 shares authorized in 1995 and 3,165,644 shares authorized in 1996
and 1997 -- 2,500,000 undesignated; 1,285,378 and 665,644 shares designated
as Series A Cumulative Convertible of which 785,378, 165,644 and 165,644
were issued and outstanding in 1995, 1996 and 1997, respectively ............. 785 166 166
Common Stock, $.01 par value-- 25,000,000 shares authorized;
6,086,910, 9,230,557 and 9,587,640 shares issued and outstanding in
1995, 1996 and 1997, respectively ............................................ 61 92 96
Capital in excess of par ....................................................... 31,785 35,410 35,970
Accumulated deficit ............................................................ (19,700) (21,190) (21,235)
-------- -------- --------
Total shareholders' equity ............................................. 12,931 14,478 14,997
-------- -------- --------
Total liabilities and shareholders' equity ............................. $ 18,271 $ 20,850 $ 20,989
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months
For the years ended December 31, ended March 31,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues, net (see Note 2) .................. $ 17,578 $16,711 $ 18,343 $ 4,175 $ 5,088
Medical Practice retainage (see Note 2) ..... 3,824 3,063 2,680 794 396
------- ------- -------- -------- ------
Revenues after Medical Practice retainage
(see Note 2) ............................. 13,754 13,648 15,663 3,381 4,692
Costs of services rendered .................. 10,998 9,986 12,398 2,563 3,615
------- ------- -------- -------- ------
Network sites' contribution ................. 2,756 3,662 3,265 818 1,077
------- ------- -------- -------- ------
General and administrative expenses ......... 3,447 3,680 4,339 855 918
Clinical service development expenses ....... 452 290 323 67 59
Amortization of intangible assets ........... -- 73 331 42 137
Interest income ............................. (519) (626) (415) (120) (34)
Interest expense ............................ 40 20 36 5 10
. ------- ------- -------- -------- ------
Total other expenses ....................... 3,420 3,437 4,614 849 1,090
------- ------- -------- -------- ------
(Loss) income before income taxes .......... (664) 225 (1,349) (31) (13)
Provision for income and capital taxes ..... 150 155 141 43 32
------- ------- -------- -------- ------
Net (loss) income .......................... (814) 70 (1,490) (74) (45)
Less: Dividends accrued and/or paid on
Preferred Stock ......................... 1,146 600 132 154 33
------- ------- -------- -------- ------
Net loss applicable to Common Stock before
consideration for induced conversion of
Preferred Stock ......................... $(1,960) $ (530) $ (1,622) $ (228) $ (78)
======= ======= ======== ======== ======
Net loss per share of Common Stock before
consideration for induced conversion of
Preferred Stock ......................... $ (0.32) $ (0.09) $ (0.21) -- --
======= ======= ======== ======== ======
Net loss per share of Common Stock
(see Note 10) ........................... $ (0.32) $ (0.09) $ (0.68) $ (0.04) $(0.01)
======= ======= ======== ======== ======
Weighted average number of shares of
Common Stock outstanding ................ 6,081 6,087 7,602 6,087 9,544
======= ======= ======== ======== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(all amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Cumulative Convertible
Preferred Stock Common Stock Total
---------------------- ------------------ Capital in Accumulated Shareholders'
Shares Amount Shares Amount Excess of Par Deficit Equity
------- -------- ------ ------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 ................. 2,000,000 $ 2,000 2,666,867 $27 $ 33,461 $(18,956) $ 16,532
Conversion of Preferred Stock to Common
Stock, net of issuance costs .............. (1,136,122) (1,136) 3,408,366 34 326 -- (776)
Dividends accrued and paid to
preferred shareholders ..................... -- -- -- -- (1,146) -- (1,146)
Exercise of Common Stock options ............. -- -- 11,677 -- 23 -- 23
Net loss ..................................... -- -- -- -- -- (814) (814)
---------- ------- --------- --- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 ................. 863,878 864 6,086,910 61 32,664 (19,770) 13,819
Dividends accrued to preferred shareholders .. -- -- -- -- (600) -- (600)
Purchase and retirement of Preferred Stock ... (78,500) (79) -- -- (279) -- (358)
Net income ................................... -- -- -- -- -- 70 70
---------- ------- --------- --- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 ................. 785,378 785 6,086,910 61 31,785 (19,700) 12,931
Conversion of Preferred Stock to Common
Stock, net of issuance costs and the
reversal of accrued Preferred Stock
dividends .................................. (608,234) (608) 2,432,936 24 1,298 -- 714
Issuance of Common Stock for acquisition ..... -- -- 666,666 7 2,493 -- 2,500
Dividends accrued to preferred shareholders .. -- -- -- -- (132) -- (132)
Purchase and retirement of Preferred Stock ... (11,500) (11) -- -- (72) -- (83)
Exercise of Common Stock options ............. -- -- 44,045 -- 38 -- 38
Net loss ..................................... -- -- -- -- -- (1,490) (1,490)
---------- ------- --------- --- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 ................. 165,644 166 9,230,557 92 35,410 (21,190) 14,478
Issuance of Common Stock for acquisition ..... -- -- 333,333 3 579 -- 582
Dividends accrued to preferred shareholders .. -- -- -- -- (33) -- (33)
Exercise of Common Stock options ............. -- -- 3,750 -- 14 -- 14
Issuance of Common Stock to an employee ...... -- -- 20,000 1 -- -- 1
Net loss ..................................... -- -- -- -- -- (45) (45)
---------- ------- --------- --- -------- -------- --------
BALANCE AT MARCH 31, 1997 (unaudited) ........ 165,644 $ 166 9,587,640 $96 $ 35,970 $(21,235) $ 14,997
========== ======= ========= === ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<TABLE>
<CAPTION>
For the three months
For the years ended December 31, ended March 31,
-------------------------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ----- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ..................................... $ (814) $ 70 $(1,490) $ (74) $ (45)
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation and amortization ...................... 770 775 1,116 230 417
Writeoff of fixed assets ........................... 275 21 -- -- 55
Changes in assets and liabilities net of effects from
acquired businesses --
(Increase) decrease in assets:
Patient accounts receivable ........................ (142) (94) (1,318) (542) (376)
Management fees receivable ......................... -- (1,125) (124) (207) (508)
Research fees receivable ........................... -- -- 10 -- 10
Other current assets ............................... 22 (304) (379) (95) (106)
Other assets ....................................... 1 (21) (13) (17) (5)
(Increase) decrease in controlled assets of
Medical Practices:
Patient accounts receivable ........................ 316 806 990 458 99
Other current assets ............................... 15 25 14 4 --
Increase (decrease) in liabilities:
Accounts payable ................................... 175 (502) 839 92 (445)
Accrued liabilities ................................ (56) 3 106 (228) (377)
Due to Medical Practices ........................... 124 (131) (280) (12) 102
Patient deposits ................................... (109) (77) 79 7 91
-------- -------- ------- ------- -------
Net cash (used in) provided by operating activities ...... 577 (554) (450) (384) (1,088)
-------- -------- ------- ------- -------
Cash flows (used in) provided by investing activities:
Purchase of short term investments .................... -- (1,500) (500) -- --
Proceeds from short term investments .................. -- -- -- -- 2,000
Payment for exclusive management rights and acquired
physician practices ................................ -- (177) (984) -- (1,635)
Purchase of net assets of acquired businesses ......... -- (168) (394) -- (29)
Purchase of fixed assets and leasehold improvements ... (913) (1,152) (1,498) (344) (64)
Proceeds from sale of fixed assets and leasehold
improvements ....................................... -- 651 86 -- 80
-------- -------- ------- ------- -------
Net cash (used in) provided by investing activities ...... (913) (2,346) (3,290) (344) 352
-------- -------- ------- ------- -------
Cash flows (used in) provided by financing activities:
Proceeds from bank under Credit Facility .............. -- -- -- -- 250
Principal repayments on debt .......................... (78) (84) (193) (44) (52)
Principal repayments under capital lease obligations .. (326) (173) (216) (43) (27)
Repurchase of Convertible Preferred Stock ............. -- (358) (83) (11) --
Used for recapitalization costs ....................... (776) -- (33) -- --
Dividends paid on Convertible Preferred Stock ......... (800) -- -- -- --
Proceeds from exercise of Common Stock options ........ 23 -- 38 2 14
-------- -------- ------- ------- -------
Net cash (used in) provided by financing activities ...... (1,957) (615) (487) (96) 185
-------- -------- ------- ------- -------
Net decrease in cash ..................................... (2,293) (3,515) (4,227) (824) (551)
Cash at beginning of period .............................. 13,987 11,694 8,179 8,179 3,952
-------- -------- ------- ------- -------
Cash at end of period .................................... $ 11,694 $ 8,179 $ 3,952 $ 7,355 $ 3,401
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
IntegraMed America, Inc. (the "Company") is a physician practice
management company specializing in women's health care, with a focus on
infertility and assisted reproductive technology ("ART") services as well as
health care services to peri- and post-menopausal women. During 1996, the
Company provided management services to a nationwide network of medical
practices that consists of ten sites (each, a "Network Site"). Each Network Site
consists of a location or locations where the Company has a management agreement
with a physician group or hospital (each, a "Medical Practice") which employs
the physicians or where the Company directly employs the physicians.
Until 1996, the Company was focused exclusively on providing management
services to Medical Practices in the area of infertility and ART services.
During 1996, the Company, with the acquisition of a medical practice in Florida,
broadened its focus to include health care services to peri- and post-menopausal
women (ages 40-50 and over 50, respectively). As a result, the Company
established two divisions: the Reproductive Science Center Division (the "RSC
Division"), which provides management services to Medical Practices focused on
infertility and ART services, and the Adult Women's Medical Division (the "AWM
Division"), which provides management services to Medical Practices focused on
health care services for peri- and post-menopausal women.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation --
The consolidated financial statements comprise the accounts of IntegraMed
America, Inc. and its wholly owned subsidiaries, IVF America (NY), Inc., IVF
America (MA), Inc., IVF America (PA), Inc., IVF America (NJ), Inc., IVF America
(MI), Inc. and the Adult Women's Medical Center, Inc. All significant
intercompany transactions have been eliminated. Three of the ten Network Sites
managed by the Company during 1996, of which one management agreement was
terminated in November 1996, are consolidated as the Company has unilateral and
perpetual control of the revenues and expenses generated from these Network
Sites.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of management's
estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim results --
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position at March 31, 1997,
and the results of operations and cash flows for the interim periods presented.
Operating results for the interim period are not necessarily indicative of
results that may be expected for the year ending December 31, 1997.
Revenue and cost recognition --
RSC Division
During 1996, the RSC Division's operations were comprised of nine
management agreements, one of which was terminated in November 1996 and one of
which was terminated in January 1997. During the three-month period ended March
31, 1997, the RSC Division's operations were principally comprised of eight
management agreements, one of which was entered into on January 7, 1997.
F-7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under four of the agreements the Company receives as compensation for its
management services a three-part management fee comprised of: (i) a fixed
percentage of net revenues generally equal to 6%, (ii) reimbursed cost of
services (costs incurred in managing a Medical Practice and any costs paid on
behalf of the Medical Practice) and, (iii) a fixed or variable percentage of
earnings after management fees and any guaranteed physician compensation, or an
additional fixed or variable percentage of net revenues which generally results
in the Company receiving up to an additional 15% of net revenues. All management
fees are reported as revenues, net by the Company. Direct costs incurred by the
Company in performing its management services and costs incurred on behalf of
the Medical Practice are recorded in cost of services rendered. The physicians
receive as compensation all remaining earnings after payment of the Company's
management fee. The Company does not consolidate the results of these Medical
Practices due to its three-part management fee with each Medical Practice.
Under three management agreements, one of which was terminated in November
1996, the Company consolidates the revenues and expenses of the Medical Practice
due to its unilateral and perpetual control over these items. Under these
agreements, the Company records all clinical revenues and, out of such revenues,
the Company pays the Medical Practice expenses relating to the operation of the
Medical Practice including physicians' and other medical fees, direct materials,
rent, etc. (the "Medical Practice retainage"). Remaining revenues, if any, are
used by the Company for other direct administrative expenses which are recorded
as cost of services or are retained by the Company as a management fee. Under
this arrangement, the Company is liable for payment of all liabilities incurred
by the Medical Practice and is at risk for any losses incurred in the operations
thereof.
Two of the Company's Network Sites are affiliated with Medical Centers.
Under one of these management agreements, the Company primarily provides
endocrine testing and administrative and finance services for a fixed percentage
of revenues, equal to 15% of net revenues, and reimbursed costs of services.
Under the second of these management agreements, the Company's revenues are
derived from certain ART laboratory services performed, and directly billed to
the patients by the Company; out of these revenues, the Company pays its direct
costs and the remaining balance represents the Company's Network Site
contribution. All direct costs incurred by the Company are recorded as cost of
services.
AWM Division
The AWM Division's operations are currently comprised of one Network Site
with three locations which are directly owned by the Company and a 51% interest
in the National Menopause Foundation ("NMF"), a company which develops
multifaceted educational programs regarding women's healthcare and publishes a
quarterly women's health digest. The Network Site is also involved in clinical
trials with major pharmaceutical companies.
The Company bills and records all clinical revenues of the Network Site
and records all direct costs incurred as cost of services. The Company retains
as Network site contribution an amount determined using the three-part
management fee calculation described above with regard to the RSC Division, and
the balance is paid as compensation to the Medical Practices and is recorded by
the Company in cost of services rendered. The Medical Practices receive a fixed
monthly draw which may be adjusted quarterly by the Company based on the
respective Network site's actual operating results.
Revenues in the AWM Division also include amounts earned under contracts
relating to clinical trials between the Network Site and various pharmaceutical
companies. The Network Site contracts with major pharmaceutical companies
(sponsors) to perform women's medical care research mainly to determine the
safety and efficacy of a medication. Research revenues are recognized pursuant
to each respective contract in the period which the medical services (as
stipulated by the research study protocol) are performed and collection of such
fees is considered probable. Net realization is dependent upon final approval by
the sponsor that procedures were performed according to study protocol. Payments
collected from sponsors in advance for services are included in accrued
liabilities, and costs incurred in performing the research studies are included
in cost of services rendered.
F-8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's 51% interest in NMF is included in the Company's
consolidated financial statements. The Company records 100% of the revenues and
costs of NMF and reports 49% of any profits of NMF as minority interest on the
Company's consolidated balance sheet. Minority interest at December 31, 1996 and
March 31, 1997 was $0.
Cash and cash equivalents --
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Short term investments --
Short term investments consist of investments in corporate commercial
paper with an original maturity of less than one year but greater than three
months and are available for sale. Investments are recorded at cost, which
approximates market.
Patient accounts receivable --
Patient accounts receivable represent receivables from patients for
medical services provided by the Medical Practices. Such amounts are recorded
net of contractual allowances and estimated bad debts and risk of loss due to
non-collectibility is borne by the Company. As of December 31, 1996 and March
31, 1997, of the total patient accounts receivable of $2,770,000 and $3,146,000,
respectively, approximately $836,000 and $1,041,000 of accounts receivable were
a function of Network Site revenue (i.e., the Company purchased the accounts
receivable from the Medical Practice) and the balances of $1,934,000 and
$2,105,000, respectively, were a function of net revenues of the Company (see
Note 2 -- "Revenue and cost recognition" above).
Management fees receivable --
Management fees receivable represent fees owed to the Company pursuant to
its management agreements with certain Network Sites (see Note 2 -- "Revenue and
cost recognition" above).
Research fees receivable --
Research fees receivable represent receivables from pharmaceutical
companies for medical services provided by the Medical Practices at the Network
Site under the AWM Division to patients pursuant to protocols stipulated under
contracts relating to clinical trials between the pharmaceutical companies and
the AWM Division.
Controlled assets of Medical Practices --
Controlled cash represents segregated cash held in the name of certain
Medical Practices; controlled accounts receivable represent patient receivables
due to certain Medical Practices, and controlled other current assets represent
assets owned by and held in the name of certain Medical Practices, all of which
are reflected on the Company's consolidated balance sheet due to the Company's
unilateral control of such assets.
At December 31, 1995 and 1996 and at March 31, 1997, of the $1,759,000,
$650,000 and $425,000, respectively, controlled assets of Medical Practices,
$279,000, $117,000 and $76,000, respectively, were restricted for payment of the
amounts due to Medical Practices and the balances of $1,480,000, $533,000 and
$349,000, respectively, were payable to the Company.
Fixed assets --
Fixed assets are valued at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, generally three to five years.
Leasehold improvements are amortized over the shorter of the asset life or the
remaining term of the lease. Assets under capital leases are amortized over the
term of the lease agreements. The Company periodically reviews the fair value of
long-lived assets, the results of which have had no material effect on the
Company's financial position or results of operations.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.
F-9
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible assets --
Intangible assets at December 31, 1995 and 1996 and March 31, 1997
consisted of the following (000's omitted):
1995 1996 1997
---- ---- ----
(unaudited)
Exclusive management rights .......... $ 1,621 $ 2,178 $ 4,281
Goodwill ............................. 50 3,935 4,004
Trademarks ........................... 372 394 395
------- ------- -------
Total ............................ 2,043 6,507 8,680
Less-- accumulated amortization ...... (282) (613) (743)
------- ------- -------
Total ............................ $ 1,761 $ 5,894 $ 7,937
======= ======= =======
Exclusive Management Rights, Goodwill and Other Intangible Assets
Exclusive management rights, goodwill and other intangible assets
represent costs incurred by the Company for the right to manage and/or acquire
certain Network Sites and are valued at cost less accumulated amortization.
Trademarks
Trademarks represent trademarks, service marks, trade names and logos
purchased by the Company and are valued at cost less accumulated amortization.
Amortization and recoverability
The Company periodically reviews its intangible assets to assess
recoverability; any impairments would be recognized in the consolidated
statement of operations if a permanent impairment were determined to have
occurred. Recoverability of intangibles is determined based on undiscounted
expected earnings from the related business unit or activity over the remaining
amortization period. Exclusive management rights are amortized over the term of
the respective management agreement, usually ten or twenty years. Goodwill and
other intangibles are amortized over periods ranging from three to forty years.
Trademarks are amortized over seven years. Accumulated amortization of exclusive
management rights, goodwill and trademarks was $73,000, $0 and $209,000 at
December 31, 1995, respectively, and $270,000, $91,000 and $252,000 at December
31, 1996, respectively, and $343,000, $137,000 and $263,000 at March 31, 1997,
respectively.
Due to Medical Practices --
Due to Medical Practices represents liabilities the Company was obligated
to pay on behalf of, or directly to, the Medical Practices from the controlled
assets of Medical Practices, which may be offset by advances made by the Company
to certain Medical Practices for professional and affiliate fees.
Stock based employee compensation --
The Company adopted Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (FAS 123), on January 1, 1996. Under FAS 123,
companies can, but are not required to, elect to recognize compensation expense
for all stock based awards, using a fair value method. The Company has adopted
the disclosure only provisions, as permitted by FAS 123.
Concentrations of credit --
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's trade receivables are primarily from third party payors,
principally insurance companies and health maintenance organizations.
Income taxes --
The Company accounts for income taxes utilizing the asset and liability
approach.
F-10
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Earnings per share --
Net loss per share is determined by dividing net income or loss, decreased
or increased by accrued dividends and dividend payments on the Series A
Cumulative Convertible Preferred Stock ("Preferred Stock"), by the weighted
average number of shares of Common Stock outstanding during the period (see Note
10).
NOTE 3 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1995 and 1996 and March 31, 1997
consisted of the following (000's omitted):
1995 1996 1997
---- ---- -----
(unaudited)
Furniture, office and other equipment ..... $ 1,617 $ 2,145 $ 2,088
Medical equipment ......................... 1,319 1,954 1,950
Leasehold improvements .................... 728 1,246 1,196
Assets under capital leases ............... 1,453 1,426 1,420
------- ------- -------
Total ................................. 5,117 6,771 6,654
Less--Accumulated depreciation and
amortization .......................... (2,851) (3,585) (3,707)
------- ------- -------
$ 2,266 $ 3,186 $ 2,947
======= ======= =======
Assets under capital leases primarily consist of medical equipment.
Accumulated amortization relating to capital leases at December 31, 1995 and
1996 and March 31, 1997 was $908, $1,065 and $1,060, respectively.
NOTE 4 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1995 and 1996 and March 31, 1997
consisted of the following (000's omitted):
1995 1996 1997
---- ---- -----
(unaudited)
Deferred compensation ........................ $ 314 $ 357 $ 352
Accrued payroll and benefits ................. -- 226 --
Deferred research revenue .................... -- 118 74
Accrued state taxes .......................... 93 166 205
Deferred rent ................................ 286 166 161
Westchester Network site closing reserve ..... -- 90 --
Other ........................................ 614 529 483
------ ------ ------
Total accrued liabilities .................... $1,307 $1,652 $1,275
====== ====== ======
NOTE 5 -- DUE TO MEDICAL PRACTICES:
Due to Medical Practices at December 31, 1995 and 1996 and March 31, 1997
consisted of the following (000's omitted):
1995 1996 1997
---- ---- -----
(unaudited)
Accrued hospital contract fees ................. $446 $ 354 465
Accrued professional fees and affiliates, net .. 130 (46) (59)
Accrued other .................................. 30 18 22
---- ----- -----
Total due to Medical Practices ................. $606 $ 326 $ 428
==== ===== =====
F-11
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 -- ACQUISITIONS AND MANAGEMENT AGREEMENTS
The transactions detailed below were accounted for by the purchase method
and the purchase price has been allocated to the assets acquired and liabilities
assumed based upon the estimated fair value at the date of acquisition. The
consolidated financial statements at and for the year ended December 31, 1996
include the results of these transactions, with the exception of the Bay Area
Acquisition which was completed in January 1997 (see Note 18), from their
respective dates of acquisition. The Bay Area Acquisition is included in the
unaudited consolidated financial statements at and for the three months ended
March 31, 1997, from the date of acquisition.
On June 7, 1996, the Company entered into an Agreement and Plan of Merger
(the "Agreement") pursuant to which INMD Acquisition Corp. ("IAC"), a Florida
corporation and wholly-owned subsidiary of the Company, acquired all of the
outstanding stock of the following three related Florida corporations: The
Climacteric Clinic, Inc. ("CCI"), Midlife Centers of America, Inc. ("MCA"), and
Women's Research Centers, Inc. ("WRC"), America, (collectively, the "Merger
Companies"), and 51% of the outstanding stock of NMF, a related Florida
corporation. Pursuant to the Agreement, the Merger Companies were merged with
and into IAC, the surviving corporation in the Merger, which will continue its
corporate existence under the laws of the State of Florida under the name Adult
Women's Medical Center, Inc. ("AWMC"). In exchange for the shares of the Merger
Companies, the Company paid cash in an aggregate amount of $350,000 and issued
666,666 shares of Common Stock which had a market value of $2.5 million. In
exchange for the 51% of the outstanding stock of NMF, the Company paid cash in
an aggregate amount of $50,000 and issued a note in an amount of $600,000, which
is payable in sixteen quarterly installments of $37,500 beginning September 1,
1996 with simple interest at a rate of 4.16%. The Merger Companies and NMF
represent one of the locations under the Women's Medical & Diagnostic Center
("WMDC").
The aggregate purchase price of the Merger Companies of $2,850,000 was
allocated as follows to assets acquired and liabilities assumed: $338,000 to
current assets, $99,000 to fixed assets, $214,000 to intangible assets which
will be amortized over a three-year period, $235,000 to accrued liabilities,
$97,000 to debt and the balance of $2,531,000 to goodwill, which will be
amortized over a forty-year period. The aggregate purchase price of NMF of
$650,000 was allocated as follows: $2,000 to current assets, $30,000 to fixed
assets, $10,000 to current liabilities and the $628,000 balance to goodwill,
which will be amortized over a forty-year period.
On May 15, 1996, the Company acquired certain assets of and the right to
manage W.F. Howard, M.D., P.A. near Dallas, Texas (the "Reproductive Science
Center ("RSC") of Dallas"), a provider of conventional infertility and assisted
reproductive technology services. The aggregate purchase price was approximately
$701,500 of which approximately $244,000 was paid at closing and the Company
issued a promissory note for the $457,500 balance which is payable as follows:
$100,000 on the last business day of May 1997 and 1998, and $36,786 on the last
business day of May in each of the seven years thereafter, thru May 2005. The
aggregate purchase price was allocated to fixed assets in the amount of $144,000
and the balance of $557,500 to exclusive management rights, which will be
amortized over the ten year term of the agreement.
Refer to Note 18 -- Subsequent Events -- regarding the Bay Area
Acquisition which closed in January 1997.
F-12
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following unaudited pro forma results of operations have been prepared
by management based on the unaudited financial information of the Merger
Companies, NMF, the RSC of Dallas and Bay Area Fertility adjusted where
necessary, with respect to pre-acquisition periods, to the basis of accounting
used in the historical financial statements of the Company. Such adjustments
include modifying the unaudited results to reflect operations as if the related
management agreements had been consummated on January 1, 1996 and 1995,
respectively. Additional general corporate expenses which would have been
required to support the operations of the new Network sites are not included in
the pro forma results. The unaudited pro forma results may not be indicative of
the results that would have occurred if the acquisition and management agreement
had been in effect on the dates indicated or which may be obtained in the
future.
<TABLE>
<CAPTION>
For the year ended December 31,
(000's omitted)
-------------------------------
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Revenues, net ..................................................... $ 21,388 $ 21,006
(Loss) income before income taxes (1) ............................. $ 139 $ (1,593)
Net (loss) applicable to Common Stock (includes $132,000 and
$600,000 dividends accrued on Preferred Stock for the year-ended
December 31, 1996 and 1995, respectively) before consideration
for induced conversion of Preferred Stock ....................... $ (623) $ (1,878)
Net (loss) per share of Common Stock before consideration
for induced conversion of Preferred Stock ....................... $ (0.09) $ (0.23)
</TABLE>
- ------------------
(1) Income (loss) before income taxes include $385,000 and $520,000 of goodwill
and exclusive management rights amortization in 1995 and 1996,
respectively.
NOTE 7 -- EXCLUSIVE MANAGEMENT RIGHTS OBLIGATION:
Exclusive management rights obligation represents the liability owed by
the Company to Medical Practices for the cost of acquiring the exclusive right
to manage the non-medical aspects of the Medical Practices' infertility
practices. Typically, the Company will pay cash for a portion of such cost at
the inception of the management agreement and pay the balance in equal
installments over the life of the agreement, usually ten years.
At December 31, 1996, aggregate exclusive management rights obligation
payments in future years were as follows (000's omitted):
1997 .............................................. $ 222
1998 .............................................. 222
1999 .............................................. 159
2000 .............................................. 159
2001 .............................................. 159
Thereafter ........................................ 514
------
Total payments .................................... $1,435
======
F-13
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 -- DEBT:
Debt at December 31, 1995 and 1996 and at March 31, 1997 consisted of the
following (000's omitted):
1995 1996 1997
---- ---- ----
(unaudited)
Acquisition note payable ..................... $ -- $ 525 $ 488
Note payable to Bank ......................... -- -- 250
Notes payable to Medical Practices employed
by the Company ........................... -- 220 220
Obligations under capital lease .............. 485 269 287
Construction loan ............................ 129 51 38
Other ........................................ -- 53 51
----- ------- -------
Total debt ................................... 614 1,118 1,334
Less--Current portion ........................ (274) (426) (653)
----- ------- -------
Long-term debt ............................... $ 340 $ 692 $ 681
===== ======= =======
In November 1996, the Company obtained a $1.5 million revolving credit
facility (the "Credit Facility") issued by First Union National Bank (the
"Bank"). Borrowings under the Credit Facility bear interest at the Bank's prime
rate plus 0.75% per annum, which at March 31, 1997, was 9.25%. The Credit
Facility terminates on April 1, 1998 and is secured by the Company's assets. At
March 31, 1997, $250,000 was outstanding under the Credit Facility and is
included in "Note payable and current portion of long-term debt" in the
accompanying consolidated balance sheet. At December 31, 1996, no amounts were
outstanding under the Credit Facility.
In June 1996, the Company purchased a 51% interest in NMF for a total
purchase price of $650,000, of which $50,000 was paid at closing and the balance
is to be paid in sixteen quarterly installments of $37,500 beginning September
1, 1996. Interest is payable quarterly at the rate of 4.16% (see Notes 6 and
15).
On December 30, 1996, the Company acquired North Central Florida Ob-Gyn
Associates which it then merged into WMDC. The total purchase price of the
acquisition was $320,000 of which $220,000 is to be paid in four equal
installments of $55,000 for each of the next four years commencing December 30,
1997.
In May 1992, the Company obtained a $350,000 construction loan for the
development of its New Jersey Network Site of which $129,000 and $51,000 were
outstanding at December 31, 1995 and 1996, respectively. The debt is payable in
fifty-four monthly installments of $6,481 commencing on April 1, 1993 through
September 1, 1997.
Interest is payable at the bank's prime rate which was 8.5%, 8.25% and 8.25% at
December 31, 1995 and 1996 and March 31, 1997, respectively.
Capital lease obligations relate primarily to furniture and medical
equipment for the Network sites. The current portion of capital lease
obligations was $202,000, $139,000 and $163,000 at December 31, 1995, 1996 and
March 31, 1997, respectively.
The Company has operating leases for its corporate headquarters and for
medical office space relating to its managed Network Sites. In 1996, the Company
also entered into operating leases for certain medical equipment. Aggregate
rental expense under operating leases was $829,000, $522,000 and $540,000 for
the year ended December 31, 1994, 1995 and 1996 and $123,000 and $187,000 for
the three months ended March 31, 1997 and 1996, respectively. Refer to Note 14
- -- "Commitments and Contingencies -- Commitments to Medical Practices."
F-14
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1996, the minimum lease payments for assets under capital
and noncancelable operating leases in future years were as follows (000's
omitted):
Capital Operating
------- ---------
1997 ...................................... $ 149 $ 730
1998 ...................................... 124 739
1999 ...................................... 6 702
2000 ...................................... 4 357
2001 ...................................... -- 265
Thereafter ................................ -- 831
----- ------
Total minimum lease payments .............. 283 $3,624
======
Less -- Amount representing interest ...... (14)
-----
Present value of minimum lease payments ... $ 269
=====
NOTE 9 -- INCOME TAXES:
The deferred tax provision was determined under the asset and liability
approach. Deferred tax assets and liabilities were recognized on differences
between the book and tax basis of assets and liabilities using presently enacted
tax rates. The provision for income taxes was the sum of the amount of income
tax paid or payable for the year as determined by applying the provisions of
enacted tax laws to the taxable income for that year and the net change during
the year in the Company's deferred tax assets and liabilities. The provision for
the years ended December 31, 1994, 1995 and 1996 and for the three months ended
March 31, 1996 and 1997 of $150,000, $155,000, $140,000, $43,000 and $32,000,
respectively, was comprised of current state taxes payable.
The Company's deferred tax assets primarily represented the tax benefit of
operating loss carryforwards. However, such deferred tax asset was fully reduced
by a valuation allowance due to the uncertainty of its realization. This
valuation allowance increased from $6,584,000 at December 31, 1995 to $7,115,000
and $7,160,000 at December 31, 1996 and March 31, 1997, respectively, due to
changes in operating losses and tax deductible temporary differences.
At December 31, 1996, the Company had operating loss carryforwards of
approximately $17.9 million which expire in 2002 through 2011. Approximately
$14.5 million of such loss carryforwards occurred prior to the 1993 ownership
change which resulted from the Company's May 1993 Preferred Stock offering. For
tax purposes, there is an annual limitation of approximately $2.8 million on the
utilization of net operating losses resulting from this change in ownership in
May 1993.
Significant components of the noncurrent deferred tax assets (liabilities)
at December 31, 1995 and 1996 were as follows (000's omitted):
December 31,
--------------------
1995 1996
---- ----
Net operating loss carryforwards ............... $ 6,138 $ 6,777
Other .......................................... 504 438
Valuation allowance ............................ (6,584) (7,115)
------- -------
Deferred tax assets ............................ 58 100
Deferred tax liabilities ....................... (58) (100)
------- -------
Net deferred taxes ............................. $ -- $ --
======= =======
F-15
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The financial statement income tax provision differed from income taxes
determined by applying the statutory Federal income tax rate to the financial
statement income or loss before income taxes for the year ended December 31,
1994, 1995 and 1996 as a result of the following:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at Federal statutory rate ...... $(277,000) $ 79,000 $(472,000)
State income taxes ................................... 150,000 155,000 141,000
Net operating profit or loss (providing)
not providing current year tax benefit ............ 277,000 (79,000) 472,000
--------- --------- ---------
Provision for income taxes ........................... $ 150,000 $ 155,000 $ 141,000
========= ========= =========
</TABLE>
NOTE 10-- SHAREHOLDERS' EQUITY:
At its meeting held on July 26, 1994, the Company's Board of Directors
approved an offer to the holders ("Preferred Stockholders") of the 2,000,000
outstanding shares of the Company's Preferred Stock to convert each share of
Preferred Stock into 3.0 shares of the Company's Common Stock, $.01 par value
per share, and $.20 in cash (the "Offer"). Upon expiration of the Offer on
November 10, 1994 and pursuant to its terms, 1,136,122 shares of Preferred Stock
were accepted for conversion into 3,408,366 shares of Common Stock and $227,224
in cash. In connection with the Offer, five-year warrants to purchase 70,826
shares of Common Stock at $1.25 per share were issued to Raymond James &
Associates, Inc.
On June 6, 1996, the Company made a new conversion offer (the "Second
Offer") to the holders of the 773,878 outstanding shares of the Company's
Preferred Stock. Under the Second Offer, Preferred Stockholders received four
shares of the Company's Common Stock upon conversion of a share of Preferred
Stock and respective accrued dividends, subject to the terms and conditions set
forth in the Second Offer. The Second Offer was conditioned upon a minimum of
400,000 shares of Preferred Stock being tendered; provided that the Company
reserved the right to accept fewer shares. Upon expiration of the Second Offer
on July 17, 1996, the Company accepted for conversion 608,234 shares, or 78.6%
of the Preferred Stock outstanding, constituting all the shares validly
tendered. Following the transaction, there were 9,198,375 shares of IntegraMed
America's Common Stock outstanding and 165,644 shares of Preferred Stock
outstanding.
Under the Second Offer, Preferred Stockholders received four shares of
Common Stock for each share of Preferred Stock and respective accrued dividends
converted. This Second Offer represented an increase from the original terms of
the Preferred Stock which provided for 1.45 shares of Common Stock for each
share of Preferred Stock (after adjustment for the failure of the Company to pay
eight dividends and after adjustment for the issuance of Common Stock pursuant
to its acquisition of WMDC and NMF). Since the Company issued an additional
1,550,997 shares of Common Stock in the conversion offer compared to the shares
that would have been issued under the original terms of the Preferred Stock, the
Company was required, pursuant to a recently enacted accounting pronouncement,
to deduct the fair value of these additional shares of approximately $4,265,000
from earnings available to Common Stockholders. This non-cash charge, partially
offset by the reversal of $973,000 accrued dividends attributable to the
conversion, resulted in the increase in net loss per share by approximately
$(.47) for the year ended December 31, 1996. While this charge is intended to
show the cost of the inducement to the owners of the Company's Common Stock
immediately before the conversion offer, management does not believe that it
accurately reflects the impact of the conversion offer on the Company's Common
Stockholders. As a result of the conversion, the Company reversed $973,000 in
accrued dividends from its balance sheet and the conversion will save the
Company from accruing annual dividends of $486,000 and the need to include these
dividends in earnings per share calculations. The conversion has also eliminated
a $6.1 million liquidation preference related to the shares of Preferred Stock
converted.
F-16
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends on the Preferred Stock are payable at the rate of $.80 per share
per annum, quarterly on the fifteenth day of August, November, February and May
of each year commencing August 15, 1993. In May 1995, as a result of the
Company's Board of Directors suspending four quarterly dividend payments,
holders of the Preferred Stock became entitled to one vote per share of
Preferred Stock on all matters submitted to a vote of stockholders, including
election of directors; once in effect, such voting rights are not terminated by
the payment of all accrued dividends. The Company does not anticipate the
payment of any cash dividends on the Preferred Stock in the foreseeable future;
11 quarterly dividend payments have been suspended as of March 31, 1997
resulting in $364,000 of dividend payments being in arrears as of such date.
As a result of the issuance of the Common Stock pursuant to the Company's
acquisition of the WMDC in June 1996 and the anti-dilution rights of the
Preferred Stock, the conversion rate of the Preferred Stock is subject to
increase and each share of Preferred Stock was convertible into Common Stock at
a conversion rate equal to 1.57 shares of Common Stock for each share of
Preferred Stock as of March 31, 1997.
On November 30, 1994, the Company announced it may purchase up to 300,000
shares of its outstanding Preferred Stock at such times and prices as it deems
advantageous. The Company has no commitment or obligation to purchase any
particular number of shares, and it may suspend the program at any time.
In conjunction with the Second Offer, the Company entered into an
agreement with two representatives of the underwriters of such offering (the
"Representatives") to issue warrants to one or both of the Representatives.
Pursuant to this agreement (the "Warrant Agreement"), the Company issued to the
Representatives warrants to purchase through May 21, 1998 (a) up to an aggregate
200,000 shares of Preferred Stock at an initial price of $16.00 per share, (b)
up to 220,000 shares, subject to certain adjustments, of Common Stock at an
initial exercise price of $14.54 per share of Common Stock or (c) any
combination of such securities at the respective exercise prices which results
in an aggregate exercise price of $3,200,000, all subject to the terms and
conditions of the Warrant Agreement. No warrants have been exercised through
March 31, 1997.
NOTE 11 -- STOCK OPTIONS:
Under the 1988 Stock Option Plan (as amended), (the "1988 Plan") and the
1992 Stock Option Plan (the "1992 Plan"), 144,567 and 1,300,000 shares,
respectively, are reserved for issuance of incentive and non-incentive stock
options. Under both the 1988 and 1992 Plans, incentive stock options, as defined
in Section 422 of the Internal Revenue Code, may be granted only to employees
and non-incentive stock options may be granted to employees, directors and such
other persons as the Board of Directors (or a committee (the "Committee")
appointed by the Board) determines will contribute to the Company's success at
exercise prices equal to at least 100%, or 110% for a ten percent shareholder,
of the fair market value of the Common Stock on the date of grant with respect
to incentive stock options and at exercise prices determined by the Board of
Directors or the Committee with respect to non-incentive stock options. The 1988
Plan provides for the payment of a cash bonus to eligible employees in an amount
equal to that required to exercise incentive stock options granted. Stock
options issued under the 1988 Plan are exercisable, subject to such conditions
and restrictions as determined by the Board of Directors or the Committee,
during a ten-year period, or a five-year period for incentive stock options
granted to a ten percent shareholder, following the date of grant; however, the
maturity of any incentive stock option may be accelerated at the discretion of
the Board of Directors or the Committee. Under the 1992 Plan, the Board of
Directors or the Committee determines the exercise dates of options granted;
however, in no event may incentive stock options be exercised prior to one year
from date of grant. Under both the 1988 and 1992 Plans, the Board of Directors
or the Committee selects the optionees, determines the number of shares of
Common Stock subject to each option and otherwise administers the Plans. Under
the 1988 Plan, options expire one month from the date of the holder's
termination of employment with the Company or six months in the event of
disability or death. Under the 1992 Plan, options expire three months from the
date of the holder's termination of employment with the Company or twelve months
in the event of disability or death.
F-17
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On April 19, 1994, the Compensation Committee of the Board of Directors of
the Company approved a stock option exchange program under which incentive stock
options to purchase an aggregate of 107,992 shares of Common Stock at an
exercise price of $2.50 per share were granted to employees holding options to
purchase an identical number of shares at exercise prices ranging from $8.00 to
$11.75, contingent upon the surrender of the old stock options. The new stock
options expire on April 18, 2004 and are exercisable, with respect to 25% of the
underlying shares, one year from the date of grant; thereafter the options
become exercisable every three months at the rate of 6.25% of the total number
of shares subject to each such option. Stock options to purchase an aggregate of
105,559 shares of Common Stock were surrendered.
On April 19, 1994, the Board of Directors approved the 1994 Outside
Director Stock Purchase Plan, reserving for issuance thereunder 125,000 shares
of Common Stock, pursuant to which directors who are not full-time employees of
the Company may elect to receive all or a part of their annual retainer fees,
the fees payable for attending meetings of the Board of Directors and the fees
payable for serving on Committees of the Board, in the form of shares of Common
Stock rather than cash, provided that any such election be made at least six
months prior to the date that the fees are to be paid. At December 31, 1995 and
1996, there were no options outstanding under the 1994 Outside Director Stock
Purchase Plan.
Stock option activity, under the 1988 and 1992 Plans combined, is
summarized as follows:
<TABLE>
<CAPTION>
Number of
shares of
Common Stock
underlying Weighted Average
options exercise price
------- ------------
<S> <C> <C>
Options outstanding at December 31, 1993 .......... 181,377 $6.37
Granted
Option Price = Fair Market Value .............. 437,627 $1.38
Option Price > Fair Market Value .............. 206,992 $2.25
Option Price < Fair Market Value .............. 95,000 $0.63
Exercised ......................................... (11,677) $1.44
Canceled .......................................... (176,692) $6.77
--------
Options outstanding at December 31, 1994 .......... 732,627 $1.44
Granted
Option Price = Fair Market Value .............. 130,250 $2.62
Canceled ...................................... (19,675) $2.06
--------
Options outstanding at December 31, 1995 .......... 843,202 $1.63
Granted
Option Price = Fair Market Value .............. 119,500 $3.42
Option Price > Fair Market Value .............. 225,000 $2.37
Exercised ......................................... (44,045) $1.31
Canceled .......................................... (76,841) $2.37
Options outstanding at December 31, 1996 .......... 1,066,816 $1.92
Options exercisable at:
December 31, 1994 ............................. 57,060 $1.17
December 31, 1995 ............................. 270,035 $1.47
December 31, 1996 ............................. 406,968 $1.54
</TABLE>
Included in options that were canceled during 1994, 1995 and 1996 were
forfeitures (representing canceled unvested options only) of 133,723, 16,034 and
56,710, with weighted average exercise prices of $6.20, $2.10 and $2.30,
respectively.
The average remaining life of the 1,066,816 options outstanding at
December 31, 1996, under the 1988 and 1992 Plan combined, was 8.2 years at
exercise prices ranging from $0.63 to $3.75.
F-18
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pro forma information:
FAS 123 requires pro forma disclosures of net income and earnings per
share amounts as if compensation expense, using the fair value method, was
recognized for options granted after 1994. Using this approach, pro forma net
income would be $38,000 lower and loss per share would be $0.01 higher for the
year ended December 31, 1995. Pro forma net loss and earnings per share for the
years ended December 31, 1996 would be $313,000 and $0.04 higher, respectively,
versus reported amounts. The weighted average fair value of options granted
during the year ended December 31, 1996 was $2.91 for options granted at prices
equal to market value and $1.99 for options granted at prices higher than fair
value ($2.28 for options granted during 1995). These values, which were used as
a basis for the pro forma disclosures, were estimated using the Black-Scholes
Options-Pricing Model with the following assumptions used for grants in the
years ended December 31, 1995 and 1996, respectively; dividend yield of 0% in
both years; volatility of 115.18% and 108.72% for the years ended December 31,
1995 and 1996; risk-free interest rate of 6.3% and 6.7% in 1995 and 1996,
respectively; and an expected term of 6 years for both years.
These pro forma disclosures may not be representative of the effects for
future years since options vest over several years and options granted prior to
1995 are not considered in these disclosures. Also, additional awards generally
are made each year.
The Company recognizes compensation cost for stock-based employee
compensation plans over the vesting period based on the difference, if any,
between the quoted market price of the stock and the amount an employee must pay
to acquire the stock. Deferred employee compensation cost at December 31, 1995
and 1996 and at March 31, 1997 was $314,000, $357,000 and $352,000,
respectively. Total compensation cost recognized in income for the year ended
December 31, 1995 and 1996 and for the three-month periods ended March 31, 1996
and 1997 was $81,000, $43,000, $11,000 and $5,000, respectively.
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1995 and 1996 (in thousands,
except per share data) appears below:
<TABLE>
<CAPTION>
Network sites' Net loss per
Revenues, net contribution Net (loss) income share (1)
-------------------------- --------------------- ----------------------- ------------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter ... $ 4,132 $ 4,175 $5,088 $ 618 $ 818 $1,077 $(122) $ (74) $(45) $ (.05) $(0.04) $(0.01)
Second quarter .. 4,288 4,822 -- 1,079 1,116 -- 128 85 -- (.01) (0.01) --
Third quarter ... 4,088 5,016 -- 999 577 -- 12 (693) -- (.02) (0.08) --
Fourth quarter .. 4,203 4,330 -- 966 754 -- 52 (808) -- (.02) (0.09) --
-------- -------- ------ ------- ------- ------ ----- ------- ---- ------ ----- ------
Total year ...... $ 16,711 $ 18,343 $5,088 $ 3,662 $ 3,265 $1,077 $ 70 $(1,490) $(45) $ (.09) (0.21) $(0.01)
======== ======== ====== ======= ======= ====== ===== ======= ==== ====== ===== ======
</TABLE>
- ---------------
(1) Refer to Note 10-- Shareholders' Equity-- regarding the impact of the
Company's Second Offer on net loss per share in 1996.
NOTE 13 -- MAJOR CUSTOMERS:
During 1996, the Company derived substantially all of its revenue pursuant
to eight management agreements, the Westchester Network Site agreement and from
the AWM Division which was established in June 1996. For the year ended December
31, 1996, one of these service agreements provided 38.5% of revenues and two
other agreements, including the Westchester Network Site agreement which was
terminated in November 1996, each of which comprised over 10% of the Company's
revenues.
F-19
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 -- COMMITMENTS AND CONTINGENCIES:
Clinical Services Development
The Company has commitments to fund clinical services development pursuant
to various collaboration agreements. Effective July 1, 1995, the Company entered
into a new three-year agreement with Monash University which provides for Monash
to conduct research in ART and human fertility to be funded by a minimum annual
payment of 220,000 in Australian dollars, the results to be jointly owned by the
Company and Monash. If certain milestones are met as specified in the Agreement,
the Company's annual payment may be a maximum of 300,000 Australian dollars in
year two and 380,000 Australian dollars in year three. Minimum payments of
55,000 Australian dollars and payments for the attainment of certain research
milestones will be made quarterly throughout the term of the Agreement, July 1,
1995 through June 30, 1998. The Company expensed approximately $88,000,
$189,000, $48,000 and $36,000 under this agreement for the years ended December
31, 1995 and 1996 and for the three months ended March 31, 1996 and 1997,
respectively.
Under its contract for a joint development program for genetic testing
with Genzyme Genetics ("Genzyme"), the Company funded approximately $134,000 and
$56,000 in the year-ended December 31, 1995 and 1996, respectively. The Company
and Genzyme mutually agreed to terminate this contract in December 1996; the
Company retained the right to use the technology developed under the contract
through this date.
Operating Leases
Refer to Note 8 for a summary of lease commitments.
Reliance on Third Party Vendors
The Network sites under the RSC Division are dependent on three
third-party vendors that produce patient fertility medications (lupron, metrodin
and fertinex)which are vital to the provision of ART services. Should any of
these vendors experience a supply shortage of medication, it may have an adverse
impact on the operations of the Network sites. To date, the Network sites under
the RSC Division have not experienced any such adverse impacts.
Employment Agreements
The Company has entered into employment and change in control severance
agreements with certain of its management employees, which include, among other
terms, noncompetitive provisions and salary and benefits continuation. The
Company's minimum aggregate commitment under these agreements at December 31,
1996 and March 31, 1997 was approximately $1.7 million.
Commitments to Medical Practices
Pursuant to most new management contracts entered into by the Company in
1995, the Company is obligated to perform the following: (i) advance funds to
the Network site to guarantee a minimum physician salary and/or to provide new
services, utilize new technologies, fund projects, etc.; and (ii) on or before
the fifteenth business day of each month purchase the net accounts receivable of
the Network site arising during the previous month and to transfer or pay to the
Network Site such amount of funds equal to the net accounts receivable less any
amounts owed to the Company for management fees and/or advances. Any advances
are to be repaid monthly and interest expense, computed at the prime rate used
by the Company's primary bank in effect at the time of the advance, will be
charged by the Company for funds advanced. The Company may guarantee the Medical
Practice a certain amount of compensation (i.e. medical practice distributions)
during the first twelve months of the agreement. Minimum physician salary
guaranteed at December 31, 1996 was $1.0 million.
Under certain management agreements which expire through 2001, the Company
pays the affiliated Medical Practice a fee for the use of space and other
facility services. Such fee is a fixed amount and/or a fee based upon the number
of "procedures" or "cycles", as defined in the respective agreement, performed
at the
F-20
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Network Site. The aggregate amount expensed pursuant to such agreements
was $1,443,000, $1,136,000, $856,000, $131,000 and $270,000 for the years ended
December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996
and 1997, respectively.
Commitments to the National Menopause Foundation
In connection with its acquisition of 51% of the outstanding stock of NMF
in June 1996, the Company committed to provide funding to and for the
development of NMF on an as-needed basis during the four year period commencing
June 6, 1996 in amounts not to exceed $500,000 in the aggregate; as of January
1, 1997 the Company had not provided any funding and pursuant to an agreement
between the Company and the minority owner of NMF, the Company is no longer
obligated to provide such funding.
Litigation
On or about December 14, 1994, a holder of the Company's Series A
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock")
commenced a class action, Bernstein v. IVF America, et. al, in the Chancery
Court of New Castle County, Delaware, against the Company and its Directors
asserting that the Company's offer to convert each share of Convertible
Preferred Stock into three shares of the Company's Common Stock plus $.20 in
cash (the "Conversion Offer") had triggered the anti-dilution provisions of the
Certificate of Designations (which sets out the rights and privileges of the
Convertible Preferred Stock) and that this necessitated an adjustment of the
conversion rate of the Convertible Preferred Stock remaining outstanding. On
September 5, 1996, the plaintiff in Bernstein v. IVF America, et. al. withdrew
his appeal of the Delaware Court of Chancery's earlier decision denying the
plaintiff's claim that Preferred Stockholders were entitled to expanded
anti-dilution rights as a result of the Company's November 1994 Conversion Offer
with respect to the Preferred Stock. As a result of the plaintiff's appeal being
withdrawn, the case has been dismissed.
In November 1994, the Company was served with a complaint in a matter
captioned Karlin v. IVF America, et. al., filed in the Supreme Court of the
State of New York, County of Westchester. The suit also named, as co-defendants,
Vicki L. Baldwin, a Director of the Company, United Hospital and Dr. John
Stangel. The action purported to be a class action, initiated by plaintiffs on
behalf of themselves and a class of persons similarly situated. The complaint
alleged that the defendants, individually and collectively, had, in the
communication of clinical outcome statistics, inaccurately stated success rates
or failed to communicate medical risks attendant to ART procedures. These
allegations gave rise to the central issue of the case, that of informed
consent. The plaintiffs' application for class certification was denied by the
court. The court ruled that the potential class of patients treated at the
Westchester Network Site did not meet the criteria for class action status as
required by New York law. The plaintiffs appealed this decision. In June 1997,
the Appellate Division of the Supreme Court of the State of New York, Second
Department, affirmed the lower court's decision.
There are several other legal proceedings to which the Company is a party.
In the Company's view, the claims asserted and the outcome of these proceedings
will not have a material adverse effect on the financial position or the results
of operations of the Company.
Insurance
The Company and its affiliated Medical Practices are insured with respect
to medical malpractice risks on a claims made basis. Management is not aware of
any claims against it or its affiliated Medical Practices which might have a
material impact on the Company's financial position or results of operations.
F-21
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 -- RELATED PARTY TRANSACTIONS:
In connection with the Company's acquisition of WMDC in June 1996 (see
Note 6), Morris Notelovitz, M.D., Ph.D. (the "Physician") became a member of the
Company's Board of Directors, and under two long term employment agreements (the
"Employment Agreements"), one being with the Company and the other with AWMC,
the Physician agreed to serve as Vice President for Medical Affairs and Medical
Director of the AWM Division and agreed to provide medical services under the
AWM Division, as defined, respectively. Effective January 1, 1997, Dr.
Notelovitz resigned from his position as a director of the Company and
terminated the Employment Agreements (medical services under the Employment
Agreement with AWMC will be terminated effective March 31, 1997). At December
31, 1996, Dr. Notelovitz was a greater than 5% shareholder of the Company's
outstanding Common Stock and remains a consultant to the Company (see Note 8).
SDL Consultants, a company owned by Sarason D. Liebler, who became a
director of the Company in August, 1994, rendered consulting services to the
Company during 1995 and 1996 for aggregate fees of approximately $22,000 and
$17,000, respectively.
Under its contract for a joint development program for genetic testing
with Genzyme, the Company funded approximately $134,000 and $56,000 in the
year-ended December 31, 1995 and 1996, respectively. The Company and Genzyme
mutually agreed to terminate this contract in December 1996; the Company
retained the right to use the technology developed under the contract through
such date.
NOTE 16 -- RESTRICTED CASH:
Included in other assets at December 31, 1995 was restricted cash of
$100,000 which represented a security deposit for a letter of credit outstanding
in connection with the lease for the Long Island Network Site. As of December
31, 1996, a security deposit was no longer required for this letter of credit.
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NON-CASH TRANSACTIONS:
In connection with the Company's acquisition of WMDC and NMF in June 1996,
the Company issued 666,666 shares of Common Stock, acquired tangible assets of
$469,000, assumed current liabilities of $245,000, and debt of $97,000, and
acquired $214,000 of intangible assets and $3,159,000 of goodwill. In connection
with this transaction, the Company also issued a note payable in the amount of
$600,000 with annual interest payable at 4.16%.
In May 1996, the Company entered into a management agreement with W.F.
Howard, M.D., P.A. located near Dallas, Texas. Pursuant to this agreement, the
Company incurred a $550,000 obligation for the exclusive right to manage this
facility.
Pursuant to its management agreement with the Philadelphia Network Site,
the Company incurred a $1,000,000 obligation for the exclusive right to manage
these facilities and assumed capital lease obligations of $89,000.
At December 31, 1995 and 1996 and March 31, 1997 there were accrued
dividends on Preferred Stock outstanding of $946,000, $331,000 and $364,000,
respectively, (see Note 10).
Pursuant to the Offer (see Note 10), 1,136,122 shares of Preferred Stock
were converted into 3,408,366 shares of Common Stock and $227,224 in cash.
Included in recapitalization costs in 1994 was the $227,224 paid to converting
holders of Preferred Stock.
Pursuant to the Second Offer (see Note 10), 608,234 shares of Preferred
Stock were converted into 2,432,936 shares of Common Stock.
F-22
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Controlled cash of Medical Practices decreased $34,000, $193,000 and
$105,000 for the year ended December 31, 1994, 1995, and 1996, respectively.
State taxes, which primarily reflect Massachusetts income taxes and
Connecticut capital taxes, of $150,000, $155,000 and $119,000 were paid in the
years ended December 31, 1994, 1995 and 1996, respectively.
Interest paid in cash during the year ended December 31, 1994, 1995 and
1996, amounted to $40,000, $20,000 and $35,000, respectively. Interest received
during the year ended December 31, 1994, 1995 and 1996 amounted to $498,000,
$648,000 and $412,000, respectively.
NOTE 18 -- SUBSEQUENT EVENTS -- (Unaudited):
Subsequent to December 31, 1996, the Company entered into two new asset
purchase and management agreements and terminated one management agreement under
the RSC Division as described below.
On January 7, 1997, the Company acquired certain assets of the Bay Area
Fertility and Gynecology Medical Group, a California partnership (the
"Partnership"), and acquired the right to manage the Bay Area Fertility and
Gynecology Medical Group, Inc., a California professional corporation which is
the successor to the Partnership's medical practice ("Bay Area Fertility"). The
aggregate purchase price was approximately $2.0 million, consisting of $1.5
million in cash and $0.5 million in the form of the Company's Common Stock, or
333,333 shares of the Company's Common Stock. In addition to the exclusive right
to manage Bay Area Fertility, the Company acquired other assets which primarily
consisted of the name "Bay Area Fertility" and medical equipment and furniture
and fixtures which will continue to be used by Bay Area Fertility in the
provision of infertility and ART services.
On February 28, 1997, the Company entered into agreements to acquire
certain assets of and the right to manage the Fertility Centers of Illinois, S.
C., a five physician group practice with six locations (the "Pending
Acquisition"). The aggregate purchase price for the Pending Acquisition is
approximately $8.6, approximately $6.6 million of which is payable in cash and
approximately $2.0 million of which is payable in shares of Common Stock, the
exact number of which will be determined based upon the average market price of
the Common Stock for the ten trading day period prior to closing of the Pending
Acquisition, subject to a minimum and maximum price per share. The closing of
the Pending Acquisition is conditioned upon the Company's raising at least $6
million in capital by August 28, 1997.
In June 1997, the Company acquired certain assets of and the right to
manage the Reproductive Sciences Center, Inc. ("RSMC"), a California
professional corporation located near San Diego (the "San Diego Acquisition").
The aggregate purchase price for the San Diego Acquisition was approximately
$900,000, consisting of $50,000 in cash and 145,454 shares of Common Stock. An
additional $650,000 is payable upon the achievement of certain milestones, at
RSMC's option, in cash or in shares of Common Stock, based on the closing market
price of the Common Stock on the third business day prior to issuance.
Effective January 31, 1997, the Company terminated its management
agreement with the Network Site in East Longmeadow, MA. Concurrently, the
Medical Practice at the Boston Network Site entered into an affiliate and
satellite agreement with the respective physician.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Bay Area Fertility and Gynecology Medical Group
In our opinion, the accompanying balance sheet and related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of the Bay Area Fertility and Gynecology Medical Group (the
"Partnership") at December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 7 to the financial statements, on January 7, 1997,
IntegraMed America, Inc. acquired certain assets of the Partnership and acquired
the right to manage the Bay Area Fertility and Gynecology Medical Group, Inc., a
California professional corporation ("Bay Area Fertility") which, effective with
this transaction, became the successor to the Partnership's medical practice.
Bay Area Fertility simultaneously entered into an Employment Agreement with each
physician pursuant to which each physician will provide medical services, as
defined.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Stamford, Connecticut
March 24, 1997
F-24
<PAGE>
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP
BALANCE SHEET
ASSETS
December 31,
1996
------------
Current assets:
Cash ........................................................... $ 4,000
Patient accounts receivable, less allowance for doubtful
accounts of $12,000 .......................................... 127,000
Other current assets ........................................... 12,000
--------
Total current assets ......................................... 143,000
Fixed assets, net .............................................. 29,000
--------
Total assets ................................................. $172,000
========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ............................................... $ 9,000
Accrued profit sharing ......................................... 15,000
Other accrued liabilities ...................................... 10,000
Patient deposits ............................................... 71,000
--------
Total current liabilities .................................... 105,000
Partners' capital ................................................ 67,000
--------
Total liabilities and partners' capital ...................... $172,000
========
See accompanying notes to the financial statements.
F-25
<PAGE>
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP
STATEMENT OF OPERATIONS
For the
year ended
December 31,
1996
------------
Revenues, net (see Note 2) ................................ $2,097,000
Costs of services rendered ................................ 923,000
----------
Contribution .............................................. 1,174,000
General and administrative expenses ....................... 228,000
----------
Net income ................................................ $ 946,000
==========
See accompanying notes to the financial statements.
F-26
<PAGE>
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP
STATEMENT OF CASH FLOWS
For the
year ended
December 31,
1996
-----------
Cash flows from operating activities:
Net income ............................................. $ 946,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 19,000
Changes in assets and liabilities--
(Increase) decrease in assets:
Patient accounts receivable ........................ (10,000)
Increase (decrease) in liabilities:
Accounts payable ................................... (6,000)
Accrued profit sharing ............................. 4,000
Other accrued liabilities .......................... 5,000
Patient deposits ................................... (28,000)
---------
Net cash provided by operating activities ................ 930,000
---------
Cash flows used in financing activities
Distributions to partners .............................. (926,000)
---------
Net increase in cash ..................................... 4,000
Cash at beginning of period .............................. --
---------
Cash at end of period .................................... $ 4,000
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
There was no significant interest paid and/or received in cash for the
year ended December 31, 1996.
See accompanying notes to the financial statements
F-27
<PAGE>
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE PARTNERSHIP:
The Bay Area Fertility and Gynecology Medical Group is a general
California partnership (the "Partnership") established on January 1, 1992, which
specializes in providing gynecology and infertility services. The Partnership is
comprised of three professional corporations which are licensed to practice
medicine in the state of California: Arnold Jacobson, M.D., Inc.; Donald I.
Galen, M.D., Inc.; and Louis N. Weckstein, M.D., Inc. (the "Partners"). Each
professional corporation has employed a physician, Arnold Jacobson, M.D., Donald
I. Galen, M.D., and Louis N. Weckstein, M.D., (the "Physicians") respectively,
to specialize in providing gynecology and infertility service.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue and cost recognition --
Revenues consist of services rendered for patients and are recognized upon
performance of such services.
Patient revenues are recorded on a net realizable basis after deducting
contractual allowances and consist of patient fees earned by the Partnership for
gynecology and infertility services performed by the Partnership. Patient
revenues and related direct costs are recognized in the period in which the
clinical and/or laboratory services are rendered. Net realization is dependent
upon benefits provided by the patient's insurance policy or agreements between
the Partnership and the third-party payor. Payments collected from patients in
advance for services are included in patient deposits.
Patient accounts receivable --
Patient accounts receivable represent receivables from patients for
medical services provided by the Partnership. Such amounts are recorded net of
contractual allowances and estimated bad debts.
Fixed assets --
Fixed assets are valued at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, generally three to five years. The
Partnership periodically reviews the fair value of long-lived assets, the
results of which have had no material effect on the Partnership's financial
position or results of operation.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.
Income taxes --
The Partnership is not subject to federal and state income taxes since
income is taxed at the individual partner level.
Use of estimates in the preparation of the financial statements --
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-28
<PAGE>
NOTE 3 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1996 consisted of the following (000's
omitted):
Furniture, office and other equipment ............................ $ 179
Medical equipment ................................................ 119
Leasehold improvements ........................................... 29
-----
Total ........................................................ 327
Less -- Accumulated depreciation and amortization ................ (298)
-----
$ 29
=====
Depreciation and amortization expense totaled $19,000 for the year ended
December 31, 1996.
NOTE 4 -- OPERATING LEASES:
In January 1995, the Partnership entered into an operating lease for its
main medical office space with the Partners individually, and on behalf of the
Weckstein Family Trust, the Galen Family Trust and Jo-Ann Jacobson,
respectively, the owners of such property.
The Partnership also entered into an operating lease for additional
medical office space from two of the Partners and, in turn, subleased a portion
of such space to a third party. Effective in October 1996, the Partnership no
longer used this space as an additional medical office and entered into a second
sublease with a third party.
For the year ended December 31, 1996, aggregate rental expense for medical
office space was $230,000 which was higher than what the Partnership would have
paid if the lessor had been an unrelated party. Rental income on the subleased
office space totaled $33,000 in 1996.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
Refer to Note 4 -- Operating Leases.
NOTE 6 -- PARTNER'S CAPITAL:
During 1996, the following changes in Partners' capital were shared
equally by the Partners (000's omitted):
Balance at January 1, 1996 ................................ $ 47
Net income ................................................ 946
Distributions to Partners ................................. (926)
----
Balance at December 31, 1996 .............................. $ 67
====
NOTE 7 -- SUBSEQUENT EVENT:
On January 7, 1997, IntegraMed America, Inc. (the "Company") acquired
certain assets of the Partnership and acquired the right to manage the Bay Area
Fertility and Gynecology Medical Group, Inc., a California professional
corporation ("Bay Area Fertility") which, effective with this transaction,
became the successor to the Partnership's medical practice. Bay Area Fertility
simultaneously entered into an Employment Agreement with each Physician pursuant
to which each Physician will provide medical services, as defined. The aggregate
purchase price was approximately $2.0 million, of which $1.5 million was paid by
the Company in cash and $0.5 million was paid in the form of the Company's
Common Stock (333,333 shares) at closing. The other assets acquired by the
Company primarily consisted of the name "Bay Area Fertility" and medical
equipment and furniture and fixtures which will continue to be used by Bay Area
Fertility in the provision of infertility and ART services.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Fertility Centers of Illinois, S.C.
In our opinion, the accompanying combined balance sheet and related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of the
Fertility Centers of Illinois, S.C. and its affiliated companies (the "Company")
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 10 to the combined financial statements, the Company
entered into agreements to sell certain assets and give IntegraMed America, Inc.
the right to manage the Company over a twenty-year period. The closing of the
agreements is subject to certain conditions including IntegraMed America, Inc.
raising at least $6 million in capital.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Stamford, Connecticut
April 28, 1997
F-30
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------- March 31,
1995 1996 1997
---- ---- ----
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 426,972 $ 427,707 $ 543,089
Patient accounts receivable, less allowance for doubtful
accounts of $81,901, $165,352 and $180,779 in 1995, 1996
and 1997, respectively ............................................... 1,021,587 1,583,230 1,742,379
Receivable from IVF Illinois ............................................ 63,575 106,312 114,280
Note receivable from related party ...................................... -- 100,000 100,000
Other current assets .................................................... 90,143 64,385 61,669
---------- ---------- ----------
Total current assets ................................................ 1,602,277 2,281,634 2,561,417
---------- ---------- ----------
Fixed assets, net ....................................................... 606,026 598,462 585,847
Investment in IVF Illinois .............................................. 75,000 75,000 75,000
Other assets ............................................................ 65,183 57,784 57,369
---------- ---------- ----------
Total assets ........................................................ $2,348,486 $3,012,880 $3,279,633
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................ $ 204,500 $ 207,700 $ 123,644
Equipment payable ....................................................... -- 76,259 5,653
Taxes payable ........................................................... 88,285 215,039 364,882
Employee loans .......................................................... 66,768 33,520 13,520
Accrued pension and profit sharing ...................................... 354,400 90,241 81,370
Current portion of long-term debt ....................................... 246,935 162,060 158,172
Patient deposits ........................................................ 39,458 504,381 543,804
Other liabilities ....................................................... -- 5,602 28,378
---------- ---------- ----------
Total current liabilities ........................................... 1,000,346 1,294,802 1,319,423
---------- ---------- ----------
Long-term debt .......................................................... -- 159,568 29,906
Commitments and contingencies ........................................... -- -- --
Stockholders' equity:
Common stock (4,050 shares issued and outstanding at
December 31, 1995 and 1996 and March 31, 1997) ....................... 4,500 4,500 4,500
Capital in excess of par ................................................ 29,000 29,000 29,000
Accumulated earnings .................................................... 1,314,640 1,525,010 1,896,804
---------- ---------- ----------
Total stockholders' equity .......................................... 1,348,140 1,558,510 1,930,304
---------- ---------- ----------
Total liabilities and stockholders' equity .......................... $2,348,486 $3,012,880 $3,279,633
========== ========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-31
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three
For the years ended months ended
December 31, March 31,
------------------- ------------------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues, net ...................................... $7,044,850 $8,338,791 $2,007,601 $2,231,137
Costs of services rendered ......................... 5,601,743 6,735,923 1,434,268 1,483,510
--------- --------- ----------- -----------
Contribution ....................................... 1,443,107 1,602,868 573,333 747,627
General and administrative expenses ................ 1,073,302 1,122,407 157,048 155,475
Interest income .................................... (4,486) (11,679) (1,364) (1,993)
Interest expense ................................... 24,296 33,168 8,186 6,965
--------- --------- ----------- -----------
Total other expenses ............................... 1,093,112 1,143,896 163,870 160,447
--------- --------- ----------- -----------
Income before income taxes ......................... 349,995 458,972 409,463 587,180
Provision for taxes ................................ 92,823 145,102 147,576 189,386
--------- --------- ----------- -----------
Net income ......................................... $ 257,172 $ 313,870 $ 261,887 $ 397,794
========= ========= =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-32
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital Total
----------------- in Excess Accumulated Stockholders'
Shares Amount of Par Earnings Equity
------ ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 .......... 4,050 $4,500 $29,000 $ 1,187,468 $ 1,220,968
Net income ............................. -- -- -- 257,172 257,172
Distributions to stockholders .......... -- -- -- (130,000) (130,000)
----- ------ ------- ----------- -----------
Balance as of December 31, 1995 ........ 4,050 4,500 29,000 1,314,640 1,348,140
Net income ............................. -- -- -- 313,870 313,870
Distributions to stockholders .......... -- -- -- (103,500) (103,500)
----- ------ ------- ----------- -----------
Balance as of December 31, 1996 ........ 4,050 4,500 29,000 1,525,010 1,558,510
Net income ............................. -- -- -- 397,794 397,794
Distributions to stockholders .......... -- -- -- (26,000) (26,000)
----- ------ ------- ----------- -----------
Balance as of March 31, 1997 (unaudited) 4,050 $4,500 $29,000 $ 1,896,804 $ 1,930,304
===== ====== ======= =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-33
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the three
For the years ended months ended
December 31, March 31,
------------------- ------------------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 257,172 $ 313,870 $ 261,887 $ 397,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 112,517 137,146 33,672 32,925
Loss (gain) on sale of fixed assets .............. 27,956 42,268 -- (2,481)
Bad debt reserve ................................. 41,081 83,451 18,205 15,427
Changes in assets and liabilities:
(Increase) decrease in assets:
Patient accounts receivable .................... (345,827) (645,094) (249,294) (174,576)
Other assets ................................... (50,346) (11,580) (5,270) (5,250)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities ....... 76,655 3,200 (119,195) (84,056)
Taxes payable .................................. 85,783 126,754 146,101 149,843
Employee loans ................................. 2,905 (33,248) (13,438) (20,000)
Accrued pension and profit sharing ............. 354,400 (264,159) (227,900) (8,871)
Patient deposits ............................... 31,958 464,923 14,577 39,423
Other accrued liabilities ...................... (10,000) 81,861 -- (47,830)
--------- --------- --------- ---------
Net cash provided by operating activities ............ 584,254 299,392 (140,655) 292,348
--------- --------- --------- ---------
Cash flows used in investing activities:
Purchase of fixed assets and leasehold
improvements .................................... (238,270) (169,850) (40,456) (17,416)
--------- --------- --------- ---------
Cash flows (used in) provided by financing activities:
Net (decrease) increase in debt .................... (41,379) 74,693 204,798 (133,550)
Note receivable .................................... -- (100,000) (100,000) --
Distributions to stockholders ...................... (130,000) (103,500) (20,000) (26,000)
--------- --------- --------- ---------
Net cash used in financing activities ................ (171,379) (128,807) 84,798 (159,550)
Net increase (decrease) in cash ...................... 174,605 735 (96,313) 115,382
Cash at beginning of period .......................... 252,367 426,972 426,972 427,707
--------- --------- --------- ---------
Cash at end of period ................................ $ 426,972 $ 427,707 $ 330,659 $ 543,089
========= ========= ========= =========
Supplemental information:
Taxes paid in cash ................................. $ 8,765 $ 20,990 $ 1,475 $ 34,879
========= ========= ========= =========
Interest paid in cash .............................. $ 24,296 $ 33,168 $ 8,186 $ 6,965
========= ========= ========= =========
</TABLE>
See accompanying notes to the combined financial statements.
F-34
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
The Fertility Centers of Illinois, S.C. and its affiliated companies (the
"Company") is a five physician group practice with six locations in the Chicago
area. Four of the physicians own 100% of the common stock of the Company. The
Company specializes in providing infertility and related ultrasound services in
the Chicago area. The Company owns a 42.9% interest in IVF Illinois,
Incorporated ("IVF Illinois") which provides in-vitro services. (See Note 8)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of combination:
The accompanying combined financial statements of the Company comprise the
accounts of the Fertility Centers of Illinois, S.C. and the following entities,
each of which is owned by one of the physician shareholders of the Fertility
Centers of Illinois, S.C. (the "affiliated companies"): F.R.E.A. Ultrasound
Services, Ltd.; Fertility and Reproductive Medicine Associates, S.C.; Fertility
and Reproductive Endocrinology Associates, S.C.; and Jacob Moise, M.D.S.C. The
combination of these entities has been reflected at historical cost. All
significant intercompany transactions have been eliminated. The Company accounts
for its 42.9% interest in IVF Illinois under the equity method of accounting.
Interim results--
In the opinion of management, accompanying unaudited interim financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position at March 31, 1997,
and the results of operations and cash flows for the interim period presented.
Operating results for the interim period are not necessarily indicative of
results that may be expected for the year ending December 31, 1997.
Revenues and cost recognition:
Revenues consist of services rendered for patients and are recognized upon
performance of such services. Revenues are recorded on a net realizable basis
after deducting contractual allowances and consist of patient fees for
infertility and related services performed by the Company. Related direct costs
are recognized in the period in which the clinical and/or laboratory services
are rendered. Net realization is dependent upon benefits provided by the
patient's insurance policy or agreements between the Company and third-party
payors. Payments collected from patients in advance for services are included in
patient deposits.
Cash and cash equivalents:
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
Patient accounts receivable and deposits:
Patient accounts receivable represent receivables from patients for
medical services provided by the Company. Such amounts are recorded net of
contractual allowances and estimated bad debts. Contractual allowances were
$389,021, $709,240 and $785,551 at December 31, 1995 and 1996 and March 31,
1997, respectively. Patient deposits represent patient deposits for medical
services to be provided by the Company.
Fixed assets:
Fixed assets are valued at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, generally five to ten years.
Leasehold improvements are amortized over the shorter of the asset life or the
remaining term of the lease. The Company periodically reviews the fair value of
long-lived assets, the results of which have had no material effect on the
Company's financial position or results of operations.
F-35
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
a gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized. Income taxes:
The Company accounts for income taxes utilizing the asset and liability
approach. 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.
Financial instruments:
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, and long-term debt,
as reported in the accompanying combined balance sheet, approximates fair value.
Major payors:
The majority of the Company's receivables and revenues at and during the
years ended December 31, 1995 and 1996 and at and during the three months ended
March 31, 1997 were from insurance companies. Revenues from one company
approximated 22% for the year ended December 31, 1996.
Common stock:
The Company has 4,050 shares of common stock outstanding at December 31,
1995 and 1996 and March 31, 1997, of which 3,000 shares each have a par value of
$1; 1,000 shares have a stated value of $1,000; and 50 shares each have a par
value of $10.
Use of estimates in the preparation of the combined financial statements:
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management of the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 3 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1995 and 1996 and March 31, 1997
consisted of the following:
1995 1996 1997
---- ---- ----
(unaudited)
Furniture, office and other equipment $ 496,801 $ 575,820 $ 593,237
Medical equipment ................... 477,284 510,412 492,109
Leasehold improvements .............. 138,998 144,316 144,315
----------- ----------- -----------
Total ............................ 1,113,083 1,230,548 1,229,661
Less-- accumulated depreciation and
amortization ..................... (507,057) (632,086) (643,814)
----------- ----------- -----------
$ 606,026 $ 598,462 $ 585,847
=========== =========== ===========
Depreciation and amortization expense totaled $112,517 and $137,146,
respectively, for the years ended December 31, 1995 and 1996 and $32,925 and
$33, 672, respectively, for the three months ended March 31, 1997 and 1996.
F-36
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 4 -- DEBT:
Debt at December 31, 1995 and 1996 and March 31, 1997 consisted of the
following:
1995 1996 1997
---- ---- ----
(unaudited)
Business term loan ............. $ 196,935 $ 321,628 $ 188,078
Business line of credit ........ 50,000 -- --
--------- --------- ---------
Total debt ..................... 246,935 321,628 188,078
Less -- current portion ........ (246,935) (162,060) (158,172)
--------- --------- ---------
Long-term debt ................. $ -- $ 159,568 $ 29,906
========= ========= =========
The Company amended an existing term loan and outstanding line of credit
into a new business term loan ($427,814) in June 1996 with principal and
interest payments of $13,505 due monthly. The bank maintains a first security
interest in the Company's assets. Interest is fixed at 8.5%. The Company also
maintains a $160,000 line of credit, none of which was outstanding at December
31, 1996 and March 31, 1997. The line of credit expired in March 1997 and was
extended through March 1998.
NOTE 5 -- OPERATING LEASES:
The Company leases certain office space and equipment under lease
agreements extending one to five years.
At December 31, 1996, the minimum lease payments for noncancelable
operating leases in future years were as follows:
1997 ................................................. $ 406,378
1998 ................................................. 344,794
1999 ................................................. 226,649
2000 and thereafter .................................. 57,274
----------
Total minimum operating lease payments ............... $1,035,095
==========
Rent expense under operating leases was $227,712 and $463,428 for the
years ended December 31, 1995 and 1996, respectively, and $117,170 and $117,304
for the three months ended March 31, 1997 and 1996, respectively.
NOTE 6 -- INCOME TAXES:
The Company's tax provision primarily represents current federal and state
income taxes for the years ended December 31, 1995 and 1996. The Company had no
significant deferred tax assets or liabilities at December 31, 1995 and 1996.
Certain of the affiliated companies have elected, under the Internal
Revenue Code, S corporation status. As a result, no provision for federal income
taxes has been included for these companies.
The income tax provision differed from income taxes determined by applying
the statutory federal income tax rate to the income from the years ended
December 31, 1995 and 1996 as a result of the following:
1995 1996
---- ----
Tax expense at federal statutory rate .................. 35% 35%
State income taxes, net of federal benefit ............. 5% 5%
Rate differential for S corporation status ............. (13%) (8%)
--- ---
Provision for income taxes ............................. 27% 32%
=== ===
F-37
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES:
The Company is subject to certain federal and state laws and regulations,
many of which have not been the subject of judicial or regulatory
interpretation. Management believes the Company's operations are in substantial
compliance with applicable laws and regulations. Although an adverse review or
determination by any such authority could be significant to the Company,
management believes the effects of any such review or determination would not be
material to the Company's financial condition or results of operations.
NOTE 8 -- RELATED PARTY TRANSACTIONS:
The Company owns a 42.9% interest in IVF Illinois. The physicians of the
Company perform certain procedures for IVF Illinois for which the Company
receives a fee. Fees earned for the years ended December 31, 1995 and 1996 were
$906,193 and $1,213,536, respectively, and fees earned for the three months
ended March 31, 1996 and 1997, were $284,472 and $290,530, respectively, have
been reflected in revenues, net in the statement of operations. Accounts
receivable from IVF Illinois were $63,575, $106,312 and $114,280 at December 31,
1995 and 1996 and at March 31, 1997, respectively. The Company's interest in
earnings of IVF Illinois was insignificant for the years ended December 31, 1995
and 1996 for the three months ended March 31, 1996 and 1997, respectively.
The $100,000 note receivable at December 31, 1996 and March 31, 1997
represents a note receivable from one physician which is due on demand with
interest payable of 6%.
Physician compensation and benefits were $2,161,538 and $3,033,101 for the
years ended December 31, 1995 and 1996, respectively, and $568,336 and $609,808
for the three months ended March 31, 1996 and 1997, respectively.
NOTE 9 -- EMPLOYEE BENEFIT PLANS:
The Company has a defined benefit pension plan (the "plan") covering
certain of the Company's physicians and certain employees as specified under the
plan's eligibility requirements. The plan is funded through a trust agreement
and has met the minimum funding requirements for 1995 and 1996, based on the
funding requirements of U.S. federal governmental laws and regulations.
Net periodic pension costs for the years ended December 31, 1995 and 1996
included the following components:
1995 1996
---- ----
Service costs - benefits earned during period ...... $264,704 $ 278,176
Interest cost on projected benefit obligation ...... -- 15,882
Actual return on assets ............................ -- (16,531)
Net amortization and deferral ...................... -- 1,984
-------- ---------
Net periodic pension costs ......................... $264,704 $ 279,511
======== =========
The following table sets forth the plan's funded status at December 31,
1995 and 1996:
1995 1996
---- ----
Actuarial present value of:
Vested benefit obligations ............................ $ 182,385 $405,357
========= ========
Accumulated benefit obligation ........................ $ 264,704 $563,045
========= ========
Projected benefit obligations ......................... $ 264,704 $563,045
========= ========
Plan assets at fair value ............................... $ -- $534,360
Unrecognized net loss ................................... -- 6,874
--------- --------
Projected benefit obligation in excess of plan assets ... $ 264,704 $ 21,811
========= ========
F-38
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The assumptions used in the determination of net periodic pension cost and
the plan's funded status for the years ended December 31, 1995 and 1996 were as
follows:
1995 1996
---- ----
Rate of increase in future compensation levels ............ 0% 0%
Discount rate ............................................. 7.65% 7.5%
Expected long-term rate of return on plan assets .......... 6.0% 6.0%
The Company also maintains a profit sharing plan for certain physicians
and employees of the Company. Contributions to the plan amounted to $39,696 and
$47,346 for the years ended December 31, 1995 and 1996, respectively.
NOTE 10 -- SUBSEQUENT EVENT:
On February 28, 1997, the Company entered into agreements with IntegraMed
America, Inc. subject to certain conditions. Under the terms of these
agreements, IntegraMed America, Inc. will acquire certain assets and receive the
right to manage the Company over a twenty-year period. The closing of the
agreements is subject to certain conditions including IntegraMed America, Inc.
raising at least $6 million in capital.
F-39
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this offering,
other than those made in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Placement Agent. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
shares of Common Stock to which it relates, or an offer to, or a solicitation
of, any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
changes in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
-----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 7
Use of Proceeds ........................................................... 18
Dividend Policy ........................................................... 19
Price Range of Common Stock ............................................... 19
Capitalization ............................................................ 20
Dilution .................................................................. 21
Selected Consolidated and Pro Forma
Combined Financial Data ................................................. 22
Unaudited Pro Forma Combined
Financial Information ................................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................................................. 30
Business .................................................................. 38
Management ................................................................ 56
Certain Transactions ...................................................... 64
Principal Stockholders .................................................... 65
Description of Capital Stock .............................................. 67
Shares Eligible for Future Sale ........................................... 71
Plan of Distribution ...................................................... 72
Legal Matters ............................................................. 72
Experts ................................................................... 73
Available Information ..................................................... 73
Index to Financial Statements ............................................. F-1
================================================================================
================================================================================
6,400,000 Shares
[LOGO]
INTEGRAMED (R)
AMERICA
Common Stock
-----------------------
PROSPECTUS
-----------------------
Vector Securities International, Inc.
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
Placement Agent's fee) are as follows:
Amount
-------
SEC Registration Fee .................................. $ 3,030.30
NASD Filing Fee ....................................... 1,500.00
Nasdaq Listing Fee .................................... 17,500.00
Printing and Engraving Expenses ....................... *
Accounting Fees and Expenses .......................... *
Legal Fees and Expenses ............................... *
Blue Sky Fees and Expenses ............................ *
Transfer Agent's Fees and Expenses .................... *
Miscellaneous Expenses ................................ *
-------------
Total ........................................... $ 500,000.00**
=============
- ------------------
* To be completed by amendment
** Estimated expenses
Item 14. Indemnification of Directors and Officers
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Amended and Restated By-Laws (the "By-Laws") of the
Registrant provide that the Registrant shall indemnify any person to the full
extent permitted by the DGCL. Section 145 of the DGCL, relating to
indemnification, is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the Certificate of Incorporation, By-laws and the DGCL, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The Certificate of Incorporation includes certain provisions permitted
pursuant to Delaware law whereby officers and directors of the Registrant are to
be indemnified against certain liabilities. The Certificate of Incorporation
also limits, to the fullest extent permitted by Delaware law, a director's
liability for monetary damages for breach of fiduciary duty, including gross
negligence, except liability for (i) breach of the director's duty of loyalty,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) the unlawful payment of a dividend or
unlawful stock purchase or redemption and (iv) any transaction from which the
director derives an improper personal benefit. Delaware law does not eliminate a
director's duty of care and this provision has no effect on the availability of
equitable remedies such as injunction or rescission based upon a director's
breach of the duty of care.
In accordance with Section 102(a)(7) of the DGCL, the Certificate of
Incorporation eliminates the personal liability of directors to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director with certain limited exceptions set forth in Section 102(a)(7).
Reference is made to Section 7(b) of the Placement Agency Agreement
(Exhibit 1.1) which provides for indemnification by the Placement Agent of the
Registrant, its officers and directors.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
The following sets forth all of the unregistered sales of securities by
the Registrant during the past three years.
1. In connection with the Registrant's conversion offer of its
Convertible Preferred Stock, in October 1994, the Registrant issued
warrants to purchase 70,826 shares of Common Stock to Raymond James
& Associates, Inc., with an exercise price of $1.25.
2. In June 1996, the Registrant consummated the acquisition of all of
the outstanding stock of three related Florida corporations. The
Registrant issued 666,666 shares of Common Stock as partial payment
of the consideration for this acquisition.
3. In January 1997, the Registrant consummated the acquisition of
certain assets of and the right to manage Bay Area Fertility and
Gynecology Medical Group. The Registrant issued 333,333 shares of
Common Stock as partial payment of the consideration for this
acquisition.
4. In June 1997, the Registrant consummated the acquisition of certain
assets of and the right to manage the Reproductive Sciences Medical
Center, Inc. The Registrant issued 145,454 shares of Common Stock as
partial payment of the consideration for this acquisition.
5. In June 1997, the Registrant issued 41,058 shares of Common Stock to
the MPD Medical Associates, P.C., as partial payment of the
consideration for entering into a new management agreement relating
to the Long Island Network Site.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. Except as otherwise
indicated, the sale of securities was without the use of an underwriter, and the
certificates evidencing the shares bear a restrictive legend permitting the
transfer thereof only upon registration of the shares or an exemption under the
Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Exhibit
------- -------
1.1 -- Form of Placement Agency Agreement with form of
Escrow Agreement as an exhibit thereto**
3.1(a) -- Amended and Restated Certificate of Incorporation
of Registrant effecting, inter alia,
reverse stock split (ii)
3.1(b) -- Certificate of Amendment of the Certificate of
Incorporation of Registrant increasing
authorized capital stock by authorizing Preferred Stock (ii)
3.1(c) -- Certificate of Designations of Series A Cumulative
Convertible Preferred Stock (ii)
3.1(d) -- Amendment to Amended and Restated
Certificate of Incorporation changing Registrant's name
to IntegraMed America, Inc.**
3.2 -- Copy of By-laws of Registrant (i)
3.2(a) -- Copy of By-laws of Registrant (As Amended and Restated
on December 12, 1995) (xi)
4.1 -- Warrant Agreement of Robert Todd Financial Corporation. (i)
4.2 -- Copy of Warrant, as amended, issued to IG Laboratories,
Inc. (currently known as Genzyme
Genetics, a division of Genzyme Corp.). (i)
4.3 -- RAS Securities Corp. and ABD Securities Corporation's
Warrant Agreement. (ii)
4.4 -- Form of Warrants issued to Raymond James & Associates,
Inc. (vii)
4.5 -- Form of Warrant issuable to Vector Securities
International, Inc. *
5.1 -- Opinion of Bachner, Tally, Polevoy & Misher LLP *
10.1 -- Copy of Registrant's 1988 Stock Option Plan, including
form of option (i)
II-2
<PAGE>
Exhibit
Number Exhibit
------- -------
10.2 -- Copy of Registrant's 1992 Stock Option Plan, includingn
form of option (i)
10.4 -- Severance Agreement between Registrant and Vicki L.
Baldwin (i)
10.4(a) -- Copy of Change in Control Severance Agreement between
Registrant and Vicki L. Baldwin
(vii)
10.5(a) -- Copy of Severance Agreement with Release between Registrant
and David J. Beames (iv)
10.6 -- Severance arrangement between Registrant and Donald S.
Wood (i)
10.6(a) -- Copy of Executive Retention Agreement between Registrant and
Donald S. Wood, Ph.D. (viii)
10.7 -- Copy of lease for Registrant's executive offices in
Purchase, New York (viii)
10.8 -- Copy of Lease Agreement for medical office in Mineola,
New York (i)
10.8(a) -- Copy of new 1994 Lease Agreement for medical office in
Mineola, New York (v)
10.8(b) -- Copy of Letter of Credit in favor of Mineola Pavilion
Associates,
Inc. (viii)
10.9 -- Copy of Service Agreement for ambulatory surgery center
in Mineola, New York (i)
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for
Center in Mineola, New York (i)
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for
Center in Mineola, New York dated
September 1, 1994 (vii)
10.10(a) -- Copy of Agreement with MPD Medical Associates, P.C. for
Center in Mineola, New York dated September 1, 1994 (vii)
10.11 -- Copy of Service Agreement with United Hospital (i)
10.12 -- Copy of Service Agreement with Waltham Weston Hospital
and Medical Center (i)
10.15(a) -- Copy of post-Dissolution Consulting Agreement between
Registrant and Allegheny General Hospital (vi)
10.18(a) -- Copy of post-Dissolution Consulting, Training and
License Agreement between Registrant
and Henry Ford Health Care Systems (iii)
10.19 -- Copy of Guarantee Agreement with Henry Ford Health
System (i)
10.20 -- Copy of Service Agreement with Saint Barnabas
Outpatient Centers for center in Livingston, New
Jersey (i)
10.21 -- Copy of Agreement with MPD Medical Associates, P.C. for
center in Livingston, New Jersey (i)
10.22 -- Copy of Lease Agreement for medical offices in Livingston,
New Jersey (i)
10.23 -- Form of Development Agreement between Registrant and IG
Laboratories Inc. (currently
known as Genzyme Genetics, a division of Genzyme Corp.) (i)
10.24 -- Copy of Research Agreement between Registrant and Monash
University (i)
10.24(a) -- Copy of Research Agreement between Registrant and Monash
University (ix)
10.28 -- Copy of Agreement with Massachusetts General Hospital
to establish the Vincent Center for
Reproductive Biology and a Technical Training Center (ii)
10.29 -- Copy of Agreement with General Electric Company relating
to Registrant's training program (ii)
10.30 -- Copy of Indemnification Agreement between Registrant
and Philippe L. Sommer (vii)
10.31 -- Copy of Employment Agreement between Registrant and
Gerardo Canet (vii)
II-3
<PAGE>
Exhibit
Number Exhibit
------- -------
10.31(a) -- Copy of Change in Control Severance Agreement between
Registrant and Gerardo Canet (vii)
10.31(b) -- Copy of the Amendment of Change in Control Severance
Agreement between Registrant and
Gerardo Canet (viii)
10.33 -- Copy of Change in Control Severance Agreement between
Registrant and Dwight P. Ryan (vii)
10.35 -- Revised Form of Dealer Manager Agreement between Registrant
and Raymond James Associates, Inc. (vii)
10.36 -- Copy of Agreement between MPD Medical Associates, P.C.
and Patricia Hughes, M.D. (vii)
10.37 -- Copy of Agreement between IVF America (NJ) and Patricia
Hughes, M.D. (vii)
10.38 -- Copy of Management Agreement between Patricia M. McShane,
M.D. and IVF America (MA), Inc. (vii)
10.39 -- Copy of Sublease Agreement for medical office in North
Tarrytown, New York (viii)
10.40 -- Copy of Executive Retention Agreement between Registrant
and Patricia M. McShane, M.D. (viii)
10.41 -- Copy of Executive Retention Agreement between Registrant
and Lois Dugan (viii)
10.42 -- Copy of Executive Retention Agreement between Registrant
and Jay Higham (viii)
10.43 -- Copy of Service Agreement between Registrant and Saint
Barnabas Medical Center (ix)
10.44 -- Asset Purchase Agreement among Registrant, Assisted
Reproductive Technologies, P.C. d/b/a
Main Line Reproductive Science Center, Reproductive
Diagnostics, Inc. and Abraham K. Munabi, M.D. (ix)
10.44(a) -- Management Agreement among Registrant and Assisted
Reproductive Technologies, P.C. d/b/a
Main Line Reproductive Science Center and Reproductive
Diagnostics, Inc. (ix)
10.44(b) -- Physician Service Agreement between Assisted Reproductive
Technologies P.C.
d/b/a Main Line Reproductive Science Center and Abraham K.
Munabi, M.D. (ix)
10.45 -- Copy of Executive Retention Agreement between Registrant
and Stephen Comess (x)
10.46 -- Copy of Executive Retention Agreement between Registrant
and Peter Callan (x)
10.47 -- Management Agreement between Registrant and Robert Howe,
M.D., P.C. (x)
10.47(a) -- P.C. Funding Agreement between Registrant and Robert
Howe, M.D. (x)
10.48 -- Management Agreement among Registrant and Reproductive
Endocrine Fertility Consultants,
P.A. and Midwest Fertility Foundations Laboratory, Inc. (x)
10.48(a) -- Asset Purchase Agreement among Registrant and
Reproductive Endocrine & Fertility
Consultants, Inc. and Midwest Fertility Foundations &
Laboratory, Inc. (x)
10.49 -- Copy of Sublease Agreement for office space in Kansas
City, Missouri (x)
10.50 -- Copy of Lease Agreement for office space in Charlotte,
North Carolina (x)
10.51 -- Copy of Contract Number DADA15-96-C-0009 as
awarded to IVF America, Inc. by the
Department of the Army, Walter Reed Army Medical
Center for In Vitro Fertilization
Laboratory Services (xi)
10.52 -- Agreement and Plan of Merger By and Among IVF America,
Inc., INMD Acquisition Corp., The
Climacteric Clinic, Inc., Midlife Centers of America,
Inc., Women's Research Centers, Inc., America National
Menopause Foundation, Inc. and Morris Notelovitz (xii)
II-4
<PAGE>
Exhibit
Number Exhibit
------- -------
10.53 -- Employment Agreement between Morris Notelovitz, M.D.,
Ph.D. and Registrant (xii)
10.54 -- Physician Employment Agreement between Morris
Notelovitz, M.D., Ph.D., and INMD
Acquisition Corp. ("IAC"), a Florida corporation
and wholly owned subsidiary of Registrant ("INMD") (xii)
10.55 -- Management Agreement between Registrant and W.F.
Howard, M.D., P.A. (xii)
10.56 -- Asset Purchase Agreement between Registrant and W.F.
Howard M.D., P.A. (xii)
10.57 -- Business Purposes Promissory Note dated September 8, 1993
in the amount of $100,000 (xiii)
10.58 -- Business Purposes Promissory Note dated November 18, 1994
in the amount of $64,000 (xiii)
10.59 -- Guaranty Agreement (xiii)
10.60 -- Security Agreement (Equipment and consumer goods) (xiii)
10.61 -- Management Agreement dated January 7, 1997 by and
between Registrant and Bay Area
Fertility and Gynecology Medical Group, Inc. (xiv)
10.62 -- Asset Purchase Agreement dated January 7, 1997 by and
between Registrant and Bay Area
Fertility and Gynecology Medical Group, a California
partnership. (xiv)
10.63 -- Physician Employment Agreement between Robin E. Markle,
M.D. and Women's Medical & Diagnostic Center, Inc. (xv)
10.64 -- Physician Employment Agreement between W. Banks
Hinshaw, Jr., M.D. and Women's Medical & Diagnostic Center,
Inc. (xv)
10.65 -- Agreement between Registrant, Women's Medical & Diagnostic
Center, Inc., f/k/a INMD
Acquisition Corp, and Morris Notelovitz, M.D. (xv)
10.66 -- Personal Responsibility Agreement between Registrant,
Bay Area Fertility and Gynecology
Medical Group, Inc. and Donald I. Galen, M.D. (xv)
10.67 -- Personal Responsibility Agreement between Registrant,
Bay Area Fertility and Gynecology
Medical Group, Inc. and Louis N. Weckstein, M.D. (xv)
10.68 -- Personal Responsibility Agreement between Registrant,
Bay Area Fertility and Gynecology
Medical Group, Inc. and Arnold Jacobson, M.D. (xv)
10.69 -- Executive Retention Agreement between Registrant and
Glenn G. Watkins (xv)
10.70 -- Management Agreement between Registrant and Fertility
Centers of Illinois, S.C. dated
February 28, 1997**
10.71 -- Asset Purchase Agreement between Registrant and Fertility
Centers of Illinois, S.C. dated February 28, 1997**
10.72 -- Physician-Shareholder Employment Agreement between
Fertility Centers of Illinois, S.C.
and Aaron S. Lifchez, M.D. dated February 28, 1997**
10.73 -- Physician-Shareholder Employment Agreement between
Fertility Centers of Illinois, S.C.
and Brian Kaplan, M.D. dated February 28, 1997**
10.74 -- Physician-Shareholder Employment Agreement between
Fertility Centers of Illinois, S.C.
and Jacob Moise, M.D. dated February 28, 1997**
10.75 -- Physician-Shareholder Employment Agreement between
Fertility Centers of Illinois, S.C.
and Jorge Valle, M.D. dated February 28, 1997**
10.76 -- Personal Responsibility Agreement among Registrant,
Fertility Centers of Illinois, S.C.
and Aaron S. Lifchez, M.D. dated February 28, 1997**
10.77 -- Personal Responsibility Agreement among Registrant,
Fertility Centers of Illinois, S.C.
and Jacob Moise, M.D. dated February 28, 1997**
II-5
<PAGE>
Exhibit
Number Exhibit
------- -------
10.78 -- Personal Responsibility Agreement among Registrant,
Fertility Centers of Illinois, S.C.
and Brian Kaplan dated February 28, 1997**
10.79 -- Personal Responsibility Agreement among Registrant,
Fertility Centers of Illinois, S.C.
and Jorge Valle, M.D. dated February 28, 1997**
10.80 -- Amendment to Contract Number DADA15-96-C-009 between
Registrant and the Department of the
Army, Walter Reed Army Medical Center for In Vitro
Fertilization Laboratory Services.**
10.81 -- Management Agreement between Registrant and Reproductive
Sciences Medical Center, Inc.
10.82 -- Asset Purchase Agreement between Registrant and Samuel
H. Wood, M.D., Ph.D.
10.83 -- Personal Responsibility Agreement between Registrant and
Samual H. Wood, M.D., Ph.D.
10.84 -- Physician-Shareholder Employment Agreement between
Reproductive Sciences Medical Center,
Inc. and Samuel H. Wood, M.D., Ph.D.
10.85 -- Physician-Shareholder Employment Agreement between
Reproductive Endocrine & Fertility
Consultants, P.A. and Elwyn M. Grimes, M.D.
10.86 -- Amendment to Management Agreement between Registrant
and Reproductive Endocrine &
Fertility Consultants, P.A.
10.87 -- Amendment to Management Agreement between Registrant
and Fertility Centers of Illinois,
S.C. dated May 2, 1997.
10.88 -- Management Agreement between Registrant and MPD Medical
Associates, P.C. dated June 2, 1997.
10.89 -- Physician-Shareholder Employment Agreement between
MPD Medical Associates P.C. and Gabriel San Roman, M.D.
10.90 -- Amendment No. 2 to Management Agreement between
Registrant and Fertility Centers of Illinois, S.C.
dated June 18, 1997.
11 -- Computation of Net Loss Per Share
21.1 -- Subsidiaries of Registrant (xv)
23.1 -- Consent of Bachner, Tally, Polevoy & Misher LLP (Included
as Exhibit 5.1)*
23.2 -- Consent of Price Waterhouse LLP (Included in this Part II)
24 -- Powers of Attorney (Included in this Part II)
(b) Schedules
Schedule II -- Valuation and Qualifying Accounts (Included in this
Part II)
- ------------------
(i) Filed as Exhibit with identical exhibit number to Registrant's
Registration Statement on Form S-1 (Registration No. 33-47046) and
incorporated herein by reference thereto.
(ii) Filed as Exhibit with identical exhibit number to Registrant's
Registration Statement on Form S-1 (Registration No. 33-60038) and
incorporated herein by reference thereto.
(iii) Filed as Exhibit with identical exhibit number to Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1994 and incorporated
herein by reference thereto.
(iv) Filed as Exhibit with identical exhibit number to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1994 and incorporated
herein by reference thereto.
(v) Filed as Exhibit with identical exhibit number to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1994 and
incorporated herein by reference thereto.
(vi) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31, 1993.
(vii) Filed as Exhibit with identical exhibit number to Registrant's
Registration Statement on Form S-4 (Registration No. 33-82038) and
incorporated herein by reference thereto.
II-6
<PAGE>
(viii) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31,1994.
(ix) Filed as Exhibit with identical exhibit number to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(x) Filed as Exhibit with identical exhibit number to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.
(xi) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31, 1995.
(xii) Filed as Exhibit with identical exhibit number to Registrant's Current
Report on Form 8-K dated June 20, 1996.
(xiii) Filed as Exhibit with identical exhibit number to Registrant's Current
Report on Form 8-K/A dated August 20, 1996.
(xiv) Filed as Exhibit with identical exhibit number to Registrant's Current
Report on Form 8-K dated January 20, 1997.
(xv) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31, 1996.
- ----------------
* To be filed by amendment
** Previously filed
Item 17. Undertakings
Undertaking Required by Regulation S-K, Item 512(h).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant 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 registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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 registrant 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.
Undertakings required by Regulation S-K, Item 512(i).
The undersigned Registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497 (h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2)For purposes 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-7
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated February 24, 1997
relating to the consolidated financial statements of IntegraMed America, Inc.,
our report dated March 24, 1997 relating to the financial statements of Bay Area
Fertility and Gynecology Medical Group, and our report dated April 28, 1997
relating to the combined financial statements of Fertility Centers of Illinois,
S.C., and its affiliates which appear in such Prospectus. We also consent to the
application of such reports to the Financial Statement Schedule for the three
years ended December 31, 1996 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our reports. The audits referred to in such reports
also included this schedule. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Stamford, CT
June 18, 1997
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Purchase, State of New
York on the 18th day of June, 1997.
INTEGRAMED AMERICA, INC.
/s/ GERARDO CANET
-----------------------------------------
By: Gerardo Canet, President, Chief Executive
Officer and Director
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ GERARDO CANET
- ---------------------------------------------- President, Chief Executive June 18, 1997
Gerardo Canet Officer and Director
(Principal Executive Officer)
/S/ DWIGHT P. RYAN
- ---------------------------------------------- Vice President, June 18, 1997
Dwight P. Ryan Chief Financial Officer
(Principal Financial and
Accounting Officer)
*
- ---------------------------------------------- Director June 18, 1997
Vicki L. Baldwin
*
- ---------------------------------------------- Director June 18, 1997
Elliot D. Hillback, Jr.
*
- ---------------------------------------------- Director June 18, 1997
Sarason D. Liebler
*
- ---------------------------------------------- Director June 18, 1997
Patricia M. McShane, M.D.
*
- ---------------------------------------------- Director June 18, 1997
Lawrence J. Stuesser
/S/ DWIGHT P. RYAN
- ----------------------------------------------
*By: Dwight P. Ryan
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
SCHEDULE II
INTEGRAMED AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions-
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions(1) of Period
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
IntgraMed America, Inc.:
Year Ended December 31, 1996
Allowance for doubtful accounts .... $ 89,000 $344,000 $124,000 $309,000
Year Ended December 31, 1995
Allowance for doubtful accounts .... $125,000 $119,000 $155,000 $ 89,000
Year Ended December 31, 1994
Allowance for doubtful accounts .... $193,000 $289,000 $357,000 $125,000
Bay Area Fertility and Gynecology
Medical Group:
Year Ended December 31, 1996
Allowance for doubtful accounts .... $ 12,000 $-- $-- $ 12,000
Fertility Centers of Illinois, S.C.:
Year Ended December 31, 1996
Allowance for doubtful accounts .... $ 82,000 $ 83,000 $-- $165,000
Year Ended December 31, 1995
Allowance for doubtful accounts .... $ 41,000 $ 41,000 $-- $ 82,000
- ---------------------
(1) Uncollectible accounts written off.
</TABLE>
S-1
EXECUTED IN MULTIPLE ORIGINALS
MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC.
And
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
THIS MANAGEMENT AGREEMENT, dated June 6, 1997, by and between IntegraMed
America, Inc., a Delaware corporation, with its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("INMD") and Reproductive
Sciences Medical Center, Inc., a California professional corporation, with its
principal place of business at 4150 Regents Row, Suite 280, La Jolla, California
92037 ("PC").
RECITALS:
PC specializes in the provision of gynecological and infertility services,
including the treatment of human infertility encompassing the provision of in
vitro fertilization and other assisted reproductive services ("Infertility
Services"). All PC interests in PC are owned by Samuel H. Wood, M.D., Ph.D.
(referred to herein as "Physician" or "Shareholder").
INMD is in the business of owning certain assets and providing management
and administrative services to medical practices specializing in the provision
of Infertility Services, and furnishing such medical practices with the
necessary facilities, equipment, personnel, supplies and support staff.
PC desires to obtain the services of INMD in performing such management and
administrative functions to permit PC to devote its efforts on a concentrated
and continuous basis to the rendering of Infertility Services to its patients.
In addition, PC desires access to capital to fund its growth and
development and INMD desires to provide such capital or access to capital as
provided herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, PC hereby agrees to
purchase from INMD the management and administrative services herein described
and INMD agrees to provide such services on the terms and conditions provided
herein.
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
1.1.1 "Assets" shall mean those fixed assets utilized in connection
with the operation of PC's medical practice.
1.1.2 "Adjustments" shall mean adjustments for refunds, discounts,
contractual adjustments, professional courtesies and other activities that
do not generate a collectible fee as reasonably determined by INMD and PC.
1.1.3 "Base Management Fee" shall mean an annual fee paid by PC to
INMD in an amount equal to a percentage of PC's annual Physician and Other
Professional Revenues as more specifically described in Section 2.3.
1.1.4 "Cost of Services" shall mean all ordinary and necessary
expenses of PC and all direct ordinary and necessary operating expenses of
INMD, without mark-up, incurred in connection with the management of PC's
medical practice, as more specifically described in Section 2.1.
1.1.5 "Facilities" shall mean the medical office and clinical space of
PC, including any satellite locations, related businesses and all medical
group business operations of PC, which are utilized by PC in its medical
practice.
1.1.6 "Fiscal Year" shall mean the 12-month period beginning January 1
and ending December 31 of each year.
1.1.7 "Infertility Services" shall mean the provision of gynecological
services, treatment of human infertility encompassing the provision of in
vitro fertilization and other assisted reproductive services, including but
not limited to those which during the term of this Agreement are provided
by PC or any Physician Employee and Other Professional Employee.
1.1.8 "Other Professional Employees" shall mean the provision of
gynecological services, including the nurse anesthetists, physician
assistants, nurse practitioners, psychologists, and other such professional
employees who generate professional charges, but shall not include
Technical Employees.
-2-
<PAGE>
1.1.9 "Physician Employees" shall mean those individuals who are
employees or shareholders of PC or are otherwise under contract with PC to
provide professional services to PC patients and are duly licensed as
physicians in the State of California.
1.1.10 "Physician and Other Professional Revenues" shall mean all
fees, whether received or accrued, and actually recorded each month (net of
Adjustments) by or on behalf of PC as a result of professional medical
services personally furnished to patients by Physician Employees and Other
Professional Employees and other fees or income earned in their capacity as
professionals, whether rendered in an inpatient or outpatient setting,
including but not limited to, medical director fees or technical fees from
medical ancillary services, consulting fees and speaking fees. "Physician
and Other Professional Revenues" shall not include income derived from
testimony for litigation-related proceedings, lectures, passive
investments, fundraising or writing where Physician does not render
professional medical services.
1.1.11 "Predistribution Earnings" ("PDE") shall mean (i) Physician and
Other Professional Revenues, less (ii) Cost of Services and the Base
Management Fee.
1.1.12 "Receivables"shall mean and include all rights to payment for
services rendered or goods sold, accounts, receivables, contract rights,
chattel paper, documents, instruments and other evidence of patient
indebtedness to PC, policies and certificates of insurance relating to any
of the foregoing, and all rights to payment, reimbursement or settlement or
insurance or other medical benefit payments assigned to PC by patients or
pursuant to any preferred provider, HMO, capitated payment agreements or
other agreements between PC and a payer, recorded each month (net of
Adjustments).
1.1.13 "Revenues" shall mean the sum of all Physician and Other
Professional Revenues.
1.1.14 "Shareholder" shall mean Physician and/or other physicians who
are owners/shareholders of PC.
1.1.15 "Technical Employees" shall mean technicians such as
embryologists and other laboratory personnel, ultrasonographers and
phlebotomists who provide services to the PC. All Technical Employees shall
be INMD Employees or independent contractors.
ARTICLE 2
COST OF SERVICES AND BASE MANAGEMENT FEE
2.1 "Cost of Services" (as defined in Section 1.1.4) includes without
limitation, the following costs and expenses, whether incurred by INMD or PC:
-3-
<PAGE>
2.1.1 Salaries and fringe benefits of all employees of INMD working
directly in the management, operation or administration (including, without
limitation, Other Professional Employees and Technical Employees) providing
services at PC, along with payroll taxes or all other taxes and charges now
or hereafter applicable to such personnel, and services of independent
contractors;
2.1.2 Expenses incurred in the recruitment of additional physicians
for PC, including, but not limited to employment agency fees, relocation
and interviewing expenses and any actual out-of-pocket expenses of INMD
personnel in connection with such recruitment effort;
2.1.3 Direct marketing expenses of PC, such as direct costs of
printing marketing materials prepared by INMD;
2.1.4 Any sales and use taxes assessed against PC related to the
operation of PC's medical practice;
2.1.5 Lease payments, depreciation expense (determined according to
GAAP), taxes and interest directly relating to the Facilities and
equipment, and other expenses of the Facilities described in Section 3.2
below;
2.1.6 Legal fees paid by INMD or PC to outside counsel in connection
with matters specific to the operation of PC such as regulatory approvals
required as a result of the parties entering into this Agreement; provided
however, legal fees incurred by the parties hereto as a result of a dispute
between the parties shall not be considered a Cost of Services;
2.1.7 Fringe benefits provided to Physician Employees;
2.1.8 All insurance necessary to operate PC including fire, theft,
general liability and malpractice insurance for Physician Employees of the
PC;
2.1.9 Professional licensure fees and board certification fees of
Physician Employees and Other Professional Employees rendering Infertility
Services on behalf of PC;
2.1.10 Membership in professional associations and continuing
professional education for Physician Employees and Other Professional
Employees;
2.1.11 Quality Assurance Program described in Section 3.8 herein;
2.1.12 Cost of filing fictitious name permits pursuant to this
Agreement;
2.1.13 Cost of supplies, medical and administrative, and all direct
general and administrative expenses relative to the PC;
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2.1.14 Such other costs and expenses directly incurred by INMD or PC
necessary for the management or operation of PC; and
2.2 Notwithstanding anything to the contrary contained herein, Cost of
Services shall not include costs of the following:
2.2.1 PDE of the PC paid to Shareholders;
2.2.2 Costs or expenses not included in the annual budget prepared by
INMD pursuant to Section 3.4 herein, unless approved by the parties prior
to costs or expenses being incurred unless subsequently ratified by PC;
2.2.3 Any INMD overhead charges;
2.2.4 Any federal or state income taxes of INMD other than as provided
above; and
2.2.5 The Base Management Fee and the Additional Management Fee.
2.3 The "Base Management Fee" and the "Additional Management Fee" described
in Article 6 of this Agreement shall constitute INMD's sole compensation for all
indirect costs including all legal, accounting, financial, marketing, management
and administrative assistance provided by INMD corporate and regional staff
which are not provided for in Section 2.1.
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF INMD
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 PC hereby appoints INMD as PC's sole and exclusive manager and
administrator of all of its day-to-day business functions and grants INMD
all the necessary authority to carry out its duties and responsibilities
pursuant to the terms of this Agreement. PC and only PC will perform the
medical functions of its practice. INMD will have no authority, directly or
indirectly, to perform, and will not perform, any medical function. INMD
may, however, advise PC as to the relationship between its performance of
medical functions and the overall administrative and business functioning
of its practice. To the extent that they assist PC in performing medical
functions, all Technical Employees provided by INMD shall be subject to the
professional supervision of PC. The parties agree that the "Decision-Making
Authority for Integrated Entities Criteria" developed by the California
Medical Association which provides a framework for compliance with the
California corporate practice proscriptions shall be utilized by the
parties as a guide with respect to the management and administration
services to be provided under this Agreement.
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3.1.2 INMD shall, on behalf of PC, bill patients and collect
professional fees for Infertility Services rendered by PC at the
Facilities, outside the Facilities for PC's hospitalized patients, and for
all other Infertility Services rendered by any Physician Employee or Other
Professional Employee. PC hereby appoints INMD for the term hereof to be
its true and lawful attorney-in-fact, for the following purposes: (i) to
bill patients in PC's name and on its behalf; (ii) to collect accounts
receivable resulting from such billing in PC's name and on its behalf;
(iii) to receive payments from insurance companies, prepayments received
from health care plans, and all other third-party payors; (iv) to take
possession of and endorse in the name of PC (and/or in the name of any
Physician Employee or Other Professional Employee rendering Infertility
Services to patients of PC) any notes, checks, money orders, and other
instruments received in payment of accounts receivable; and (v) to initiate
the institution of legal proceedings in the name of PC to collect any
accounts and monies owed to PC, to enforce the rights of PC as creditor
under any contract or in connection with the rendering of any service, and
to contest adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors.
3.1.3 INMD shall supervise and maintain (on behalf of PC) all files
and records relating to the operations of the Facilities, including but not
limited to accounting and billing records, patient medical records, and
collection records. Patient medical records shall at all times be and
remain the property of PC and shall be located at the Facilities and be
readily accessible for patient care. INMD's management of all files and
records shall comply with all applicable state and federal laws and
regulations, including without limitation, those pertaining to
confidentiality of patient records. The medical records of each patient
shall be expressly deemed confidential and shall not be made available to
any third party except in compliance with all applicable laws, rules and
regulations. INMD shall have access to such records in order to provide the
services hereunder, to perform billing functions, and to prepare for the
defense of any lawsuit in which those records may be relevant. The
obligation to maintain the confidentiality of such records shall survive
termination of this Agreement. PC shall have unrestricted access to all of
its records at all times.
3.1.4 INMD shall supply to PC all reasonably necessary clerical,
accounting, bookkeeping and computer services, printing, postage and
duplication services, medical transcribing services, and any other
necessary or appropriate administrative services reasonably necessary for
the efficient operation of PC's medical practice at the Facilities.
3.1.5 Subject to PC's prior approval, INMD shall design and implement
an appropriate marketing and public relations program on behalf of PC, with
appropriate emphasis on public awareness of the availability of Infertility
Services from PC. The public relations program shall be conducted in
compliance with applicable laws and regulations governing advertising by
the medical profession. PC shall approve all advertising and marketing
materials prior to use.
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3.1.6 INMD shall assist PC in recruiting additional physicians,
including such administrative functions as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, PC shall interview and make the ultimate decision as to
the suitability of any physician to become associated with PC. All
physicians recruited by INMD and accepted by PC shall be employees of or
independent contractors to PC.
3.1.7 INMD shall assist in negotiating, but shall not enter into, and
shall administer all managed care contracts on behalf of PC and shall
consult with PC on all administrative matters relating thereto.
3.1.8 INMD shall arrange for legal and accounting services as may be
reasonably required in the ordinary course of the PC's operation, including
the cost of enforcing any physician contract containing restrictive
covenants. Nothing contained herein is intended to authorize INMD to settle
any claim made by or against PC.
3.1.9 INMD shall negotiate for and cause premiums to be paid with
respect to the insurance provided for in Article 10.
3.1.10 INMD shall take such other reasonable actions to collect fees
and pay expenses of the Facilities in a timely manner as are deemed
reasonably necessary to facilitate the operation of PC's medical practice
at the Facilities.
3.2 FACILITIES.
(a) INMD shall provide the office space and facilities necessary for
the operation of PC's medical practice, as set forth in Exhibit 3.2 hereto (the
"Facilities"), including but not limited to, the use of the Facilities, and
shall be responsible for all repairs, maintenance and improvements thereto,
utility (telephone, electric, gas, water) services, customary janitorial
services, refuse disposal and all other services reasonably necessary in
conducting the Facilities' physical operations. INMD shall provide for the
cleanliness of the Facilities, and timely maintenance and cleanliness of the
equipment, furniture and furnishings located therein. INMD shall consult with PC
regarding the condition, use and needs for the Facilities, equipment, services
and improvements thereto. PC shall have the right to review all proposed leases
for office space and INMD shall consult with PC with respect to the terms of
such leases and use its best efforts to ensure that the leases provide for
reasonable assignment.
(b) Inclusive in the Facilities to be provided shall be a
state-of-the-art clinical and IVF laboratory (the "Lab") which shall meet
minimum national standards and be consistent with other laboratories provided by
INMD to other medical practices it manages. The Lab build-out, which shall
consist of all required construction necessary for P.C. to seek licensure (the
"Lab Build-Out"), shall be accomplished within seven (7) months of execution of
the lease for the new Facilities. INMD shall bear the risk of all construction
aspects being completed within the seven (7)-
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month period in order for the Lab to be in operational and capable of generating
Revenues, but shall have no liability or responsibility for the failure of the
appropriate license issuing agencies to timely issue licenses; all other risks,
including the failure of the Lab to be timely licensed, shall be borne by P.C.
INMD and P.C. agree to use their best efforts to accomplish the Lab build-out
and licensure thereof and will cooperate with each other as to all reasonable
requests of the other.
(c) INMD agrees that in the event the Lab Build-Out isn't completed as
provided for in Section 3.2 (b), P.C. shall, effective with the commencement of
the 8th month following execution of the lease, suspend payment of any further
Management Fee provided for in Section 6.1.3, unless and until such time as the
Lab Build-Out is completed.
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Subject to the approval of PC, which shall
not be unreasonably withheld, INMD shall hire and appoint an Executive
Director to manage and administer all the day-to-day business functions of
the Facilities and determine the salary and fringe benefits paid to the
Executive Director. At the direction, supervision and control of INMD, the
Executive Director, subject to the terms of this Agreement, shall implement
the policies agreed upon by INMD and PC and shall generally perform the
administrative duties assigned to the Executive Director by INMD. PC
acknowledges that the removal of an Executive Director is likely to involve
financial and other commitments on the part of INMD that were undertaken
after that individual's approval by PC. Therefore, the decision to remove
an Executive Director shall rest with INMD. However, upon request by PC,
INMD shall review any disputes between PC and an Executive Director, or
disapproval of Executive by PC and endeavor to resolve the problem with
consideration to be given to the removal of the Executive Director, among
other outcomes.
3.3.2 PERSONNEL. INMD shall provide support personnel and
administrative personnel, clerical, secretarial, bookkeeping and collection
personnel reasonably necessary for the efficient operation of PC at the
Facilities. Such personnel shall be under the direction, supervision and
control of INMD, with Technical Employees and Other Professional Employees
subject to the professional supervision of PC. If PC is dissatisfied with
the services of any person delivering non-professional services, PC shall
consult with INMD. INMD shall in good faith determine whether the
employment of that employee warrants termination. INMD's obligations to
utilize non-professional personnel shall be governed by the overriding
principle and goal of facilitating PC's provision of high quality medical
care and laboratory services. INMD shall make every effort to honor the
specific requests of PC with regard to the assignment of INMD's employees,
including the Executive Director.
3.4 FINANCIAL PLANNING AND GOALS. INMD shall prepare, for the approval of
PC, annual capital and operating budgets reflecting the anticipated revenues and
expenses, sources and uses of capital for growth of PC's practice and for the
provision of Infertility Services at the Facilities. INMD shall present the
budgets to PC for its approval at least thirty (30) days prior to the
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commencement of the Fiscal Year. INMD shall specify the targeted profit margin
for PC's practice at the Facilities which shall be reflected in the overall
budget. If the parties cannot agree on the budget for any Fiscal Year, the
budget for the preceding Fiscal Year shall serve as the budget until such time
as the dispute can be resolved.
3.5 FINANCIAL STATEMENTS. INMD shall prepare annual financial statements
for operations of PC at the Facilities within sixty (60) days of the close of
the Fiscal Year. INMD shall prepare monthly financial statements containing a
balance sheet and statement of operations, which shall be delivered to PC within
thirty (30) days after the close of each calendar month.
3.6 TAX PLANNING AND TAX RETURNS. INMD will not be responsible for any tax
planning or tax return preparation for PC, but will provide support
documentation in connection with the same. Such support documentation shall not
be destroyed without PC's consent.
3.7 INVENTORY AND SUPPLIES. INMD shall order and purchase inventory and
supplies, and such other materials which are requested by PC to enable PC to
deliver Infertility Services in a cost-effective manner.
3.8 QUALITY IMPROVEMENT. INMD shall assist PC in fulfilling its obligations
to maintain a Quality Improvement Program and in meeting the goals and standards
of such program.
3.9 RISK MANAGEMENT. INMD shall assist PC in the development of a Risk
Management Program and in meeting the standards of such program.
3.10 PERSONAL POLICIES AND PROCEDURES. INMD shall develop personnel
policies, procedures and guidelines, to govern office behavior, protocol and
procedure, designed to insure that the work site(s) of PC observe all laws and
guidelines related to employment and human resources.
3.11 LICENSES AND PERMITS INMD shall, on behalf of in the name of PC,
coordinate and assist PC in its application for and efforts to obtain and
maintain all federal, state and local licenses, certifications and regulatory
permits required for or in connection with the operation of PC and equipment
located at the Facilities, other than those relating to the practice of medicine
or the administration of drugs by Physician Employees.
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PC
4.1 PROFESSIONAL SERVICES. PC shall provide Infertility Services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the practice of medicine in the State of California. PC shall ensure
that each Physician Employee, Other Professional Employee and any other
professional provider associated with PC is duly licensed to
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provide the services being rendered within the scope of such provider's
practice. In addition, PC shall require each new shareholder and
Physician-Employee to maintain a DEA number and appropriate medical staff
privileges as determined by PC during the term of this Agreement and to obtain
board certification in Reproductive Endocrinology within five (5) years of a
shareholder's or Physician-Employee's completion of an accredited training
program. In the event that any disciplinary actions or medical malpractice
actions are initiated against any Physician-Shareholder, Physician-Employee or
other professional provider, PC shall immediately inform the Executive Director
and provide a written indication of the underlying facts and circumstances of
such action.
4.2 MEDICAL PRACTICE. PC shall use and occupy the Facilities exclusively
for the purpose of providing Infertility Services and shall comply with all
applicable laws and regulations and all applicable standards of medical care,
including, but not limited to, those established by the American Society of
Reproductive Medicine and the American College of Obstetricians and
Gynecologists. The medical practice conducted at the Facilities shall be
conducted solely by physicians employed by or serving as independent contractors
to PC, and other Professional Employees as defined herein, unless approval is
obtained from INMD. No other physician or medical practitioner shall be
permitted to use or occupy the Facilities without the prior written consent of
INMD, except in the case of a medical emergency, in which event, notification
shall be provided to INMD as soon after such use or occupancy as possible.
4.3 EMPLOYMENT OF PHYSICIAN AND OTHER PROFESSIONAL EMPLOYEES. In the event
PC shall determine that additional physicians are necessary, PC shall undertake
and use its best efforts to locate physicians who, in PC's judgment, possess the
credentials and expertise necessary to enable such physician candidates to
become affiliated with PC for the purpose of providing Infertility Services. PC
shall cause each Physician-Employee to enter into an employment agreement with
PC in the form attached hereto as Exhibit 4.3(A) if the Physician-Employee is a
shareholder or in the form of Exhibit 4.3(B) if the Physician-Employee is not a
shareholder, or such other form as is mutually acceptable to PC and INMD.
Physician shall also sign, and shall require each shareholder to sign an
Acknowledgment of Personal Financial Responsibility in the form attached hereto
as Exhibit 4.3(C). PC covenants that it will not employ any physician or make
any physician a shareholder of PC unless the physician shall sign the
appropriate employment agreement before employment or ownership interest in PC,
and provided further, INMD consents to such physician utilizing the Facilities,
which consent shall not be unreasonably withheld. PC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician-Employees and Other Professional Employees,
although at the request of PC, INMD shall consult with PC respecting such
matters.
4.4 CONTINUING MEDICAL EDUCATION . PC shall require its Physician-Employees
and Other Professional Employees to participate in such continuing medical
education as PC deems to be reasonably necessary for such physicians or Other
Professional Employees to remain current in the provision of Infertility
Services.
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4.5 PROFESSIONAL AND OTHER INSURANCE ELIGIBILITY.
(a) PC shall cooperate in the obtaining and retaining of professional
liability insurance by assuring that its Physician-Employees and Other
Professional Employees are insurable and participating in an ongoing risk
management program, under INMD's direction.
(b) PC and INMD shall cooperate in the obtaining and retaining Key Man
Insurance and/or Business Interruption coverage with respect to Physician and
PC.
4.6 DIRECTION OF PRACTICE
4.6.1 PC, as a continuing condition of INMD's obligations under this
Management Agreement, shall at all time during the Term be and remain
legally organized and operated to provide Infertility Services in a manner
consistent with state and federal laws.
4.6.2 PC shall operate and maintain at the facilities a full time
practice of medicine specializing in the provision of Infertility Services
and shall maintain and enforce Physician Employment Agreements in the forms
attached hereto as Exhibits 4.3(B) and 4.3(C) ("Physician Employment
Agreement(s)") or in such other form as is mutually agreed to by the PC and
INMD in writing. PC covenants that it shall not employ any physician, or
have any physician as a shareholder, unless said physician shall sign such
Employment Agreement prior to assuming the status as employee and/or
shareholder. PC covenants that should a physician become a shareholder of
the PC, that a condition precedent to the issuance of the shares shall be
the ratification of this Management Agreement.
4.6.3 PC shall not (except for medical cause) terminate the Employment
Agreement(s) of any Physician or Shareholder, nor amend or modify the
Employment Agreements in any material manner, nor waive any material rights
of the PC thereunder without the prior written approval of INMD. PC
covenants to enforce the terms of each Physician Employment Agreement,
including but not limited to any covenants not to compete and other terms
confirming a Physician-Employee's commitment to practice medicine solely
through the PC for a specified number of years. In addition, in the
exercise of INMD's sole discretion, if the PC fails to pursue the
enforcement of its rights against a Physician-Employee, INMD shall have the
right, but not the obligation, to direct, initiate or join in a lawsuit to
enforce the provisions of any Employment Agreement and PC shall assign its
rights and remedies against such Physician-Employee upon the request of
INMD.
4.6.4 Recognizing that INMD would not have entered into this
Management Agreement but for the PC's covenant to maintain and enforce
Employment Agreements with Physicians now employed or Physicians who may
hereafter become
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employees of the PC, and in reliance upon such physicians' observance and
performance of all of the obligations under the Employment Agreements, any
damages, liquidated damages, compensation, payment or settlement received
by the PC from a Physician whose employment is terminated, shall be paid to
INMD in proportion to INMD's loss or damages.
4.6.5 PC shall retain that number of Physician Employees as are
reasonably necessary and appropriate for the provision of Infertility
Services. However, PC shall hire Physicians only with the prior approval of
INMD, which approval shall not be unreasonably withheld. Each Physician
Employee shall hold and maintain a valid and unrestricted license to
practice medicine in California, and shall be competent in the practice of
gynecology, including the subspecialty of infertility and assisted
reproductive medicine. PC shall be responsible for paying the compensation
and benefits, as applicable, for all Physician Employees, and for
withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable
law. INMD may, on behalf of the PC, establish and administer the
compensation with respect to such Physician Employees in accordance with
the written agreement between the PC and each Physician Employee. INMD
shall neither control nor direct any Physician in the performance of
Infertility Services for patients.
4.6.6 PC shall insure that Physician Employees and Professional
Employees provide patient care and clinical backup as required to insure
the proper provision of services to patients of the PC at PC's office at
the address set forth in Schedule A, and/or such other location as shall be
mutually agreed to by PC and INMD. PC shall insure that its Physician
Employees and Professional Employees devote substantially all of their
professional time, effort and ability to PC's practice, including the
provision of Infertility Services and the development of such practice.
4.6.7 PC covenants to obtain necessary licenses and operate clinical
laboratory and tissue bank services in accordance with all applicable laws
and regulations. PC agrees that the Medical Director(s) or Tissue Bank
Director(s) shall be Physician Employees or Professional Employees of the
PC and that should there be a vacancy in any such position, the PC will
cause another Physician Employee or Professional Employee to fill such
vacancy.
4.6.8 PC acknowledges that it bears all medical obligations to
patients treated at the facilities and covenants that it is responsible for
all tissue, specimens, embryos or biological material ("Biological
Materials") kept at the Facilities on behalf of the patients (or former
patients) of the PC. In the event of a termination or dissolution of the
PC, or the termination of this Management Agreement for any reason, the PC
and its members shall have the obligation to account to patients and to
arrange for the storage or disposal of such Biological Materials in
accordance with
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patient consent and the ethical guidelines of the American Society of
Reproductive Medicine ("Relocation Program"). INMD, in such event, shall,
at the request of the PC, assist in the administrative details of such a
Relocation Program for so long as the PC shall request and the Management
Fee shall be paid during that time. These obligations shall survive the
termination of this Agreement.
4.6.9 Except for circumstances due to operation of law, PC covenants
not to terminate or dissolve as a Professional Corporation except on six
months prior written notice to INMD. PC covenants that such a restriction
will be contained either in the by-laws or shareholder agreement by PC's
shareholders. In the event that such termination or dissolution occurs, for
a reason other than the death or disability of all of the shareholders, the
PC, and its individual shareholders, shall indemnify INMD for: (a) the
actual costs of maintaining the facilities and any reasonably necessary
Professional Employees during a Relocation Program (Section 4.6.8); (b)
legal costs for relicensing; (c) recruitment of other physicians to assume
the Practice; and (d) any damages, costs, liabilities, including reasonable
attorneys fees, arising out of the result of claims, suits, causes of
action or proceedings, brought by a patient of the PC having an interest in
any Biological Materials kept at the Facilities. These obligations shall
survive the termination of this Management Agreement.
4.7 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT. PC
agrees that during the term of this Agreement PC covenants for itself and will
use its best efforts to cause its Physician Employees and Professional Employees
to:
4.7.1 Execute such documents and take such steps reasonably necessary
to assist billing and collecting for patient services rendered by PC and
its Physician Employees and Professional Employees;
4.7.2 Promote PC's medical practice and participate in marketing
efforts developed by INMD; and
4.7.3 Participate in reasonable INMD network activities and programs.
4.8 PERSONNEL POLICIES PC covenants for itself and will cause its Physician
Employees and Professional Employees to comply with personnel policies and
guidelines developed for the practice of the PC by INMD, which shall include
administrative protocols and policies designed to insure that the work sites
complies with all applicable laws and regulations, federal and state.
ARTICLE 5
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LICENSE OF INMD NAME
5.1 GRANT OF LICENSE. INMD hereby grants to PC a revocable and
non-assignable license for the term of this Agreement to use the name
Reproductive Science Center(R) and any other service names, trademark names and
logos of INMD (the "Trade Names") in conjunction with the provision of
Infertility Services by PC at the Facilities. Notwithstanding the License
granted to PC hereunder, INMD retains the absolute right to use and license the
Trade Names to others, except that INMD agrees that:
5.1.1 During the term of this Agreement, it will not enter into any
management agreement with any other physician or medical practice providing
Infertility Services within 25 miles of PC's office(s) ( the "Radius") without
PC's consent.
5.1.2 During the first eighteen months following the signing of this
Agreement, it shall not enter into a management agreement with any other
physician or medical practice providing Infertility Services which physician or
medical practice is located outside the Radius in San Diego county or, Imperial,
Riverside or Orange Counties, California (the "Territory"), without first
offering the opportunity for PC to establish an office in such counties to be
managed by INMD on essentially the same terms as in the proposed management
arrangement. PC shall within 20 days of receipt of written notice, including all
terms and copies of contracts, from INMD of INMD's intent to manage a practice
in the Territory indicate to INMD in writing, its willingness to establish, at
its costs and expense, an office in the Territory to be managed by PC. Failure
to provide the written notice within the 20-day period shall be a waiver of PC's
right of first refusal provided for in this Section 5.1.2.
5.2 FICTITIOUS NAME PERMIT. If necessary, PC shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious name permit which allows PC to practice at the
Facilities under the Trade Names and shall take any other actions reasonably
necessary to procure protection of or protect INMD's rights to the Trade Names.
INMD shall cooperate and assist PC in obtaining any such original, amended or
renewal fictitious name permit.
5.3 RIGHTS OF INMD. PC acknowledges INMD's exclusive right, ownership,
title and interest in and to the Trade Names and will not at any time do or
cause to be done any act or thing contesting or in any way impairing or tending
to impair any part of such right, title and interest. In connection with the use
of the Trade Names, PC shall not in any manner represent that it has any
ownership interest in the Trade Names, and PC's use shall not create in PC's
favor any right, title, or interest in or to the Trade Names other than the
right of use granted hereunder, and all such uses by PC shall inure to the
benefit of INMD. PC shall notify INMD immediately upon becoming aware of any
claim, suit or other action brought against it for use of the Trade Names or the
unauthorized use of the Trade Names by a third party. PC shall not take any
other action to protect the Trade Names without the prior written consent of
INMD. INMD, if it so desires, may commence or prosecute any claim or suit in its
own name or in the name of PC or join PC as a party thereto. PC
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shall not have any rights against INMD for damages or other remedy by reason of
any determination of INMD not to act or by reason of any settlement to which
INMD may agree with respect to any alleged infringements, imitations or
unauthorized use by others of the Trade Names, nor shall any such determination
of INMD or such settlement by INMD affect the validity or enforceability of this
Agreement.
5.4 RIGHTS UPON TERMINATION.
5.4.1 Upon termination of this Agreement, PC shall: (i) within 60 days
of the termination, cease using the Trade Names in all respects and refrain
from making any reference on its letterhead or other publicly-disseminated
information or material to its former relationship with INMD; and (ii) take
any and all actions required to make the Trade Names available for use by
any other person or entity designated by INMD.
5.4.2 PC's failure (except as otherwise provided herein) to cease
using the Trade Names at the termination or expiration of this Agreement
will result in immediate and irreparable damage to INMD and to the rights
of any licensee of INMD. There is no adequate remedy at law for such
failure. In the event of such failure, INMD shall be entitled to equitable
relief by way of injunctive relief and such other relief as any court with
jurisdiction may deem just and proper. Additionally, pending such a hearing
and the decision on the application for such permanent injunction, INMD
shall be entitled to a temporary restraining order, without prejudice to
any other remedy available to INMD. All such remedies hereunder shall be at
the expense of PC and shall not be a Cost of Services.
ARTICLE 6
FINANCIAL ARRANGEMENTS
6.1 SERVICE FEES. The compensation set forth in this Article 6 is being
paid to INMD in consideration of the substantial commitment made and services to
be rendered by INMD hereunder and is fair and reasonable. INMD shall be paid
monthly the following amounts (collectively "Service Fees") prior to any PC
distributions (defined herein as PDE):
6.1.1 an amount reflecting all Cost of Services (whether incurred by
INMD or PC) paid or recorded by INMD pursuant to the terms of this
Agreement;
6.1.2. during each year of this Agreement, a Base Management Fee in an
amount equal to six percent (6%) of the Revenues. Said Base Management Fee
includes the right to use the name purchased by INMD pursuant to an Asset
Purchase Agreement of even date;
6.1.3 an additional management fee ("Additional Management Fee") in an
amount equal to fifteen (15%) of the Revenues, but not to exceed 25% of
PDE. INMD agrees to
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forego the Additional Management Fee for any month during the first nine
months of this Agreement in which PC fails to achieve positive PDE.
6.2 ACCOUNTS RECEIVABLE.
6.2.1 On or before the 15th business day of each month, INMD shall
reconcile the Receivables of PC arising during the previous calendar month.
Subject to the terms and conditions of this Agreement, PC hereby sells and
assigns to INMD as absolute owner, and INMD hereby purchases from PC all
Receivables hereafter owned by or arising in favor of PC on or before the 15th
business day of each month. All Receivables are sold on a full recourse basis.
INMD shall transfer or pay such amount of funds to PC equal to the Receivable
less Service Fees. INMD shall, in addition, transfer such portion of the
Services Fees necessary to pay such portion of the Cost of Services which are
costs and expenses of PC, as described in Section 2.1 above. PC shall cooperate
with INMD and execute all necessary documents in connection with the purchase
and assignment of such Receivables to INMD or at INMD's option, to its lenders.
All collections in respect of such Receivables shall be deposited in a bank
account at a bank designated by INMD. To the extent PC comes into possession of
any payments in respect of such Receivables, PC shall direct such payments to
INMD for deposit in bank accounts designated by INMD.
6.2.2 Any Medicare or Medicaid Receivables due to PC shall be excluded
from the operation of Section 6.2.1 hereof. Any such Receivables shall be
subject to agreement of PC and INMD with respect to the collection thereof.
6.3 ADVANCES. In addition to the purchase of the Receivables set forth in
6.2 above, INMD agrees to advance funds to PC, to provide new services, utilize
new technologies, meet Cost of Services, provide working capital or fund mergers
with other physicians or physician groups into PC ("Advance"). Such Advances
shall be made only with the consent of PC.
6.3.1 Any amounts advanced hereunder shall be a debt owed to INMD by
PC and shall have payment priority over PDE distribution to Shareholders.
Any Advance shall be repaid, and accordingly deducted, from Physicians' PDE
either as a lump sum payment, within 60 days after the advance or
installments as agreed to by INMD.
6.3.2 Interest expense will be charged for funds advanced and will be
computed at the Prime Rate used by INMD's primary bank in effect at the
time of the Advance. Advances shall be evidenced by a security agreement in
the form of Exhibit 6.3.2, giving INMD a collateral interest in all
Receivables of PC and PDE to Shareholders.
6.3.3 INMD shall also be entitled, and PC specifically authorizes
INMD, to offset any Right to Manage Fee when payable to PC against any
unpaid Advances.
ARTICLE 7
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EXCLUSIVE MANAGEMENT RIGHT AND TERM
7.1 INMD Agrees to pay PC the sum of $800,000 ("Right to Manage Fee") for
the exclusive right to manage PC during the term of this Agreement (the
"Exclusive Management Right"), as follows:
7.1.1 The equivalent of Two-Hundred Thousand Dollars ($200,000) of
unregistered INMD Common Stock (the "Shares") upon the signing of this
Agreement;
7.1.2 $12,500 in cash within 30 days after the Lab provided for in
Section 3.2(b) is operational; provided INMD shall be entitled to offset
the payment against any Advances outstanding pursuant to Section 6.3.
7.1.3 $187,500 in cash the earlier of (i) 30 days after a 3-month
period, after the Lab provided for in Section 3.2(b) is operational, for
which PC's annualized Revenues are $1.5 million or (ii) 12 months from the
date of this Agreement; provided INMD shall be entitled to offset the
payment against any Advances outstanding pursuant to Section 6.3.
7.1.4 $300,000 in cash or a combination of cash and Stock, at PC's
option, within 30 days of a second Physician-Shareholder whose equity
interest is not less than 20% joining the PC and completing three (3)
months of practice at the PC; provided the Physician-Shareholder becomes a
Shareholder of PC within eighteen months from the date of this Agreement.
7.1.5 $100,000 in cash or a combination of cash and Stock, at PC's
option, within 30 days of a third Physician-Shareholder whose equity
interest is not less than 20% joining PC and completing three (3) months of
practice at the PC; provided the Physician-Shareholder becomes a
Shareholder of PC within three (3) years from the date of this Agreement.
7.1.6 Not more than 50% of the payments provided for in Sections 7.1.2
and 7.1.3, with respect to PC's option to receive part INMD Common Stock
and part cash, will be in cash. The value of any INMD Common Stock issued,
as part consideration, for the payments provided for in Sections 7.1.2 and
7.1.3 will be based on the closing price of INMD's Common Stock on the 3rd
business day prior to the issuance of the stock to PC.
7.1.7 The Stock will be unregistered and issued in relation to the
provisions of Rule 144 under the Securities Act of 1933. For a period of
two (2) years from issuance of the INMD Common Stock, PC and its assignees
shall give Gerardo Canet, President and CEO of INMD, or his designee, a
voting proxy as to the INMD Common Stock with respect to (i) election of
Directors or any amendments to INMD's Certificate of Incorporation
affecting Directors and (ii) any change in stock options for management and
Directors. If at any time within two years after the date of this
Agreement, INMD shall determine to file a registration
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statement under the Securities Act of 1933 (the "Act") on Form S-l or its
equivalent covering an underwritten public offering of INMD's common stock
by INMD (other than an exchange offer by INMD to stockholders of another
corporation or an offer to INMD's employees) or by any of its stockholders,
INMD shall so notify PC at least 30 days prior to the filing. Upon written
request made by PC within 15 days after the notice is given, INMD shall
include in the registration statement such number of the shares of the
Stock acquired by PC pursuant to this Agreement as PC shall designate in
its request, except that INMD shall not be obligated to include any of the
Stock in the registration statement if:
(i) in the case of a proposed registration statement covering
shares to be offered by INMD, INMD or any proposed underwriter of the
shares covered by the registration statement advises PC that it reasonably
believes that inclusion of the Stock would interfere with the offering of
the other shares being registered;
(ii) PC shall have failed to agree in writing within 10 days
after INMD's request to do so: (A) not to sell any of the Stock for such a
period of time as INMD may designate (not to exceed 120 days after the
effective date of the registration statement), or (B) to distribute the
shares for which registration was requested (or such lesser number of
shares, in proportion to the total number of shares to be offered pursuant
to the registration statement as the underwriter may specify) pursuant to a
firm (as distinguished from a best efforts) underwriting through an
underwriter designated by INMD;
(iii) INMD withdraws the registration statement with respect to
all the shares for which registration was contemplated before the
registration statement becomes effective; or
(iv) PC shall have failed to furnish to INMD such information and
other material as INMD or its counsel may have reasonably requested with
respect to the public offering of its shares or shall have failed to take
any other action or execute any documents which INMD or its counsel
considers necessary or desirable in connection with the registra tion
statement.
7.1.8 INMD currently has an S-1 Registration Statement for a public
offering pending under the Act. PC specifically waives any rights to have
the Shares included in such Registration Statement under Section 7.1.7
7.2 The term of this Agreement shall begin on June 6, 1997 (the "Closing
Date"), and shall expire twenty (20) years after such date unless earlier
terminated pursuant to Article 8, below. This Agreement may be renewed by either
party, if within the period of 180 days prior to the expiration date one party
gives notice to the other of its intention to continue this Agreement under the
same terms and conditions as set forth herein or under such different terms and
conditions as particularly set forth in the written notice and further providing
that the other party has 30 days from the date of notice to accept, reject or
modify the offer. If within 30 days, the other party does not
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respond or by written notice accepts, this Agreement shall continue for an
additional 10 years under the terms and conditions as provided in the notice.
ARTICLE 8
TERMINATION OF THE AGREEMENT
8.1 TERMINATION This Agreement may be terminated by either party in the
event of the following:
8.1.1 INSOLVENCY. If a receiver, liquidator or trustee of any party
shall be appointed by court order, or a petition to reorganize shall be
filed against any party under any bankruptcy, reorganization or insolvency
law, and shall not be dismissed within 90 days, or any party shall file a
voluntary petition in bankruptcy or make assignment for the benefit of
creditors, then either of the other parties may terminate this Agreement
upon 10 days prior written notice to the other parties.
8.1.2 MATERIAL BREACH. If either party shall materially breach its
obligations hereunder, then either of the other parties may terminate this
Agreement by providing 30 days prior written notice to the breaching party
detailing the nature of the breach, provided that the breaching party shall
not have cured the breach within such 30 day period, or, with respect to
breaches that are not curable within such 30 day period, shall not have
commenced to cure such breach within such 30 day period and thereafter
shall not have cured the breach with the exercise of due diligence.
8.1.3 ILLEGALITY.
(a) Any party may terminate this Agreement immediately upon receipt of
notification by any local, state or federal agency or court of competent
jurisdiction that the conduct contemplated by this Agreement is forbidden
by law; except that this Agreement shall not terminate during such period
of time as to any party which contests such notification in good faith and
the conduct contemplated by this Agreement is allowed to continue during
such contest. If any governing regulatory agency asserts that the services
provided by INMD under this Agreement are unlawful or that the practice of
medicine by PC as contemplated by this Agreement requires a certificate of
need, and any such assertion is not contested (or if contested, the
agency's assertion is found to be correct by a court of competent
jurisdiction and no appeal is taken, or if any appeals are taken and the
same are unsuccessful), this Agreement shall thereupon terminate with the
same force as if such termination date was the date originally specified in
this Agreement as the date of final expiration of the terms of this
Agreement.
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(b) Any illegality may also be cured and the termination of this
Agreement avoided by implementing Section 11.9 entitled "Separability."
8.2 TERMINATION BY INMD FOR PROFESSIONAL DISCIPLINARY ACTIONS. PC shall be
obligated to suspend a physician whose authorization to practice medicine is
suspended, revoked or not renewed. INMD may terminate this Agreement upon 10
days prior written notice to PC if a Physician's authorization to practice
medicine is suspended, revoked or not renewed and PC has failed to suspend such
physician; provided, however, such action may not be taken until PC has been
given 30 days to resolve such physician's authorization to practice medicine. PC
shall notify INMD within five (5) days of a notice that a physician's
authorization to practice medicine is suspended, revoked or not renewed or that
formal disciplinary action has been taken against a physician which could
reasonably lead to s suspension, revocation or non-renewal of a physician's
license.
ARTICLE 9
PURCHASE OF ASSETS - OBLIGATIONS AND OPTIONS
9.1 TERMINATION BY INMD If INMD terminates this Agreement due to the
insolvency of PC (Section 8.1.1) for reasons other than circumstances directly
attributable to INMD, for a material breach by PC (Section 8.1.2), or for
disciplinary action against a Physician Employee (Section 8.2), PC agrees,
within 90 days of the date of termination, at INMD's option;
9.1.1 To purchase from INMD the PC Assets and leasehold improvements
at their net book value determined in accordance with GAAP, consistently
applied, as of the date of termination.
9.1.2 To pay INMD 85% of the preceding 12 months' Revenues over $1.5
million.
9.1.3 In addition, during the first five years of this Agreement PC
shall repay INMD such portion of the payment received by PC from INMD for
the Exclusive Management Right, determined by multiplying the number of
years the Management Agreement has been in effect rounded off to the
nearest quarter of the year by $180,000 ("Earned Amount"). The Earned
Amount is then deducted from the amount PC actually received from INMD for
the Exclusive Management Right; the excess, if any, equals the amount to be
repaid by PC to INMD. Further, PC shall pay all Base Management Fees due as
of the termination together with any other Service Fees, including unpaid
Advances.
9.1.4 If a purchase is completed under this Section 9.1, PC shall
assume all leases for offices and equipment used directly for the
management and operation of PC's business and may hire such employees as it
determines are necessary to operate the medical practice and business.
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9.2 TERMINATION BY PC In the event this Agreement is terminated by PC as a
result of the insolvency of INMD (8.1.1) or material breach by INMD (8.1.2),
INMD agrees, within 90 days of the date of termination, at PC option, to sell to
PC the PC Assets and leasehold improvements as set forth in Sections 9.1.1.
9.2.1 If a termination occurs under this Section 9.2, PC shall assume
all leases for offices and equipment used directly for the management and
operation of PC's business and may hire such employees as it determines are
necessary to operate the medical practice and business.
9.2.2 In the event PC exercises the option set forth in this Section
9.2, closing shall occur within 90 days of the date the option is
exercised. In the event PC does not exercise the option within 90 days of
termination, PC shall have relinquished its right and interest to the PC
Assets and INMD shall be free to use or dispose of the PC Assets as it
determines with neither party having any further obligations to the other.
9.3 TRANSFER OF OWNERSHIP
Upon receipt of payment of the purchase price and other payments due, INMD
shall transfer ownership and possession of the PC Assets, and assign all right,
title and interest in and to and obligations under the Lease(s) to PC and return
to PC all security deposits. PC shall have the option of receiving full credit
on the purchase price for all liens, encumbrances or security interest, or of
having INMD transfer ownership of the PC Assets free and clear of all liens,
encumbrances or security interests thereon.
9.4 BIOLOGICAL MATERIALS. Upon termination of this Agreement, within 30
days of the date of termination, PC will notify all patients with Biological
Materials in storage at the Facility, that INMD will no longer provide
management services and that the care and custody of such Biological Materials
rests solely with PC. The form of such notification shall be with the consent of
INMD (such consent not to be unreasonably withheld).
ARTICLE 10
INSURANCE
10.1 INMD shall carry professional liability insurance, covering itself and
its employees providing services under this Agreement in the minimum amount of
$1 million per incident, $3 million in the aggregate, at its own expense. INMD
shall also carry a policy of public liability and property damage insurance with
respect to the Facilities under which the insurer agrees to indemnify INMD
against all cost, expense and/or liability arising out of or based upon any and
all claims, accidents, injuries and damages customarily included within the
coverage of such policies of insurance available for INMD. The minimum limits of
liability of such insurance shall be $1 million combined single limit covering
bodily injury and property damage. If possible under the terms of
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the insurance coverage, PC shall be named as additional insureds on the INMD's
public liability and property damage insurance policies; provided however,
conditions for being made an additional insured should be (i) PC utilizing
patient informed consent forms supplied by INMD and (ii) PC complying with
requirements of INMD's insurance company. A certificate of insurance evidencing
such policies shall be presented to PC within thirty (30) days after the
execution of this Agreement. Failure to provide such certificate(s) with such
period shall constitute a material breach by INMD hereunder.
10.2 INMD shall use its best efforts to cause PC, Physicians and
physician-employees to be made named insureds under INMD's professional
liability coverage. If PC is not made an insured, PC shall carry professional
liability insurance covering PC and PC's employees in the amount of $2 million
per incident, $5 million in the aggregate. INMD shall be made an additional
insured under such coverage and Certificates of Insurance evidencing such
policies and additional insured status shall be presented to INMD within ninety
(90) days after the execution of this Agreement.
10.3 PC and INMD shall provide written notice to the other at least ten
(10) days in advance of the effective date of any reduction, cancellation or
termination of the insurance required to be carried by each hereunder.
ARTICLE 11
NON-SOLICITATION AND NON-COMPETITION
11.1 The PC recognizes and acknowledges that INMD will incur substantial
costs in providing the equipment, support services, personnel, management,
administration and other services that are the subject of this Agreement. The
parties also recognize that the services to be provided by INMD will be feasible
only if the PC operates an active practice to which the Employee-Physicians
devote their full professional time and attention. PC agrees that the
non-competition and non-solicitation covenants described hereunder are necessary
for the protection of INMD, and that INMD would not enter this Agreement without
the following covenants:
(a) During the term of this Agreement, PC shall not establish, operate or
provide Infertility Services at a medical office, clinic or other health care
facility other than as provided for in this Agreement.
(b) During the Term of this Agreement, and for a period of two years from
the date it is terminated, PC shall not directly or indirectly own, manage,
operate, control, contract with, be associated with or lend its or its
shareholders' names to, or maintain any interest whatsoever in any enterprise
(i) which provides, distributes, promotes or advertises any type of management
or administrative services in competition with INMD; or (ii) which offers any
type of service or product to third parties substantially similar to those
offered by INMD.
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(c) During the term of this Agreement, and for two years from the date of
termination, PC shall not hire, attempt to hire, contract or solicit for hiring
or consultancy, any employee of INMD, or form a corporation, partnership or
joint venture or other entity with any such employee, who is currently employed
by INMD or had been employed by INMD within one (1) year prior to the
termination of this Agreement; except that this restriction shall not apply with
respect to any employee of PC who was an employee of PC immediately prior to the
execution of this Agreement and becomes an employee of INMD subsequent to the
execution of this Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. INMD and PC are independent contracting
parties. In this regard, the parties agree that:
12.1.1 The relationship between INMD and PC is that of an independent
supplier of non-medical services and a medical practice, respectively, and,
unless otherwise provided herein, nothing in this Agreement shall be
construed to create a principal-agent, employer-employee, or master-servant
relationship between INMD and PC;
12.1.2 Notwithstanding the authority granted to INMD herein, INMD and
PC agree that PC shall retain the full authority to direct all of the
medical, professional, and ethical aspects of its medical practices;
12.1.3 Any powers of PC not specifically vested in INMD by the terms
of this Agreement shall remain with PC;
12.1.4 PC shall, at all times, be the sole professional PC of the
Physician and, except with INMD's specific consent, the sole employer of
the Physician Employees, the Other Professional Employees required by law
to be employees of PC and all other professional personnel engaged by PC in
connection with the operation of its medical practice at the Facilities,
and shall be solely responsible for the payment of all applicable federal,
state or local withholding or similar taxes and provision of workers'
compensation and disability insurance for such professional personnel that
are employees of PC;
12.1.5 No party shall have the right to participate in any benefits,
employment programs or plans sponsored by the other parties on behalf of
the other parties' employees, including, but not limited to, workers'
compensation, unemployment insurance, tax withholding, health insurance,
life insurance, pension plans or any profit sharing arrangement;
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12.1.6 In no event shall any party be liable for the debts or
obligations of any other party except as otherwise specifically provided in
this Agreement; and
12.1.7 Matters involving the internal agreements and finances of PC,
including but not limited to the distribution of professional fee income
among Physician Employees and Other Professional Employees who are
providing professional services to patients of PC, and other employees of
PC, disposition of PC property and PC interests (except all Physicians
shall be required to accept and be bound by the Agreement), accounting, tax
preparation, tax planning, and pension and investment planning (and
expenses relating solely to these internal business matters), hiring and
firing of physicians, decisions and contents of reports to regulatory
authorities governing PC and licensing, shall remain the sole
responsibility of PC and the individual Physician Stockholder(s).
12.2 FORCE MAJEURE. No party shall be liable to the other parties for
failure to perform any of the services required under this Agreement in the
event of a strike, lockout, calamity, act of God, unavailability of supplies, or
other event over which such party has no control, for so long as such event
continues and for a reasonable period of time thereafter, and in no event shall
such party be liable for consequential, indirect, incidental or like damages
caused thereby. This provision shall not apply to INMD's obligation to provide
for a backup generator for the Lab provided as part of the Facilities.
12.3 USE OF NAME OF PC. The name or any statement that may implicitly refer
directly or indirectly to PC or impute any affiliation directly or indirectly
between INMD and PC shall not be used in any manner or on behalf of INMD in any
advertising or promotional materials or otherwise without PC's prior written
consent. However, INMD may use PC's name or address in advertising to the public
solely for the purpose of providing directions to the office of PC.
12.4 EQUITABLE RELIEF. Without limiting other possible remedies available
to a non-breaching party for the breach of the covenants contained herein,
injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
12.5 PRIOR AGREEMENTS; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of all
parties, and such amendment, alteration, change, termination or waiver shall in
no way affect the other terms and conditions of this Agreement, which in all
other respects shall remain in full force.
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12.6 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
all of the parties, and any attempted assignment without such consent shall be
void and of no force and effect, except that INMD may assign this Agreement to
any subsidiary or affiliate of INMD without the consent of the other parties.
The provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns. In particular, the obligation to pay Service Fees shall be
owed by any of the Physicians or any other Shareholder who establishes, during
the term of this Agreement, whether alone or with one or more Physicians, or
joins a medical practice in the PC Service Area which offers, whether through
that Shareholder or with his assistance, Infertility Services.
12.7 WAIVER OF BREACH. The failure to insist upon strict compliance with
any of the terms, covenants or conditions herein shall not be deemed a waiver of
such terms, covenants or conditions, nor shall any waiver or relinquishment of
any right at any one or more times be deemed a waiver or relinquishment of such
right at any other time or times.
12.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California to the fullest extent
permitted by law, without regard to the application of conflict of law rules.
Any and all claims, disputes, or controversies arising under, out of, or in
connection with this Agreement or any breach thereof, shall be determined by
binding arbitration in the State of California, County of San Diego (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial arbitration of the selected
entity shall govern. The Arbitration shall be conducted and decided by three (3)
arbitrators, unless the parties mutually agree, in writing at the time of the
Arbitration, to fewer arbitrators. In reaching a decision, the arbitrators shall
no authority to change or modify any provision of this Agreement, including
without limitation, any liquidated damages provision. Each party shall bear its
own expenses and one-half the expenses and costs of the arbitrators. Any
application to compel arbitration, confirm or vacate an arbitral award or
otherwise enforce this Paragraph shall be brought either in the Courts of the
State of California or the United States District Court for the Southern
District of California, to whose jurisdiction for such purposes PC and INMD
hereby irrevocably consent and submit.
12.9 SEPARABILITY. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement taken as a whole.
12.10 HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.
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12.11 NOTICES. Any notice hereunder shall have been deemed to have been
given only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
12.11.1 If for INMD at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Gerardo Canet, President
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
12.11.2 If for PC at:
Reproductive Sciences Medical Center, Inc.
4150 Regents Park Row, Suite 280
La Jolla, CA 92037
Attention: Samuel H. Wood, M.D., Ph.D.
With a copy to:
Frank Gamma, Esq.
Charles Bond & Associates
821 Bancroft Way
Berkeley, CA 94710-2226
Any party hereto, by like notice to the other parties, may designate such
other address or addresses to which notice must be sent.
12.12 ENTIRE AGREEMENT. This Agreement and all attachments hereto and the
Asset Purchase Agreement represent the entire understanding of the parties
hereto with respect to the subject matter hereof and thereof, and cancel and
supersede all prior agreements and understandings among the parties hereto,
whether oral or written, with respect to such subject matter.
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12.13 NO MEDICAL PRACTICE BY INMD. INMD will not engage in any activity
that constitutes the practice of medicine, and nothing contained in this
Agreement is intended to authorize INMD to engage in the practice of medicine or
any other licensed profession.
12.14 CONFIDENTIAL INFORMATION.
(a) During the initial term and any renewal term(s) of this Agreement, the
parties may have access to or become acquainted with each others' trade secrets
and other confidential or proprietary knowledge or information concerning the
conduct and details of each party's business ("Confidential Information"). At
all times during and after the termination of this Agreement, no party shall
directly or indirectly, communicate, disclose, divulge, publish or otherwise
express to any individual or governmental or non-governmental entity or
authority (individually and collectively referred to as "Person") or use for its
own benefit or the benefit of any Person any Confidential Information, no matter
how or when acquired, of another party. Each party shall cause each of its
employees to be advised of the Confidential nature of such Confidential
Information and to agree to abide by the confidentiality terms of this
Agreement. No party shall photocopy or otherwise duplicate any Confidential
Information of another party without the prior express written consent of the
such other party except as is required to perform services under this Agreement.
All such Confidential Information shall remain the exclusive property of the
proprietor and shall be returned to the proprietor immediately upon any
termination of this Agreement.
(b) Confidential Information shall not include information which (i) is or
becomes known through no fault of a party hereto; (ii) is learned by a party
from a third-party legally entitled to disclose such information; or (iii) was
already known to a party at the time of disclosure by the disclosing party.
(c) In order to minimize any misunderstanding regarding what information is
considered to be Confidential Information, INMD or PC will designate at each
others request the specific information which INMD or PC considers to be
Confidential Information.
12.15 INDEMNIFICATION.
12.15.1 INMD agrees to indemnify and hold harmless PC, its directors,
officers, employees and servants from any suits, claims, actions, losses,
liabilities or expenses (including reasonable attorney's fees) arising out
of or in connection with any act or failure to act by INMD related to the
performance of its duties and responsibilities under this Agreement. The
obligations contained in this Section 12.15.1 shall survive termination of
this Agreement.
12.15.2 PC agrees to indemnify and hold harmless INMD, its
shareholders, directors, officers, employees and servants from any suits,
claims, actions, losses, liabilities or expenses (including reasonable
attorney's fees) arising out of or in connection with any act or failure to
act by PC related to the performance of its duties and responsibilities
under
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this Agreement. The obligations contained in this Section 12.15.2 shall
survive termination of this Agreement.
12.16 OWNERSHIP OF INTELLECTUAL PROPERTY. Any intellectual property
developed by INMD shall be owned by INMD. Any intellectual property developed by
PC shall be owned by PC. Jointly developed intellectual property shall be
covered by written agreement between the parties. Absent such agreement, the
party who principally funded the development shall be the owner, notwithstanding
the participation of the other party in the development.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By: /s/ Dwight P. Ryan
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DWIGHT P. RYAN, VICE PRESIDENT & CHIEF FINANCIAL OFFICER
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
BY: /s/ Samuel H. Wood, M.D.
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SAMUEL H. WOOD M.D., PH.D., PRESIDENT
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EXHIBIT 3.2
DESCRIPTION OF OFFICE AND FACILITIES
TO BE PROVIDED BY INMD TO PC
4150 Regents Park Row, Suite 280, La Jolla, California 92037
15725 Pomerado Road, Suite 201, Poway, California 92064
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EXHIBIT 4.3(A)
SHAREHOLDER-PHYSICIAN EMPLOYMENT AGREEMENT
(See Attached)
<PAGE>
EXHIBIT 4.3(B)
EMPLOYEE-PHYSICIAN EMPLOYMENT AGREEMENT
(See Attached)
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EXHIBIT 4.3(C)
PERSONAL RESPONSIBILITY AGREEMENT
(See attached)
<PAGE>
EXHIBIT 6.3.2
SECURITY AGREEMENT
[See attached]
ASSET PURCHASE AGREEMENT
AGREEMENT made this 6th day of June, 1997, by and between IntegraMed
America, Inc., a Delaware corporation, having its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("Buyer") and Samuel Wood,
M.D., an individual ,with his principal place of business at 4150 Regents Park
Row, Suite 280, La Jolla, CA 92037 ( "Seller").
RECITALS
Buyer is engaged in the business of owning certain assets and providing
management and administrative services to medical practices specializing in the
provision of gynecological services, including treatment of human infertility,
encompassing the provision of in vitro fertilization and other assisted
reproductive services ("Infertility Services");
Seller is engaged in the practice of providing Infertility Services through
a medical practice doing business as Reproductive Sciences Medical Center (the
"Practice");
Seller wishes to sell and Buyer wishes to purchase certain assets utilized
in connection with the Practice, and Buyer desires to acquire the exclusive
right to provide management and related administrative services to Seller in
connection with the continued operation of the Practice, pursuant to the terms
of a Management Agreement dated June 6, 1997 (the "Management Agreement').
In consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.01 Assets of Practice
(a) Subject to the terms and conditions set forth in this Agreement
and based upon the representations, warranties and covenants made herein, at the
Closing (as herein defined), Seller shall sell, assign, convey and transfer to
Buyer and Buyer shall acquire from Seller the assets and property of the
Practice, together with all liens and encumbrances, as set forth in Exhibit
1.01(a) ("Practice Assets").
(b) Practice Assets to be acquired by Buyer shall include the name
REPRODUCTIVE SCIENCES MEDICAL CENTER (the "Name"), and Seller agrees to change
its name within 30 days of the Closing Date, if requested to do so by Buyer.
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1.02 Excluded Assets
The term Practice Assets does not include, and Seller reserves and
does not sell or transfer to Buyer any right, title or interest in, the assets
listed in Exhibit 1.02 (collectively, "Excluded Assets").
ARTICLE II
PURCHASE PRICE
2.01 Purchase Price and Manner of Payment.
Upon and subject to the terms and conditions set forth herein and in
consideration for the sale of the Practice Assets, Buyer shall pay Seller the
following:
(i) an amount to be determined by Buyer and Seller within 30 days from
the date hereof for the Practice Assets ("Practice Asset Price");
(ii) $100,000 for the Name ("Name Price") payable $50,000 on the
Closing Date and $50,000 when the milestone established by Section 7.1.2 of the
Management Agreement is met, subject to the offset provided for in Section
7.1.2. (The Practice Assets Price and Name Price are collectively referred to
herein as "Purchase Price".)
2.02 Allocation of Purchase Price
The Purchase Price shall be allocated among the assets of seller as
set forth on Exhibit 2.02 hereto, and the parties agree to respect such
allocation for tax purposes and to cause all tax returns, including IRS Form
8594, to be filed consistent therewith.
2.03 Closing Statement.
Seller shall deliver to Buyer unaudited statements dated as of June 6,
1997 ( the "Closing Statement"), which shall set forth the dollar value as of
the date of the Closing Statement of the Practice Assets provided for in
paragraph 2 of Exhibit 1.01(a).
2.04 Assumption of Liabilities
Subject to the conditions herein set forth, from and after the Closing
Date, Buyer shall assume and shall pay, perform and discharge only those
liabilities set forth in Exhibit 2.04 (such liabilities are collectively
referred to as "Assumed Liabilities"). Buyer shall not assume, acquire or
otherwise become responsible or liable for any liabilities other than those
specifically set forth herein and enumerated in Exhibit 2.04.
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ARTICLE III
CLOSING
The closing ( the "Closing") of the transactions contemplated by this
Agreement shall be held at 11:00 a.m. on June 6, 1997 (the "Closing Date") at
the offices Samuel H. Wood, M.D., 4150 Regents Park Row, Suite 280, La Jolla,
California 92037 or such other date or at such other time or location as to
which Seller and Buyer may agree to in writing. The effective time of the
Closing shall be 12:00 midnight on the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, for the purpose of inducing Buyer to enter into and consummate this
Agreement, hereby represents and warrants to Buyer that:
4.01 Organization and Power
(a) Seller is a physician is duly licensed to practice medicine in the
State of California.
(b) Seller has full right, power and authority to enter into this
Agreement and to consummate the transactions herein contemplated.
(c) This Agreement constitutes the valid and binding obligation of
Seller fully enforceable against Seller in accordance with its terms.
4.02 Authority; No Conflicting Instruments
(a) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated will not, and with notice or the lapse
of time or both would not, except for contracts, liens or encumbrances disclosed
in Exhibits 1.01 (a) and 2.04 (i) result in the breach of any of the terms or
conditions of, or constitute any default under, the Articles of Incorporation or
By-Laws of Seller or under any mortgage, bond, indenture, agreement, lease or
other instrument or obligation to which Seller is a party or by which it or any
of its properties or assets may be bound, except for any such breach which does
not materially adversely affect Seller or its business; (ii) violate any law or
regulation relating to Seller; and (iii) violate any judgment, award, order,
writ, injunction or decree relating to Seller.
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(b) No consent, approval or authorization of, or declaration or filing
with any federal, state, local or foreign governmental or regulatory authority,
or any other third party, is required in connection with the execution and
delivery of this Agreement by Seller or the performance by Seller of the
transactions contemplated by this Agreement, except for (i) consents of lessors
under Seller's lease(s), real property or equipment; and (ii) any state
licensing board approvals relating to Seller's business and (iii) any consents
of third parties to contracts that are not material to Seller's business.
4.03 Practice Assets
Seller has good and marketable title to the Practice Assets which are
owned exclusively by Seller, free and clear of all liens, mortgages and
encumbrances of any kind or nature, except as set forth on Exhibit 1.01(a).
4.04 Financial Statements Attached hereto as Exhibit 4.04 are the unaudited
financial statements of Seller consisting of Statements of Assets, Liabilities
and Equities-Income Tax Basis, and Statement of Profit and Loss-Tax Basis for
the fiscal years ended December 31, 1995 and 1996 , together with a Statement of
Assets, Liabilities and Equities-Income Tax Basis, and Statement of Profit and
Loss-Tax Basis for the 3-month period ended March 31, 1997 (collectively, the
"Financial Statements").
(a) Seller does not have any liabilities, debts or obligations, whether
accrued, absolute or contingent, and whether due or to become due, which are not
reflected or reserved against in the Financial Statements or are not listed on
Exhibit 2.04 if such liabilities are to be assumed by Buyer. As of the date
hereof, Seller has no unfunded liability under any Employee Benefit Plan (as
hereinafter defined) and there are no circumstances, conditions events or
arrangements which may hereafter give rise to any such liabilities or
obligations which may be asserted against Buyer under any such plan.
(b) Seller has filed with appropriate federal, state and local authorities
(or has obtained appropriate extensions of the time to file) all tax returns
required by law, regulation or otherwise to be filed by Seller for all taxable
periods ending on or prior to the date hereof for which tax returns have become
due. Seller has paid or made adequate provisions for the payment of all taxes,
penalties and interest which have or may become due for or during all taxable
periods of Seller ending on or prior to the date hereof.
4.05 Financial Position
Since March 31, 1997:
(a) There has not been (i) any change in the financial condition,
assets, properties, liabilities, business or results of operations of Seller
other than changes in the ordinary and usual course of business, none of which,
individually or in the aggregate, has been adverse to the business
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or operations of Seller; (ii) any strike, labor trouble, employee dispute,
property dispute, lease or contract dispute, loss or destruction or property,
actual or threatened, claim or other event, adversely effecting, or which would
adversely effect, the financial position or business of Seller.
(b) Seller has not granted any wage or salary increase or bonus or any
fringe benefits, or created or amended any Employee Benefit Plan or other fringe
benefit plan (as hereinafter defined) or entered into any employment or labor
contract with any director, officer, employee or group of employees, except for
normal increases in a manner consistent with Seller's policies and practices.
4.06 Licenses
(a) Seller holds all such licenses, orders, approvals and permits
("Licenses") of every kind or nature which are material to the operation of
Seller's business and operations and such Licenses are in full force and effect
and no action., proceeding or, investigation has been instituted or threatened
with reference to or affecting the existence of said Licenses. A list of all
Licenses is set forth on Exhibit 4.06. Seller is in compliance in all respects
with the terms and conditions of such Licenses and with all requirements,
standards and procedures of the federal, state and local governmental or
regulatory bodies which issued said Licenses.
(b) To the best of Seller's knowledge, Seller is in compliance in all
material respects with all federal, state and local laws, ordinances, codes,
regulations, orders, requirements, standards and procedures which are applicable
to the Practice.
4.07 Litigation
(a) To the best of Seller's knowledge, there are no actions, suits,
claims or legal, administrative or arbitration proceedings or investigations
pending or, threatened against, involving or affecting Seller or Seller's
properties or assets, except as set forth on Exhibit 4.07(a). Seller has no
notice or knowledge of any outstanding orders, writs, injunctions or decrees of
any court, governmental agency or arbitration tribunal against, involving or
affecting Seller or Seller's properties or assets except as set forth on Exhibit
4.07(a). Buyer shall have no liability or obligation with respect to any matter
which arose out of Seller's operations prior to the Closing Date whether set
forth on Exhibit 4.07(a).
(b) Seller has received no notice of any violation of applicable law,
order, regulation or requirement related to either Seller, the Practice, or the
Assets, and is not aware of any condition or state of facts that could result in
any such notice.
4.08 Third-Party Billings
(a) All billings by Seller to third-party payors are true and correct
in all respects and are in compliance in all respects with all applicable laws
and regulations and the policies of such
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third-party payors.
(b) Neither Seller nor any of its officers, directors, employees or
agents, on behalf of or for the benefit of Seller, directly or indirectly, has
(i) offered or paid any amount to, or made any financial arrangement with, any
of Seller's past or present customers or potential customers in order to obtain
business from such customers, other than standard pricing or discount
arrangements consistent with proper business practices (ii) given, or agreed to
give, or is aware that there has been given, or that there is an agreement to
make any gift or gratuitous payment of any kind, nature or description (whether
in money, property or services) to any past or present customer, supplier,
source of financing, landlord, subtenant, licensee or anyone else at any time of
the year (iii) made, or has agreed to make, or is aware that there is any
agreement to make any political contribution or any contributions, payment or
gifts of their respective funds or property to or for the private use of any
governmental official, employee or agent where either the payment or the purpose
of such contribution, payment or gift relates to the business of Seller and is
illegal under the laws of the United States, any state thereof or any other
jurisdiction (foreign or domestic), or (iv) made, or has agreed to make, or is
aware that there have been, or that there is any agreement to make, any payments
to any person with the intention or understanding that any part of such payment
was to be used directly or indirectly for the benefit of any past or present
customer, employee, supplier or landlord of Seller, or for any purpose other
than that reflected in the documents supporting the payments.
4.09 Contracts and Agreements
(a) Exhibit 4.09(a) is a list as of the date hereof of all the
material contracts or agreements related to the business of Seller to which
Seller is a party, all of which are valid and existing, in full force and
effect, and binding upon the parties thereto in accordance with their terms.
Seller has paid in full or accrued all amounts due thereunder which are
currently due and as separately identified on Exhibit 2.04. Except as otherwise
disclosed, no approval or consent of any person or entity is needed in order
that the contracts and other agreements as listed continue in full force and
effect with respect to Buyer from and after the Closing Date.
(b) Seller and Physicians are in compliance with all terms and
provisions of all contracts material to the operation of the Practice or by
which the Practice or the Seller is bound or affected; and all such contracts
are legally valid and binding in accordance with their terms and in full force
and effect except as may be limited by bankruptcy, moratorium, reorganization,
insolvency and other similar laws of general application relating to or
affecting the rights of creditors, and by general principles of equity.
(c) All documents, Exhibits and other materials delivered or made
available, by or on behalf of Seller to Buyer in connection with this Agreement
and the transactions contemplated hereby, are true and complete. The information
furnished by or on behalf of Seller to Buyer in connection with this Agreement
and the transactions contemplated hereby does not, in light of the circumstances
under which the statements contained in the information so furnished are made,
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contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained therein not false or misleading.
There is no fact which Seller has not disclosed to Buyer which adversely
affects, or insofar as Seller can foresee, will adversely affect the Practice
Assets or the ability of Seller to perform its obligations under this Agreement
or any other agreement entered into in connection with this transaction.
4.10 Insurance Seller has maintained at all times since January 1, 1987,
with responsible and financially solvent insurance companies, adequate insurance
covering risks of such types and in such amounts as are customary for other
professional corporations of similar size engaged in Seller's business. Exhibit
4.10 contains a true and complete list of all policies of insurance relating to
comprehensive liability coverage, the amount of coverage, the period of
coverage, the type of coverage and all pending claims under such policies.
4.11 Personnel
(a) Exhibit 4.11(a) lists each current employee, both full-time and
part-time, of Seller and all current consultants of Seller and discloses their
duties, the date of hire or contract, the annual compensation, bonuses and
incentive arrangements with each.
(b) Exhibit 4.11(b) describes all of Seller's fringe benefit plans
generally available to Seller's employees ("Employee Benefit Plans"). Seller has
complied with the terms and conditions of such Employee Benefit Plans. Seller
has no obligations to establish or create any employee pension benefit plan or
defined benefit plan for the benefit of any of its employees to become effective
after the date hereof. Buyer shall have no obligations relating to the Employee
Benefit Plans or the employees covered thereunder and Buyer shall have no
obligations for employees of Seller arising out of federal or state law or case
decisions as to employment matters arising prior to Closing Date except in each
case for those obligations Buyer assumes hereunder relating to accrued salaries
and wages ( including accrued vacation and sick leave) or permanent and
temporary employees, any accrued bonuses of managerial employees and any accrued
bonus hours of temporary employees of Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, for the purpose of inducing Seller to enter into and consummate this
Agreement, hereby represents and warrants to Seller that:
5.01 Organization, Power and Authority
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full power and
authority, corporate and otherwise,
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to carry on its business as now conducted and to own or lease and to operate its
properties and assets now owned or leased and operated by it, to conduct the
business of Seller and to consummate the transactions contemplated hereby.
(b) The execution, delivery and performance of this Agreement by Buyer
has been duly authorized by all requisite corporate action, and no further
action or approval is required in order to constitute this Agreement as a valid,
binding and enforceable obligation of Buyer, and this Agreement constitutes the
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms.
(c) The execution and delivery of this Agreement and the consummation
of the transactions as herein contemplated will not violate any provisions of
any applicable law or of the Certificate of Incorporation or By-Laws of Buyer,
or any order, judgment or decree of any court or other agency of government
binding on Buyer, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any contractual obligation
of Buyer, result in or require the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of Buyer's properties or assets ,
require any approval of or any consent of any person under any contractual
obligation of Buyer or conflict with or result in any breach or default under
any of the terms, conditions or provisions of any indenture, mortgage, deed of
trust or other instrument to which Buyer is a party or by which it or its
properties may be bound or affected.
5.02 LITIGATION
(a) To the best of Buyer's knowledge, there are no actions, suits,
claims or legal, administrative or arbitration proceedings or investigations
pending or, threatened against, involving or affecting Buyer or Buyer's
properties or assets, except as set forth on Exhibit 5.02(a). Buyer has no
notice or knowledge of any outstanding orders, writs, injunctions or decrees of
any court, governmental agency or arbitration tribunal against, involving or
affecting Buyer or Buyer's properties or assets except as set forth on Exhibit
5.02(a).
(b) Buyer has received no notice of any violation of applicable law,
order, regulation or requirement related to Buyer's business and is not aware of
any condition or state of facts that could result in any such notice.
ARTICLE VI
INDEMNIFICATION
6.01 Survival of Representations and Warranties
The representations and warranties contained in this Agreement and in
any instrument or certificate delivered pursuant to, or provided for in this
Agreement ("Representations and
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Warranties"), shall survive the consummation of the transactions contemplated by
this Agreement for a period of two (2) years after the Closing Date ( three
years with respect to those in sections 4.01 and 4.02) provided, however, that
the expiration of the applicable period would not preclude either party from
indemnification by the other relating to any third-party Claim ( as defined
herein). Each party to this Agreement shall be deemed to have relied upon each
and every representation and warranty of the other party, regardless of any
investigation made at any time by the party relying on such representation and
warranty.
6.02 Indemnification
(a) After the Closing Date, Seller shall indemnify Buyer against, and
defend and hold Buyer harmless from, all demands, claims, actions or causes of
action, assessments, losses, damages, deficiencies, liabilities, costs and
expenses ( including interest, penalties and reasonable attorneys' fees and
disbursements) (excluding indirect, punitive and consequential damages)
(hereinafter collectively called "Claim") arising out of or in connection with
(i) any breach of the Representations and Warranties, covenants or agreements of
Seller contained in this Agreement or any agreement or instrument delivered by
Seller pursuant to this Agreement; and (ii) the operations of Seller (including,
but not limited to provision of services, actions of officers and directors, use
of trademarks, service marks, logos or other proprietary symbols) on or prior to
the Closing Date except as expressly assumed by Buyer pursuant hereto. Upon the
assertion of any Claim against Buyer that may give rise to a liability of a
Seller hereunder, Buyer shall notify said Seller of the existence of such Claim
(which notice shall include a description thereof) and Buyer shall give said
Seller reasonable opportunity to defend and/or settle such Claim at said
Seller's own expense and with counsel of its own selection, which counsel shall
be reasonably satisfactory to Buyer; provided, however, that in the case of any
Claim, Buyer shall have the right to participate in any administrative or
judicial proceedings with respect to such Claim, at its expense and with counsel
of its choice. If a Seller shall, after ten (10)-days notice thereof by Buyer,
fail, in Buyer's judgment to take adequate action to defend any Claim, Buyer
shall have the right to undertake the defense, compromise or settlement of such
Claim on behalf of, for the account of, and at the risk of a Seller. If the
Claim is one that cannot by its nature be solely defended by a Seller, then
Buyer shall, at its expense, make available all information and assistance as
may reasonably be requested by a Seller.
(b) Buyer hereby agrees to indemnify Seller against, and to defend and
hold Seller harmless from Claims arising out of in connection with (i) any
breach of any representation, warranty, covenant or agreement of Buyer contained
in this Agreement or any agreement or instrument delivered by Buyer pursuant to
this Agreement; and (ii) the management by Buyer of Seller, after the Closing
Date. Upon the assertion of any Claim that may give rise to a liability of Buyer
hereunder, Seller shall notify Buyer of the existence of such Claim (which
notice shall include a description thereof). Seller shall give Buyer reasonable
opportunity to defend and/or settle such Claim at its own expense and with
counsel of its own selection, which counsel shall be satisfactory to Seller;
provided, however, that in the case of any Claim, a Seller shall have the right
to participate in any administrative or judicial proceedings with respect to
such Claim, at its expense and with counsel of its choice. If Buyer shall, after
ten (10) days-notice thereof by a Seller, fail to defend any
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Claim, said Seller shall have the right to undertake the defense, compromise or
settlement of such Claim on behalf of, for the account of, and at the risk of
Buyer. If the Claim is one that can not by its nature be solely defended by
Buyer, then said Seller shall, at its sole expense, make available all
information and assistance as may be requested by Buyer.
(c) The respective rights of the parties to be indemnified by the
other shall not in any way be limited by the existence or non-existence of
insurance coverage.
ARTICLE VII
CERTAIN COVENANTS
7.01 Conduct Prior to Closing Date
During the period from the date of this Agreement through the Closing
Date, Seller agrees to conduct its business in the ordinary and normal course of
business. In connection therewith:
(a) Seller shall use its best efforts to (i) maintain all patient
lists, records, billing and collection data, goodwill associated with the
Practice, and all material files and records and intangible assets related to
the continued operation of the Practice, (ii) preserve, protect and maintain the
Practice Assets (iii) use its efforts to preserve the good standing of Seller
and to keep available the services of present employees and agents and to
preserve the goodwill of suppliers, patients and others having business
relationships with Seller and the Practice; (iv) not sell, lease, or otherwise
dispose of any of the Practice Assets, or other properties, rights or claims,
except in the ordinary course of business, without Buyer's written consent.
(c) Seller shall not , without Buyer's prior written consent, do any
of the following: waive or commit to waive any right of substantial value; sell,
transfer, dispose of or encumber or commit to sell, transfer, dispose of or
encumber the Practice Assets; incur any indebtedness for borrowed money; make
capital expenditures in excess of $5,000 in the aggregate; terminate any key
employee or take any action that impairs the existing relationships between
Seller and its employees and other persons and entities having business
relations with Seller; or take any action in the conduct of its business which
would be contrary to, or in breach of, any term or Representation or Warranty
contained in this Agreement.
7.02 Conduct After Closing Date
Seller assumes any and all liabilities for taxes and deficiencies with
respect to the operation of the Practice prior to the Closing Date.
ARTICLE VIII
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CONDITION TO OBLIGATIONS
8.01 Conditions to Seller's Obligations The obligations of Seller under
this Agreement are subject to the satisfaction on or before the Closing Date of
the following conditions, any of which may be waived by Seller by proceeding
with the Closing:
(a) The representations and warranties of Buyer set forth in this
Agreement shall be true on and as of the Closing Date with the same effect as
though made on such date. Buyer shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by Buyer prior to or on the Closing Date and Buyer shall have
delivered to Seller a certificate, dated as of the Closing Date, to all such
effects;
(b) No suit, action or other proceeding shall be pending before any
court or other government agency in which it is sought to restrain or prohibit
performance of this Agreement or the consummation of the transactions
contemplated herein or in connection herewith to subject Seller to liability on
the ground that it has breached any law or duty or otherwise acted improperly,
nor shall any such suit, action, or proceeding be threatened;
(c) Buyer shall have delivered in form satisfactory to Seller and
which is consistent with this Agreement the documents identified below:
1. The consideration required pursuant to Section 2.01 hereof.
2. The opinion of Claude E. White, Esq. legal counsel to Buyer, dated
the Closing Date, in the form of Exhibit 8.01(c)2 attached hereto.
3. An agreement of Buyer assuming the liabilities, including without
limitation office and equipment leases, of Seller set forth on Exhibit 2.04 and
taking assets subject to liens and encumbrances set forth on Exhibit 1.01(a).
8.02 Conditions to Buyer's Obligation The obligations of Buyer under this
Agreement are subject to the satisfaction on or before the Closing Date of the
following conditions, any of which may be waived by Buyer by proceeding with the
Closing:
(a) The representations and warranties of Seller set forth in this
Agreement shall be true on and as of the Closing Date with the same effect as
though made on such date. Seller shall have performed all obligations and
complied with by Seller prior to or on the Closing Date and Seller shall have
delivered to Buyer, a certificate, dated as the Closing Date, to all such
effects.
(b) No suit, action or other proceeding shall be pending before any
court or other government agency in which it is sought to restrain or prohibit
performance of this Agreement or the consummation of the transactions
contemplated herein or in connection herewith to subject Buyer to liability on
the ground that it has breached any law or duty or otherwise acted improperly,
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nor shall any such suit, action or proceeding be threatened except as disclosed
on Exhibit 4.07(a);
(c) Seller shall have delivered in form reasonably satisfactory to
Buyer and consistent with this Agreement the documents identified below:
1. An assignment to Buyer transferring to Buyer all of the right,
title and interest of Seller in and to all telephone numbers utilized by Seller
in the operation of its business.
2. An assignment of all office and equipment leases listed on Exhibits
4.09 (a), including security deposits.
3. Such bills of sale and instruments of title as requested by Buyer
as shall convey to Buyer all of the Practice Assets , free and clear of all
liens.
4. An assignment to Buyer of all executory agreements of Seller set
forth on or referred to in Exhibit 4.09(a) including separate assignments of
each agreement listed in Paragraph 5 of Exhibit 1.01 (a).
5. The opinion of Frank Gamma, Esq., legal counsel to Seller and
Physician, dated the Closing Date, in the form annexed hereto as Exhibit 8.01(c)
6.
ARTICLE IX
MISCELLANEOUS
9.01 Seller represents and warrants to Buyer that Seller has not dealt with
or retained any broker or finder or agreed to pay any commission or fee to any
broker or finder for or on account of this Agreement or the transactions
contemplated hereby. Buyer represents and warrants to Seller that it has not
dealt with or retained any broker or finder for or on account of this Agreement
or the transactions contemplated hereby. Each party agrees to indemnify the
other against any loss, cost or expense, including attorneys' fees, as a result
of any claim for a fee or commission asserted by any broker or finder with
respect to this Agreement or the consummation thereof whose claim arises through
dealings with such broker or finder by the indemnifying party.
9.02 If at any time after the Closing Date any further assignment,
transfers or assurances in law are reasonably necessary or desirable to carry
out the provisions of this Agreement, the parties to this Agreement shall
execute and deliver any and all assignments, transfers, and assurances in law,
and do all things, reasonably necessary or proper to such end and otherwise to
carry out the provisions and intent of this Agreement.
9.03 Any notice or other communication required, by, or which may be given
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pursuant to this Agreement shall be in writing and either personally delivered
or mailed, certified or registered mail, postage prepaid, return receipt
requested, or overnight courier, prepaid, and shall be deemed given when
received. Any such notice or communication shall be sent to the address set
forth below:
If to Buyer, at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Gerardo Canet, President
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Claude White, General Counsel
And if to Seller, at:
Samuel H. Wood, M.D.
Reproductive Sciences Medical Center, Inc.
4150 Regents Park Row, Suite 280
La Jolla, California 92037
Attention: Samuel H. Wood, M.D., Ph.D
With a copy to:
Frank Gamma, Esq.
Charles Bond & Associates
821 Bancroft Way
Berkeley, California 94710-2226
Any party may change the persons and addressees to which notices or other
communications are to be sent to it by giving written notice of any such change
to the other party hereto.
9.04 The headings contained in this Agreement are inserted for convenience
of reference only and shall not affect the meaning or interpretation of this
Agreement.
9.05 All Exhibits referred to in this Agreement are deemed annexed hereto
and made a part of this Agreement.
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9.06 This Agreement, together with the Exhibits:
(a) Constitutes the entire agreement among the parties to it with
respect to the purchase and sale of the Practice Assets and supersedes all prior
agreements and understandings;
(b) May not be modified or discharged, nor may any of its terms be
waived, except by an instrument in writing, signed by the party or parties to be
charged; and
(c) Shall bind and inure to the benefit of the parties and their
respective successors and permitted assigns. Nothing expressed or mentioned in
this Agreement is intended, or will be construed, to give any person, firm
corporation or other entity, other than the parties to this Agreement and their
respective successors and assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any of its provisions.
9.07 This Agreement may not be assigned by any party hereto without the
prior written consent of the other party. No assignment or delegation of any
rights or obligations hereunder shall release the assignor from any of its
liabilities hereunder.
9.08 The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver of any nature, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or of any breach of any other
term, covenant, representation or warranty of this Agreement.
9.09 This Agreement may be executed in any number of separate counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
9.10 This Agreement shall be governed by and construed in accordance with
the laws of the State of California, irrespective of the principal place of
business of the parties hereto. Any and all claims, disputes, or controversies
arising under, out of, or in connection with this Agreement or any breach
thereof, except for equitable relief sought pursuant to Article IX, shall be
determined by binding arbitration in the State of California (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial arbitration of the selected
entity shall govern. The Arbitration shall be conducted and decided by three (3)
arbitrators, unless the parties mutually agree, in writing at the time of the
Arbitration, to fewer arbitrators. In reaching a decision, the arbitrators shall
have no authority to change or modify any provision of this Agreement. Each
party shall bear its own expenses and one-half the expenses and costs of the
arbitrators. Any application to compel Arbitration, confirm or vacate an
arbitral award or otherwise enforce this Paragraph shall be brought in the
Courts of the State of California or the United States District Court for the
Southern District of California, to whose jurisdiction for
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such purposes Seller and Buyer hereby irrevocably consent and submit.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written by their respective duly authorized officers.
INTEGRAMED AMERICA, INC.
By: /s/ Dwight P. Ryan
-------------------------------------------
Dwight P. Ryan, Vice President
SAMUEL H. WOOD, M.D.
By: /s/ Samuel H. Wood, M.D.
-------------------------------------------
Samuel H. Wood, M.D., Ph.D., President
15
PERSONAL RESPONSIBILITY AGREEMENT
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated June 6, 1997,
is made and entered into by and among IntegraMed America, Inc., a Delaware
corporation, with its principal place of business at One Manhattanville Road,
Purchase, New York 10577 ("INMD"), Reproductive Sciences Medical Center, Inc., a
California professional corporation ("PC"), whose principal place of business is
4150 Regents Park Row, Suite 280, La Jolla, California 92037, and Samuel H.
Wood, M.D., Ph.D., an individual, having a post office address at P.O. Box 1208,
Rancho Santa Fe, California 92067 ("Physician").
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and PC, and with
reference to an Asset Purchase Agreement of even date herewith (the "Asset
Purchase Agreement") between INMD and PC.
A. Physician is the sole shareholder of PC, which owns all of the good will
of Physician's practice of medicine.
B. Pursuant to the Management Agreement and the Asset Purchase Agreement,
INMD will transfer to Physician cash or a combination of cash and stock in
excess of Nine-Hundred Thousand Dollars ($900,000).
C. The services Physician offers and intends to offer through PC are unique
in terms of how these services are rendered and the relative unavailability of
similar services from other physicians, and in terms of Physician's reputation,
and involve both medical professional and technical services. Through INMD's
resources, the parties intend to maintain and enhance the technology which
Physician will offer through PC.
D. Physician intends that PC be the entity through which Physician and his
future partners henceforth conduct their practice of medicine. Physician has
entered into a Shareholder-Physician Employment Agreement dated June 6, 1997,
between Physician and PC ("Physician-Shareholder Employment Agreement. This
Agreement is also made with reference to the Physician-Shareholder Employment
Agreement, which define Physician's rights and responsibilities with respect to
PC and his medical practices, including but not limited to compensation terms.
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E. While it is the objective of the parties to this Agreement and the
Physician-Shareholder Employment Agreement that PC expand its presence, hire
additional and replacement physicians, and otherwise seek to maintain and
establish good will apart from the continued full-time commitment of Physician
and each of his future partners, the parties also acknowledge that at present
the identity of PC is not institutional, but rather is co-extensive with
Physician's individual practice.
F. Physician recognizes that the success of PC and of INMD's investment in
administrative and technologic resources depends on his commitment to the
practice at PC, to his recruiting of one or more additional "partners" (meaning
physicians who are not less than 20% equity owners along with Physician in PC),
and the commitment of each of his other future partners to continue to practice
medicine exclusively through PC. INMD has made substantial payments to Physician
to assure his availability and dedication to PC and has made and plans to make a
substantial investment in equipment and other resources for PC in reliance on
the ability to amortize such investments based on such assurances from
Physician.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Physician to exerting
his best efforts to support the operation of PC under its Management Agreement
with INMD.
Therefore, INMD, PC, and Physician agree as follow:
1. Term and Termination. This Agreement shall have the same term as the
Management Agreement.
2. PC as Representative of Physician's Interests. Physician acknowledges
that INMD is entering into the Management Agreement with PC upon Physician's
stipulation that PC represents his entire medical practice. It is agreed,
therefore, that for purposes of assuring continuity of the commitments under the
Management Agreement, that PC is deemed the alter ego of Physician, with
specific rights and responsibilities existing between Physician and INMD, as set
forth herein. However, this Agreement shall not serve as evidence to justify a
claim by INMD that Physician is liable on an alter ego theory for sums owed by
P.C. under Section 9.1 of the Management Agreement
3. Repayment of Rateable Portion of Right to Manage Fee.
a. Pursuant to Article 7 of the Management Agreement, INMD has paid
PC, for the benefit of Physician, a Right to Manage Fee in the sum of $200,000
in INMD and pursuant to Article 2 of the Asset Purchase Agreement, INMD has paid
Physician $50,000 for certain assets (collectively referred to herein as the
"Payment at Closing"). INMD has also, pursuant to Article 7 of the Management
Agreement committed to make additional Right to Manage Fee payments in the
amount of $600,000 to PC for the benefit of Physician and an additional asset
purchase price amount of $50,000 in the event certain milestones are achieved by
PC within three
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(3) years of the signing of the Management Agreement ("Post Closing Payment").
If, during the first five (5) years of this Agreement, Physician should cease to
practice medicine through PC, except as a result of death or permanent
disability, Physician shall be obligated to forthwith pay to INMD those portions
of the Payment at Closing and the Post Closing Payment, calculated in accordance
with Section 9.1.3 of the Management Agreement that would be payable by PC if
the Management Agreement terminated as of the date Physician ceased to practice
medicine at PC's offices. Said repayment shall also be due in the event of a
substantial reduction in Physician's availability to provide the services that
he currently provides, e.g., if Physician reduced his medical office hours from
four-and-two-thirds days per week to three-and-two-thirds days per week the
additional multiplier would be twenty-one and four-tenths percent (21.4%), and
if he increases his vacation from 8 weeks per year to 9 weeks per year, the
additional multiplier would be eleven percent (11%), in each case multiplied by
the amount that would be paid had Physician totally ceased work for P.C. at that
time. Payments to INMD under this paragraph shall not entitle Physician to any
interest in the assets of PC or INMD.
b. The parties acknowledge that Physician shall make his best efforts
to have PC add one or more additional physicians to its practice who qualify for
shareholder status in PC, to enhance the revenues of both PC and INMD, and so
that Physician's permanent disability, retirement or other reduction in his
availability to PC does not adversely affect INMD revenues under the Management
Agreement, but that there are no assurances of the success of such recruiting.
Physician may request INMD to waive or reduce his repayment obligation by
submitting a written transition plan to INMD for its consideration. Physician
shall submit such a transition plan as soon as possible if he plans to reduce
his availability to PC, but in no event less than six months before the
reduction in his availability. It is expected that such a plan shall be modified
as the result of discussions among Physician, PC, and INMD, that INMD's
acceptance of the plan shall be in accordance with the Management Agreement, and
that its agreement to waive or reduce Physician's repayment obligation shall be
mostly, if not wholly, contingent upon the economic results of the
implementation of the plan and shall be secured by sums owed Physician by PC and
PC's shareholders. Approval of the request shall be discretionary for INMD, but
shall not be unreasonably withheld.
c. Physician may assign all or a portion of his payment obligations
under this Section to a new or an existing shareholder of PC who has executed
the agreements with PC and INMD contemplated by this Agreement, subject to
INMD's written consent, which shall not be unreasonably withheld. Such
assignment shall be reflected in the Personal Responsibility Agreement signed by
the new shareholder of PC and in an amendment to this Agreement.
4. PC's Compliance with the Management Agreement. Physician agrees to exert
his best efforts to cause PC to fulfill each of its obligations under the
Management Agreement.
5. Stock Purchase Agreement and Shareholders Employment Agreement.
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a. PC agrees to exert its best efforts to: (i) comply with the terms
of the Physician-Shareholder Employment Agreement which, if PC does not comply,
would excuse Physician or any of the other Physician or other physician
employees or shareholders of PC from complying with his covenant not to compete
with PC, his assignment of all Professional Revenues to PC and other terms
confirming that physician's commitment to practicing medicine solely through PC
for a period of not less than five (5) years and thereafter not to terminate his
employment without cause on less than 180 days written notice (the "Exclusive
Practice Covenants") and (ii) enforce with respect to Physician and each of the
other physician employees and shareholders of PC the Exclusive Practice
Covenants and Physician agrees to exert his best efforts to cause PC to comply
with each of the aforementioned obligations.
b. PC and Physician further agree that INMD is a third party
beneficiary of the Exclusive Practice Covenants with respect to Physician and
that the Exclusive Practice Covenants, in the form that is then most recently
approved by INMD, are hereby incorporated in this Agreement by reference and may
be enforced by INMD as well as by PC. PC and Physician further agree that the
Exclusive Practice Covenants and any other terms of the Physician-Shareholder
Employment Agreement may not be amended or modified in a way which may adversely
affect the interests of INMD, including without limitations its rights under the
Management Agreement, without thirty (30) days prior written notice to INMD and
the written consent of INMD, which consent shall not be unreasonably withheld.
6. Scope of Covenant Not to Compete. Physician and PC agree that the scope
and term of Physician's covenant not to compete, insofar as it is for the
benefit of INMD, shall be as follows:
a. The term of the covenant not to compete (the Non-Competition
Period") shall be not less than the greater of five (5) years of employment of
Physician by PC or three (3) years after the termination of the
Physician-Shareholder Employment Agreement, whichever is greater, but in no
event shall extend beyond the first ten (10) years of employment of Physician by
PC, that employment being deemed to have begun, for purposes of this Agreement,
on the initial effective date of this Agreement.
b. The geographic scope of the covenant not to compete (the "Service
Area") is San Diego County.
c. During the Non-Competition Period, Physician agrees that he shall
not advertize or market Infertility Services, engage in the practice of
medicine, or directly or indirectly, own, operate, be employed by, be an agent
of, act as a consultant for, allow his name to be used by, or have a proprietary
interest in, any Medical Practice which is competitive with PC, or would be
competitive with PC if PC continued to operate, including but not limited to a
Medical Practice which owns, operates, contracts with or manages Medical Offices
within the Service Area.
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d. For purposes of this Section, the following definitions shall
apply:
(1) The term "Medical Practice" shall include any form of
organization in which Infertility Services, gynecological services, or
other medical diagnostic, care or treatment services are provided to
patients of the Medical Practice or of other physicians, including but not
limited to a sole proprietorship, a partnership, an association, a
professional corporation, a business corporation, or a limited liability
partnership or corporation, a laboratory, an outpatient clinic, a practice
management company or medical services organization (or MSO). However,
ownership of less than 1% of the outstanding securities of any class of a
medical management or managed care organization traded on a national
securities exchange or the NASDAQ National Market System will not be deemed
to be engaging, solely by reason thereof, in the same business.
(2) The term "Medical Office" includes any location at which the
professional or technical component of Infertility Services are provided
and any other location which a Medical Practice maintains for patient
visits.
e. Separability. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section is invalid or
unenforceable, each Party agrees that the court making the determination of
invalidity or unenforceability will have the power to reduce the scope, duration
or area of the term or provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement will be
enforceable as so modified after the expiration of time within which the
judgment may be appealed.
f. Clarification of Scope of Non-Competition Covenant. This Agreement
is not intended to prohibit the personal performance of medical care by
Physician on behalf of PC, provided those services are for patients of PC, nor
prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
g. Acknowledgments. PC, INMD and Physician each acknowledges that: (i)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of PC and INMD; (ii) each and every covenant and
restriction is reasonable with respect to such matter, length of time and
geographical area; (iii) this Agreement, and this Section in particular, shall
be enforceable notwithstanding any dispute as to the sums and timing of payments
to Physician or other disputes under this Agreement or the Physician-Shareholder
Employment Agreement; and (iv) the PC and INMD have been induced to enter into
this Agreement and their other respective agreements with Physician, in part,
due to the representation by Physician that he will abide by and be bound by the
aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Physician has agreed in the
Physician-
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Shareholder Employment Agreement not to compete with PC during the term of his
employment by PC and for at least three (3) years thereafter, and recognizes
that in the event that he should compete with PC, INMD would suffer damages in
addition to the loss of Physician's unique services. Physician therefore agrees
that during the term of his Physician-Shareholder Employment Agreement with PC,
and during the Non-Competition Period thereafter, he shall be obligated, with
respect to each month in which he renders services which earn Physician and
other Professional Revenues, as defined in the Management Agreement, that are
not assigned to and collected by PC, or offers services or assists other persons
in offering services in the Service Area which are similar to any of those
offered by PC or planned to be offered by PC while he was still a director,
officer or shareholder of PC or active in providing services on behalf of PC, he
shall owe INMD management fees equal to one-twelfth of:
a. Physician's proportionate share, based on Physician's ownership
interest in PC, of the Cost of Services as defined in the Management
Agreement, which are incurred in the twelve months preceding the first
month in which INMD, in the reasonable exercise of its discretion,
concludes that Physician was engaging in such competitive acts so as to
materially adversely affect PC's operations (the "Pre-Competition Period").
b. Physician's proportionate share, based on Physician's ownership
interest in PC, of the Base Management Fee which INMD earned during the
Pre-Competition Period.
c. Physician's proportionate share, based on Physician's ownership
interest in PC, of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
d. Physician's proportionate share, based on Physician's ownership
interest in PC, of any advances or other payments owed by PC to INMD at the
end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of PC and any breach of PC's contracts with Physician
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. New Shareholders. PC and Physician shall require each new Shareholder of
PC to enter into an agreement with INMD on substantially the same terms as this
Agreement. Any reallocation of responsibility for repayment under Section 1 of
this Agreement and the parallel provision in the Asset Purchase Agreement shall
be set forth in the new shareholder's Personal Responsibility Agreement and in
an amendment to this Agreement.
9. Force Majeure. No party shall be liable to the other party for failure
to perform any of the services required under this Agreement in the event of a
strike, lockout, calamity, act of God, unavailability of supplies, or other
event over which such party has no control, for so long as such event continues
and for a reasonable period of time thereafter, and in no event shall
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such party be liable for consequential, indirect, incidental or like damages
caused thereby.
10. Equitable Relief. Without limiting other possible remedies available to
a non-breaching party for the breach of the covenants contained herein,
injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
11. Confidential Information. Physician acknowledges and agrees to maintain
the confidentiality of INMD and PC Confidential Information as defined in the
Management Agreement and in any agreements he may have with PC, and that any
notice to INMD that documents or other information, however maintained, is
Confidential Information, shall be deemed, for purposes of this Agreement, to be
notice to him that it is Confidential Information.
12. Prior Agreements; Amendments. This Agreement, together with the
Management Agreement and the other agreements referenced herein, supersedes all
prior agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of the
parties, and such amendment, alteration, change, termination or waiver shall in
no way affect the other terms and conditions of this Agreement, which in all
other respects shall remain in full force.
13. Assignment; Binding Effect. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
the parties, and any attempted assignment without such consent shall be void and
of no force and effect, except that INMD may assign this Agreement to any
subsidiary or affiliate of INMD without the consent of Physician. The provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
parties' respective heirs, legal representatives, successors and permitted
assigns.
14. Waiver of Breach. The failure to insist upon strict compliance with any
of the terms, covenants or conditions herein shall not be deemed a waiver of
such terms, covenants or conditions, nor shall any waiver or relinquishment of
any right at any one or more times be deemed a waiver or relinquishment of such
right at any other time or times.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California to the fullest extent
permitted by law, without regard to the application of conflict of law rules.
Any and all claims, disputes, or controversies arising under, out of, or in
connection with this Agreement or any breach thereof, shall be determined by
binding arbitration in the State of California, County of San Diego (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial
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arbitration of the selected entity shall govern, except with regard to actions
for injunctive relief. The Arbitration shall be conducted and decided by three
(3) arbitrators, unless the parties mutually agree in writing at the time of the
Arbitration, to fewer arbitrators. In reaching a decision, the arbitrators shall
have no authority to change or modify any provision of this Agreement, including
without limitation, any liquidated damages provision. Each party shall bear its
own expenses and one-half the expenses and costs of the arbitrators. Any
application to compel Arbitration, confirm or vacate an arbitral award or
otherwise enforce this paragraph shall be brought either in the Courts of the
State of California or the United States District Court for the Southern
District of California, to whose jurisdiction for such purposes the parties
hereby irrevocably consent and submit.
16. Separability. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement taken as a whole.
17. Headings; Capitalized Terms. Section and paragraph headings are not
part of this Agreement and are included solely for convenience and are not
intended to be full or accurate descriptions of the contents thereof. The term
"Infertility Services" and any other capitalized term which is not defined in
this Agreement shall have the same definition it has in the Management
Agreement.
18. Notices. Any notice hereunder shall have been deemed to have been given
only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
If for INMD, at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Gerardo Canet, President
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
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If for PC, at:
Executive Director
Reproductive Sciences Medical Center, Inc.
4150 Regents Park Row, Suite 280
La Jolla, California 92037
If to Physician, at:
Samuel H. Wood, M.D., Ph.D.
P.O. Box 1208
Rancho Santa Fe, California 92067
With a copy to:
Frank Gamma, Esq.
Charles Bond & Associates
821 Bancroft Way
Berkeley, California 94710-2226
Any party hereto, by like notice to the other party, may designate such
other address or addresses to which notice must be sent.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
INTEGRAMED AMERICA, INC.,
BY: /s/ Dwight P. Ryan
---------------------------------
DWIGHT P. RYAN, VICE PRESIDENT
SAMUEL H. WOOD, M.D., PH.D.
/s/ Samuel H. Wood, M.D.
- -------------------------------------
SAMUEL H. WOOD, M.D., PH.D.
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
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By: /s/ Samuel H. Wood, M.D.
-----------------------------------------
SAMUEL H. WOOD, M.D., PH.D., PRESIDENT
10
PHYSICIAN-SHAREHOLDER EMPLOYMENT AGREEMENT
This PHYSICIAN-SHAREHOLDER EMPLOYMENT AGREEMENT (the "Agreement") is made
June 6, 1997 by and between Reproductive Sciences Medical Center, Inc., a
California professional corporation having its principal place of business at
4150 Regents Park Row, Suite 280, La Jolla, California 92037 ("Employer") and
Samuel H. Wood, M.D., Ph.D., having a post office address at P.O. Box 1208,
Rancho Santa Fe, California 92067 ("Employee").
RECITALS
Employer is organized as a professional medical corporation under the
California General Corporation Law to render professional services through those
of its employees who are "licensed persons" as defined in California
Corporations Code ss.13401(c) or 13401.5(a) (each a "Licensed Person").
Employer specializes in the provision of gynecological services, including
treatment of human infertility, encompassing the provision of in vitro
fertilization and other assisted reproductive technology services such as gamete
intra-fallopian tube transfer and zygote intra-fallopian transfers, and related
embryology and andrology services (all of the foregoing are referred to herein
as "Infertility Services").
Employee is licensed to practice medicine in the State of California, is
board eligible or certified in reproductive endocrinology and specializes in the
provision of Infertility Services and has experience in infertility treatment,
surgical skills required in the course of providing Infertility Services.
Employer has entered into an agreement with IntegraMed America,
Inc.("INMD"), pursuant to which INMD will provide certain management and
administrative services as are more fully described in the agreement between
Employer and INMD dated June 6, 1997 ("INMD Management Agreement").
In order to further facilitate the provision of Infertility Services,
Employer desires to employ Employee and Employee desires to accept such
employment, on the terms and conditions hereinafter set forth. In addition,
Employee agrees to enter into an agreement among shareholders and Employer.
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Employer has offered the Employee employment for such compensation and
other benefits and under the terms and conditions hereinafter and in Appendices
hereto set forth, and the Employee is willing to accept employment on such
terms.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration set forth herein, the parties agree as follows:
I. EMPLOYMENT AND DUTIES
A. Scope of duties. Employer hereby employs the Employee, and the Employee
accepts such employment, to render full-time professional services to be
rendered to patients by Employer. Full-time for Employee shall be defined as
sufficient patient care time to sustain an average of no less than an average of
four and two-thirds (4 2/3) days per week for professional services rendered by
Employee to Employer's patients. Employee shall fulfill all assigned
responsibilities. No modification or change of the Employee's position, duties,
salary, benefits and/or the Employer rules or regulations governing Employee's
conduct pursuant to the terms of this Agreement shall otherwise modify, change
or revoke any other provision of this Agreement. Employee agrees that to the
best of Employee's ability and experience all of the duties and obligations
either expressly or implicitly required by the terms of this Agreement will be
performed at all times loyally and conscientiously. Employee agrees to devote
Employee's entire productive time, ability, and attention to the business of the
Employer during the term of this Agreement. In connection therewith, Employee's
duties shall include, but not be limited, to the following:
1. Provision of patient counseling and medical examinations, including
the performance of egg retrievals, embryo transfers and patient follow-up;
2. Reviewing and evaluating clinical data on a routine basis and
making specific recommendations for improving implantation rates and treatment
outcomes;
3. Maintenance of a thorough understanding of and proficiency in the
application of the most current technologies (including both surgical and
non-surgical techniques) relevant to Infertility Services and related medical
high technology infertility procedures ("ART Technology"); and
4. Development and implementation of educational outreach programs
designed to facilitate the development of relationships with physicians in the
obstetric/gynecology community and the dissemination of information pertaining
to the availability of Infertility Services.
5. Except as permitted by Section 3.3 hereof, Employee shall not,
during the term of this Agreement, otherwise engage in the practice of medicine
outside of Employer
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without the express written consent of Employer and INMD. Employee shall fulfill
all his/her assigned responsibilities.
B. Scheduling/leave of absence. Employee agrees to be available to work as
scheduled by the Employer for an amount of time to be determined periodically by
the Employer. Such time shall be conversant with the definition of "Full-time"
contained in Section I.A. The Employee acknowledges and agrees that the Employee
may request unpaid leaves of absence which may be granted in the sole discretion
of the Employer.
C. Professional standards. Employee shall perform his or her duties under
this Agreement in accordance with the rules of ethics of the medical profession.
D. Books and Records
Employee shall maintain such books and records and provide such information
to Employer as is customary in medical practice and reasonably requested by
Employer.
II. COMPENSATION
A. Base Compensation. Employee agrees to be compensated for his/her
services as provided in Appendix A hereto.
B. Bonus. In addition to the basic salary referred to above, Employer may,
in its sole discretion, pay Employee an annual performance-based bonus.
C. Additional Income. All remuneration received by Employee in payment for
any outside professional medical activities, but not including any income
derived from testimony for litigation-related proceedings, lectures, passive
investments, fundraising, or writing where Employee does not render professional
medical services, shall be accounted to and be the sole property of Employer.
Employee's engagement in outside professional medical activities shall require
the express written consent of Employer and shall not interfere in any way with
the fulfillment of Employee's duties hereunder or diminish the quality of the
Infertility Services rendered.
D. Withholding of Wages at Termination. Employee hereby expressly
authorizes Employer to withhold and deduct from Employee's final compensation
payment any sums owed by Employee to Employer upon termination of Employee's
employment, including but not limited to sums advanced to Employee. This
paragraph is intended by Employer and Employee to constitute a wage agreement as
that phrase is used in California Labor Code section 224 permitting the lawful
withholding of wages. In Employer's sole discretion, the amount of advances in
excess of compensation earned upon termination of Employee's employment may be
repaid by direct payment to Employer from Employee.
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III. MEMBERSHIP IN THE MEDICAL GROUP
Upon signing this Agreement, Employee acknowledges that Employee is a
member of Employer's Medical Group and agrees to abide by the Group's bylaws,
policies and procedures as now in effect and as subsequently modified or
adopted. Employee agrees to be bound by all Third Party Payor Contracts and
other agreements negotiated by or on behalf of the Employer and the policies
established from time to time by Employer. Employee agrees that Employee shall
not negotiate or enter into any third party payor contract or other agreement
that would result in Employee competing with Employer for the delivery of
professional services or the procurement of goods and services. Employee
acknowledges that Employer shall have final authority over: (a) the acceptance
or refusal to treat any patient; and (b) the amount of the fee to be charged for
all Infertility Services rendered by Employee to patients of Employer, so long
as such fees are lawful and reasonable. Notwithstanding the foregoing, Employee
may refuse to treat any patient whom he reasonably believes should not be
treated based upon reasonable legal or medical concerns.
A. Billing. All fees for Infertility Services and Physician and Other
Professional Revenues for services rendered by Employee on behalf of Employer
hereunder shall be billed and collected by Employer; provided, however, that
pursuant to the terms of the INMD-Management Agreement, INMD shall carry out
billing and collection functions on behalf of Employer. In consideration for the
payment to Employee of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Employee to
Employer patients and all other Physician and Other Professional Revenues shall
become the property of Employer, and Employee agrees immediately to turn over to
Employer any such fees received by Employee during the term hereof. Employee
hereby authorizes Employer, and/or INMD on Employer's behalf, to bill for
Infertility Services provided hereunder and agrees to execute any and all
assignments or other documents that may be necessary or appropriate to permit
Employer, or INMD as its designee, to carry out all billing and collection
functions. Employee agrees that Employee shall not submit bills for, seek
remuneration for, or otherwise collect fees for Infertility Services provided
hereunder. Employee shall look solely to Employer for compensation for the
professional medical services provided hereunder.
1. "Physician and Other Professional Revenues" shall mean all fees,
whether received or accrued, and actually recorded each month (net of
Adjustments) by or on behalf of Employer as a result of professional medical
services personally furnished to patients by Physician Employees and Other
Professional Employees and other fees or income earned in their capacity as
professionals, whether rendered in an inpatient or outpatient setting, including
but not limited to, medical director fees or technical fees from medical
ancillary services, consulting fees; provided, however, "Physician and Other
Professional Revenues" shall not include income
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derived from testimony for litigation-related proceedings, lectures, passive
investments, fundraising, or writing where Physician does not render
professional medical services.
B. Medical Staff Privileges. Physician hereby acknowledges that in order to
provide Infertility Services to Employer as herein required, Physician must at
all times during the term of this Agreement be a member in good standing of at
least one hospital accredited by the JCAHO in the service area in which Employer
provides Infertility Services. Employer shall use reasonable efforts to assist
Physician in maintaining such privileges.
C. INMD-Management Agreement. Employee acknowledges receipt of a copy of
the INMD Management Agreement and acknowledges that Employer has substantial
responsibilities, rights and obligations under said agreement. Employee agrees
to at all times conduct himself in such manner as to avoid causing Employer to
be in breach of the INMD Management Agreement, and Employee further agrees that
to the extent applicable to Employer and to the responsibilities of the Employee
hereunder, he shall assist Employer in carrying out its obligations under the
INMDManagement Agreement.
IV. PROPERTY RIGHTS OF THE PARTIES
A. Confidential Information. Employee acknowledges that Employee may, in
the course of Employee's duties on behalf of Employer, be advised of certain
business matters and affairs of Employer regarding its clients, suppliers, and
affiliates, and the management of its business. Further, Employee acknowledges
that the duties performed by Employee for Employer place Employee in a position
of trust and confidence with respect to certain trade secrets, including
proprietary information relating to the business of Employer and not generally
known to the public or persons outside Employer (hereinafter referred to as
"Confidential Information"). Confidential Information includes, but is not
limited to, client agreements or contracts, financial information, formulas,
compilations, lists, programs, devices, treatments, methods or techniques,
confidential physicians' information relating to the practice of medicine, and
information relating to patients that is not generally known to the public or to
other persons or entities who can obtain economic value from its disclosure or
use.
B. Nondisclosure of Information. Employee agrees to keep confidential and
not to use or disclose to others (except in connection with the fulfillment of
Employee's duties hereunder any Infertility Services Information, as defined
herein, during the term of this Agreement or during any extension or renewal
thereof, and for a period of one (1) year thereafter, except as expressly
consented to in writing by Employer and INMD. For purposes of this Agreement,
the term "Infertility Information" shall mean such technical, scientific, and
business information provided to Employee by Employer or INMD which is
designated by Employer or INMD to be confidential or proprietary. Infertility
Information shall not include information which: (i) is or becomes known in the
scientific community through no fault of Employee; (ii) is learned by Employee
from a third party legally entitled to disclose such information; or (iii) was
already
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known to Employee at the time of disclosure by the disclosing party. Employee
further agrees that should his or her contractual relationship hereunder
terminate, he or she will neither take nor retain, without prior written
authorization from Employer and INMD, any papers, patient lists, fee books,
patient record files, or other documents or copies thereof or other Infertility
Information of any kind belonging to Employer or INMD, as the case may be.
C. Remedies. Without limiting other possible remedies available to Employer
for the breach of this covenant, Employee agrees that injunctive or other
equitable relief shall be available to enforce this covenant, such relief to be
without the necessity of posting bond, cash or otherwise. Employee further
agrees that if any restriction contained in this section is held by any court to
be unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and remaining restrictions herein shall be enforced independently of each
other. The parties further agree that INMD shall have an independent right to
enforce this covenant in its own right.
D. INMD Designation of Confidential Information. It is further understood
and agreed that in order to minimize any misunderstanding regarding what
information is considered to be confidential or proprietary Infertility
Information, the Employer or INMD will designate the specific information which
Employer or INMD considers to be proprietary or confidential under this
Agreement. Any such designation to Employer by INMD shall be deemed a
designation by INMD to Employee.
E. Medical Records. All medical records of patients to whom Employee
provides Infertility or other medical Services on behalf of Employer during the
term hereof shall be the property of Employer. A copy of any medical records of
such patients will be made available to Employee upon request.
1. Confidentiality of Records. Employee shall comply with applicable
law regarding the confidentiality of patients' medical records.
2. Confidential Use of Records. Nothing in this section shall restrict
or impair the ability of Employer to obtain and examine necessary records (on a
patient anonymous basis) to conduct or implement the utilization review plan,
peer review plan, risk management plan or credentials plan established by
Employer.
F. Nondisclosure. Employee will not, either during the term of his/her
employment or at any time in the future, directly or indirectly:
1. Disclose or furnish, directly or indirectly, to any other person,
firm, trust, partnership, association, limited liability company, agency,
corporation, client, business, or enterprise, any confidential information
acquired by Employee;
2. Individually or in conjunction with any other person, firm, trust,
partnership, association, limited liability company, agency, corporation,
client, business, or
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enterprise, employ or cause to be employed any confidential information in any
manner whatsoever, except in furtherance of the business of Employer;
3. without the written consent of Employer, publish, deliver, or
commit to being published or delivered, any copies, abstracts, or summaries of
any data, files, records, documents, specifications, lists, procedures,
equipment and similar items relating to the business of Employer, whether
prepared by or with the assistance of Employee or otherwise coming into
Employee's possession, control or knowledge, except to the extent required in
the ordinary course of Employer's business; or
4. attempt to encourage, induce, or otherwise solicit, directly or
indirectly, any other employee of Employer to breach any employment agreement
with Employer or to otherwise interfere with the advantageous business
relationships of Employer with its employees, customers, clients or suppliers.
G. Exclusive Property of Employer. All data, files, records, documents,
specifications, lists, equipment, supplies, promotional materials and similar
items relating to the business of Employer, including but not limited to
notebooks, computer programs, reports, client lists, production costs, marketing
information, and employment data, including policies and salary information and
all copies of any such documents or items, whether prepared by or with the
assistance of Employee or otherwise coming into Employee's possession, control
or knowledge, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer under any circumstances whatsoever without
the prior written consent of Employer.
H. Return of Property. Upon termination of Employee's employment, Employee
agrees to return immediately to Employer all property of Employer in a condition
as good as when received by Employee (normal wear and tear excepted) including,
but not limited to, all data, files, records, documents, specifications, lists,
equipment, supplies, promotional materials, and similar items relating to the
business of Employer, including but not limited to, notebooks, computer
programs, reports, client lists, production, costs, marketing information,
credit cards, keys, employment data including policies and salary information
and all copies of any such documents or items whether prepared by or with the
assistance of Employee or otherwise coming into Employee's possession, control
or knowledge.
I. No Solicitation. For one calendar year following termination of this
Agreement and the Employee's employment, the Employee agrees not to solicit,
directly or indirectly, the business of any person who is or was a patient or
client of the Employer. The above covenant is acknowledged by employee to be
based upon the fact that the names and addresses of patients and referral
sources and the contact persons, contract needs and rates for third party payers
and contracting organizations would not have been known by Employee except by
reason of the knowledge thereof gained as an Employee of Employer as a Partner
of Employer's predecessor (partnership).
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J. Scope of Covenant Not to Compete. Employee and Employer agree that the
scope and term of Employee's covenant not to compete, insofar as it is for the
benefit of INMD, shall be as follows:
1. The term of the covenant not to compete (the "Non-Competition
Period") shall be not less than the greater of five (5) years of employment of
Employee by Employer or three (3) years after the termination of the
Shareholders Employment Agreement, whichever is greater, but in no event shall
extend beyond the first ten (10) years of employment of Employee by Employer,
that employment being deemed to have begun, for purposes of this Agreement, on
the initial effective date of this Agreement.
2. The geographic scope of the covenant not to compete (the "IVF
Service Area") is twenty-five (25) miles from any offices maintained by Employer
for the rendition of professional or other medical services to patients during
the last year of Employee's employment by Employer or replacements of said
offices (the "Current Medical Offices") or offices which it planned to establish
or acquire during that year and in fact did establish or acquire within one year
after the termination of Employee's employment (a "Planned Medical Office"). An
office shall be deemed to have been a Planned Medical Office if Employer had
substantial plans to open such office in that city or area prior to such date,
which plans were discussed at meetings of the Board of Directors or committees
of Employer which were attended by Employee or minutes of which, whether in
draft or approved form, were provided to Employee, whether or not Employer
entered into leases, ordered equipment, or secured regulatory approval prior to
the termination date.
3. During the Non-Competition Period, Employee agrees that Employee
shall not engage in the practice of medicine, or directly or indirectly, own,
operate, be employed by, be an agent of, act as a consultant for. allow his name
to be used by, or have a proprietary interest in, any Medical Practice which is
competitive with Employer, or would be competitive with Employer if Employer
continued to operate, including but not limited to a Medical Practice which
owns, operates, contracts with or manages Medical Offices within twenty-five
(25) miles of a Current Medical Office or Proposed Medical Office of Employer
V. UTILIZATION REVIEW PLAN, PEER REVIEW PLAN, RISK MANAGEMENT PLAN, QUALITY
ASSURANCE PLAN AND CREDENTIALS PLAN
A. Utilization Review. Employee agrees to be bound by the utilization
review plan contained in, or incident to, any Third-Party Payor Contracts
pursuant to which Employee provides professional services under the terms of
this Agreement. If there is no such utilization review plan with respect to a
particular Third-Party Payor Contract, Employee agrees to be bound by the
utilization review process developed by Employer, as clarified, supplemented or
amended by Employer from time to time.
B. Plans to be Developed. Employee agrees to participate in Employer's peer
review plan, risk management plan and quality assessment and improvement plan.
Such plans shall be
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developed by Employer's Board of Directors through appointed committees with
input from the shareholder physicians.
C. Credentials Process. Employee agrees to abide by Employer's credentials
process and all matters affecting the evaluation of his/her credentials,
practice, and participation in Employer's medical provider contracts. The
credentials process shall always include a requirement that Employee will be
advised of the reasons for any proposed or implemented exclusion, termination or
significant modification of his/her participation in Employer's contracts and
shall include an appeal process. Employee also agrees to the release to Employer
of credentialing information from any hospital of whose medical staff Employee
is a member; provided that any request by Employer for such information and any
release by a hospital of such information are made in good faith and without
malice.
D. Confidentiality. Employer and its participating shareholder physicians
participate in contracting, credentialing, utilization review, peer review, risk
management and quality assurance activities in reliance upon the preservation of
confidentiality. It is understood that the confidentiality of these activities
is to be maintained to the fullest extent permitted by law and that these
communications and information will be disclosed only in furtherance of
credentialing, utilization review, peer review, risk management and quality
assurance activities.
E. Preservation of Confidentiality. Employee shall respect and preserve the
confidentiality of all communications and information related to utilization
review, peer review, risk management, quality assurance, and credentialing
activities. Employee pledges to invoke all protections afforded by California
law as applicable in any legal proceedings in which this confidential
information is sought, in order to preserve the confidentiality of this
information.
F. Limits on Confidentiality Agreement. Nothing in the foregoing Section 7
or elsewhere in this Agreement shall prevent Employee from using any
reproductive endocrine or other concepts relating to Infertility Services which
are also applicable to non-ART infertility treatment. Furthermore, the
restrictions contained in Section IV shall be of no further force and effect, if
this Agreement is terminated as a result of the termination of the
INMD-Management Agreement.
G. Publications. Employee agrees that any and all abstracts, articles,
reviews, or other publications that Employee proposes to submit for publication
within the scientific or medical community, or otherwise, which publication is
the result of direct or indirect support from INMD, in the form of, including,
but not limited to, materials, patients, personnel, data or Facility or Employer
resources, Employee will submit to INMD's Vice President, Science and Technology
and its Vice President, Medical Affairs, not less than 30 days prior to the
proposed submission date, a copy of the proposed article or publication, for
INMD's proprietary review, Employee further agrees that the appropriate
statement, "support provided by INMD, Inc." or "Supported in part by IntegraMed
America, Inc." will be set forth as a disclosure with respect to the
publication.
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VI. FRINGE BENEFITS
Employee is eligible to participate in all fringe benefits programs
established and approved by Employer.
VII. OPERATING EXPENSES
During the term of this Agreement, Employer shall pay all reasonable
overhead operating expenses of Employee in accordance with the general policy of
Employer, as determined from time to time by Employer.
VIII. PROFESSIONAL LIABILITY INSURANCE
Employer shall provide Employee with such comprehensive professional
liability insurance coverage as it deems appropriate, covering the acts or
omissions of Employee in the normal course of his/her employment. The coverage
shall take the form of an individual policy for Employee and an entity policy
for Employer. The coverage limits shall not be less than one million dollars
($1,000.000.00) per incident annually and three million dollars ($3,000,000.00)
annually on an aggregate basis. In the event that Employee's employment with
Employer is terminated for any reason, Employer is responsible for either
maintaining Employee's individual coverage within Employer's group policy or for
paying the premium necessary to convert Employee's individual policy from claims
made coverage to occurrence coverage.
IX. RECORDS AND FILES
All case records, charts, and personal files concerning patients of
Employer shall be deemed to be confidential information and shall belong to and
remain the property of Employer. On termination of his/her employment, Employee
shall not keep or reproduce any of Employer's records or charts related to any
patient unless the patient specifically requests that his/her records be
transmitted to Employee.
X. VACATIONS AND SICK LEAVE
Each Employee shall devote full time, knowledge, and skill to Employer's
business; provided, however, an Employee may reduce its efforts on behalf of the
Employer to no less than seventy-five percent (75%) of full time with a
proportionate reduction in the allocation of Employer's profits and the payment
of death, disability and withdrawal benefits as provided. Each Employee shall be
entitled to vacations and sick leave in the following manner, provided however
that any reduction in hours may not affect Employee's agreement with INMD.
A. Employee shall be entitled to eight (8) weeks vacation in each calendar
year to be taken at such times as may be most convenient to the Employer. Up to
two (2) weeks vacation may be carried over and used in a future year. Vacation
request for periods exceeding one (1)
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week by full-time Employees require notification a minimum of two months in
advance to allow Employer to arrange coverage.
B. Employee shall be entitled to five (5) days sick leave each calendar
year without adjustment in earnings because of actual sickness or accident. Sick
leave not used in one (1) year may not be carried over to future years or used
for additional vacation.
C. If any Employee's sick leave exceeds the limit specified in this section
for any year, such excess sick leave shall reduce the period the Employee
continues to receive the full share of profits upon his or her disability as
provided in Section 11 below.
XI. DISABILITY
Employer will maintain disability insurance for Employee as indicated in
Appendix B.
Upon the disability of the Employee, the disabled Employee shall be paid
the following amounts on the specified terms and conditions as full compensation
for and liquidation of the disabled Shareholder Employee's interest in the
corporation:
A. During the first six (6) months of disability, the Employer will pay the
disabled Employee:
1. A full monthly salary or the first three (3) months of
disability; and
2. One half (1/2) of the monthly salary for the second three (3)
months of disability.
B. Following the first six (6) months of disability, the disabled Employee
will receive no compensation from the Employer. However, the disabled Employee
shall be paid the proceeds, if any, from the disability insurance policy as
received by the Employer.
C. After one year of disability as defined by the disability insurance
policy, the disabled Employee's interest in the Employer shall be terminated and
the disabled Employee shall be paid the full proceeds from the disability
insurance policy as received by the Employer.
D. The payments made pursuant to this paragraph, including the payment of
proceeds from the disability insurance policy, is intended to be and shall
constitute full compensation for and liquidation of the disabled Employee's
interest in the Employer.
E. Employer is responsible for contributing to the State Workers'
Compensation and Disability funds on Employee' behalf. If Employee becomes ill
or injured on the job, he or she is entitled to Workers' Compensation as defined
by Workers' Comp regulations. If Employee
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becomes disabled for any reason, he or she will become eligible for State
Disability payments as specified by the State Disability Board.
XII. TERMINATION
A. Automatic Termination for Cause. This Agreement shall terminate
automatically and immediately:
1. If Employee ceases to be a Licensed Person or if Employee's license
("License") to render the professional services rendered by Employer is
suspended by the applicable governmental licensing authority or if Employee is
disqualified from practice with Employer pursuant to any peer review proceedings
initiated by Employer;
2. On the death of Employee;
3. If Employer and Employee shall mutually agree in writing to
termination;
4. If Employee becomes permanently disabled or incapacitated and the
disability or incapacitation renders Employee unable to render the professional
services Employee is obligated to render pursuant to this Agreement;
5. If Employee's active, continuous rendering of professional services
as an employee of Employer is interrupted, either voluntarily or involuntarily,
during a period of more than ninety days, which interruption is not the result
of a Permitted Absence; or
6. If Employee is convicted of a felony under any state or federal
law.
B. Discretionary Suspension and/or Termination With Cause. Employer may
suspend Employee or terminate this Agreement immediately:
1. Upon the notification of the initiation of any investigation of
Employee by any licensing, hospital, governmental agency, or any other entity
with which Employer has a contract to provide medical services;
2. If Employee has his or her medical staff privileges suspended or
terminated at the Hospital at which Employee is primarily assigned;
3. If Employee is arrested and charged with a felony under California
or Federal law at the discretion of the Board of Directors.
4. If Employee violates ethical and professional codes of conduct of
the work place as specified under California and Federal employment law.
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5. If Employee is found during the probationary review process to fail
to perform his or her duties as measured by criteria set in the sole discretion
of Employer, or, in the sole opinion of Employer, poorly represents Employer
while performing his/her duties under this Agreement, or Employer, in its sole
discretion, deems that Employee's attitude towards fellow employees or patients
under Employer's care is unsatisfactory.
6. If Employee relocates his/her principal residence, principal office
or domicile to any place outside the State of California.
C. Termination Without Cause This Agreement may be terminated without Cause
(as defined below) upon one year's prior written notice by either party to the
other. Employee and Employer agree that,because of the difficulties of
recruiting qualified physicians to fill positions with employer, the actual
damages to Employer resulting from Employee's failure to give the required
advance written notice of termination are extremely difficult and impracticable
to fix. therefore, in the event Employee fails to give the required written
notice of his/her voluntary termination, the parties agree that the amount of
damages to Employer shall be the gross amount employer would be obligated to pay
Employee for the number of hours Employee would normally be scheduled to work
during the ninety days preceding the effective day of Employee's termination.
D. Termination After Notice and Failure to Cure. If Employee does not
faithfully and diligently perform the duties of his/her employment and/or any of
the provisions of this Agreement (other than as a result of any event described
in Sections A or B of this Article, Employer may terminate this Agreement by
notice in writing to Employee, only if such nonperformance continues for a
period of fifteen (15) days after written notice thereof is given to Employee,
specifying the nature of the problem and requesting that it be cured.
E. Obligations Arising From Termination of Agreement. Upon termination of
this Agreement, as hereinabove provided, neither party shall have any further
obligation hereunder except for: (I) obligations occurring prior to the date of
termination; and (ii) obligations, promises or covenants which are expressly
made to extend beyond the term of this Agreement.
F. Request for Hearing. Upon receipt by Employee from Employer of notice of
termination of this Agreement pursuant to this section Employee may request, in
writing, a hearing before Employer's Board of Directors. Such hearing must be
requested within seven (7) calendar days from the date that the notice of
termination is received. Such hearing must take place within a reasonable time
from the date that the request for hearing is received by Employer's Board of
Directors. Employee shall be given a statement of reasons for the termination at
least seven (7) days prior to the scheduled hearing. Employee may call and
examine witnesses, rebut evidence, and cross examine any witnesses which
Employer calls. Neither Employee nor Employer's Board of Directors shall be
entitled to have an attorney present at the hearing. Employer's Board of
Directors will make a decision based on the evidence at the hearing within
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thirty (30) days of the date of the hearing. A notice of the decision, including
a statement of the reasons, shall be mailed to Employee within thirty (30) days
of the hearing's conclusion.
G. Notice to Participating Payors. If this Agreement is terminated for any
reason, Employee agrees to notify and authorizes Employer to notify
Participating Payors of the termination of this Agreement. The termination of
this Agreement may have the effect of terminating one or more Third-Party Payor
Contracts, depending upon the terms of the Third-Party Payor Contract at issue.
The termination of this Agreement shall not preclude Employee from entering into
a new or separate contractual arrangement with any third-party payor
participating in Employer's Program.
H. Arbitration of Disputes. Except in the case of Employee's termination
for Cause (in which case there shall be no provision for arbitration), if
Employee's employment is terminated, and Employee contends that such termination
was wrongful or otherwise in violation of the conditions of employment or was in
violation of any express or implied condition, term or covenant of employment,
whether founded in fact or in law, including but not limited to the covenant of
good faith and fair dealing, or otherwise in violation of any of Employee's
rights, Employee and Employer agree to submit any such matter to binding
arbitration pursuant to Title 9 of Part 3 of the California Code of Civil
Procedure, commencing at section 1280, et seq., or any successor or replacement
statutes, within one (1) year of the termination of Employee's employment.
Employee agrees that such arbitration shall be the exclusive forum for any
dispute arising out of the termination of Employee's employment (including
Employer's refusal, if any, to reinstate Employee after termination) with
Employer.
I. Waiver and Limitation of Remedy. If Employer does not receive a written
request for arbitration from Employee within three (3) months from the date that
Employee's employment with Employer terminates, Employee agrees that Employee
will have waived any right to raise any claim, in any forum, arising out of the
termination of Employee's employment with Employer. Employee further agrees that
in any arbitration, Employee's exclusive remedy for alleged violation of the
terms, conditions or covenants of employment shall be a money award not to
exceed either (1) the amount of wages Employee would have earned from the date
of Employee's termination to the date the arbitration decision is issued, less
any interim earnings, or (2) the amount of wages Employee would have received
for one year from the date that Employee's employment with Employer terminates
less any interim earnings, whichever is less, and Employee shall not be entitled
to any other remedy, at law or in equity, including but not limited to
reinstatement, money damages, punitive damages and/or injunctive relief.
J. Arbitration Procedure. Employee agrees that should any matter regarding
Employee's termination be submitted to arbitration pursuant to the provisions of
this Agreement, there shall be three arbitrators. Each party shall designate, at
will, one arbitrator within ten business days of delivery by Employee of the
written request for arbitration required pursuant to this Section. The third
arbitrator shall be selected by the two arbitrators so designated by the parties
hereto. In the event that either party does not designate an arbitrator within
such ten days
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and as required by this Section 9, the arbitration shall be conducted by the
sole arbitrator designated by the other party hereto. Each party shall bear its
own expenses and costs in presenting its case to the arbitrators or arbitrator,
as the case may be. The expenses and fees of the arbitrators (or the arbitrator,
as the case may be) shall be borne by the party who does not prevail at the
arbitration. The arbitrators (or the arbitrator, as the case may be) shall have
sole authority to determine which party is the prevailing party. Employee
acknowledges and agrees that the provisions of this paragraph shall survive the
termination of this Agreement and/or the termination of Employee's employment
with Employer and shall remain in full force and effect.
XIII. REPRESENTATIONS AND COVENANTS.
Employee makes the following representations and covenants, the validity of
which shall be a material term of this Agreement:
A. Physician holds a license and will remain licensed to practice medicine
in the State of California;
B. Physician is board eligible or board certified in reproductive
endocrinology;
C. Physician is authorized by the United States Drug Enforcement Agency to
prescribe all pharmaceuticals required in connection with the provision of
Infertility Services;
D. There are no professional disciplinary proceedings or malpractice
actions threatened or pending against Physician except as set forth in Exhibit
4.07 of the Asset Purchase Agreement, and Physician has notified and will
promptly notify Employer of any such professional disciplinary proceedings and
the dispositions thereof;
E. Physician has notified and will promptly notify Employer of all
malpractice actions brought against him and the disposition of any such action;
and
F. Physician shall at all times conduct himself in compliance with all
applicable policies and procedures of Employer as reasonably communicated to him
or her, as well as all applicable federal, state, and local laws, rules and
regulations.
XIV. MISCELLANEOUS
A. Governing law. This Agreement shall be governed by and interpreted and
construed according to the laws of the State of California.
B. Amendments. No amendments or variations of the terms and conditions of
this Agreement shall be valid unless placed in writing and signed by all
parties. No amendment or
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waiver of this Agreement shall materially adversely affect the rights of INMD
under any of its agreements with Employer or with Employee without the prior
written approval of INMD.
C. Assignability. Employee's rights and obligations under this Agreement
are personal and not assignable.
D. Entire agreement; binding effect. This Agreement constitutes the entire
agreement between the parties regarding the subject matter hereof, and shall
bind and inure to the benefit of both Employer and Employee and their respective
successors, assigns, heirs, and legal representatives; provided that Employee
shall not assign this Agreement or any rights hereunder or delegate any duties
hereunder without the prior written consent of Employer, and any attempted or
purported assignment or delegation without such consent shall be void.
E. Applicable Law. This Agreement shall be governed by the laws of the
State of California. Any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement or any breach thereof, shall
be determined by binding arbitration in the State of California, County of San
Diego (hereinafter "Arbitration"). The party seeking determination shall subject
any such dispute, claim or controversy to either (i) JAMS/Endispute or (ii) the
American Arbitration Association, and the rules of commercial arbitration of the
selected entity shall govern. The Arbitration shall be conducted and decided by
three (3) arbitrators. In reaching a decision, the arbitrators shall have no
authority to change or modify any provision of this Agreement. Each party shall
bear its own expenses and one-half the expenses and costs of the arbitrators.
Any application to compel arbitration, confirm or vacate an arbitral award or
otherwise enforce this Paragraph shall be brought in the Courts of the State of
California.
F. Severability of Agreement Provisions. Employer and Employee agree that
should any provision of this Agreement be declared or determined by any court of
competent jurisdiction to be illegal, invalid or unenforceable, the legality,
validity and enforceability of the remaining parts, terms and provisions shall
not be effected thereby, and said illegal, unenforceable or invalid part, term
or provision will be deemed not to be part of this Agreement.
G. Waiver; Consent. No consent or waiver, express or implied, by either
party hereto, or of any breach or default by the other party in the performance
by the other of its obligations hereunder, shall be valid unless in writing, and
no such consent or waiver shall be deemed or construed to be a consent or waiver
to or of any other breach or default on the performance by such other party of
the same or any other obligation of such party hereunder. Failure on the part of
either party to complain of any act or failure to act of the other party or to
declare the other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder.
The granting of any consent or approval in any other instance by or on behalf of
Employee and/or Employer shall not be construed to waive or limit the need for
such consent in any other or subsequent instance.
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H. Further Action. Each party hereto agrees that it will execute and
deliver such further instruments and will take such further action as may be
necessary to discharge, perform or carry out any of its respective obligations
and agreements hereunder.
I. Counterparts. This 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.
J. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when mailed at any general or branch United States Post Office
enclosed in a certified post-paid envelope and addressed to the address of the
respective party stated below or to such changed address as the party may have
fixed by notice:
To Employer:
Reproductive Sciences Center, Inc.
4150 Regents Park Row, Suite 280
La Jolla, California 92037
Attn: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Gerardo Canet, President
To Employee:
Samuel H. Wood, M.D., Ph.D.
P.O. Box 1208
Rancho Santa Fe, California 92067
With a copy to:
Frank Gamma, Esq.
Charles Bond & Associates
821 Bancroft Way
Berkeley, California 94710-2226
Any notice of change of address shall only be effective, however, when
received.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
By /s/ Samuel H. Wood, M.D.
------------------------------------------
Samuel H. Wood, M.D., Ph.D., President
EMPLOYEE
/s/ Samuel H. Wood, M.D.
- ---------------------------------------------
Samuel H. Wood, M.D., Ph.D.
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APPENDIX A
Net Income Distribution Calculation
Income Distribution and Draw Formula
Section 1: Draw
Employee will be eligible for a monthly draw, in arrears, based upon PC's
prior month's PDE if any, from the corporation. The draw will be equal to eighty
percent (80%) of the anticipated monthly income due Employee under the
corporation's current income distribution and expense allocation formula. Such
draw will be calculated based on the corporation's annual budget which shall be
prepared with the input and assistance of the Employee and INMD.
Corporation will reconcile the draw with actual financial results on
quarterly basis. Within thirty (30) days from the close of each quarter, the
corporation will calculate the actual amount due employee based on the quarter
in question. Employee will be entitled to total compensation for the quarter of
ninety percent (90%) of the amount due under the income distribution formula.
The final reconciliation will be performed on an annual basis and shall be done
by the corporation no later than within forty-five (45) days of the close after
the year. Employee shall be entitled to one hundred percent (100%) of his or her
share of the net income that is authorized for distribution by the board of
directors.
Employer is solely responsible for determining on a quarterly and an annual
basis what percentage of the corporation's net income can be distributed to the
physicians.
Should the quarterly or annual reconciliation indicate that a physician was
over-paid through the draw process, the amount overpaid shall be recovered over
the subsequent quarter in three equal deductions. In addition, the employee's
future quarterly draw will be adjusted accordingly.
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APPENDIX B
BENEFITS
CATEGORY BENEFIT
Health Insurance Family Coverage; 80% paid by corporation
Dental Insurance Fully Funded for Physician
Life Insurance $ 200,000
Disability Insurance Full monthly salary for the first three (3)
months of disability; 1/2 of monthly salary
for second 3 months; nothing thereafter beyond
disbursement of proceeds if any from policy
unless otherwise modified in Agreement Among
Shareholders
Continuing Medical Education One week annually for participation in
professional meetings
Malpractice Insurance $1,000,000/$3,000,000 coverage
Sick time one week
Social Security and
Employment taxes As required by law.
20
May 22, 1997 (3:43pm)
PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into May 22, 1997 by and between Reproductive Endocrine &
Fertility Consultants, P.A., a Kansas professional association, doing business
as Reproductive Science Associates, having its principal place of business at
Two Brushcreek Blvd., Suite 500, Kansas City, Missouri 64111 ("PA") and Elwyn M.
Grimes, M.D., residing at 121 West 48th Street, Suite 104, Kansas City, Missouri
64112 ("Physician").
R E C I T A L S:
PA specializes in the practice of gynecology and the treatment of
infertility, including the utilization of in vitro fertilization and assisted
reproductive technology services, including but not limited to the treatment of
human infertility, gamete intra-fallopian tube transfer and zygote
intra-fallopian transfers and related andrology services (all of the foregoing
are referred to collectively herein as "Infertility Services").
Physician is the sole owner of PA and is duly licensed to practice medicine
in the State of Missouri, specializes in the provision of Infertility Services
and has experience in infertility treatment including surgical skills required
in the course of providing Infertility Services.
PA has entered into an agreement with IntegraMed America, Inc. ("INMD"),
pursuant to which INMD will provide certain management and administrative
services as are more fully described in the agreement between PA and INMD dated
November 1, 1995 ("INMD-PA Agreement").
In order to further facilitate the provision of Infertility Services,
Physician is willing to devote Physician's full-time medical practice and
professional time to PA. PA desires to employ Physician and Physician desires to
accept such employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration set forth herein, the parties agree as follows:
1. ENGAGEMENT. PA hereby employs Physician and Physician hereby accepts
such employment to devote all of Physician's professional time, effort and
ability to the provision of Infertility Services under the terms and conditions
contained herein and as the parties may agree from time to time
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2. DUTIES.
(a) Physician shall serve as Medical Director of PA and in such capacity
provide patient care and clinical backup as required to ensure the proper
provision of services to patients of PA at PA's office at the address set forth
in Schedule A (the "Offices"), and/or such other location as shall be mutually
agreed to by PA and Physician. Physician agrees to perform such services as are
required to fulfill the PA's obligations under the INMD-PA Agreement. Physician
agrees to devote substantially all of Physician's professional time, effort and
ability to PA's practice development and the provision of Infertility Services
under the terms and conditions contained herein and as the parties may agree
from time to time. In connection therewith, Physician's duties shall include,
but not be limited to, the following:
(i) Provision of patient counseling and medical examinations,
performance of egg retrievals, embryo transfers, surgeries, including, but not
limited to, microsurgeries and laparoscopies, and patient follow-up;
(ii) Reviewing and evaluating clinical data on a routine basis and
making specific recommendations for improving implantation rates and treatment
outcomes;
(iii) Maintenance of a thorough understanding of and proficiency in
the application of the most current technologies (including both surgical and
non-surgical techniques) relevant to Infertility Services and related medical
high technology infertility procedures ("ART Technology"); and
(iv) Development and implementation of educational outreach programs
designed to facilitate the development of relationships with physicians in the
obstetric/gynecology community and the dissemination of information pertaining
to the availability of Infertility Services.
(b) Except as permitted by Section 3(b) hereof, Physician shall not, during
the term of this Agreement, otherwise engage in the practice of medicine outside
of PA without the express written consent of PA and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided and duties
assumed by Physician hereunder, Physician shall be compensated as provided on
Schedule B attached hereto and made a part hereof.
(b) All remuneration received by Physician in payment for any outside
professional medical activities, but not including any income derived from
testimony for litigation-related proceedings, lectures, passive investments,
fundraising, or writing where Physician does not render professional medical
services, shall be accounted for and be the sole property of PA. Physician's
engagement in outside professional medical activities shall require the express
written consent of PA and shall not interfere in any way with the fulfillment of
Physician's duties hereunder or diminish the quality of the Infertility Services
rendered.
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(c) Physician shall receive the benefits provided for on Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PA hereunder shall be billed and collected by PA; provided, however,
that pursuant to the terms of the INMD-PA Agreement, INMD shall carry out
billing and collection functions on behalf of PA. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to PA
patients shall become the property of PA, and Physician agrees immediately to
turn over to PA any such fees received by Physician during the term hereof.
Physician hereby authorizes PA, and/or INMD on PA's behalf, to bill for
Infertility Services provided hereunder and agrees to execute any and all
assignments or other documents that may be necessary or appropriate to permit
PA, or INMD as its designee, to carry out all billing and collection functions.
Physician agrees that Physician shall not submit bills for, seek remuneration
for, or otherwise collect fees for Infertility Services provided hereunder.
Physician shall look solely to PA for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order to
provide Infertility Services to PA as herein required, Physician must at all
times during the term of this Agreement be a member in good standing and have
admitting privileges at at least one hospital accredited by the JCAHO (the
"Hospital") within the geographic area of PA's office ("Privileges"). PA shall
use reasonable efforts to assist Physician in maintaining such Privileges. The
failure of the Physician to maintain Privileges shall be deemed a cause for
termination of this Agreement. Physician shall promptly notify both the PA and
INMD of any determination, ruling or decision which suspends, limits, terminates
or in any manner impairs Physician's Privileges.
6. INMD-PA AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-PA Agreement and acknowledges that PA has substantial responsibilities,
rights and obligations under said Agreement. Physician agrees to at all times
act in such manner as to cause the PA to be in compliance with the INMD-PA
Agreement, and Physician further agrees that to the extent applicable to PA and
to the responsibilities of the Physician hereunder, he shall assist PA in
carrying out its obligations under the INMD-PA Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PA shall obtain and maintain on behalf
of Physician, professional liability insurance through a carrier and with such
limits as PA shall determine from time to time.
8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND POLICIES. Physician
agrees at all times to comply with the bylaws, rules and regulations of the
Hospital and of its medical staff and the reasonable policies, directives,
bylaws, rules and regulations of PA. Physician acknowledges that PA shall have
final authority over: (a) the acceptance or refusal to treat any patient; and
(b) the amount of the fee to be charged for all Infertility Services rendered by
Physician to patients of PA, so long as such fees are lawful and reasonable.
Notwithstanding the foregoing, Physician may refuse to treat any patient whom he
reasonably believes should not be treated based upon reasonable medical or legal
concerns.
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9. MEDICAL RECORDS AND COOPERATION.
(a) All medical records of patients to whom Physician provides Infertility
or other medical Services on behalf of PA during the term hereof shall be the
property of PA. A copy of any medical records of such patients will be made
available to Physician upon request.
(b) In the event of any claims, suits or governmental investigations,
arising out of or relating to the provision of Infertility Services by PA or
Physician in which PA, INMD and/or Physician shall be named or involved, whether
pending during or after the term of this Agreement, the parties hereto agree to
cooperate fully with each other in the defense of such suit, claim or
investigation. Such cooperation shall include, by way of example but not
limitation, meeting with defense counsel, the production of any documents in
their possession for review, participation in discovery, response to subpoenas
and the coordination of any individual defense with counsel for PA, Physician
and/or INMD. The parties will soon as possible deliver to each other and INMD
copies of summonses, complaints, suit letters, subpoenas or legal papers of any
kind, served upon each other or their attorneys. This obligation to cooperate in
the defense of any such claims or suits shall survive the termination, for
whatever reason, of this Agreement, and nothing in this Section shall obligate
the parties to pay any legal fees incurred by the other.
10. TERM. The initial term of this Agreement shall begin on July 1, 1997
and shall terminate five (5) years thereafter unless earlier terminated pursuant
to the provisions of Section 11. After the expiration of the initial term
hereunder, this Agreement shall be extended automatically, for periods of five
(5) years each, on the same terms and conditions as herein specified, except
that the provisions of Section 15(b) shall not apply to such extension.
11. TERMINATION.
(a) This Agreement may terminate upon the occurrence of any of the
following:
(i) Termination of the INMD-PA Agreement for any reason if such
agreement terminates without a successor agreement, or upon the termination
of any successor agreement which terminates without a successor agreement;
(ii) Conviction of Physician of a felony or suspension, revocation or
non- renewal of Physician's license to practice medicine;
(iii) Upon the mutual agreement of the parties at any time;
(iv) Upon the loss by Physician of Hospital Privileges, as described
in Section 5;
(v) By either party without cause upon giving the other party six (6)
months' prior written notice; or
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(vi) By either party upon a material breach by the other party;
provided that the non-breaching party first gives the breaching party
written notice of the breach, and the breaching party fails to cure the
breach within thirty (30) days after such notice; or
(vii) Upon death or "permanent disability" (as such term is
hereinafter defined) of Physician. In either such event, this Agreement
shall terminate immediately; provided, however, Physician (or Physician's
legal representative, as the case may be) will be entitled to receive any
accrued but unpaid compensation earned by Physician hereunder through the
date of such event. For purposes of this Agreement, the term "permanent
disability" shall have the meaning set forth in the long-term disability
insurance policy or policies then maintained by Physician or PA, or if no
such policy shall then be in effect, or if more than one such policy shall
then be in effect in which the term "permanent disability" shall be
assigned different definitions, then the term "permanent disability" shall
be defined for purposes hereof to mean any physical or mental disability or
incapacity which renders Physician incapable of fully performing the
services required in accordance with Physician's obligations hereunder for
a period of 120 consecutive days or for shorter periods aggregating 120
days during any twelve-month period.
(b) Upon termination of this Agreement, as hereinabove provided, neither
party shall have any further obligation hereunder except for: (i) obligations
occurring prior to the date of termination; and (ii) obligations, promises or
covenants which are expressly made to extend beyond the term of this Agreement.
12. REPRESENTATIONS AND COVENANTS.
Physician makes the following representations and covenants, the validity
of which shall be a material term of this Agreement:
(a) Physician holds a license, in good standing, and will remain licensed
to practice medicine in the State of Missouri;
(b) Physician is authorized by the United States Drug Enforcement Agency to
prescribe all pharmaceuticals required in connection with the provision of
Infertility Services;
(c) There are no professional disciplinary proceedings or malpractice
actions threatened or pending against Physician, and Physician has notified and
will promptly notify PA of any such professional disciplinary proceedings and
the dispositions thereof;
(d) Physician has notified and will promptly notify PA of all malpractice
actions brought against him and the disposition of any such action; and
(e) Physician shall at all times act in compliance with all applicable
policies and procedures of PA as reasonably communicated to Physician, as well
as all applicable federal, state, and local laws, rules and regulations.
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(f) Physician shall terminate Physician's position at Meharry Medical
College in Nashville, Tennessee and will as a result be in the position to
commence employment with PA on a full-time basis, effective July 1, 1997.
(g) As a material inducement for PA to enter into this Agreement with
Physician, PA is relying upon Physician's commitment to remain in PA's
employment for not less than five (5) years. In reliance upon such commitment,
INMD is willing to reduce the amount of Advances, as defined in the INMD-PA
Agreement, owed by PA to INMD, which Advances totaled $670,000 as of March 31,
1997, by $12,500 per quarter for each quarter Physician remains employed by PA,
up to a total of $250,000.
13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or disclose to
others (except in connection with the fulfillment of Physician's duties
hereunder any Infertility Services Information, as defined herein), during the
term of this Agreement or during any extension or renewal thereof, and for a
period of one (1) year thereafter, except as expressly consented to in writing
by PA and INMD. For purposes of this Agreement, the term "Infertility
Information" shall mean such technical, scientific, and business information
provided to Physician by PA or INMD which is designated by PA or INMD to be
confidential or proprietary. Infertility Information shall not include
information which: (i) is or becomes known in the scientific community through
no fault of Physician; (ii) is learned by Physician from a third party legally
entitled to disclose such information; or (iii) was already known to Physician
at the time of disclosure by the disclosing party. Physician further agrees that
should his or her contractual relationship hereunder terminate, he or she will
neither take nor retain, without prior written authorization from PA and INMD,
any papers, patient lists, fee books, patient record files, or other documents
or copies thereof or other Infertility Information of any kind belonging to PA
or INMD, as the case may be.
(b) Without limiting other possible remedies available to PA for the breach
of this covenant, Physician agrees that injunctive or other equitable relief
shall be available to enforce this covenant. Physician further agrees that if
any restriction contained in this section is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and remaining restrictions herein shall be enforced independently of each
other. The parties further agree that INMD shall have an independent right to
enforce this covenant in its own right.
(c) It is further understood and agreed that in order to minimize any
misunderstanding regarding what information is considered to be confidential or
proprietary Infertility Information, the PA or INMD will designate the specific
information which PA or INMD considers to be proprietary or confidential under
this Agreement.
14. LIMITS ON CONFIDENTIALITY AGREEMENT. Nothing in the foregoing Section
13 or elsewhere in this Agreement shall prevent Physician from using any
reproductive endocrine or other concepts relating to Infertility Services which
are also applicable to non-ART infertility treatment. Furthermore, the
restrictions contained in Section 13 shall be of no further force
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and effect, if this Agreement is terminated as a result of the termination of
the INMD-PA Agreement.
15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO EMPLOYEES.
(a) No Solicitation. In the event Physician sells his interest in PA and
Physician is no longer an employee of PA, for 12 months following termination of
this Agreement and Physician's interest in PA, Physician agrees not to solicit,
directly or indirectly, the business of any person who is or was a patient or
client of PA, or a payer of PA's services rendered to patients. For purposes of
this Section, solicitation shall not include any general advertising in a
newspaper of general circulation. This covenant is acknowledged by Physician to
be based on the fact that the names and addresses of patients and referral
sources and the contact persons, contract needs and rates for third-party payers
and contracting organizations would not have been known by Physician except by
reason of the knowledge thereof gained as an employee or shareholder of PA.
(b) Covenant Not to Compete. In the event Physician sells his interest in
PA and Physician is no longer an employee of PA, for 12 months following
termination of this Agreement and Physician's interest in PA, Physician agrees
not to compete with the business of PA with regards to providing Infertility
Services as not permitted hereinafter, in accordance with the terms outlined
below:
(i) The term of the covenant not to compete (the "Non-Competition
Period") shall be one (1) year after the termination of the Employment Agreement
in the event such termination occurs during the initial term of this Agreement.
(ii) The geographic scope of the covenant not to compete (the "Service
Area") is twenty (20) miles from any offices maintained by PA for the rendition
of professional or other medical services to patients during the last twelve
months of Physician's employment by PA (the "Current Medical Offices").
(iii) During the Non-Competition Period, Physician agrees that he
shall not advertise or market Infertility Services, engage in the practice of
medicine in which Physician provides Infertility Services, be employed by, be an
agent of, act as a consultant for, allow his name to be used by, or have a
proprietary interest in, any Medical Practice providing Infertility Services
within twenty (20) miles of a Current Medical Office.
(iv) For purposes of this Section, the following definitions shall
apply:
(A) The term "Medical Practice" shall include any form of
organization in which Infertility Services are provided to patients of the
Medical Practice or of other physicians, including but not limited to a
sole proprietorship, a partnership, an association, a professional
corporation, a business corporation, or a limited liability partnership or
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corporation, a laboratory, an outpatient clinic, a practice management
company or medical services organization (or MSO). However, ownership of
less than 5% of the outstanding securities of any class of a medical
management or managed care organization traded on a national securities
exchange or the NASDAQ National Market System will not be deemed to be
engaging, solely by reason thereof, in the same business.
(B) The term "Medical Office" includes any location at which the
professional or technical component of Infertility Services are provided
and any other location which a Medical Practice maintains for patient
visits.
(C) The term "Infertility Services" shall have the meaning set
forth in the Management Agreement, except that Physician shall not be
prohibited from providing obstetrics and general gynecological services. In
addition, Physician shall be permitted to provide non-IVF infertility
services or pre-IVF services and agrees that any patients needing IVF/ART
services would be referred to PA, subject to patient preference.
Additionally, Physician will have privileges to perform IVF services at PA,
subject to PA's approval.
(v) Separability. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section is invalid or
unenforceable, each Party agrees that the court making the determination of
invalidity or unenforceability will have the power to reduce the scope, duration
or area of the term or provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement will be
enforceable as so modified after the expiration of time within which the
judgment may be appealed.
(vi) Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical care
by Physician on behalf of PA, provided those services are for patients of PA,
nor prohibit Physician from fulfilling his contract with PA, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
(vii) Acknowledgments. PA, INMD and Physician each acknowledges that:
(i) the terms set forth in this Section are necessary for the reasonable and
proper protection of the interests of PA and INMD; (ii) each and every covenant
and restriction is reasonable with respect to such matter, length of time and
geographical area; (iii) this Agreement, and this Section in particular, shall
be enforceable notwithstanding any dispute as to the sums and timing of payments
to Physician or other disputes under this Agreement or the Employment Agreement;
and (iv) the PA has been induced to enter into this Agreement and the PA and
INMD have been induced to enter the PA-INMD Agreement and their other respective
agreements with Physician, in part, due to the representation by Physician that
he will abide by and be bound by the aforesaid covenants and restraints.
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16. PUBLICATIONS. Physician agrees that any and all abstracts, articles,
reviews, or other publications that Physician proposes to submit for publication
within the scientific or medical community, or otherwise, which publication is
the result of direct or indirect support from INMD, in the form of, including,
but not limited to, materials, patients, personnel, data or Facility or PA
resources, Physician will submit to INMD's Vice President and Chief Operating
Officer and its Vice President, Medical Affairs, not less than 30 days prior to
the proposed submission date, a copy of the proposed article or publication, for
INMD's proprietary review, Physician further agrees that the appropriate
statement, "support provided by INMD, Inc." or "Supported in part by IntegraMed
America, Inc." will be set forth as a disclosure with respect to the
publication.
17. NOTICES. Any notice hereunder shall have been deemed given only if in
writing and either delivered in hand or sent by registered or certified mail,
return receipt requested, postage prepaid, or by United States Express Mail or
other commercial expedited delivery services, with all postage and delivery
charges prepaid, to the addresses set forth below:
If to Physician:
Elwyn M. Grimes, M.D.
121 West 48th Street, Suite 104
Kansas City, Missouri 64112
With a copy to:
Merrill R. Talpers, Esq.
Olsen & Talpers, P.C.
1100 Main Street, Suite 1500
Kansas City, MO 64105
If to PA, at:
Reproductive Endocrine & Fertility Consultants, P.A.
Two Brushcreek Blvd., Suite 500
Kansas City, Missouri 64111
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Peter Callan, Regional Vice President
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18. AMENDMENT. No modification, amendment, or addition to this Agreement,
nor waiver of any of its provisions, shall be valid or enforceable unless in
writing and signed by all parties.
19. ASSIGNMENT. No assignment of this Agreement or the rights and
obligations hereunder shall be valid without the specific written consent of
both parties.
20. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
understanding between the parties and no alteration or modification hereof shall
be effective unless contained in a subsequent written instrument executed by
both parties hereto.
21. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Missouri. Any and all claims, disputes, or controversies arising under,
out of, or in connection with this Agreement or any breach thereof, except for
equitable relief sought pursuant to Paragraph 15, shall be determined by binding
arbitration in the State of Missouri, County of Jackson (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial arbitration of the selected
entity shall govern. The Arbitration shall be conducted and decided by three (3)
arbitrators, unless the parties mutually agree, in writing at the time of the
Arbitration, to fewer arbitrators. In reaching a decision, the arbitrators shall
have no authority to change or modify any provision of this Agreement. Each
party shall bear its own expenses and one-half the expenses and costs of the
arbitrators. Any application to compel Arbitration, confirm or vacate an
arbitral award or otherwise enforce this Paragraph shall be brought in the
Courts of the State of Missouri.
22. SEVERABILITY. Each provision in this Agreement is intended to be
severable, and may be modified by any court of competent jurisdiction to the
extent necessary to make such provision valid and enforceable. If any term or
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever in whole or in part, such provision
or portion thereof shall be severed from this Agreement and shall not effect the
validity of the remainder of this Agreement.
23. WAIVER; CONSENT. No consent or waiver, express or implied, by either
party hereto, or of any breach or default by the other party in the performance
by the other of its obligations hereunder, shall be valid unless in writing, and
no such consent or waiver shall be deemed or construed to be a consent or waiver
to or of any other breach or default on the performance by such other party of
the same or any other obligation of such party hereunder. Failure on the part of
either party to complain of any act or failure to act of the other party or to
declare the other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder.
The granting of any consent or approval in any other instance by or on behalf of
Physician and/or PA shallall not be construed to waive or limit the need for
such consent in any other or subsequent instance.
10
<PAGE>
24. FURTHER ACTION. Each party hereto agrees that it will execute and
deliver such further instruments and will take such further action as may be
necessary to discharge, perform or carry out any of its respective obligations
and agreements hereunder.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above written.
Reproductive Endocrine & Fertility Consultants, P.A.
By: /s/ Elwyn M. Grimes, M.D.
---------------------------------------
Elwyn M. Grimes, M.D., President
Physician:
/s/ Elwyn M. Grimes, M.D.
- --------------------------------------------
Elwyn M. Grimes, M.D.
<PAGE>
SCHEDULE A
Office Location(s)
Two Brushcreek Blvd., Suite 500, Kansas City, Missouri 64111
11
<PAGE>
SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
During the first year of this Agreement, Physician shall be entitled to an
annual minimum guaranteed draw of $150,000, taken for the first 6 months in
installments of $15,000 each and for the second 6 months in installments of
$10,000 each. Thereafter, Physician shall likewise be entitled to an annual draw
of $150,000, taken in 12 monthly installments, with no guarantee of an annual
available amount.
With regard to PA's portion of PDE, as defined in the INMD-PA Agreement,
the following allocation formula with respect to PA's PDE shall become effective
after direct physician costs (Physician draw and retirement benefit, and
physician-employee salary which are collectively referred to as "Physician
Direct Costs") are satisfied: 55% of PA's PDE in excess of Physician Direct
Costs shall be retained by INMD to reduce the Advances debt and 45% shall be
remitted to PA for Physician("Physician's Adjusted PDE").
PA will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, PA will calculate
the actual amount due Physician based on the quarter in question. Physician will
be entitled to PA's Adjusted PDE within 10 days after the quarterly calculation.
The final reconciliation will be performed on an annual basis and shall be done
by PA no later than ninety (90) days of the close after the year. Physician will
be entitled, upon completion of the final reconciliation, to Physician's
Adjusted PDE within 10 days after the calculations determining actual PDE for
the year. Should the quarterly or annual reconciliation indicate that Physician
was over-paid through the draw process, the amount overpaid shall be recovered
over the subsequent quarter in three equal deductions. Notwithstanding the
reconciliation provided for in this paragraph, during the first year of this
Agreement, Physician shall not receive less than a $150,000 draw from PA.
Physician shall be entitled to reimbursement for business-related expenses
in the performance hereunder.
12
<PAGE>
BENEFITS
Physician shall receive the following benefits which are considered part of
Cost of Services:
================================================================================
CATEGORY BENEFIT
================================================================================
Health Insurance Family Coverage; 80% paid by PA
- --------------------------------------------------------------------------------
Dental Insurance Fully Funded for Physician
- --------------------------------------------------------------------------------
Life Insurance Two times base annual salary; total
insurance not to exceed $350,000; subject
to Physician's insurability.
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
CATEGORY BENEFIT
================================================================================
Disability Insurance 60% of base compensation after
90 days; paid to age 65; plus maintenace
of Physician's personal supplemental
disability coverage currently in effect.
- --------------------------------------------------------------------------------
Continuing Medical Education Participation in
professional meetings and medical
education programs, with expenses not to
exceed $7,000 annually.
- --------------------------------------------------------------------------------
Malpractice Insurance $1,000,000/$3,000,000 coverage
- --------------------------------------------------------------------------------
Vacation As agreed between PA and Physician
- --------------------------------------------------------------------------------
Sick time As needed
- --------------------------------------------------------------------------------
Social Security and Employment taxes As required by law
- --------------------------------------------------------------------------------
Retirement Benefit $10,000 annually to a Retirement Plan
specified by Physician.
- --------------------------------------------------------------------------------
Relocation Assistance Reimbursement for properly documented
relocation expenses not to exceed $10,000
provided request is made within 12 months
of date of this Agreement.
================================================================================
14
AMENDMENT TO MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC. (Formerly known as IVF AMERICA, INC.)
And
REPRODUCTIVE ENDOCRINE & FERTILITY CONSULTANTS, P.A.
THIS AMENDMENT TO MANAGEMENT AGREEMENT, dated May 22, 1997 by and between
IntegraMed America, Inc., a Delaware corporation, with its principal place of
business at One Manhattanville Road, Purchase, New York 10577 ("INMD") and
Reproductive Endocrine & Fertility Consultants, P.A., a Kansas professional
corporation, with its principal place of business at Two Brushcreek Boulevard,
Suite 500, Kansas City, Missouri 64112 ("PA").
WHEREAS, INMD and PA entered into a Management Agreement dated November 1,
1995 ("Management Agreement"); and
WHEREAS, INMD and PA desire to amend the Management Agreement, in pertinent
part, to modify INMD's commitment to make available to PA certain funds for the
employment of a physician and provide for payment of PA's debt to INMD in the
amount of $670,000 as of March 31, 1997 as a result of Advances, as defined in
the Management Agreement.
In consideration of the mutual promises and covenants herein contained, and
as contained in the Management Agreement, INMD and PA agree as follows:
1. The Management Agreement is hereby amended by adding the following
sentence at the end of Section 3.4 thereof:
"On a monthly basis, INMD and PA will review and discuss operating results,
Advances, as herein defined, and proposed Advances, if any."
2. The Management Agreement is hereby amended by deleting Section 7.3.1 in
its entirety and substituting the following therefore:
"7.3.1 Any amounts advanced hereunder shall be considered Service Fees as
provided for in Section 7.1 and shall be repaid from PA's 75% allocation of PDE,
as defined in this Management Agreement, in accordance with this Section 7.3.1.
After satisfaction, on a monthly basis, of direct physician costs (Physician
draw and retirement benefit, and physician-employee salary which are
collectively referred to as "Physician Direct Costs"), 55% of PA's PDE in excess
of Physician Direct Costs shall be retained by INMD to reduce the debt owed to
INMD as a result of the Advances. This formula for repayment of Advances shall
remain in effect until such point as all Advances are repaid. Thereafter, 75% of
PDE shall be paid to PA and 25% retained by INMD. In addition to the foregoing
<PAGE>
adjustment, INMD shall be entitled to offset its obligation to pay PA the
$38,888.89 Exclusive Management Right payment provided for in Section 8.1 of
this Management Agreement on the last business day of October, 1997 in
accordance with the following formula:
Revenues for July, August Management Fee Amount Credited Against
or September 1997 Paid to PA INMD Advances
- ----------------- ---------- -------------
$110,000 or more $38,888.89 None
$100,001 to $109,999 $19,444.45 $19,444.44
$90,000 to $100,000 $8,888.89 $30,000.00
Less than $90,000 None $38,888.89
3. The Management Agreement is hereby amended by deleting Section 7.4 in
its entirety and substituting the following Section therefore:
"7.4 Minimum PDE. Physician has entered into a Shareholder-Physician
Employment Agreement with PA dated May 9, 1997 ("Employment Agreement") pursuant
to which, among other things, Physician has agreed to commence full-time
employment with PA effective July 1, 1997. As a result of the Employment
Agreement and to ensure for the first twelve months thereof that Physician will
be able to draw at least $150,000 against PDE, INMD agrees to make necessary
Advances to ensure that Physician is able to draw a minimum of $15, 000 per
month against PDE for the first 6 months of his employment by PA and $10,000 per
month against PDE for the second 6 months of his employment by PA."
4. The Management Agreement is hereby amended to add the following section:
"12.16 Cooperation. INMD and PA, for itself and on behalf of Physician,
covenant to work cooperatively in order for the parties to achieve the
objectives and purposes of this Management Agreement. PA shall cause Physician
to be available when needed to review marketing plans and participate in
strategic planning sessions relative to practice development. INMD and Physician
shall meet periodically to confer on practice development and determine the
course of action most appropriate to accomplish PA's development."
5. All other provisions of the Management Agreement, not in conflict with
this Amendment, remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have this Agreement the date first
above written.
INTEGRAMED AMERICA, INC.
By: /s/ Peter Callan
---------------------------------------------
Peter Callan, Central Region Vice President
REPRODUCTIVE ENDOCRINE & FERTILITY CONSULTANTS, P.A.
By: /s/ Elwyn M. Grimes, M.D.
---------------------------------------------
Elwyn M. Grimes, M.D., President
AMENDMENT TO MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC.
And
FERTILITY CENTERS OF ILLINOIS, S.C.
THIS AMENDMENT TO MANAGEMENT AGREEMENT, dated May 2, 1997, by and between
IntegraMed America, Inc., a Delaware corporation, with its principal place of
business at One Manhattanville Road, Purchase, New York 10577 ("INMD") and
Fertility Centers of Illinois, S.C., an Illinois medical corporation, with its
principal place of business at 3000 North Halstead Street, Suite 509, Chicago,
Illinois 60657 ("FCI").
RECITALS:
INMD and FCI entered into a Management Agreement dated February 28, 1997
("Management Agreement"); and
INMD and FCI wish to amend the Management Agreement, in pertinent part, to
provide an alternate management fee structure, to take immediate effect should
any portion of Section 6.1 be deemed unenforceable, against public policy or
forbidden by law, at any time during the term of said Management Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, and as contained in the Management Agreement, INMD and FCI agree as
follows:
1. The Management Agreement is hereby amended to add the following section:
"6.1.5. In the event that Section 6.1.3 and/or Section 6.1.4 of this
Agreement is found to be illegal, unenforceable, against public policy, or
forbidden by law, by any local, state or federal agency or department, or
any court of competent jurisdiction ("Findings"), then Sections 6.1.3 and
6.1.4 and the Base Management Fee and Additional Service Fee shall be
replaced, effective immediately and retroactive to the date of the
Management Agreement, by a fixed annual Management Fee, payable in equal
monthly installments ("Alternate Management Fee") on or before the 15th
business day of each month. Said Alternate Management Fee shall be in an
amount mutually agreed upon, within thirty days time from the Findings,
between INMD and FCI, but in no event shall be less than $1,000,000 per
annum. In the event of a Finding which causes the Alternate Management Fee
to become operative, the parties shall, within sixty days of the Finding,
account for all payments made prior to the date of the Finding, and
recalculate such amounts pursuant to the formula
<PAGE>
provided in the Alternate Management Fee. Any overpayment to INMD resulting
from the prior application of Sections 6.1.3 and/or 6.1.4 shall be applied
so as to satisfy 50% of each future monthly Alternate Management Fee until
the aggregate of such overpayment is fully paid. Any underpayment to INMD
resulting from the prior application of Sections 6.1.3 and/or 6.1.4 shall
be paid to INMD, commencing on the first day of the next full month
following the date of the Finding, in eighteen (18) equally monthly
installments.
"6.1.6. The right of termination provided for in Section 8.1.3 of the
Management Agreement, if based on the fact that Section 6 of the Management
Agreement has been found to be illegal, unenforceable, void, against public
policy or forbidden by law, shall only be exercisable in the event that
both (1) Sections 6.1.3 and 6.1.4 and (2) the Alternate Management Fee have
been so found by a local, state or federal agency or department, or any
court of competent jurisdiction."
2. All other provisions of the Management Agreement, not in conflict with
this Amendment, remain in full force and effect.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
IntegraMed America, Inc.
By: s/Gerardo Canet
---------------------------------
Gerardo Canet, President
Fertility Centers of Illinois, S.C.
By: s/Aaron S. Lifchez, M.D.
---------------------------------
Aaron S. Lifchez, M.D., President
MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC.
And
MPD MEDICAL ASSOCIATES, P.C.
THIS MANAGEMENT AGREEMENT, dated June 2, 1997, by and between IntegraMed
America, Inc., a Delaware corporation, with its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("INMD") and MPD Medical
Associates, P.C., a New York professional services corporation, with its
principal place of business at 200 Old Country Road, Mineola, New York 11501
("PC").
RECITALS
PC is a medical practice specializing in gynecology and the treatment of
infertility, including the utilization of in vitro fertilization and assisted
reproductive technology services (all such medical services are collectively
referred to herein as "Infertility Services").
INMD is in the business of owning certain assets and providing billing and
collection, and management and administrative services to medical practices
specializing in the provision of Infertility Services, and furnishing such
medical practices with the necessary facilities, equipment, personnel, supplies
and support staff in order to assist such medical practices in the business
aspects of the practice of their discipline.
PC entered into a management agreement with IVF America (NY), Inc. ("IVFA")
dated September 1, 1994 (the "Management Agreement") pursuant to which IVFA, a
subsidiary of INMD, agreed to provide, among other things, certain management
and administrative services to PC, an office site and a license to use certain
Trade Names as defined in the Management Agreement.
IVFA assigned all its rights and obligation under the Management Agreement
to INMD pursuant to an Assignment and Assumption Agreement dated February 5,
1997.
PC wishes to continue to engage INMD to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the nonmedical aspects of PC's medical practice,
and INMD desires to provide such services upon all terms and conditions herein
set forth. PC and INMD have determined the fair market value for the full
complement of services rendered
- 1 -
<PAGE>
by INMD and have determined and agreed to a management fee that will allow PC
and INMD to establish a relationship permitting each party to this agreement to
devote its skills and expertise to the appropriate responsibilities and
functions.
PC and INMD desire to amend and restate the terms and conditions of the
Management Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, PC and INMD agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
1.1.1 "Assets" shall mean those fixed assets utilized in connection
with the operation of PC's medical practice.
1.1.2 "Adjustments" shall mean adjustments for refunds, discounts,
contractual adjustments, professional courtesies and other activities that
do not generate a collectible fee as reasonably determined by INMD and PC.
1.1.3 "Collections" shall mean the aggregate, over a six (6) month
period, of all Physician and Other Professional Collections.
1.1.4 "Cost of Services" shall mean all ordinary and necessary
expenses of PC and all direct ordinary and necessary operating expenses of
INMD, without mark-up, incurred in connection with billing, collection,
management and administrative services provided by INMD in the management
of PC's medical practice, as more specifically defined in Section 2.1.
1.1.5 "Facilities" shall mean the medical office and clinical space of
PC, including the Mineola and Suffolk Facilities, as defined in Section 3.2
and any satellite locations, related businesses and all medical group
business operations of PC, which are utilized by PC in its medical
practice.
1.1.6 "Fiscal Year" shall mean the 12 month period beginning January 1
and ending December 31 of each year.
- 2 -
<PAGE>
1.1.7 "Infertility Services" shall mean medical care in gynecology and
the treatment of human infertility, including but not limited to, the
provision of in vitro fertilization and other assisted reproductive
services provided by PC or any Physician Employee and Other Professional
Employee.
1.1.8 "Management Fee" shall mean an annual fee paid by PC to INMD in
an amount defined in 6.1.3 of this Agreement.
1.1.9 "Professional Employees" shall mean nurse anesthetists,
physician assistants, nurses, nurse practitioners, psychologists,
embryologists, tissue bank and laboratory personnel and other such
professional employees who may generate professional charges. Such
Professional Employees shall be the employees, or independent contractors,
as the case may be, of the PC.
1.1.10 "Physician Employees" shall mean those individuals who are
employees or members of PC or are otherwise under contract with PC to
provide professional services to PC patients and are duly licensed as
physicians in the State of New York.
1.1.11 "Physician and Other Professional Collections" shall mean all
fees and revenues actually collected each month by or on behalf of PC as a
result of professional medical services personally furnished to patients by
the PC and other fees or income collected by the PC in its capacity as a
group of professionals, whether rendered in an inpatient or outpatient
setting, including but not limited to, medical director fees or technical
fees from medical ancillary services, consulting fees and speaking fees.
1.1.12 "Other Employees" shall mean any employee who is not a
Professional Employee or Physician Employee. Each Other Employee shall be
an INMD employee, unless such employee cannot be employed by INMD, in which
event such employee shall be employed by PC.
ARTICLE 2
COST OF SERVICES AND MANAGEMENT FEE
2.1 "Cost of Services" (as defined in Section 1.1.4) includes without
limitation, the following costs and expenses, whether incurred by INMD or PC:
- 3 -
<PAGE>
2.1.1 Salaries, fringe benefits and direct costs of all Other
Employees of INMD working directly in the management, operation or
administration of the practice and all salaries, and fringe benefits of all
PC employees (including, without limitation, Professional Employees but
excluding Physician Employees) providing services at PC, along with payroll
taxes or all other taxes and charges now or hereafter applicable to such
personnel;
2.1.2 Expenses incurred in the recruitment of additional physicians
for PC, including, but not limited to employment agency fees, relocation
and interviewing expenses and any actual out-of-pocket expenses of INMD
personnel in connection with such recruitment effort;
2.1.3 Direct marketing expenses of PC, such as direct costs of
printing marketing materials prepared by INMD;
2.1.4 Any sales and use taxes assessed against PC related to the
operation of PC's medical practice;
2.1.5 Lease payments, depreciation expense (determined according to
GAAP), taxes and interest directly relating to the Facilities and
equipment, and other expenses of the Facilities described in Section 3.2
below;
2.1.6 Legal fees paid by INMD or PC to outside counsel in connection
with matters specific to the operation of PC such as regulatory approvals
required as a result of the parties entering into this Agreement; provided
however, legal fees incurred by the parties hereto as a result of a dispute
between the parties shall not be considered a Cost of Services.
2.1.7 Fringe benefits provided to Physician Employees;
2.1.8 All insurance necessary to operate PC including fire, theft,
general liability and malpractice insurance for Physician-Employees of the
PC;
2.1.9 Professional licensure fees and board certification fees of
Physician Employees and Professional Employees rendering Infertility
Services on behalf of PC;
2.1.10 Membership in professional associations and continuing
professional education for Physician Employees and Professional Employees;
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<PAGE>
2.1.11 The direct costs in maintaining a Quality Assurance Program
described in Section 3.7 herein;
2.1.12 Cost of filing fictitious name permits pursuant to this
Agreement;
2.1.13 The cost of medical supplies, including but not limited to
drugs, pharmaceuticals, products, substances, items, laboratory supplies,
office supplies, inventory and utilities; and
2.1.14 Such other costs and expenses directly incurred by INMD or PC
necessary for the management or operation of PC.
2.2 Notwithstanding anything to the contrary contained herein, Cost of
Services shall not include costs of the following:
2.2.1 Costs or expenses not included in the annual budget prepared by
INMD pursuant to Section 3.4 herein, unless approved by the parties;
2.2.2 The Management Fee;
2.2.3 Any proportion of INMD's costs attributable to its operation of
its corporate offices or payment of its officers or employees who work out
of its corporate offices;
2.2.4 Any federal or state income taxes of INMD other than as provided
above.
2.3 The "Management Fee" shall cover and include all indirect costs of INMD
including legal, accounting, financial, marketing, management and administrative
assistance provided by INMD corporate and regional staff which are not provided
for in Section 2.1.
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF INMD
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 PC hereby appoints INMD as PC's sole and exclusive manager and
administrator of all of its day-to-day business functions and grants INMD
all the necessary authority to carry out its duties and responsibilities
pursuant to the terms of this Agreement. PC and only PC
- 5 -
<PAGE>
will perform the medical functions of its practice. INMD will have no
authority, directly or indirectly, to perform, and will not perform, any
medical function. INMD may, however, advise PC as to the relationship
between its performance of medical functions and the overall administrative
and business functioning of its practice.
3.1.2 INMD shall, on behalf of PC, bill patients and collect
professional fees for Infertility Services rendered by PC at the
Facilities, outside the Facilities for PC's hospitalized patients, and for
all other Infertility Services rendered by any Physician Employee or
Professional Employee. PC hereby appoints INMD for the term hereof to be
its true and lawful attorney-in-fact, for the following purposes: (i) to
bill patients in PC's name and on its behalf; (ii) to collect accounts
receivable resulting from such billing in PC's name and on its behalf;
(iii) to receive payments from insurance companies, prepayments received
from health care plans, and all other third- party payors; (iv) to take
possession of and endorse in the name of PC (and/or in the name of any
Physician Employee or Other Professional Employee rendering Infertility
Services to patients of PC) any notes, checks, money orders, and other
instruments received in payment of accounts receivable; and (v) with the
consent of the PC, not to be unreasonably withheld, to initiate the
institution of legal proceedings in the name of PC to collect any accounts
and monies owed to PC, to enforce the rights of PC as creditor under any
contract or in connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors.
3.1.3 INMD shall supervise and maintain (on behalf of PC) all files
and records relating to the operations of the Facilities, including but not
limited to accounting and billing records, patient medical records, and
collection records. Patient medical records shall at all times be and
remain the property of PC and shall be located at the Facilities and be
readily accessible for patient care. INMD's management of all files and
records shall comply with all applicable state and federal laws and
regulations, including without limitation, those pertaining to
confidentiality of patient records. The medical records of each patient
shall be expressly deemed confidential and shall not be made available to
any third party except in compliance with all applicable laws, rules and
regulations. INMD shall have access to such records in order to provide the
services hereunder, to perform billing functions, and to prepare for the
defense of any lawsuit in which those records may be relevant. The
obligation to maintain the confidentiality of such records shall survive
termination of this Agreement. PC shall have unrestricted access to all of
its records at all times.
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<PAGE>
3.1.4 INMD shall supply to PC all reasonably necessary clerical,
accounting, bookkeeping and computer services, printing, postage and
duplication services, medical transcribing services, and any other
necessary or appropriate administrative services reasonably necessary for
the operation of PC's medical practice at the Facilities.
3.1.5 Subject to PC's prior approval, INMD shall design and implement
an appropriate marketing and public relations program on behalf of PC, with
appropriate emphasis on public awareness of the availability of Infertility
Services from PC. The public relations program shall be conducted in
compliance with applicable laws and regulations governing advertising by
the medical profession. PC shall approve all advertising and marketing
materials prior to use.
3.1.6 INMD shall assist PC in recruiting additional physicians,
including such administrative functions as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, PC shall interview and make the ultimate decision as to
the suitability of any physician to become associated with PC. All
physicians recruited by INMD and accepted by PC shall be employees of or
independent contractors to PC.
3.1.7 INMD shall negotiate, but shall not enter into, and shall
administer all managed care contracts on behalf of PC and shall consult
with PC on all administrative matters relating thereto. The establishment,
or continuation, of all managed contracts between the PC or any of its
Physician Employees and any managed care entity or organization, shall be
based on their financial terms and shall only be with the mutual consent of
the PC and INMD.
3.1.8 INMD shall, with the consent of the PC (not to be unreasonably
withheld), arrange for legal and accounting services as may be reasonably
required in the ordinary course of the PC's operation, including the cost
of enforcing any physician contract containing restrictive covenants;
provided, however, that INMD shall have no authority to arrange for any
legal or accounting services to the extent that the interests of INMD and
the PC in the matter in question shall be adverse nor shall INMD have any
obligation to make any Advance, as such term is used in Section 6.2, for
such services. Nothing contained herein is intended to authorize INMD to
settle any claim made by or against PC.
3.1.9 INMD shall, with the consent of the PC (not to be unreasonably
withheld), negotiate for and cause premiums to be paid with respect to the
insurance provided for in Article 10.
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<PAGE>
3.1.10 INMD shall take such other reasonable actions to collect fees
and pay expenses of the Facilities in a timely manner as are deemed
reasonably necessary to facilitate the operation of PC's medical practice
at the Facilities.
3.1.11 INMD shall pay Cost of Services in the ordinary course of PC's
medical practice and/or INMD's management of PC, it being understood that
INMD shall make such payments in the first instance, from Physicians and
Other Collections, after deduction of Management Fees, and, if necessary,
by Advances as contemplated by Section 6.3 hereof.
3.1.12 INMD shall not issue payment to itself for its Monthly
Management Fee (exclusive of Cost of Services) in any amount in excess of
$10,000, without the consent of the PC. However, if the PC objects to the
payment of the Management Fee, in any month during the term of this
Agreement, PC agrees that from the time of such objection until its
resolution, no shareholder/Physician Employee shall draw any funds from the
PC in excess of $10,000.
3.1.13 If, at the end of any quarter, after the payment of all Service
Fees and draws of the Physician Shareholders, there shall be profits to the
PC, INMD shall, at the direction of the PC, make any distributions of such
profits as requested by the PC, provided that such distributions leave a
reasonable reserve towards the next quarter's Service Fees,
3.2 FACILITIES.
3.2.1 Mineola Facilities. INMD shall provide the office space and
facilities necessary for the operation of PC's medical practice in Mineola
["Mineola Facilities"], as set forth in Exhibit 3.2 hereto, including but
not limited to, the use of the Mineola Facilities, all repairs, maintenance
and improvements thereto, utility (telephone, electric, gas, water)
services, customary janitorial services, refuse disposal and all other
services reasonably necessary in conducting the Mineola Facilities'
physical operations. INMD shall provide for the cleanliness of the Mineola
Facilities, and timely maintenance and cleanliness of the equipment,
furniture and furnishings located therein. INMD shall consult with PC
regarding the condition, use and needs for the Mineola Facilities,
equipment, services and improvements thereto. PC shall have the right to
review all proposed leases for office space and INMD shall consult with PC
with respect to the terms of such efforts to ensure that the leases provide
for reasonable assignment.
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3.2.2 Suffolk Facilities. INMD shall provide the office space and
facilities necessary for the operation of the PC's medical practice in
Suffolk County ["Suffolk Facilities"], at an address to be mutually agreed
to by INMD and PC, which shall include entering into an appropriate
leasehold and the construction, or "build out" of such office space to
specifications mutually agreed to by PC and INMD, the cost of such
construction, equipment and furnishings ["INMD Construction Investment"]
not to exceed $100,000 (One Hundred Thousand dollars). Such cost shall be
amortized over the ten year period of this Agreement by INMD. PC shall use
its best efforts to cooperate, by reviewing or conferring with respect to
plans, specifications and progress, so as to keep the construction of the
Suffolk Facilities on a schedule towards completion within 120 days from
the execution of this Agreement.
3.2.3 INMD shall, after completion of the construction of the Suffolk
Facilities, provide such Suffolk Facilities for use in the operation of
PC's medical practice, including but not limited to, the use of the Suffolk
Facilities, all repairs, maintenance and improvements thereto, utility
(telephone, electric, gas, water) services, customary janitorial services,
refuse disposal and all other services reasonably necessary in conducting
the Suffolk Facilities' physical operations. INMD shall provide for the
cleanliness of the Suffolk Facilities, and timely maintenance and
cleanliness of the equipment, furniture and furnishings located therein.
INMD shall consult with PC regarding the condition, use and needs for the
Suffolk Facilities, equipment, services and improvements thereto. PC shall
have the right to review all proposed leases for office space and INMD
shall consult with PC with respect to the terms of such efforts to ensure
that the leases provide for reasonable assignment.
3.2.4 Upon the mutual agreement of the parties, INMD and the PC shall
establish such other sites for the operation of the practice of the PC and,
in the absence of a formal written agreement governing the establishment
thereof, all costs shall be added to the INMD Construction Investment and
INMD and the PC shall assume all of the obligations, as to such sites as
each has with respect to the Mineola Facility.
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Subject to the approval of PC (not to be
unreasonably withheld), INMD shall (1) hire and appoint an Executive
Director to manage and administer all of the day-to-day business functions
of the Facilities and (2) determine the salary and fringe benefits paid to
the Executive Director. Under the direction, supervision and control of
INMD, the Executive Director, subject to the terms of this Agreement, shall
implement the policies agreed upon by INMD and PC and shall generally
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perform the administrative duties assigned to the Executive Director by
INMD.
3.3.2 PERSONNEL. INMD shall provide all Other Employees, who shall
include non-professional support personnel and administrative personnel,
clerical, secretarial, bookkeeping, billing and collection personnel
reasonably necessary for the operation of PC at the Facilities. Such
personnel shall be under the direction, supervision and control of INMD. If
PC is dissatisfied with the services of any Other Employee, PC shall
consult with INMD, and INMD shall in good faith determine whether the
employment of that employee warrants termination. INMD's obligations to
utilize nonprofessional personnel shall be governed by the overriding
principle and goal of facilitating the PC's provision of high quality
medical care and laboratory services. INMD shall make every effort,
consistent with sound business practices, to honor the specific requests of
PC with regard to the assignment of INMD's employees, including the
Executive Director.
3.4 FINANCIAL PLANNING AND GOALS. INMD shall prepare, for the approval of
PC, annual capital and operating budgets reflecting the anticipated revenues and
expenses, sources and uses of capital for growth of PC's practice and for the
provision of Infertility Services at the Facilities. INMD shall present the
budgets to PC for its approval at least thirty (30) days prior to the
commencement of the Fiscal Year. INMD shall specify the targeted profit margin
for PC's practice at the Facilities which shall be reflected in the overall
budget. If the parties can not agree on the budget for any Fiscal Year, the
budget for the preceding Fiscal Year shall serve as the budget until such time
as the dispute can be resolved.
3.5 FINANCIAL STATEMENTS. INMD shall prepare annual financial statements
for operations of PC at the Facilities within ninety (90) days of the close of
the Fiscal Year. INMD shall prepare monthly financial statements containing a
balance sheet and statement of operations, which shall be delivered to PC within
thirty (30) days after the close of each calendar month.
3.6 INVENTORY AND SUPPLIES. INMD shall order and purchase inventory and
supplies, and such other materials which are requested by PC to enable PC to
deliver Infertility Services in a cost-effective manner.
3.7 QUALITY ASSURANCE. INMD shall assist PC in fulfilling its obligations
to maintain a Quality Assurance Program and in meeting the goals and standards
of such program.
3.8 RISK MANAGEMENT. INMD shall assist PC in the development of a Risk
Management Program and in meeting the standards of such program.
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3.9 PERSONNEL POLICIES AND PROCEDURES INMD shall develop personnel
policies, procedures and guidelines, to govern office behavior, protocol and
procedure, designed to insure that the work site(s) of the PC observe all laws
and guidelines related to employment and human resources.
3.10 LICENSES AND PERMITS INMD shall, on behalf of and in the name of the
PC, coordinate and assist the PC in its application for and efforts to obtain
and maintain all federal state and local licenses, certifications and regulatory
permits required for or in connection with the operation of the PC and equipment
located at the Facilities, other than those relating to the practice of medicine
or the administration of drugs by Physician Employees. INMD shall grant PC a
license to use the name "Reproductive Science Associates" on any licenses.
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PC
4.1 PROFESSIONAL SERVICES. PC shall provide Infertility Services to its
patients in compliance at all times with ethical standards, laws and regulations
applying to the practice of medicine in the State of New York. PC shall ensure
that each Physician Employee, Other Professional Employee and any other
professional provider associated with PC is duly licensed to provide the
services being rendered within the scope of such provider's practice. In
addition, PC shall require each Physician Employee during the term of this
Agreement (1) to maintain a DEA number; (2) to maintain appropriate medical
staff privileges as determined by PC and (3) to obtain board certification in
Reproductive Endocrinology within five (5) years of a Physician Employee's
completion of an accredited training program or, to have the equivalent training
and experience at a foreign university and/or medical center. In the event that
any disciplinary actions or medical malpractice actions are initiated against
any such physician or other professional provider, PC shall immediately inform
the Executive Director and provide the underlying facts and circumstances of
such action.
4.2 MEDICAL PRACTICE. PC shall use and occupy the Facilities exclusively
for the purpose of providing Infertility Services and shall comply with all
applicable laws and regulations and all applicable standards of medical care.
The medical practice conducted at the Facilities shall be conducted solely by
physicians employed by or serving as independent contractors to PC, unless
approval is obtained from INMD (such approval not to be unreasonably withheld).
No other physician or medical practitioner shall be permitted to use or occupy
the Facilities without the prior written consent of INMD, except in the case of
a medical emergency, in which event, notification shall be provided to INMD as
soon after such use or occupancy as possible.
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4.3 DIRECTION OF PRACTICE
4.3.1 PC, as a continuing condition of INMD's obligations under this
Management Agreement, shall at all time during the Term be and remain
legally organized and operated to provide Infertility Services in a manner
consistent with state and federal laws.
4.3.2 PC shall operate and maintain at the Facilities a full time
practice of medicine specializing in the provision of Infertility Services
and shall maintain and use diligent efforts to enforce Physician Employment
Agreements in the form attached hereto as Exhibit 4.3 ["Employment
Agreement"] or in such other form as is mutually agreed to by the PC and
INMD in writing. PC covenants that it shall not employ any physician, or
have any physician as a shareholder, unless said physician shall sign such
Employment Agreement prior to assuming the status as employee and/or
shareholder. PC covenants that should a physician become a shareholder of
the PC, that a condition precedent to the issuance of the shares shall be
the ratification of this Management Agreement.
4.3.3 PC shall not (except for cause) terminate the Employment
Agreement(s) of any Physician or Shareholder, without two months written
notice to INMD. PC shall not amend or modify the Employment Agreements in
any material manner, nor waive any material rights of the PC thereunder
without the prior written approval of INMD. PC covenants to use diligent
efforts to enforce the terms of each Physician Employment Agreement,
including but not limited to any covenants not to compete and other terms
confirming a Physician-Employee's commitment to practice medicine solely
through the PC for a specified number of years. In addition, in the
exercise of INMD's sole discretion, if the PC fails to diligently pursue
the enforcement of its rights against a Physician-Employee, INMD shall have
the right, but not the obligation, to direct, initiate or join in a lawsuit
to enforce the provisions of any Employment Agreement and PC shall assign
its rights and remedies against such Physician-Employee upon the request of
INMD.
4.3.4 Recognizing that INMD would not have entered into this
Management Agreement but for the PC's covenant to maintain and enforce
Employment Agreements with Physicians now employed or Physicians who may
hereafter become employees of the PC, and in reliance upon such physicians'
observance and performance of all of the obligations under the Employment
Agreements, any damages, liquidated damages, compensation, payment or
settlement ["Damages"] received by the PC from a Physician whose employment
is terminated, shall be paid to the PC and shall not be part of
Collections. If, at the time of the Breach by such Physician Employee, this
Agreement was in force, but at the time of the
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PC's receipt of such Damages this Agreement is not in force, then INMD
shall be entitled to fifty percent (50%) of a percentage of such Damages
equal to a fraction, the numerator of which is the number of days during
the term of this Agreement, that the subject restrictive covenant was in
force, and the denominator of such is the total number of days, both during
and after the operation of this Agreement, that such restrictive covenant
was in force.
4.3.5 PC shall retain that number of Physician Employees as are
reasonably necessary and appropriate for the provision of Infertility
Services. However, PC shall hire Physicians ["Incoming Physician"] only (1)
with the consent, not to be unreasonably withheld, of INMD, and (2) after
the PC and INMD have mutually determined whether the costs of supporting
and providing management services to such incoming Physician Employee
justify an increase in the Management Fee, and, if so, the amount of such
increase in the Management Fee. The amount of such increase shall be no
less than 20% over the increase in Costs of Services and Physician Employee
draw or salary, occasioned by the addition of such Incoming Physician. Such
increase, if any, in the Management Fee shall take effect sixty (60) days
after the date that such Incoming Physician commences his/her practice at a
facility of the PC. Each Physician Employee shall hold and maintain a valid
and unrestricted license to practice medicine in New York, and shall be
competent in the practice of obstetrics and gynecology, including the
subspecialty of infertility and assisted reproductive medicine. PC shall be
responsible for paying the compensation and benefits, as applicable, for
all Physician Employees, and for withholding, as required by law, any sums
for income tax, unemployment insurance, social security, or any other
withholding required by applicable law. INMD may, on behalf of the PC,
establish and administer the compensation with respect to such Physician
Employees in accordance with the written agreement between the PC and each
Physician Employee. INMD shall neither control nor direct any Physician in
the performance of Infertility Services for patients.
4.3.6 PC shall insure that Physician Employees and Professional
Employees provide patient care and clinical backup as required to insure
the proper provision of services to patients of the PC at the Mineola and
Suffolk Facilities, and/or such other locations as shall be mutually agreed
to by PC and INMD. PC shall insure that its Physician Employees and
Professional Employees devote substantially all of their professional time,
effort and ability to PC's practice, including the provision of Infertility
Services and the development of such practice.
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4.3.7 PC covenants to use diligent efforts to cooperate with INMD in
order to obtain necessary licenses. INMD shall be primarily responsible for
pursuing, in behalf of, and in the name of, the PC, any and all necessary
licenses to operate the laboratory and tissue bank services existing on the
date hereof at the Mineola Facility, and any licenses required at the
Suffolk Facility or any other Facility in accordance with all applicable
laws and regulations. PC agrees that the Medical Director(s) or Tissue Bank
Director(s) shall be Physician Employees or Professional Employees of the
PC and that should there be a vacancy in any such position, the PC will
cause another Physician Employee or Professional Employee to fill such
vacancy.
4.3.8 PC acknowledges that it bears all medical obligations to
patients treated at the facilities and covenants that it is responsible for
all tissue, specimens, embryos or biological material ["Biological
Materials"] kept at the Facilities on behalf of the patients (or former
patients) of the PC. In the event of a termination or dissolution of the
PC, or the termination of this Management Agreement for any reason, the PC
and its members shall have the obligation to account to patients and to
arrange for the storage or disposal of such Biological Materials in
accordance with patient consent and the ethical guidelines of the American
Society of Reproductive Medicine ["Relocation Program"]. INMD, in such
event, shall, at the request of the PC, assist in the administrative
details of such a Relocation Program for so long as the PC shall request
and the Management Fee shall be paid during that time. These obligations
shall survive the termination of this Agreement.
4.3.9 PC covenants not to liquidate or dissolve as a Professional
Corporation except on six months prior written notice to INMD. In the event
that any liquidation or dissolution of the PC occurs, for a reason other
than the death or disability of all of the shareholders, the PC, and its
individual shareholders, shall indemnify INMD for: (a) the actual costs of
maintaining the facilities and any reasonably necessary Professional
Employees during a Relocation Program (Section 4.3.8); (b) legal costs for
relicensing; (c) recruitment of other physicians to assume the Practice;
and (d) any damages, costs, liabilities, including reasonable attorneys
fees, arising out of the result of claims, suits, causes of action or
proceedings, brought by a patient of the PC having an interest in any
Biological Materials kept at the Facilities. These obligations shall
survive the termination of this Management Agreement.
4.3.10 PC shall undertake and use its best efforts to locate
physicians who, in PC's judgment, possess the credentials and expertise
necessary to enable such physician candidates to become affiliated with PC
for the purpose of providing Infertility Services.
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4.4 CONTINUING MEDICAL EDUCATION . PC shall require its Physician Employees
and Professional Employees to participate in such continuing medical education
as PC deems to be reasonably necessary for such physicians or Professional
Employees to remain current in the provision of Infertility Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. PC shall cooperate in the obtaining
and retaining of professional liability insurance by assuring that its Physician
Employees and Other Professional Employees are insurable and participating in an
on-going risk management program. PC shall cause its Physician Employees and
Professional Employees to cooperate in any risk management program created
and/or operated by INMD.
4.6 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT. PC
agrees that during the term of this Agreement PC covenants for itself and will
use its diligent efforts to cause its Physician Employees and Professional
Employees to:
4.6.1 Execute such documents and take such steps reasonably necessary
to assist billing and collecting for patient services rendered by PC and
its Physician Employees and Professional Employees;
4.6.2 Promote PC's medical practice and participate in marketing
efforts developed by INMD; and
4.6.3 Participate in reasonable INMD network activities and programs.
4.7 PERSONNEL POLICIES PC covenants for itself and will use diligent
efforts to cause its Physician Employees and Professional Employees to comply
with reasonable personnel policies and guidelines developed for the practice of
the PC by INMD, which shall include administrative protocols and policies
designed to insure that the work sites complies with all applicable laws and
regulations, federal and state.
ARTICLE 5
LICENSE OF INMD NAME
5.1 GRANT OF LICENSE. INMD hereby grants to PC a revocable and
non-assignable license for the term of this Agreement to use the name
REPRODUCTIVE SCIENCE ASSOCIATES and any other service names, trademark names and
logos of INMD (the "Trade Names") in conjunction with the provision of
Infertility Services by PC at the Facilities. PC agrees to practice medicine, at
all locations, under the name Reproductive Science Associates, or Reproductive
Science Center. Notwithstanding the License granted to PC hereunder, INMD
retains the absolute right to use and license the Trade Names to others.
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5.2 FICTITIOUS NAME PERMIT. If necessary, PC shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious name permit which allows PC to practice at the
Facilities under the Trade Names and shall take any other actions reasonably
necessary to procure protection of or protect INMD's rights to the Trade Names.
INMD shall cooperate and assist PC in obtaining any such original, amended or
renewal fictitious name permit.
5.3 RIGHTS OF INMD. PC acknowledges INMD's exclusive right, ownership,
title and interest in and to the Trade Names and will not at any time do or
cause to be done any act or thing contesting or in any way impairing or tending
to impair any part of such right, title and interest. In connection with the use
of the Trade Names, PC shall not in any manner represent that it has any
ownership interest in the Trade Names, and PC's use shall not create in PC's
favor any right, title, or interest in or to the Trade Names other than the
right of use granted hereunder, and all such uses by PC shall inure to the
benefit of INMD. PC shall notify INMD immediately upon becoming aware of any
claim, suit or other action brought against it for use of the Trade Names or the
unauthorized use of the Trade Names by a third party. PC shall not take any
other action to protect the Trade Names without the prior written consent of
INMD. INMD, if it so desires, may commence or prosecute any claim or suit in its
own name or in the name of PC or join PC as a party thereto. PC shall not have
any rights against INMD for damages or other remedy by reason of any
determination of INMD not to act or by reason of any settlement to which INMD
may agree with respect to any alleged infringements, imitations or unauthorized
use by others of the Trade Names, nor shall any such determination of INMD or
such settlement by INMD affect the validity or enforceability of this Agreement.
5.4 RIGHTS IN TRADE NAME UPON TERMINATION.
5.4.1 Upon termination of this Agreement, PC shall: (i) within 30 days
of the termination, cease using the Trade Names in all respects and refrain
from making any reference on its letterhead or other publicly-disseminated
information or material to its former relationship with INMD; and (ii) take
any and all actions required to make the Trade Names available for use by
any other person or entity designated by INMD.
5.4.2 PC's failure (except as otherwise provided herein) to cease
using the Trade Names at the termination or expiration of this Agreement
will result in immediate and irreparable damage to INMD and to the rights
of any licensee of INMD. There is no adequate remedy at law for such
failure. In the event of such failure, INMD shall be entitled to equitable
relief by way of injunctive relief and such other relief as any court with
jurisdiction may deem just and proper. Additionally, pending such a hearing
and the decision on the application for such permanent injunction, INMD
shall be entitled to a temporary restraining order, without prejudice to
any other remedy available to INMD. If INMD prevails, or is paid money
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in settlement of its claim pursuant to this paragraph, then such remedies
hereunder shall be at the expense of PC and shall not be a Cost of
Services. Otherwise, INMD shall pay for its costs in connection with its
pursuit of such remedies.
ARTICLE 6
FINANCIAL ARRANGEMENTS
6.1 SERVICE FEES. As of the Effective Financial Date, as defined in Section
6.4 hereof, the compensation set forth in this Article 6 shall be paid to INMD
in consideration of the substantial commitment made and services to be rendered
by INMD hereunder and shall not be interpreted or applied as permitting INMD to
share in the fees of the PC for Infertility Services. Prior to entering into
this Agreement, the parties have computed the Cost of Services of the P.C. for
the past full fiscal year and have projected the Costs of Services for the full
calendar year of this agreement. The average Costs of Services, of the past and
projected calculations, form the premise of the negotiated, fixed Management
Fee, which represents twenty-five percent (25%) of such averaged Cost of
Services. Increases, or decreases, of the Management Fee, as provided in
Sections 6.1.3 (b) through (e) are intended to (1) insure that the P.C.
operates, as the result of INMD's business management, at a sufficient level of
profitability for its shareholders; (2) to compensate INMD for marketing efforts
which increase P.C. revenues, without providing an incentive to INMD to increase
the Cost of Services, which forms the basis of this Agreement; and (3) to
compensate INMD for the purchase of the P.C.'s accounts receivable (as provided
in Section 6.2 hereof) on an increasing level as gross revenues, and resultant
accounts receivable, increase. Such compensation is acknowledged to be the
parties' negotiated agreement as to the fair and reasonable market value of the
equipment, contract analysis and support, support services, purchasing,
personnel, Facilities, management, administration, other services and capital
provided by INMD and is fair and reasonable. The negotiated compensation is
intended to account for the nature, quantity and quality of services required,
and risks assumed by INMD under this Management Agreement and affording due
regard for the risks assumed by the PC. INMD shall be paid the following amounts
(collectively "Service Fees"):
6.1.1 An amount reflecting all Cost of Services (whether incurred by
INMD or PC) paid or recorded by INMD from INMD's own funds, pursuant to the
terms of this Agreement; and
6.1.2 Any Advances or Discretionary Advances; and
6.1.3 Basic Management Fee as follows:
a. Management Fee: The Basic Management Fee shall be $40,000 (Forty
Thousand dollars) per month.
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b. Increases In Basic Management Fee Biannually: As of January 1, 1999, the
Basic Management Fee may be subject to a biannual increase, on the following
terms and conditions:
(i) Each Fiscal Year shall be divided into two periods, January 1 through
June 30 ["June Period"] and July 1 through December 31 ["December Period"].
(ii) On February 1 of each Fiscal Year, commencing in 1999 and thereafter,
the Collections for the December Period just concluded shall be calculated
[Concluded December Collections] and compared to the Collections for the
immediately preceding June Period [Prior June Collections].
(iii) If the Concluded December Collections are higher than the Prior June
Collections, then the difference shall be expressed as a percentage interest to
be calculated as follows: the number 100 will be multiplied by a fraction, the
numerator of which is the dollar amount of the difference between the Concluded
December Collections and the Prior June Collections, and the denominator of
which is the dollar amount of the Prior June Collections [the December
Percentage Increase in Collections]. The Basic Management Fee, as established as
of the end of the immediately preceding June Period, shall thereafter be
increased, for current June Period, by the same percentage as the December
Percentage Increase in Collections and shall become the Basic Management Fee for
the purpose of this Agreement and any calculations to be made thereafter.
(iv) On August 1 of each Fiscal Year, commencing in 1998 and thereafter,
the Collections for the June Period just concluded shall be calculated
[Concluded June Collections] and compared to the Collections for the immediately
preceding December Period [Prior December Collections].
(v) If the Concluded June Collections are higher than the Prior December
Collections, then the difference shall be expressed as a percentage interest to
be calculated as follows: the number 100 will be multiplied by a fraction, the
numerator of which is the dollar amount of the difference between the Concluded
June Collections and the Prior December collections, and the denominator of
which is the dollar amount of the Prior December Collections [the June
Percentage Increase in Collections]. The Basic Management Fee, as established as
of the end of the immediately prior December Period, shall thereafter be
increased, for current December Period, by the same percentage as the June
Percentage Increase in Collections and shall become the Basic Management Fee for
the purposes of this Agreement and any calculations to be made thereafter.
The calculations described in the above subparagraphs (i) - (v) shall be
known individually and collectively as the "Biannual Calculation(s)."
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c. In the event that a new Physician-Employee or physician-shareholder
["Incoming Physician"] joins the PC, then the Basic Management Fee may be
increased pursuant to section 4.3.5 above.
d. No Increases in Basic Management Fee: If, at any point of calculations
described in sections (i) through (v) above, the Concluded December Collections
are lower than, or the same as, the Prior June Collections, or the Concluded
June Collections are lower than, or the same as, the Prior December Collections,
then there shall be no increase in the Management Fee for the six months
following such calculations.
e. Rebate of Portion of Basic Management Fee. In the event that the
aggregate Basic Management Fee (as calculated pursuant to 6.1.3 (a) and (b)
above, during any June or December Period, exceeds an amount of money which
represents 15% of Collections, then such portion of the Management Fee which is
in excess of such amount shall be rebated to the PC. Such rebate, however, shall
not effect or alter the amount of the Management Fee thereafter.
6.2 COLLECTIONS AND INMD PURCHASE OF ACCOUNTS RECEIVABLE. On or before the
20th business day of each month, INMD shall reconcile the accounts receivable of
the PC arising during the previous calendar month. Accounts receivable shall be
defined as all receivable recorded each month (net of Adjustments) on the books
of the PC ["Accounts Receivable"]. INMD shall transfer or pay such amount of
funds to PC equal to the Accounts Receivable less Cost of Services and Basic
Management Fee, the latter payment subject to Sections 3.1.12 and 3.1.13. INMD
shall, in addition, transfer such portion of the Service Fees necessary to pay
such portion of the Cost of Services which are costs and expenses of the PC, as
described in Section 2.1 hereof. PC shall cooperate with INMD and execute all
necessary document necessary to effect an assignment of such Accounts Receivable
to INMD or, at INMD's option, to its lenders. All collections in respect of such
Accounts Receivable shall be the property of INMD and deposited in a bank
account at a bank designated by INMD. To the extent that the PC comes into
possession of any payments which are in satisfaction or all, or any part, of
such Accounts Receivable, the PC shall direct such payments to INMD for deposit
in bank accounts designated by INMD.
6.3 ADVANCES. INMD agrees to advance funds to PC to meet Cost of Services,
or provide working capital ["Advances"], although the purchase of Accounts
Receivable and the INMD Construction Investment shall not be constitute
Advances. INMD may, in its sole discretion, at the request of the PC, advance
funds to fund mergers with other physicians or physician groups into PC
["Discretionary Advance(s)"]. All Advances and Discretionary Advances shall be
made only with the mutual agreement of PC and INMD.
6.3.1 Any Advances or Discretionary Advances made pursuant to this
Management Agreement shall be a debt owed to INMD by PC and shall have
payment priority over any distribution to PC's Physician-Shareholder(s).
Any Advance shall be repaid from any distribution to Physician-
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Shareholder(s) of PC either as a lump sum payment, within 60 days after the
advance, or in installments as agreed to by INMD.
6.3.2 Interest expense will be charged for Advances and Discretionary
Advances and will be computed at the Prime Rate used by INMD's primary
bank, from time to time (the "Prime Rate"). Advances shall be evidenced by
a security agreement, in the form of Exhibit 6.3.2, giving INMD a
collateral interest in all accounts receivable and distributions to PC's
Shareholder(s).
6.3.3 During the first year of this Agreement, INMD agrees to make
necessary Advances to PC to ensure that Physician's draw from PC is not
less than $200,000 (Two Hundred Thousand dollars).
6.3.4 Effective Financial Date and Interim Financial Period. The
Financial Arrangements delineated in Sections 6.1 through 6.3 (and
subparagraphs thereof) shall become effective on the first business day
that patients are seen and/or treated at the Suffolk Facilities ["Effective
Financial Date"]. The period of time between the date of the signing of
this Agreement and the Effective Financial Date shall be the "Interim
Financial Period". During such Interim Financial Period:
(a) PC and INMD shall operate, for all compensation and remuneration
purposes only, pursuant to the Management Agreement between the
parties dated September 1, 1994; notwithstanding such, this
Agreement shall control the conduct of the parties for all other
purposes.
(b) All remuneration for professional services performed by Dr.
Gabriel San Roman shall be paid to University Associates In
Obstetrics and Gynecology ["Stonybrook"] pursuant to the
understanding with Stonybrook between MPD and INMD.
(c) Dr. San Roman shall continue to be paid a proportionate share of
his compensation as Medical Director of the Mineola Facility at
the annual rate of $35,000 per annum. As of the Effective Date,
such compensation shall cease.
(d) All agreements or understandings between other physician
independent contractors and/or employees and/or Stonybrook and
the PC shall remain in full force and effect during the Interim
Financial Period and may be continued thereafter in the
discretion of the PC and INMD.
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ARTICLE 7
EXCLUSIVE MANAGEMENT RIGHT, TERM AND RENEWAL
7.1 PC grants to INMD the exclusive right to manage PC during the term of
this Agreement (the "Exclusive Management Right"). In consideration of the
Exclusive Management Right, INMD agrees as follows:
7.1.1 INMD shall pay the PC the equivalent of Fifty-six Thousand Two
Hundred and Fifty Dollars ($56.250.00) of unregistered INMD Common
Stock ("Stock") and One Hundred Thousand Dollars ($100,000.00) in
cash. The price used for the stock shall be market price, per share,
as of three days prior to the signing of this Agreement. Such payment
shall be made three days after approval of this Agreement by INMD's
Board of Directors. The vote for approval shall be taken as soon as
practicable but in no event later than June 10, 1997.
7.1.2 INMD shall pay $100,000.00 (One Hundred Thousand Dollars) in
cash or a combination of cash and Stock, at INMD's option, within 30
days of a second Physician-Shareholder (whose equity interest is not
less than 15%) joining the PC and completing three (3) months of
practice at the PC.["First Growth Bonus"]. If INMD shall elect to pay
part, or all, of such First Growth Bonus in Stock, then it shall issue
such stock in an amount as follows. Whatever dollar amount of the
First Growth Bonus INMD elects to pay in Stock, shall first be
increased by twelve and one-half percent (12.5%) ["Increased Amount"],
and the Stock shall be the equivalent to such Increased Amount,
utilizing the market price of such Stock, per share, as of three days
prior to payment.
7.1.3 INMD shall pay $100,000.00 (One Hundred Thousand Dollars) in
cash or a combination of cash and Stock, at INMD's option, within 30
days of a second Physician-Shareholder (whose equity interest is not
less than 10%) joining the PC and completing three (3) months of
practice at the PC. ["Second Growth Bonus"]. If INMD shall elect to
pay part, or all, of such Second Growth Bonus in Stock, then it shall
issue such stock in an amount as follows. Whatever dollar amount of
the Second Growth Bonus, INMD elects to pay in Stock, shall first be
increased by twelve and one-half percent (12.5%) ["Increased Amount"],
and the Stock shall be the equivalent to such Increased Amount,
utilizing the market price of such Stock, per share, as of three days
prior to payment.
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7.1.4 The payments provided for in Sections 7.1.2 and 7.1.3 are
conditioned on a single Physician-Shareholder becoming at least a 15%
equity shareholder of PC within two (2) years from the date of this
Agreement, and a third Physician-Shareholder becoming at least a 10%
equity shareholder within three (3) years from the date of this
Agreement. This Agreement contemplates that the payment provided for
in Section 7.1.2 shall not be paid unless, at the time the payment
shall become due under the terms of this Agreement, there shall be at
least two equity shareholders of the PC. This Agreement contemplates
that the payment provided for in Section 7.1.3 shall not be paid
unless, at the time the payment shall become due under the terms of
this Agreement, there shall be at least three equity shareholders of
the PC.
7.1.5 For the first twelve (12) months after the Effective Financial
Date of this Agreement, INMD shall:
(a) Waive Fifteen Thousand Dollars ($15,000.00)["Monthly Waiver
Amount"] of its monthly Basic Management Fee. For the purpose of
Section 6.1.3, and the rebate provided thereunder, only the
actual Basic Management Fee paid, less the Waiver Amounts, shall
be utilized for the calculations. Such waiver shall be
inoperable, retroactive to the Effective Financial Date, if this
Agreement is the subject of a material breach by PC during the
first twelve calendar months of this Agreement which is not cured
pursuant to Section 8.1.2.
(b) INMD shall, at its expense, provide Dr. San Roman with
professional liability coverage, as a named insured under INMD's
professional liability coverage, which policy shall be in the
minimum amount of $1 million per incident, $3 million in the
aggregate, with an A carrier, on a claims made basis ["IntegraMed
Insurance Period"]. This coverage shall not be a Cost of Service
or Advance and this paragraph does not alter the provisions of
section 10.2 hereof.
7.2 The term of this Agreement shall begin on July 1, 1997 and shall expire
ten (10) years after such date unless earlier terminated pursuant to Article 8
below. This Agreement may be renewed by either party, if within the period of
180 days prior to the date of expiration, one party gives notice to the other of
its intention to continue this Agreement under the same terms and conditions as
set forth herein or under such different terms and conditions as particularly
set forth in the written notice and further providing that the other party has
30 days from the date of notice to accept, reject or modify the offer. If within
30 days the other party does not respond or by written notice accepts, this
Agreement shall continue for an additional 10 years under the terms and
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conditions as provided in the notice. In the event the offer is not accepted,
the parties agree to negotiate, in good faith, a renewal of this Agreement.
ARTICLE 8
TERMINATION OF THE AGREEMENT
8.1 TERMINATION. This Agreement may be terminated by either party in the
event of the following:
8.1.1 INSOLVENCY. If a receiver, liquidator or trustee of any party
shall be appointed by court order, or a petition to reorganize shall be
filed against any party under any bankruptcy, reorganization or insolvency
law, and shall not be dismissed within 90 days, or any party shall file a
voluntary petition in bankruptcy or make assignment for the benefit of
creditors, then either of the other parties may terminate this Agreement
upon 10 days prior written notice to the other parties.
8.1.2 MATERIAL BREACH. If either party shall materially breach its
obligations hereunder, then either of the other parties may terminate this
Agreement by providing 30 days prior written notice to the breaching party
detailing the nature of the breach, provided that the breaching party shall
not have cured the breach within such 30 day period, or, with respect to
breaches that are not curable within such 30 day period, shall not have
commenced to cure such breach within such 30 day period and thereafter
shall not have cured the breach with the exercise of due diligence.
8.1.3 ILLEGALITY. Either party may terminate this Agreement
immediately upon receipt of notification by any local, state or federal
agency or court of competent jurisdiction that the conduct contemplated by
this Agreement is forbidden by law; except that this Agreement shall not
terminate during such period of time as to any party which contests such
notification in good faith and the conduct contemplated by this Agreement
is allowed to continue during such contest. If any governing regulatory
agency asserts that the services provided by INMD under this Agreement are
unlawful or that the practice of medicine by PC as contemplated by this
Agreement ["Administrative Services Illegality"] or requires a certificate
of need, and any such assertion is not contested (or if contested, the
agency's assertion is found to be correct by a court of competent
jurisdiction and no appeal is taken, or if any appeals are taken and the
same are unsuccessful), this Agreement shall thereupon terminate with the
same force as if such termination date was the date originally specified in
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this Agreement as the date of final expiration of the terms of this
Agreement.
8.1.4 TERMINATION UPON SIX MONTHS WRITTEN NOTICE. Either party may
terminate this Agreement upon six months written notice, except that if the
sum of Dr. San Roman's distributions, plus his interest in any cash
balances as of the end of the relevant period (minus the reasonable
Reserves delineated in section 3.1.13), shall be in excess of Two Hundred
and Twenty-Five Thousand Dollars for the six calendar months prior to its
issuance of a notice of termination, then PC may only terminate this
Agreement upon twelve (12) months prior written notice.
8.2 TERMINATION BY INMD FOR PROFESSIONAL DISCIPLINARY ACTIONS. INMD may
terminate this Agreement upon 10 days prior written notice to PC if Physician's
authorization to practice medicine is suspended, revoked or not renewed, or if
any other formal disciplinary action is taken against Physician which could
reasonably lead to a suspension, revocation or non-renewal of Physician's
license.
8.3 TERMINATION BY INMD FOR FAILURE OF PC TO ADD ADDITIONAL PHYSICIANS.
INMD may terminate this Agreement upon 30 days prior written notice to PC if PC
fails to increase the number of shareholders, pursuant to Section 7.1 to three
(3) by the third anniversary date of this Agreement.
ARTICLE 9
RIGHTS UPON TERMINATION
9.1 If this Agreement is terminated for any reason, other than the
insolvency, Administrative Services Illegality, or material breach by INMD, then
INMD and the PC agree as follows:
(1) PC shall purchase, and INMD shall sell, any Assets at the net
book value determined in accordance with generally accepted
accounting principles consistently applied as to the date of
termination. Should this Agreement terminate prior to this
Agreement having been in effect for a full five years, then the
PC shall pay to INMD not only the unamortized portion of INMD's
Construction Investment, but interest on such amount, to be
computed at the Prime Rate and retroactive to the date or dates
of such Construction Investment.
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(2) Assume all leases for offices and equipment used directly for the
management and operation of the PC's business, both at the
Mineola and Suffolk sites and any other sites existing as of the
date of termination, or if assumption is not permitted, make all
payments called for by such leases, to INMD.
(3) Notify, within 30 days of the date of termination, all patients
with Biological Materials in storage at the Facility, that INMD
will no longer provide management services and that the care and
custody of such Biological Materials rests solely with the PC.
The form of such notification shall be with the consent of INMD
(such consent not to be unreasonably withheld).
(4) Repay any indebtedness, owned to INMD as the result of Advances,
Discretionary Advances or Service Fees.
(5) If such termination occurs prior to this Management Agreement
having been operative for 12 calendar months following the
Effective Financial Date, PC shall, in addition to items (1)-(4)
above, repay INMD $100,000 (one hundred thousand dollars) as
liquidated damages for the loss of its Exclusive Management Right
(Article 7 hereof).
The sale and purchase, assumptions and/or assignments contemplated by sections
9.1 (1) and (2) shall be accomplished at a closing to be held within 60 days of
the effective date of termination (or sooner shall the parties mutually agree)
and any and all payments to IntegraMed shall be made, in equal monthly
installments, over thirty-six months, payment to commence on the first day of
the first full month following the termination date.
9.2 If this Agreement terminates as the result of the insolvency or
material breach by INMD, then the PC and INMD agree as follows:
(1) PC shall have the option, but not the obligation, to purchase,
and INMD shall, upon the exercise of such option sell, any Assets
at the net book value determined in accordance with generally
accepted accounting principles consistently applied as to the
date of termination.
(2) PC shall have the option, but not the obligation, to assume all
leases for offices and equipment used directly for the management
and operation of the PC's business, both at the Mineola and
Suffolk sites and any other sites existing as of
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the date of termination, or if assumption is not permitted, make
all payments called for by such leases, to INMD. INMD agrees to
assign its rights to such facilities should the PC exercise its
option, or accept payments in lieu of assumption.
(3) Notify, within 30 days of the date of termination, all patients
with Biological Materials in storage at the Facility, that INMD
will no longer provide management services and that the care and
custody of such Biological Materials rests solely with the PC.
The form of such notification shall be with the consent of INMD
(such consent not to be unreasonably withheld).
(4) The PC shall repay any indebtedness, owed to INMD as the result
of Advances, Discretionary Advances or Service Fees.
PC shall exercise its the options provided in 9.2 (1) and (2), by written notice
to INMD within thirty (30) days of the effective date of termination. The sale
and purchase, assumptions and/or assignments contemplated by sections 9.1 (1)
and (2) shall be accomplished at a closing to be held within 75 days of the
effective date of termination (or sooner shall the parties mutually agree) and
any and all payments to IntegraMed shall be made, in equal monthly installments,
over twenty-four months, payment to commence on the first day of the first full
month following the termination date.
9.3 In the event of termination for any reason, the continuing obligations
delineated in Article 11, and Sections 12.14, and 12.15 (and any subparts
thereof) shall continue pursuant to their terms.
9.4 In the event that the Board of Directors of INMD does not approve this
Agreement by June 10, 1997, this Agreement shall be of no force and effect and
neither party shall have any obligations or rights hereunder.
ARTICLE 10
INSURANCE
10.1 INMD shall carry professional liability insurance, covering itself and
its employees providing services under this Agreement in the minimum amount of
$1 million per incident, $3 million in the aggregate, at its own expense. INMD
shall also carry a policy of public liability and property damage insurance with
respect to the Facilities under which the insurer agrees to indemnify INMD
against all cost, expense and/or liability arising out of or based upon any and
all claims, accidents, injuries and damages
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customarily included within the coverage of such policies of insurance available
for INMD. The minimum limits of liability of such insurance shall be $1 million
combined single limit covering bodily injury and property damage. If possible
under the terms of the insurance coverage, PC shall be named as additional
insureds on the INMD's public liability and property damage insurance policies.
A certificate of insurance evidencing such policies shall be presented to PC
within thirty (30) days after the execution of this Agreement. Failure to
provide such certificate(s) with such period shall constitute a material breach
by INMD hereunder.
10.2 INMD represents that MPD Associates, P.C., has been a named insured
under its professional liability insurance policy, and both its employees and
the professional corporation have been covered, since the inception of the PC,
the premiums therefore having been treated as a Cost of Service. Such policy is
a claims made policy, and that such coverage shall be continued, and the
premiums therefore continue to be treated as a Cost of Service.
10.3 At the conclusion of the INMD Insurance Period, PC represents that it
shall carry professional liability insurance, with an A rated carrier, covering
Dr. San Roman in the amount of $1 million per incident, $3 million in the
aggregate. Certificates of Insurance evidencing such policies shall be presented
to INMD within thirty (30) days after the conclusion of the INMD Insurance
Period. Failure to provide such certificates within such period shall constitute
a material breach hereunder. Should the PC request that the coverage provided to
Dr. San Roman by INMD during the INMD Insurance Period be continued, INMD may,
in its discretion, provide such insurance and the premium therefore shall be as
a Cost of Service.
10.4 The PC represents that up to the Effective Financial Date, Dr. Gabriel
San Roman has had, and shall have, a claims made policy with Frontier Insurance,
with limits of $1 million per incident/$3 million in the aggregate, on a claims
made basis, and that Dr. San Roman will have "tail insurance," covering any acts
prior to the Effective Financial Date without cost to INMD as of the date of his
commencement of full time practice at the PC.
10.5 PC and INMD shall provide written notice to the other at least ten
(10) days in advance of the effective date of any reduction, cancellation or
termination of the insurance required to be carried by each hereunder.
ARTICLE 11
NON-SOLICITATION AND NON-COMPETITION
11.1 The PC recognizes and acknowledges that INMD will incur substantial
costs in providing the equipment, support services, personnel, management,
administration and other services that are the subject of this Agreement. The
parties also recognize that the services to be provided by INMD will be feasible
only if the PC operates an
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active practice to which the Employee-Physicians devote their full professional
time and attention. PC agrees that the non-competition and non-solicitation
covenants described hereunder are necessary for the protection of INMD, and that
INMD would not enter this Agreement without the following covenants:
(a) During the term of this Agreement, PC shall not establish, operate or
provide Infertility Services at a medical office, clinic or other health care
facility other than as provided for in this Agreement.
(b) During the Term of this Agreement, and for a period of two years from
the date it is terminated, PC shall not directly or indirectly own, manage,
operate, control, contract with, be associated with or lend its or its
shareholders' names to, or maintain any interest whatsoever in any enterprise
(i) which provides, distributes, promotes or advertises any type of management
or administrative services in competition with INMD; or (ii) which offers any
type of service or product to third parties substantially similar to those
offered by INMD.
(c) During the term of this Agreement, and for two years from the date of
termination, PC shall not hire, attempt to hire, contract or solicit for hiring
or consultancy, any employee of INMD, or form a corporation, partnership or
joint venture or other entity with any such employee, who is currently employed
by INMD or had been employed by INMD within one (1) year prior to the
termination of this Agreement. Notwithstanding anything to the contrary
contained herein, the PC may (1) continue the employment of any Professional
Employees employed by the PC as of the date of notice of termination of this
Agreement, or effective date of termination of this Agreement (whichever is
earlier); and (ii) hire, attempt to hire, contract or solicit for hiring or
consultancy Sue McGreevy.
ARTICLE 12
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. INMD and PC are independent contracting
parties. In this regard, the parties agree that:
12.1.1 The relationship between INMD and PC is that of an independent
supplier of non-medical services and a medical practice, respectively, and,
unless otherwise provided herein, nothing in this Agreement shall be
construed to create a principal-agent, employer-employee, or master-servant
relationship between INMD and PC;
12.1.2 Neither PC nor INMD (on behalf of PC) shall seek or accept
payment from Medicare or Medicaid for services provided by PC;
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12.1.3 Notwithstanding the authority granted to INMD herein, INMD and
PC agree that PC shall retain the full authority to direct all of the
medical, professional, and ethical aspects of its medical practices;
12.1.4 Any powers of PC not specifically vested in INMD by the terms
of this Agreement shall remain with PC;
12.1.5 PC shall, at all times, be the sole employer of the Physician
Employees, the Other Professional Employees and all other professional
personnel engaged by PC in connection with the operation of its medical
practice at the Facilities, and shall be solely responsible for the payment
of all applicable federal, state or local withholding or similar taxes and
provision of workers' compensation and disability insurance for such
professional personnel;
12.1.6 No party shall have the right to participate in any benefits,
employment programs or plans sponsored by the other parties on behalf of
the other parties' employees, including, but not limited to, workers'
compensation, unemployment insurance, tax withholding, health insurance,
life insurance, pension plans or any profit sharing arrangement;
12.1.7 In no event shall any party be liable for the debts or
obligations of any other party except as otherwise specifically provided in
this Agreement; and
12.1.8 Matters involving the internal agreements and finances of PC,
including but not limited to the distribution of professional fee income
among Physician Employees and Other Professional Employees who are
providing professional services to patients of PC, and other employees of
PC, disposition of PC property and stock, accounting, tax preparation, tax
planning, and pension and investment planning (and expenses relating solely
to these internal business matters), hiring and firing of physicians,
decisions and contents of reports to regulatory authorities governing PC
and licensing, shall remain the sole responsibility of PC.
12.2 FORCE MAJEURE. No party shall be liable to the other for failure to
perform any of the services required under this Agreement in the event of a
strike, lockout, calamity, act of God, unavailability of supplies, or other
event over which such party has not control, for so long as such event continues
and for a reasonable period of time thereafter, and in no event shall such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
12.3 USE OF NAME OF PC. The name or any statement that may implicitly refer
directly or indirectly to PC or impute any affiliation directly or indirectly
between INMD
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and PC shall not be used in any manner or on behalf of INMD in any advertising
or promotional materials or otherwise without PC's prior written consent.
However, INMD may use P.C's name or address in advertising to the public solely
for the purpose of providing directions to the office(s) of PC.
12.4 EQUITABLE RELIEF. Without limiting other possible remedies available
to a non-breaching party for the breach of the covenants contained herein,
injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
12.5 PRIOR AGREEMENTS; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of all
parties, and such amendment, alteration, change, termination or waiver shall in
no way affect the other terms and conditions of this Agreement, which in all
other respects shall remain in full force.
12.6 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
all of the parties, and any attempted assignment without such consent shall be
void and of no force and effect, except that INMD may assign this Agreement to
any subsidiary or affiliate of INMD without the consent of the other parties.
The provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns.
12.7 WAIVER OF BREACH. The failure to insist upon strict compliance with
any of the terms, covenants or conditions herein shall not be deemed a waiver of
such terms, covenants or conditions, nor shall any waiver or relinquishment of
any right at any one or more times be deemed a waiver or relinquishment of such
right at any other time or times.
12.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Any and all claims, disputes,
or controversies arising under, out of, or in connection with this Agreement or
any breach thereof, except for equitable relief sought pursuant to Section 11.4
hereof, shall be determined by binding arbitration in the State of New York,
County of New York (hereinafter "Arbitration"). The party seeking determination
shall subject any such dispute, claim or controversy to the American Arbitration
Association, New York County, and the rules of commercial arbitration of the
selected entity shall govern. The Arbitration shall be conducted and decided by
three (3) arbitrators, unless the parties mutually agree, in writing at the time
of the Arbitration, to fewer arbitrators. In reaching a decision,
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the arbitrators shall have no authority to change or modify any provision of
this Agreement, including any liquidated damages provision. Each party shall
bear its own expenses and one-half the expenses and costs of the arbitrators.
Any application to compel Arbitration, confirm or vacate an arbitral award or
otherwise enforce this Section shall be brought in the Courts of the State of
New York or the United States District Court for the Southern District of New
York, to whose jurisdiction for such purposes PC and INMD hereby irrevocably
consent and submit.
12.9 SEPARABILITY. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement take as a whole.
12.10 HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.
12.11 NOTICES. Any notice hereunder shall have been deemed to have been
given only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
12.11.1 If for INMD at: IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Donald S. Wood, Ph.D., Vice President
With a copy to: IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
12.11.2 If for PC at: MPD Medical Associates, P.C.
200 Old Country Road
Mineola, New York 11501
Attn: Gabriel San Roman, M.D.
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With a copy to: Charles A. Bilich, Esq.
Meltzer, Lippe, Goldstein, Wolf
& Schlissel, P.C.
190 Willis Avenue
Mineola, New York 11501
Any party hereto, by like notice to the other parties, may designate such other
address or addresses to which notice must be sent.
12.12 ENTIRE AGREEMENT. This Agreement and all attachments hereto represent
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof, and cancel and supersede all prior agreements and
understandings among the parties hereto, whether oral or written, with respect
to such subject matter.
12.13 NO MEDICAL PRACTICE BY INMD. INMD will not engage in any activity
that constitutes the practice of medicine, and nothing contained in this
Agreement is intended to authorize INMD to engage in the practice of medicine or
any other licensed profession.
12.14 CONFIDENTIAL INFORMATION.
12.14.1 During the initial term and any renewal term(s) of this
Agreement, the parties may have access to or become acquainted with each
others' trade secrets and other confidential or proprietary knowledge or
information concerning the conduct and details of each party's business
("Confidential Information"). At all times during and after the termination
of this Agreement, no party shall directly or indirectly, communicate,
disclose, divulge, publish or otherwise express to any individual or
governmental or non-governmental entity or authority (individually and
collectively referred to as "Person") or use for its own benefit or the
benefit of any Person any Confidential Information, no matter how or when
acquired, of another party. Each party shall cause each of its employees to
be advised of the Confidential nature of such Confidential Information and
to agree to abide by the confidentiality terms of this Agreement. No party
shall photocopy or otherwise duplicate any Confidential Information of
another party without the prior express written consent of the such other
party except as is required to perform services under this Agreement. All
such Confidential Information shall remain the exclusive property of the
proprietor and shall be returned to the proprietor immediately upon any
termination of this Agreement.
12.14.2 Confidential Information shall not include information which
(i) is or becomes known through no fault of a party hereto; (ii) is learned
by a party from a third-party legally entitled to disclose such
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information; or (iii) was already known to a party at the time of
disclosure by the disclosing party.
12.14.3 In order to minimize any misunderstanding regarding what
information is considered to be Confidential Information, INMD or PC will
designate at each others request the specific information which INMD or PC
considers to be Confidential Information.
12.15 INDEMNIFICATION.
12.15.1 INMD agrees to indemnify and hold harmless PC, its directors,
officers, employees and servants from any suits, claims, actions, losses,
liabilities or expenses (including reasonable attorney's fees and costs)
arising out of or in connection with any act or failure to act by INMD
related to the performance of its duties and responsibilities under this
Agreement. The obligations contained in this Section 11.15.1 shall survive
termination of this Agreement.
12.15.2 PC agrees to indemnify and hold harmless INMD, its
shareholders, directors, officers, employees and servants from any suits,
claims, actions, losses, liabilities or expenses (including reasonable
attorney's fees and costs) arising out of or in connection with any act or
failure to act by PC's related to the performance of its duties and
responsibilities under this Agreement. The obligations contained in this
Section 11.15.2 shall survive termination of this Agreement.
12.15.3 In the event of any claims or suits in which INMD and/or PC
and/or their directors, officers, employees and servants are named, each of
INMD and PC for their respective directors, officers, employees agree to
cooperate in the defense of such suit or claim; such cooperation shall
include, by way of example but not limitation, meeting with defense counsel
(to be selected by the respective party hereto), the production of any
documents in his/her possession for review, response to subpoenas and the
coordination of any individual defense with counsel for the respective
parties hereto. The respective party shall, as soon as practicable, deliver
to the other copies of any summonses, complaints, suit letters, subpoenas
or legal papers of any kind, served upon such party, for which such party
seeks indemnification hereunder. This obligation to cooperate in the
defense of any such claims or suits shall survive the termination, for
whatever reason, of this Agreement.
12.15.4 INMD will defend, indemnify and hold harmless the PC against
and in respect of (i) any and all debts, liabilities and obligations of the
PC accruing prior to the Effective Financial Date ["Prior PC Liabilities"]
and (ii) any and all actions, suits, proceedings, claims, demands,
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assessments, judgments, costs and expenses (including fees and expenses of
counsel) arising out of such Prior PC Liabilities.
12.15.5 Promptly after the receipt by the PC of notice of any claim or
commencement of any action or proceeding subject to indemnification
delineated in Section 12.15.4 ("asserted liability"), the PC will, demand
such indemnification from INMD and proffer the defense to INMD. INMD may
thereafter, at its option, assume such defense at its own expense and by
its own counsel. INMD shall provide written notice to the PC, within twenty
days, of its assumption or declination of such defense. If INMD shall
undertake to compromise any asserted liability, it shall promptly notify
the PC of its intention to do so and the PC agrees to cooperate fully and
promptly with INMD and its counsel in the compromise and defense of any
asserted liability. INMD shall not enter into any non-monetary settlement
hereunder without the prior written consent of the PC. Notwithstanding the
foregoing, PC shall have the right to participate in the compromise or
defense of any asserted liability with its own counsel and at its own
expense.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By: /s/Dwight P. Ryan
----------------------------------------------
Dwight P. Ryan, V.P. & Chief Financial Officer
MPD MEDICAL ASSOCIATES, P.C.
By: /s/Gabriel San Roman, M.D.
----------------------------------------------
Gabriel San Roman, M.D.
- 34 -
<PAGE>
EXHIBIT 3.2
OFFICE AND FACILITIES
TO BE PROVIDED BY INMD TO PC
200 Old Country Road, Mineola, New York 11501
- 35 -
PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into June 3, 1997 by and between MPD Medical Associates,
P.C., a New York professional service corporation, whose principal place of
business is 200 Old Country Road, Mineola, New York 11501 ("PC") and Gabriel San
Roman, M.D. residing at 37 Buckingham Meadow Road, East Setauket, New York,
11733 ("Physician").
R E C I T A L S:
PC specializes in the practice of gynecology and the treatment of
infertility, including the utilization of in vitro fertilization and assisted
reproductive technology services, including but not limited to the treatment of
human infertility, gamete intra-fallopian tube transfer and zygote
intra-fallopian transfers and related andrology services [(all of the foregoing
are referred to collectively herein as "Infertility Services")].
Physician is duly licensed to practice medicine in the State of New York,
specializes in the provision of Infertility Services and has experience in
infertility treatment including surgical skills required in the course of
providing Infertility Services.
PC has entered into an agreement with IntegraMed America, Inc., ("INMD"),
pursuant to which INMD will provide certain management and administrative
services as are more fully described in the agreement between PC and INMD dated
June 3, 1997 ("INMD-PC Agreement").
In order to further facilitate the provision of Infertility Services, PC
desires to employ Physician and Physician desires to accept such employment, on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration set forth herein, the parties agree as follows:
1. ENGAGEMENT. PC hereby employs Physician and Physician hereby accepts
such employment to devote all of Physician's professional time, effort and
ability to the provision of Infertility Services under the terms and conditions
contained herein and as the parties may agree from time to time.
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2. DUTIES.
(a) Physician shall serve as Medical Director of PC and in such capacity
provide patient care and clinical backup as required to ensure the proper
provision of services to patients of PC at PC's office at the address set forth
in Schedule A (the "Offices"), and/or such other location as shall be mutually
agreed to by PC and Physician. Physician agrees to perform such services as are
required to fulfill the PC's obligations under the INMD-PC Agreement. Physician
agrees to devote substantially all of Physician's professional time, effort and
ability to PC's practice development and the provision of Infertility Services
under the terms and conditions contained herein and as the parties may agree
from time to time. In connection therewith, Physician's duties shall include,
but not be limited to, the following:
(i) Provision of patient counseling and medical examinations,
performance of egg retrievals, embryo transfers, surgeries, including, but
not limited to, microsurgeries and laparoscopies, and patient follow-up;
(ii) Reviewing and evaluating clinical data on a routine basis and
making specific recommendations for improving implantation rates and
treatment outcomes;
(iii) Maintenance of a thorough understanding of and proficiency in
the application of the most current technologies (including both surgical
and non-surgical techniques) relevant to Infertility Services and related
medical high technology infertility procedures ("ART Technology"); and
(iv) Development and implementation of educational outreach programs
designed to facilitate the development of relationships with physicians in
the obstetric/gynecology community and the dissemination of information
pertaining to the availability of Infertility Services.
(b) Except as permitted by Section 3(b) hereof, Physician shall not,
during the term of this Agreement, otherwise engage in the practice of medicine
outside of PC without the express written consent of PC and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided and duties
assumed by Physician hereunder, Physician shall be compensated as provided on
Schedule B attached hereto and made a part hereof.
(b) All remuneration received by Physician in payment for the delivery of
any patient care services shall be accounted for and be the sole property of PC.
Such remuneration, for purposes of this Agreement, shall not include board
attendance fees and other compensation in connection with board memberships;
provided, the compensation does not exceed $5,000 in the aggregate annually for
Physician. Physician's engagement in outside professional medical
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activities shall require the express written consent of PC and shall not
interfere in any way with the fulfillment of Physician's duties hereunder or
diminish the quality of the Infertility Services rendered.
(c) Physician shall receive the benefits provided for on Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PC hereunder shall be billed and collected by PC; provided, however,
that pursuant to the terms of the INMD-PC Agreement, INMD shall carry out
billing and collection functions on behalf of PC. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to PC
patients shall become the property of PC, and Physician agrees immediately to
turn over to PC any such fees received by Physician during the term hereof.
Physician hereby authorizes PC, and/or INMD on PC's behalf, to bill for
Infertility Services provided hereunder and agrees to execute any and all
assignments or other documents that may be necessary or appropriate to permit
PC, or INMD as its designee, to carry out all billing and collection functions.
Physician agrees that Physician shall not submit bills for, seek remuneration
for, or otherwise collect fees for Infertility Services provided hereunder.
Physician shall look solely to PC for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order
to provide Infertility Services to PC as herein required, Physician must at all
times during the term of this Agreement be a member in good standing and have
admitting privileges at least one hospital accredited by the JCAHO (the
"Hospital") within the geographic area of PC's office.["Privileges"] PC shall
use reasonable efforts to assist Physician in maintaining such privileges. The
failure of the Physician to maintain Privileges shall be deemed a cause for
termination of this Agreement. Physician shall promptly notify both the PC and
INMD of any determination, ruling or decision which suspends, limits, terminates
or in any manner impairs his/her Privileges.
6. INMD-PC AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-PC Agreement and acknowledges that PC has substantial responsibilities,
rights and obligations under said Agreement. Physician agrees to at all times
act in such manner as to cause the PC to be in compliance with the INMD-PC
Agreement, and Physician further agrees that to the extent applicable to PC and
to the responsibilities of the Physician hereunder, he shall assist PC in
carrying out its obligations under the INMD-PC Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PC shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as PC shall determine from time to time.
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8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND POLICIES. Physician
agrees at all times to comply with the bylaws, rules and regulations of the
Hospital and of its medical staff and the reasonable policies, directives,
bylaws, rules and regulations of PC. Physician acknowledges that PC shall have
final authority over: (a) the acceptance or refusal to treat any patient; and
(b) the amount of the fee to be charged for all Infertility Services rendered by
Physician to patients of PC, so long as such fees are lawful and reasonable.
Notwithstanding the foregoing, Physician may refuse to treat any patient whom he
reasonably believes should not be treated based upon reasonable medical or legal
concerns.
9. MEDICAL RECORDS AND COOPERATION.
(a) All medical records of patients to whom Physician provides Infertility
or other medical Services on behalf of PC during the term hereof shall be the
property of PC. A copy of any medical records of such patients will be made
available to Physician upon request.
(b) In the event of any claims, suits or governmental investigations,
arising out of or relating to the provision of Infertility Services by PC or
Physician in which PC, INMD and/or Physician shall be named or involved, whether
pending during or after the term of this Agreement, the parties hereto agree to
cooperate fully with each other in the defense of such suit, claim or
investigation. Such cooperation shall include, by way of example but not
limitation, meeting with defense counsel, the production of any documents in
their possession for review, participation in discovery, response to subpoenas
and the coordination of any individual defense with counsel for PC, Physician
and/or INMD. The parties will soon as possible deliver to each other and INMD
copies of summonses, complaints, suit letters, subpoenas or legal papers of any
kind, served upon each other or their attorneys. This obligation to cooperate in
the defense of any such claims or suits shall survive the termination, for
whatever reason, of this Agreement, and nothing in this Section shall obligate
the parties to pay any legal fees incurred by the other.
10. TERM. The initial term of this Agreement shall begin on the Effective
Financial Date (as such term is used in the INMD-PC Agreement) and shall
terminate ten (10) years thereafter unless earlier terminated pursuant to the
provisions of Section 11. After the expiration of the initial term hereunder,
this Agreement shall be extended automatically, for periods of five (5) years
each, on the same terms and conditions as herein specified, except that the
provisions of Section 15(b) shall not apply to such extension.
11. TERMINATION.
(a) This Agreement may terminate upon the occurrence of any of the
following:
(i) Termination of the INMD-PC Agreement for any reason if such
agreement terminates without a successor agreement, or upon the
termination of any successor agreement which terminates without a
successor agreement;
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(ii) Conviction of Physician of a felony or suspension, revocation or
non- renewal of Physician's license to practice medicine;
(iii) Upon the mutual agreement of the parties at any time;
(iv) Upon the loss by Physician of Hospital Privileges, as described in
Section 5;
(v) By either party upon a material breach by the other party; provided
that the non-breaching party first gives the breaching party written
notice of the breach, and the breaching party fails to cure the
breach within thirty (30) days after such notice; or
(vi) Upon death or "permanent disability" (as such term is hereinafter
defined) of Physician. In either such event, this Agreement shall
terminate immediately; provided, however, Physician (or Physician's
legal representative, as the case may be) will be entitled to
receive any accrued but unpaid compensation earned by Physician
hereunder through the date of such event. For purposes of this
Agreement, the term "permanent disability" shall have the meaning
set forth in the long-term disability insurance policy or policies
then maintained by Physician or PC, or if no such policy shall then
be in effect, or if more than one such policy shall then be in
effect in which the term "permanent disability" shall be assigned
different definitions, then the term "permanent disability" shall be
defined for purposes hereof to mean any physical or mental
disability or incapacity which renders Physician incapable of fully
performing the services required in accordance with Physician's
obligations hereunder for a period of 120 consecutive days or for
shorter periods aggregating 120 days during any twelve-month period.
(b) Upon termination of this Agreement, as hereinabove provided, neither
party shall have any further obligation hereunder except for: (i) obligations
occurring prior to the date of termination; and (ii) obligations, promises or
covenants which are expressly made to extend beyond the term of this Agreement.
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12. REPRESENTATIONS AND COVENANTS.
Physician makes the following representations and covenants, the validity
of which shall be a material term of this Agreement:
(a) Physician holds a license, in good standing, and will remain
licensed to practice medicine in the State of New York;
(b) Physician is authorized by the United States Drug Enforcement
Agency to prescribe all pharmaceuticals required in connection with the
provision of Infertility Services;
(c) Except as set forth on Schedule C hereto there are no
professional disciplinary proceedings or malpractice actions threatened or
pending against Physician, and Physician has notified and will promptly
notify PC of any such professional disciplinary proceedings and the
dispositions thereof;
(d) Physician has notified and will promptly notify PC of all
malpractice actions brought against him and the disposition of any such
action; and
(e) Physician shall at all times act in compliance with all
applicable policies and procedures of PC as reasonably communicated to
Physician, as well as all applicable federal, state, and local laws, rules
and regulations.
13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or disclose to
others (except in connection with the fulfillment of Physician's duties
hereunder any Infertility Information, as defined herein), during the term of
this Agreement or during any extension or renewal thereof, and for a period of
one (1) year thereafter, except as expressly consented to in writing by PC and
INMD. For purposes of this Agreement, the term "Infertility Information" shall
mean such technical, scientific, and business information provided to Physician
by PC or INMD which is designated by PC or INMD to be confidential or
proprietary. Infertility Information shall not include information which: (i) is
or becomes known in the scientific community through no fault of Physician; (ii)
is learned by Physician from a third party legally entitled to disclose such
information; or (iii) was already known to Physician at the time of disclosure
by the disclosing party. Physician further agrees that should his or her
contractual relationship hereunder terminate, he or she will neither take nor
retain, without prior written authorization from PC and INMD, any papers,
patient lists, fee books, patient record files, or other documents or copies
thereof or other Infertility Information of any kind belonging to PC or INMD, as
the case may be.
(b) Without limiting other possible remedies available to PC for the
breach of this covenant, Physician agrees that injunctive or other equitable
relief shall be available to
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enforce this covenant, such relief to be without the necessity of posting bond,
cash or otherwise. Physician further agrees that if any restriction contained in
this section is held by any court to be unenforceable or unreasonable, a lesser
restriction shall be enforced in its place and remaining restrictions herein
shall be enforced independently of each other. The parties further agree that
INMD shall have an independent right to enforce this covenant in its own right.
(c) It is further understood and agreed that in order to minimize any
misunderstanding regarding what information is considered to be confidential or
proprietary Infertility Information, the PC or INMD will designate the specific
information which PC or INMD considers to be proprietary or confidential under
this Agreement.
14. LIMITS ON CONFIDENTIALITY AGREEMENT. Nothing in the foregoing Section
13 or elsewhere in this Agreement shall prevent Physician from using any
reproductive endocrine or other concepts relating to Infertility Services which
are also applicable to non-ART infertility treatment. Furthermore, the
restrictions contained in Section 13 shall be of no further force and effect, if
this Agreement is terminated as a result of the termination of the INMD-PC
Agreement.
15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO EMPLOYEES.
(a) No Solicitation. For 12 months following termination of this Agreement
and Physician's employment, Physician agrees not to solicit, directly or
indirectly, the business of any person who is or was a patient or client of PC.
For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation. This covenant is acknowledged
by Physician to be based on the fact that the names and addresses of patients
and referral sources and the contact persons, contract needs and rates for
third-party payers and contracting organizations would not have been known by
Physician except by reason of the knowledge thereof gained as an employee or
shareholder of PC.
(b) Covenant Not to Compete. Physician agrees not to compete with the
business of PC, in accordance with the terms outlined below:
(i) The term of the covenant not to compete (the "Non-Competition
Period") shall be one (1) year after the termination of the Employment
Agreement in the event such termination occurs during the initial term of
this Agreement.
(ii) The geographic scope of the covenant not to compete (the
"Service Area") is twenty (20) miles from any offices maintained by PC for
the rendition of professional or other medical services to patients during
the last twelve months of Physician's employment by PC (the "Current
Medical Offices").
(iii) During the Non-Competition Period, Physician agrees that he
shall not advertise or market Infertility Services, engage in the practice
of medicine in which
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Physician provides Infertility Services, be employed by, be an agent of,
act as a consultant for, allow his name to be used by, or have a
proprietary interest in, any Medical Practice providing Infertility
Services within twenty (20) miles of a Current Medical Office.
(iv) For purposes of this Section, the following definitions shall
apply:
(A) The term "Medical Practice" shall include any form of
organization in which Infertility Services are provided to patients of the
Medical Practice or of other physicians, including but not limited to a
sole proprietorship, a partnership, an association, a professional
corporation, a business corporation, or a limited liability partnership or
corporation, a laboratory, an outpatient clinic, a practice management
company or medical services organization (or MSO). However, ownership of
less than 5% of the outstanding securities of any class of a medical
management or managed care organization traded on a national securities
exchange or the NASDAQ National Market System will not be deemed to be
engaging, solely by reason thereof, in the same business.
(B) The term "Medical Office" includes any location at which
the professional or technical component of Infertility Services are
provided and any other location which a Medical Practice maintains for
patient visits.
(C) The term "Infertility Services" shall have the meaning set
forth in the Management Agreement, except that Physician shall not be
prohibited from providing obstetrics and general gynecological services.
(v) Separability. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section is
invalid or unenforceable, each Party agrees that the court making the
determination of invalidity or unenforceability will have the power to
reduce the scope, duration or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or provision with a provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term
or provision, and this Agreement will be enforceable as so modified after
the expiration of time within which the judgment may be appealed.
(vi) Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical
care by Physician on behalf of PC, provided those services are for
patients of PC, nor prohibit Physician from fulfilling his contract with
PC, nor prohibit the Physician from holding any position on the medical
staff of any acute care hospital or the teaching staff of any university.
(vii) Acknowledgments. PC, INMD and Physician each acknowledges
that: (i) the terms set forth in this Section are necessary for the
reasonable and proper protection of the interests of PC and INMD; (ii)
each and every covenant and restriction is reasonable with respect to such
matter, length of time and geographical area; (iii) this Agreement, and
this Section in particular, shall be enforceable notwithstanding any
dispute
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as to the sums and timing of payments to Physician or other disputes under
this Agreement or the Employment Agreement; and (iv) the PC has been
induced to enter into this Agreement and the PC and INMD have been induced
to enter the PC-INMD Agreement and their other respective agreements with
Physician, in part, due to the representation by Physician that he will
abide by and be bound by the aforesaid covenants and restraints.
16. PUBLICATIONS. Physician agrees that any and all abstracts, articles,
reviews, or other publications that Physician proposes to submit for publication
within the scientific or medical community, or otherwise, which publication is
the result of direct or indirect support from INMD, in the form of, including,
but not limited to, materials, patients, personnel, data or Facility or PC
resources, Physician will submit to INMD's Vice President, Science and
Technology and its Vice President, Medical Affairs, not less than 30 days prior
to the proposed submission date, a copy of the proposed article or publication,
for INMD's proprietary review, Physician further agrees that the appropriate
statement, "support provided by INMD, Inc." or "Supported in part by IntegraMed
America, Inc." will be set forth as a disclosure with respect to the
publication.
17. NOTICES. Any notice hereunder shall have been deemed given only if in
writing and either delivered in hand or sent by registered or certified mail,
return receipt requested, postage prepaid, or by United States Express Mail or
other commercial expedited delivery services, with all postage and delivery
charges prepaid, to the addresses set forth below:
If to Physician:
Gabriel San Roman, M.D.
37 Buckingham Meadow Road
East Setauket, New York 11733
If to PC, at:
MPD Medical Associates, P.C.
200 Old Country Road
Mineola, New York 11501
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Donald S. Wood, Ph.D., Chief Operating Officer
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18. AMENDMENT. No modification, amendment, or addition to this Agreement,
nor waiver of any of its provisions, shall be valid or enforceable unless in
writing and signed by all parties.
19. ASSIGNMENT. No assignment of this Agreement or the rights and
obligations hereunder shall be valid without the specific written consent of
both parties.
20. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
understanding between the parties and no alteration or modification hereof shall
be effective unless contained in a subsequent written instrument executed by
both parties hereto.
21. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of New York. Any and all claims, disputes, or controversies arising under,
out of, or in connection with this Agreement or any breach thereof, except for
equitable relief sought pursuant to Article IX, shall be determined by binding
arbitration in the State of New York, County of Nassau (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to the American Arbitration Association, and the rules of
commercial arbitration of the selected entity shall govern. The Arbitration
shall be conducted and decided by three (3) arbitrators, unless the parties
mutually agree, in writing at the time of the Arbitration, to fewer arbitrators.
In reaching a decision, the arbitrators shall have no authority to change or
modify any provision of this Agreement. Each party shall bear its own expenses
and one-half the expenses and costs of the arbitrators. Any application to
compel Arbitration, confirm or vacate an arbitral award or otherwise enforce
this Paragraph shall be brought in the Courts of the State of New York.
22. SEVERABILITY. Each provision in this Agreement is intended to be
severable, and may be modified by any court of competent jurisdiction to the
extent necessary to make such provision valid and enforceable. If any term or
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever in whole or in part, such provision
or portion thereof shall be severed from this Agreement and shall not effect the
validity of the remainder of this Agreement.
23. WAIVER; CONSENT. No consent or waiver, express or implied, by either
party hereto, or of any breach or default by the other party in the performance
by the other of its obligations hereunder, shall be valid unless in writing, and
no such consent or waiver shall be deemed or construed to be a consent or waiver
to or of any other breach or default on the performance by such other party of
the same or any other obligation of such party hereunder. Failure on the part of
either party to complain of any act or failure to act of the other party or to
declare the other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder.
The granting of any consent or approval in any other instance by or on behalf of
Physician and/or PC shall not be construed to waive or limit the need for such
consent in any other or subsequent instance.
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24. FURTHER ACTION. Each party hereto agrees that it will execute and
deliver such further instruments and will take such further action as may be
necessary to discharge, perform or carry out any of its respective obligations
and agreements hereunder.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above written.
MPD Medical Associates, P.C.
By: /s/ Gabriel San Roman, M.D.
-----------------------------------------
Gabriel San Roman, M.D., President
Physician:
/s/ Gabriel San Roman, M.D.
- --------------------------------------------
Gabriel San Roman, M.D.
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SCHEDULE A
Office Location(s)
200 Old Country Road, Mineola, New York 11501
Suffolk Facilities, as such term is used in the
INMD-PC Agreement
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
PC agrees that during the first year of this Agreement, Physician shall be
entitled to an annual draw of not less than $200,000 taken in 12 equal monthly
installments. After the first year, Physician shall be entitled to an annual
draw, taken in 12 monthly installments, with no guarantee of an annual available
amount.
The draw will be equal to ninety (90%) of the anticipated monthly income
due Physician under PC's current income distribution and expense allocation
formula. Such draw will be calculated based on PC's annual budget which shall be
prepared with the input and assistance of Physician and INMD.
PC will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, PC will calculate
the actual amount due Physician based on the quarter in question. Physician will
be entitled to one-hundred percent (100%) of the compensation for the quarter
due under the income distribution formula based on the quarterly reconciliation.
The final reconciliation will be performed on an annual basis and shall be done
by PC no later than ninety (90) days of the close after the year. Physician will
be entitled, upon completion of the final reconciliation, to one-hundred percent
(100%) of Physician's share of the net income that is authorized for
distribution.
After the first year of this Agreement, should the quarterly or annual
reconciliation indicate that Physician was over-paid through the draw process,
the amount overpaid shall be recovered over the subsequent quarter in three
equal deductions. In addition, Physician's future quarterly draw will be
adjusted accordingly.
Physician shall be entitled to reimbursement for business-related expenses
in the performance hereunder.
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SCHEDULE B Continued
BENEFITS
Physician shall receive the following benefits which are considered part
of Cost of Services:
- --------------------------------------------------------------------------------
CATEGORY BENEFIT
- --------------------------------------------------------------------------------
Health Insurance Family Coverage; 80% paid by PC
- --------------------------------------------------------------------------------
Dental Insurance Fully Funded for Physician
- --------------------------------------------------------------------------------
Life Insurance $200,000 Coverage
- --------------------------------------------------------------------------------
Disability Insurance 60% of base compensation after 90 days;
paid to age 65
- --------------------------------------------------------------------------------
Continuing Medical Education One week annually for participation in
professional meetings
- --------------------------------------------------------------------------------
*Malpractice Insurance $1,000,000/$3,000,000 coverage
- --------------------------------------------------------------------------------
Vacation As agreed between PC and Physician
- --------------------------------------------------------------------------------
Sick time As needed
- --------------------------------------------------------------------------------
Social Security and Employment taxes As required by law
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Notwithstanding this, for twelve months after the Effective Financial Date (as
such term is used in the INMD-PC Agreement) the insurance provided to Dr.
Gabriel San Roman shall be paid by INMD pursuant to Section 7.15(b) of the
INMD-PC Agreement.
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SCHEDULE C
PROFESSIONAL DISCIPLINARY OR MALPRACTICE ACTIONS
THREATENED OR PENDING
Passarelle v. San Roman, et. al. Index No. 95-08754
New York Supreme Court, Suffolk County
15
AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
FERTILITY CENTERS OF ILLINOIS, S.C.
THIS AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT, dated June 18, 1997 by and
between IntegraMed America, Inc., a Delaware corporation, with its principal
place of business at One Manhattanville Road, Purchase, New York 10577 ("INMD")
and Fertility Centers of Illinois, S.C., an Illinois medical corporation, with
its principal place of business at 3000 North Halsted Street, Suite 509,
Chicago, Illinois 69657 ("FCI").
RECITALS:
INMD and FCI entered into a Management Agreement dated February 28, 1997
(the "Management Agreement") and amended the same pursuant a agreement dated May
2, 1997 ("Amended Agreement"); and
INMD and FCI wish to further amend the Management Agreement, in pertinent
part to provide for a revised Additional Management Fee, as defined in the
Management Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, and as contained in the Management Agreement, INMD and FCI agree as
follows:
1. Section 6.1.4 of the Management Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor:
"6.1.4 an Additional Management Fee in accordance with the following table:
Years 1 through 5 of this Agreement
Costs of Services plus the Base Additional Management Fee
Management Fee as a % of Revenues -------------------------
---------------------------------
50% and below 11 1/2% of Revenues
51% to 60% 9 1/2% of Revenues
61% to 70% 7 1/2% of Revenues
71% to 80% 4 % of Revenues
81% or more 0% of Revenues
<PAGE>
Years 6 through 20 of this Agreement
50% and below 13 1/2% of Revenues
51% to 60% 11 1/2% of Revenues
61% to 70% 8 1/2% of Revenues
71% to 80% 5% of Revenues
81% or more 0% of Revenues"
2. All the other provisions of the Management and Amended Agreements, not in
conflict with this Amendment No. 2, remain if full force and effect.
IN WITNESS WHEREOF, the parties have signed this Amendment No. 2 as of the
date first above written.
IntegraMed America, Inc.
By: /s/Dwight P. Ryan
---------------------------------
Dwight P. Ryan, Vice President
Fertility Centers of Illinois, S.C.
By: /s/Aaron S. Lifchez
---------------------------------
Aaron S. Lifchez, M.D., President
' EXHIBIT 11
Page 1 of 2
INTEGRAMED AMERICA, INC.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
All amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
For the For the
three months years ended
ended March 31, December 31,
----------------- ---------------------------------------------------
Primary 1997 1996 1996 1995 1994 1993 1992
- ------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net (loss) income ........................ $ (45) $ (74) $(1,490) $ 70 $ (814) $(4,597) $(1,956)
Less: Dividends accrued and/or paid
on Preferred Stock ....................... (33) (154) (132) (600) (1,146) (748) --
Add: Interest on promissory notes ........ -- -- -- -- -- -- 29
------ ------ ------ ------ ------ ------ ------
Net loss applicable to Common Stock
before consideration for induced
conversion of Preferred Stock ............ $ (78) $ (228) $(1,622) $ (530) $(1,960) $(5,345) $(1,927)
Assumed value of Common Stock issued
to induce conversion of Preferred Stock,
net of the reversal of $973,000 of accrued
Preferred Stock dividends -- -- 3,292 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net loss for computation ................. $ (78) $ (228) $(4,914) $ (530) $(1,960) $(5,345) $(1,927)
====== ====== ====== ====== ====== ====== ======
Net loss per share of Common Stock
before consideration for induced
conversion of Preferred Stock ............ $ (0.01) $ (0.04) $ (0.21) $ (0.09) $ (0.32) $ (2.01) $ (0.94)
Assumed per share value of
conversion inducement -- -- 0.47 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net loss per share of Common Stock ....... $ (0.01) $ (0.04) $ (0.68) $ (0.09) $ (0.32) $ (2.01) $ (0.94)
====== ====== ====== ====== ====== ====== ======
Weighted average number of shares
of Common Stock outstanding .............. 9,544 6,087 7,602 6,087 6,081 2,654 2,042
====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 11
Page 2 of 2
INTEGRAMED AMERICA, INC.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
All amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
For the For the
three months years ended
ended March 31, December 31,
----------------- ---------------------------------------------------
Primary 1997 1996 1996 1995 1994 1993 1992
- ------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income applicable to
Common Stock before consideration
for induced conversion of Preferred
Stock .................................... $ (45) $ (74) $(1,490) $ 70 $ (814) $(4,597) $(1,956)
Assumed value of Common Stock
issued to induce conversion of Preferred
Stock, net of the reversal of $973,000
of accrued Preferred Stock dividends ..... -- -- 3,292 -- -- -- --
Add: Interest on promissory notes ........ -- -- -- -- -- -- 29
------ ------ ------ ------ ------ ------ ------
Net (loss) income for computation ........ $ (45) $ (74) $(4,782) $ 70 $ (814) $(4,597) $(1,927)
====== ====== ====== ====== ====== ====== ======
Weighted average number of shares
of Common Stock outstanding .............. 9,544 6,087 7,602 6,087 6,081 2,654 2,007
Add: Common equivalent shares
(determined using the "treasury stock"
method) representing incremental shares
issuable upon assumed exercise of
optionsand warrants using average or
ending market price ...................... 208 389 197 508 27 46 35
Shares of Common Stock issued upon
assumed conversion of
Preferred Stock .......................... 265 1,001 250 980 989 2,200 --
------ ------ ------ ------ ------ ------ ------
Average number of shares of Common
Stock and Common Stock
equivalents outstanding .................. 10,017 7,477 8,049 7,575 7,097 4,900 2,042
====== ====== ====== ====== ====== ====== ======
Net loss per share of Common Stock
before consideration for induced
conversion of Preferred Stock ............ $ (0.00) $ (0.01) $ (0.18) $ 0.01 $(0.11) -- $ (0.94)
Assumed per share value of
conversion inducement .................... -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net loss per share of Common Stock
and Common Stock Equivalents ............. $ (0.00) $ (0.01) $ (0.65) $ 0.01 $(0.11) $ (0.94) $ (0.94)
====== ====== ====== ====== ====== ====== ======
</TABLE>
