As filed with the Securities and Exchange Commission on May 6, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INTEGRAMED AMERICA, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 8011 06-1150326
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction classification code number) identification number)
of incorporation)
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)
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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.
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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. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Proposed
Class of Securities Maximum Aggregate Amount of
to Be Registered Offering Price(1) Registration Fee
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Common Stock,
$.01 par value........... $10,000,000 $3,030.30
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, on the basis
of the price of the Common Stock on the Nasdaq National Market on May 1,
1997 of $1.56.
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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 . *
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* 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 ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 6, 1997
PROSPECTUS
6,400,000 Shares
INTEGRAMED
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 May 2, 1997, the last reported sale price of the Common Stock,
as quoted on the Nasdaq National Market, was $1.81 per share. See "Price Range
of Common Stock."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
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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.
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Price to Placement Agent Proceeds to
Public Fees(1) Company(2)(3)
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Per Share.............. $ $ $
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Total ................. $ $ $
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(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>
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 nine 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 ten Network Sites and 19
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 eight 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
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3
<PAGE>
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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 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 ... 17,130,497 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>
Pro Forma
-------------------------
Combined
Combined Company,
Company Recent
and Recent Acquisitions
Acquisi- and Pending
tions(2) Acquisition(3)
Years Ended December 31, -------------------------
--------------------------------------------------- Year Ended
1992 1993 1994 1995 1996 December 31, 1996
---- ---- ---- ---- ---- -------------------------
(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 $ 21,665 $ 27,491
Medical Practice retainage ......... 3,936 4,605 3,824 3,063 2,680 2,680 2,680
-------- -------- -------- -------- -------- -------- --------
Revenues after Medical
Practice retainage .............. 9,870 11,420 13,754 13,648 15,663 18,985 24,811
Costs of services rendered ......... 7,257 10,222 10,998 9,986 12,398 15,534 20,359
-------- -------- -------- -------- -------- -------- --------
Network Sites' contribution ........ 2,613 1,198 2,756 3,662 3,265 3,451 4,452
-------- -------- -------- -------- -------- -------- --------
General and administrative expenses 2,071 3,079 3,447 3,680 4,339 4,339 4,339
Equity in loss of Partnerships(4) .. 876 1,793 -- -- -- -- --
Total other (income) expenses
(including income taxes) ........ 1,622 923 123 (88) 416 727 1,180
-------- -------- -------- -------- -------- -------- --------
Net (loss) income .................. (1,956) (4,597) (814) 70 (1,490) (1,615) (1,067)
Less: Dividends accrued and/or
paid on Preferred Stock ......... -- 748 1,146 600 132 132 132
-------- -------- -------- -------- -------- -------- --------
Net loss applicable to Common Stock $ (1,956) $ (5,345) $ (1,960) $ (530) $ (1,622) $ (1,747) $ (1,199)
======== ======== ======== ======== ======== ======== ========
Net loss 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) $ (0.21) $ (0.09)
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares
of Common Stock outstanding ..... 2,042(6) 2,654 6,081 6,087 7,602 8,224 13,728(7)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
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Pro Forma
Pro Forma Combined
Combined Company,
Company and Bay Area Acquisition
Bay Area and Pending Pro Forma
Actual Acquisition(8) Acquisition(9) As Adjusted(10)
------ -------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital(11) ......... $ 7,092 $ 5,592 $ 5,392 $ 7,592
Total assets(11) ............ 20,850 21,434 30,234 32,234
Total indebtedness(12) ...... 2,553 2,553 2,553 2,553
Accumulated deficit ......... (21,190) (21,190) (21,190) (21,190)
Shareholders' equity ........ 14,478 15,062 23,662(7) 25,862
</TABLE>
(See footnotes on following page)
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5
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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) 265,030
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) 1,109,316 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average
exercise price of $1.85 per share (including option grants subject to
stockholder approval), (iv) an estimated 246,303 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"), and (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. 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") 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. 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 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 5,504,000 shares of Common Stock assumed to be issued by the
Company on December 31, 1996 to finance the entire cost of the Pending
Acquisition. See "Unaudited Pro Forma Combined Financial Information."
(8) Gives effect to the Bay Area Acquisition as if it had occurred on December
31, 1996. See "Unaudited Pro Forma Combined Financial Information" and
"Business -- The Network Sites -- Recent Acquisitions."
(9) Gives effect to the Pending Acquisition as if it had occurred on December
31, 1996. 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."
(10) 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 December 31, 1996. 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 $200,000 in costs
related to the Pending Acquisition. The remainder of the net proceeds will
be used for working capital and general corporate purposes.
(11) Includes controlled assets of certain Medical Practices of $650,000 at
December 31, 1996.
(12) Total indebtedness as of December 31, 1996 included $1,435,000 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 December 31, 1996, the Company had an accumulated deficit of
approximately $21.2 million. 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
December 31, 1996, the Company's consolidated financial statements reflect
goodwill and other intangible assets of approximately $5.9 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
practice in the San Francisco area (the "Bay Area 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 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
7
<PAGE>
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.
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 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 Company may be required to
enter into contracts under which services will be provided on a fee-for-service
or risk-sharing/capitated basis by some or all Medical Practices. 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 exceed reimbursement amounts, the Company's business, financial
condition and operating results would be adversely effected. 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 48% and 54% of the
Company's revenues for the fiscal years ended December 31, 1996 and 1995,
respectively, were derived 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 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
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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, 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."
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,
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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. However, many of the laws, rules and regulations which govern the
Company and the Medical Practices are very broad and subject to continuing
change and interpretation. 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 laws of many 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.
These laws and their interpretations vary from state to state, and they are
enforced by regulatory authorities that have broad discretionary authority. The
Company performs only non-medical administrative services, and in certain
circumstances, clinical laboratory services. The Company believes that it is in
material compliance with applicable state laws relating to the practice of
medicine. 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 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.
Fee-Splitting Laws. The laws of many 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
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physicians. In other states, such as California, 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.
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. 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.
The Company believes its current operations do not give rise to
enforcement actions relating to fee-splitting in the states in which it has
relationships with Medical Practices. However, there can be no assurance that
future interpretations of such laws will not require structural and
organizational modifications of the Company's existing relationships with the
Medical Practices.
Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
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
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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.
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 payments for referral of patients
and referrals by physicians to health care providers with whom the physicians
have a financial relationship. A number of states have adopted statutes and
regulations that 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.
While the Company believes that its practices fit within exceptions contained in
such statutes, 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.
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
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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.
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.
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Dependence on Key Personnel. The Company is substantially dependent on the
efforts and skills of its 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 17,130,497 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 2,142,856 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 1,503,846 shares of Common Stock (including
option grants subject to stockholder approval), of which options and warrants to
purchase 848,523 shares are currently exercisable. Of such shares subject to
options and warrants, approximately 529,741 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, the 265,030 shares of Common Stock are issuable upon
conversion of the Convertible Preferred Stock. Upon conversion, such shares of
Common Stock will be freely tradable in the public market.
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After the offering, holders of an aggregate of 2,142,856 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."
Immediate and Substantial Dilution. The purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their shares of Common Stock in the amount of $1.03
per share, after giving effect to 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 future acquisitions, purchasers of Common Stock in
this offering may experience further dilution in the net tangible book value per
share of Common Stock. See "Dilution."
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.
------------------
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
15
<PAGE>
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.
16
<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 and use the balance 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.
17
<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 February 28, 1997, eleven
quarterly dividend payments had been suspended resulting in $364,000 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 $ .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 May 2, 1997) ............ 1.88 1.44
On May 2, 1997, there were approximately 273 holders of record of the
Common Stock, excluding beneficial owners of shares registered in nominee or
street name.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization giving effect
to the consummation of the Bay Area Acquisition, (iii) the pro forma
capitalization giving effect to the consummation of the Bay Area Acquisition and
the Pending Acquisition and (iv) 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>
December 31, 1996
------------------------------------------------------
(In thousands)
Pro Forma
Pro Forma Combined
Combined Company,
Company and Bay Area Acquisition
Bay Area and Pending Pro Forma
Actual Acquisition Acquisition As Adjusted
------ ----------- -------------------- -----------
<S> <C> <C> <C> <C>
Exclusive management rights obligation - long term .... $ 1,213 $ 1,213 $ 1,213 $ 1,213
Long-term debt ........................................ 692 692 692 692
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 ............................ 166 166 166 166
Common Stock, $.01 par value;
25,000,000 shares authorized;
9,230,557 shares issued and
outstanding actual; 9,563,890 shares
issued and outstanding - pro forma
combined Company and Bay Area
Acquisition; 15,067,890 shares
issued and outstanding - pro forma
combined Company, Bay Area
Acquisition and Pending Acquisition;
and 17,106,747 shares issued and
outstanding - pro forma as adjusted(1) ............ 92 95 150 170
Capital in excess of par .............................. 35,410 35,991 44,536 46,716
Accumulated deficit ................................... (21,190) (21,190) (21,190) (21,190)
-------- -------- -------- --------
Total shareholders' equity .......................... 14,478 15,062 23,662 25,862
-------- -------- -------- --------
Total capitalization .............................. $ 16,383 $ 16,967 $ 25,567 $ 27,767
======== ======== ======== ========
</TABLE>
- ----------
(1) Does not include (i) 265,030 shares of Common Stock issuable upon
conversion of 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) 1,109,316 shares of
Common Stock issuable upon exercise of outstanding options at a weighted
average exercise price of $1.85 per share (including option grants subject
to stockholder approval), (iv) 246,303 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 and (vi) an estimated 101,587 shares issuable
upon exercise of the Advisor Warrant. See "Management -- Stock Option
Plans," "-- Outside Director Stock Purchase Plan," "Description of Capital
Stock" and "Plan of Distribution."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996, after giving effect to the issuance of 333,333 shares of Common Stock in
connection with the Bay Area Acquisition, was approximately $7.1 million, or
approximately $0.74 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 December 31, 1996 would have been approximately $9.1
million, or approximately $0.53 per share. This represents an immediate decrease
in such net tangible book value of approximately $0.21 per share to existing
stockholders and an immediate dilution in net tangible book value of
approximately $1.03 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
December 31, 1996 ........................................ $ 0.74
Decrease per share attributable to new investors ........... $ 0.21
Pro forma net tangible book value per share upon consummation
of the Pending Acquisition and after the offering .......... 0.53
------
Dilution per share to new investors .......................... $ 1.03
======
The following table summarizes, on a pro forma basis as of December 31,
1996, 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):
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Average
------------------- ------------------- Price Per
Number Percent Amount Percent Share
` ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) . 10,706,747 62.6% $38,057,000 79.2% $3.55
New Investors ............ 6,400,000 37.4 10,000,000 20.8 1.56
---------- ----- ----------- -----
Total ................. 17,106,747 100.0% $48,057,000 100.0%
========== ===== =========== =====
</TABLE>
- ----------
(1) Includes (i) 333,333 shares of Common Stock issued in connection with the
Bay Area 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) 265,030 shares of
Common Stock issuable upon conversion of 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) 1,109,316 shares of
Common Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $1.85 per share (including option grants subject to
stockholder approval), (iv) 246,303 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 and (vi) an estimated 101,587 shares issuable upon exercise of the
Advisor Warrant. See "Management -- Stock Option Plans," "-- Outside Director
Stock Purchase Plan," "Description of Capital Stock" and "Plan of Distribution."
20
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL 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 pro forma combined financial data set forth below at December 31,
1996 and for the year ended December 31, 1996 have been derived from the
unaudited pro forma combined financial statements of the Company. The pro forma
selected financial data are not necessarily indicative of the actual results of
operations or financial position that would have been achieved had the Recent
Acquisitions, the Pending Acquisition and this offering been completed on
January 1, 1996, 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>
Pro Forma
-----------------------------
Combined
Company,
Combined Recent
Company Acquisitions
and Recent and Pending
Acquisitions(1) Acquisition(2)
-----------------------------
Years Ended December 31,
----------------------------------------------- Year Ended
1992 1993 1994 1995 1996 December 31, 1996
------- ------- ------- ------- ------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data: (In thousands, except per share data)
Revenues, net ....................... $13,806 $16,025 $17,578 $16,711 $18,343 $21,665 $27,491
Medical Practice retainage .......... 3,936 4,605 3,824 3,063 2,680 2,680 2,680
------- ------- ------- ------- ------- ------- -------
Revenues after Medical
Practice retainage ............... 9,870 11,420 13,754 13,648 15,663 18,985 24,811
Costs of services rendered .......... 7,257 10,222 10,998 9,986 12,398 15,534 20,359
------- ------- ------- ------- ------- ------- -------
Network Sites' contribution ......... 2,613 1,198 2,756 3,662 3,265 3,451 4,452
------- ------- ------- ------- ------- ------- -------
General and administrative expenses . 2,071 3,079 3,447 3,680 4,339 4,339 4,339
Equity in loss of Partnerships (3) .. 876 1,793 -- -- -- -- --
Total other (income) expenses
(including income taxes) ......... 1,622 923 123 (88) 416 727 1,180
------- ------- ------- ------- ------- ------- -------
Net (loss) income ................... (1,956) (4,597) (814) 70 (1,490) (1,615) (1,067)
Less: Dividends accrued and/or
paid on Preferred Stock .......... -- 748 1,146 600 132 132 132
------- ------- ------- ------- ------- ------- -------
Net loss applicable to Common Stock . $(1,956) $(5,345) $(1,960) $ (530) $(1,622) $(1,747) $(1,199)
======= ======= ======= ======= ======= ======= =======
Net loss per share of Common Stock
before consideration for induced
conversion of Preferred Stock (4) $ (0.94)(5) $ (2.01) $ (0.32) $ (0.09) $ (0.21) $ (0.21) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares
of Common Stock outstanding ...... 2,042(5) 2,654 6,081 6,087 7,602 8,224 13,728(6)
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Pro Forma
Pro Forma Combined
Combined Company,
Company Bay Area Acquisition
and Bay Area and Pending Pro Forma
Actual Acquisition(7) Acquisition(8) As Adjusted(9)
------ -------------- ----------------- --------------
(Unaudited) (Unaudited) (Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (10) ................ $ 7,092 $ 5,592 $ 5,392 $ 7,592
Total assets (10) ................... 20,850 21,434 30,234 32,234
Total indebtedness (11) ............. 2,553 2,553 2,553 2,553
Accumulated deficit ................. (21,190) (21,190) (21,190) (21,190)
Shareholders' equity ................ 14,478 15,062 23,662(6) 25,862
</TABLE>
(See footnotes on following page)
21
<PAGE>
(1) Gives effect to the Recent Acquisitions 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. 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 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 5,504,000 shares of Common Stock assumed to be issued by the
Company on December 31, 1996 to finance the entire cost of the Pending
Acquisition. See "Unaudited Pro Forma Combined Financial Information."
(7) Gives effect to the Bay Area Acquisition as if it had occurred on December
31, 1996. See "Unaudited Pro Forma Combined Financial Information" and
"Business -- The Network Sites -- Recent Acquisitions."
(8) Gives effect to the Pending Acquisition as if it had occurred on December
31, 1996. 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 December 31, 1996. 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 $200,000 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 at
December 31, 1996.
(11) Total indebtedness as of December 31, 1996 included $1,435,000 of exclusive
management rights obligation.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet at December 31,
1996 and the Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1996 have been prepared to reflect adjustments to the
Company's historical results of operations and financial position to give effect
to the Recent Acquisitions and the Pending Acquisition. The Unaudited Pro Forma
Combined Balance Sheet reflects the Bay Area Acquisition and the Pending
Acquisition as if they had occurred on December 31, 1996 and the Unaudited Pro
Forma Combined Statement of Operations reflects the Recent Acquisitions and the
Pending Acquisition as if they had occurred on January 1, 1996.
The unaudited pro forma combined financial information gives effect to the
Recent Acquisitions 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 ("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, 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.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------
Pro Forma Bay Area Acquisition Pro Forma Pending Acquisition
-------------------------------- -------------------------------
Assets Assets
Historical (a) Acquired Adjustments Combined Acquired Adjustments Combined
------------- -------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short
term investments ............ $ 5,952 $ -- $(1,500)(b) $ 4,452 $ -- $ -- $ 4,452
Accounts receivable, net ....... 3,461 -- -- 3,461 -- -- 3,461
Management fees receivable,
net ......................... 1,249 -- -- 1,249 -- -- 1,249
Other current assets ........... 897 -- -- 897 -- -- 897
------- ------ ------- ------- ----- ------- -------
Total current assets ......... 11,559 -- (1,500) 10,059 -- -- 10,059
------- ------ ------- ------- ----- ------- -------
Fixed assets, net ................. 3,186 29(c) -- 3,215 600(d) -- 3,815
Intangible assets, net ............ 5,894 -- 2,055(e) 7,949 -- 8,200(f) 16,149
Other assets ...................... 211 -- -- 211 -- -- 211
------- ------ ------- ------- ----- ------- -------
Total assets ................. $20,850 $ 29 $ 555 $21,434 $ 600 $ 8,200 $30,234
======= ====== ======= ======= ===== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............... $ 1,020 $ -- $ -- $ 1,020 $ -- $ -- $ 1,020
Accrued liabilities and due to
Medical Practices ........... 1,978 -- -- 1,978 -- 200(g) 2,178
Dividends accrued on preferred
stock ....................... 331 -- -- 331 -- -- 331
Current portion of exclusive
management rights obligation 222 -- -- 222 -- -- 222
Current portion of long-term
debt ........................ 426 -- -- 426 -- -- 426
Patient deposits ............... 490 -- -- 490 -- 490
------- ------ ------- ------- ----- ------- -------
Total current liabilities .... 4,467 -- -- 4,467 -- 200 4,667
------- ------ ------- ------- ----- ------- -------
Exclusive management rights
obligation .................. 1,213 -- -- 1,213 -- -- 1,213
Long-term debt .................... 692 -- -- 692 -- -- 692
Shareholders' equity:
Preferred Stock ................ 166 -- -- 166 -- -- 166
Common Stock ................... 92 -- 3(h) 95 -- 55(i) 150
Capital in excess of par ....... 35,410 -- 581(h) 35,991 -- 8,545(i) 44,536
Accumulated deficit ............ (21,190) 29 (29) (21,190) 600 (600) (21,190)
------- ------ ------- ------- ----- ------- -------
Total shareholders' equity ... 14,478 29 555 15,062 600 8,000 23,662
------- ------ ------- ------- ----- ------- -------
Total liabilities and
shareholders' equity ...... $20,850 $ 29 $ 555 $21,434 $ 600 $ 8,200 $30,234
======= ====== ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined balance sheet.
24
<PAGE>
Notes to Unaudited Pro Forma Combined Balance Sheet
(a) Reflects the Company's actual consolidated balance sheet as of December 31,
1996.
(b) Represents the cash paid by the Company as part of the purchase price
pursuant to the Bay Area Acquisition.
(c) Represents the historical book value of assets acquired pursuant to the Bay
Area Acquisition.
(d) Represents the estimated historical book value of assets to be acquired
pursuant to the Pending Acquisition.
(e) Represents the purchase price paid by the Company in excess of the fair
value of assets acquired in the Bay Area Acquisition.
(f) 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.
(g) Represents estimated accrued costs and expenses associated with the closing
of the Pending Acquisition.
(h) Reflects the 333,333 shares of Common Stock issued by the Company as part
of the purchase price for the Bay Area Acquisition.
(i) Represents the issuance of 5,504,000 shares of Common Stock that would have
been issued on December 31, 1996 to finance the entire cost of the Pending
Acquisition, assuming that the aggregate consideration paid in the Pending
Acquisition consisted entirely of shares of Common Stock at a price per
share of $1.56.
25
<PAGE>
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------------
Pro Forma
Pro Forma Recent Acquisitions (a) Pending Acquisition (b)
-------------------------------------------------------------------
RSC AWM
Division Division
Recent Recent Pending
Acqui- Acqui- Adjust- Acqui- Adjust-
Historical(c) sitions sitions ments Combined sition ments Combined
----------- -------- -------- -------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net $18,343 $2,091(d) $1,231(e) $ -- $21,665 $5,826(f) $ -- $27,491
Medical Practice retainage ....... 2,680 -- -- -- 2,680 -- -- 2,680
------- ------ ------ ------ ------- ------ ----- -------
Revenues after Medical Practice
retainage ..................... 15,663 2,091 1,231 -- 18,985 5,826 -- 24,811
Cost of services rendered ........ 12,398 1,766(g) 1,370(h) -- 15,534 4,825(i) -- 20,359
------- ------ ------ ------ ------- ------ ----- -------
Network Sites' contribution ...... 3,265 325 (139) -- 3,451 1,001 -- 4,452
------- ------ ------ ------ ------- ------ ----- -------
General and administrative
expenses ...................... 4,339 -- -- -- 4,339 -- -- 4,339
Clinical service development
expenses ...................... 323 -- -- -- 323 -- -- 323
Amortization of intangible assets 331 -- -- 197(j) 528 -- 410(k) 938
Interest (income) expense, net ... (379) -- -- 93(l) (286) -- -- (286)
------- ------ ------ ------ ------- ------ ----- -------
Total other expenses ............. 4,614 -- -- 290 4,904 -- 410 5,314
------- ------ ------ ------ ------- ------ ----- -------
(Loss) income before income taxes (1,349) 325 (139) (290) (1,453) 1,001 (410) (862)
Provision for taxes .............. 141 -- -- 21 162 83 (40) 205
------- ------ ------ ------ ------- ------ ----- -------
Net (loss) income ................ (1,490) 325 (139) (311) (1,615) 918 (370) (1,067)
Less: Dividends accrued on
Preferred Stock ............... 132 -- -- -- 132 -- -- 132
------- ------ ------ ------ ------- ------ ----- -------
Net loss applicable to Common
Stock before consideration for
induced conversion of
Preferred Stock ............... $(1,622) $325 $ (139) $ (311) $(1,747) $ 918 $(370) $(1,199)
======= ====== ====== ====== ======= ====== ===== =======
Net loss per share of Common
Stock before consideration
for induced conversion of
Preferred Stock ............... $ (0.21) $ (0.21) $ (0.09)
======= ======= =======
Weighted average number
of shares of Common Stock
outstanding ................... 7,602 333(m) 289(n) 8,224 5,504(o) 13,728
======= ====== ====== ======= ===== =======
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
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<PAGE>
Notes to Unaudited Pro Forma Combined Statement of Operations
(a) Reflects the pro forma operating results of the Company derived from the
historical statements of operations of the Recent Acquisitions 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.
(b) 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. 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
are included elsewhere in this Prospectus.
(c) 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 from each of their
respective acquisition dates.
(d) Reflects the Company's fee that would have been earned under its management
agreements with (i) the Reproductive Science Center of Dallas (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.
(e) Reflects 100% of the revenues earned by W. Banks Hinshaw, Jr., M.D., P.A.
("Hinshaw"), the Merger Companies and NMF for the period from January 1,
1996 through the respective dates of acquisition.
(f) Reflects the Company's fee that would have been earned for the year ended
December 31, 1996 under its management agreement with FCI.
(g) 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 Facility, the respective
costs of services rendered are reimbursed to the Company and are included
in the Company's revenues. See note (a) above and "Business --Network Site
Agreements -- Management Agreements."
(h) 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 (a)
above and "Business --Network Site Agreements -- Management Agreements."
(i) Represents all direct costs that would have been incurred by the Company in
the operation of FCI for the year ended December 31, 1996. Pursuant to the
Company's management agreement with FCI, such costs of services rendered
are reimbursed to the Company and are included in the Company's revenues.
See note (b) above and "Business -- Network Site Agreements -- Management
Agreements."
(j) Reflects additional amortization of exclusive management rights, goodwill
and other intangible assets that are being amortized over periods ranging
from three to 40 years.
(k) Reflects amortization of the exclusive management right that will be
amortized over the twenty year term of the management agreement.
(l) 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. Also
reflects the increased interest expense related to a note payable and
assumed debt in connection with the establishment of the AWM Network Site.
(m) 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.
(n) Represents the weighted average shares outstanding related to the issuance
of 666,666 shares of Common Stock for the acquisition of the Merger
Companies.
(o) Assumes that 5,504,000 shares of Common Stock were issued by the Company on
December 31, 1996 to finance the entire cost of the Pending Acquisition,
assuming that the aggregate consideration paid in the Pending Acquisition
consisted entirely of shares of Common Stock at a price per share of $1.56.
27
<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 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."
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 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.
Recent Acquisitions
During 1996 and early 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 price was approximately $701,500. 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 cash in an aggregate amount of $350,000 and issued 666,666
shares of Common Stock. In exchange for 51% of the outstanding stock of NMF,
28
<PAGE>
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. In January 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 (the "Bay Area
Acquisition"). The aggregate purchase price for the Bay Area Acquisition was
approximately $2.0 million.
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, 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 closing of the Pending
Acquisition, 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. 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
eight management agreements.
Under four 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, (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. 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
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 certain hospital contract fees (the "Medical Practice
retainage"). Remaining revenues, if any, are used to reimburse the Company for
other direct administrative expenses which are recorded as cost of services or
to pay the Company a management fee. Under this arrangement, the Company is
responsible for payment of all liabilities relating to the Network Site's
operations.
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 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. See "Business -- The Network Sites."
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
29
<PAGE>
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 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 the minority interest in any profits of NMF as a separate expense
line item on its consolidated statement of operations. Any unpaid minority
equity is presented as a liability on the Company's consolidated balance sheet.
Results of Operations
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 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.
30
<PAGE>
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 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.
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<PAGE>
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.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities and loans from its stockholders. At December 31,
1996, the Company had working capital of approximately $7.1 million (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, compared to working capital of
$10.0 million at December 31, 1995 (including $1.8 million of controlled assets
of Medical Practices), $9.7 million of which consisted of cash and cash
equivalents (including $296,000 of controlled cash) and short term investments.
The decrease in working capital at December 31, 1996 was principally due to
payments of $1.4 million for exclusive management rights, acquired physician
practices and related net asset purchases, payments of $1.5 million for fixed
asset purchases and leasehold improvements primarily for existing Network Sites,
a $839,000 increase in accounts payable and $409,000 of debt and capital lease
repayments. These decreases in working capital were partially offset by a
$615,000 decrease in the Company's accrued dividend obligation on its
Convertible Preferred Stock due to the conversion of 78.6% of the outstanding
Convertible Preferred Stock in July 1996, a $442,000 net increase in aggregate
patient, management and research accounts receivable and a $379,000 increase in
other current assets primarily related to prepaid insurance.
In January 1997, the Company consummated the Bay Area Acquisition 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 Pending Acquisition. 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
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.
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,
32
<PAGE>
operation and expansion of the existing Network Sites. 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 has committed to
advance funds to the Medical Practice to guarantee a minimum physician draw 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 April 29, 1997, was 9.25%. The Credit
Facility terminates on April 1, 1998 and is secured by the Company's assets. 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. At April 29, 1997, $250,000 was outstanding 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 $189,000 and $88,000
under this agreement in the fiscal years ended December 31, 1996 and 1995,
respectively.
As a result of the conversion offer of the Convertible Preferred Stock in
July 1996 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 December 31,
1996, dividend payments of $331,000 were in arrears as a result of the
suspension by the Board of Directors of ten 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 nine 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 ten Network Sites and 19
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 and its affiliated physicians 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
at 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 at its existing Network Sites by
(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 Company 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
employs the physicians or where the Company directly employs the physicians. 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 nine Network
Sites with 13 locations in eight states and the District of Columbia and 43
physicians. Upon consummation of the Pending Acquisition, the Company's network
will consist of ten Network Sites with 19 locations in nine states and the
District of Columbia and 48 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 & Gynecology Medical Group San Ramon, CA 1 3 January 1997
Fertility Centers of Illinois, S.C. Chicago, IL 6 5 Pending(2)
- -----------------------------------------------------------------------------------------------------------
AWM DIVISION
- -----------------------------------------------------------------------------------------------------------
Women's Medical & Diagnostic Center Gainesville, FL 3 4 June 1996
- -----------------------------------------------------------------------------------------------------------
</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."
Recent Acquisitions
Since May 1996, the Company has acquired certain assets of four Medical
Practices to establish three new Network Sites. 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 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 cash in an aggregate amount of
$350,000 and issued 666,666 shares of Common Stock. 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 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. 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."
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In January 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. The aggregate purchase
price was approximately $2.0 million, consisting of $1.5 million in cash and
333,333 shares of Common Stock.
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 (the "Pending Acquisition") 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 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 fiscal year ended December 31, 1996, giving pro forma effect to the
acquisitions completed in 1996 and 1997 and the Pending Acquisition as if such
acquisitions were consummated as of January 1, 1996, would have been
approximately $27.5 million, an increase of 49.4% as compared to the Company's
actual revenues for the fiscal year ended December 31, 1996 of approximately
$18.3 million. 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.
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.
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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. 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). 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.
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
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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
21 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.
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, 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.
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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 personnel as are necessary to provide technical, consultative and
administrative support for the patient services at the Network Site. Under the
management agreement, the Company may also advance funds to the Medical Practice
to provide new services, utilize new technologies, fund projects, 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 four Network Sites, the Company receives as compensation for its management
services a three-part management fee comprised of: (i) a fixed percentage of net
revenues, (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.
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.
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 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. If the
physician should cease to practice medicine through the respective contracted
Medical
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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.
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.
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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 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. However,
many of the laws, rules and regulations which govern the Company and the Medical
Practices are very broad and subject to continuing change and interpretation.
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 laws of many 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. These laws and their interpretations vary from state to state,
and they are enforced by regulatory authorities that have broad discretionary
authority. The Company performs only non-medical administrative services, and in
certain circumstances, clinical laboratory services. It does not represent to
the public or its clients that it offers medical services, and the Company does
not exercise influence or control over the practice of medicine by the
physicians with whom it contracts, in those jurisdictions that prohibit the
corporate practice of medicine. Accordingly, the Company believes that it is in
material compliance with applicable state laws relating to the practice of
medicine. However, although the Company has structured its affiliations with
Medical Practices so that the associated physicians maintain exclusive authority
regarding the delivery of medical care in those jurisdictions that prohibit the
corporate practice of medicine, there can be no assurance that these laws will
be interpreted in a manner consistent with the Company's practices or that
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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 effect on the Company's business, financial condition and
operating results.
Fee-Splitting Laws. The laws of many 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 other
states, such as California, 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.
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. 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.
The Company believes its current operations do not give rise to
enforcement actions relating to fee-splitting in the states in which it has
relationships with Medical Practices. However, there can be no assurance that
future interpretations of such laws will not require structural and
organizational modifications of the Company's existing relationships with the
Medical Practices.
Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
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.
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
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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.
State Antikickback and Self-Referral Laws. The Company is also subject to
state statutes and regulations that prohibit payments for referral of patients
and referrals by physicians to health care providers with whom the physicians
have a financial relationship. A number of states have adopted statutes and
regulations that 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
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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, some states have enacted self-referral laws, 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. While the Company believes that its practices fit within exceptions
contained in such statutes, 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.
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.
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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 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 April 30, 1997, the Company had 205 employees, six of whom are
executive management, 182 are employed at the Network Sites and 23 are employed
at the Company's headquarters. Of the Company's employees, 30 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.
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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., pending 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 have appealed this decision. The
Company believes that if denial of class certification is affirmed on appeal,
this legal action will not have a material adverse effect on the financial
position or the operating results of the Company.
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.
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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 ................... 51 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.
51
<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 Executve
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.
52
<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
53
<PAGE>
exercisable one year from the date of the 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. 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 $40,000 during
the fiscal years ended December 31, 1996, 1995 and 1994, respectively.
Limitation on Liability
The DGCL permits a corporation through its certificate of incorporation to
eliminate the personal liability of its directors to the corporation or its
stockholders for monetary damages for breach of fiduciary duty of loyalty and
care as a director, with certain exceptions. The exceptions include a breach of
the director's duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law, improper
declarations of dividends, and transactions from which the directors derived an
improper personal benefit. The Company's Amended and Restated Certificate of
Incorporation exonerates the Company's directors from monetary liability to the
fullest extent permitted by this statutory provision but does not restrict the
availability of non-monetary and other equitable relief. See "Description of
Capital Stock."
Executive Compensation
The following table sets forth a summary of the compensation paid or
accrued by the Company during the years ended December 31, 1996, 1995 and 1994
for the Company's Chief Executive Officer and for the five most highly
compensated executive officers (the "Named Executive Officers"), including three
who are no longer serving as officers of the Company, effective January 1, 1997,
February 28, 1997 and April 16, 1997, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Securities
Annual Compensation Underlying
-------------------------- Options
Name and Principal Position Year Salary($) Bonus($) Granted (#)
--------------------------- ---- --------- -------- -----------
<S> <C> <C> <C> <C>
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)
</TABLE>
54
<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) Subject to stockholder approval of an amendment to increase the number of
shares of Common Stock authorized under the 1992 Plan to 1,300,000 shares,
each such option being exercisable at $2.37 per share, 25% of which shares
become exercisable one year from the date of grant; thereafter the shares
become exercisable at the rate of 6.25% of the total number of shares
subject to the option every three months.
(4) Exercisable, with respect to 25% of the underlying shares, one year from
the date of grant; thereafter the options become exercisable every three
months at the rate of 6.25% of the total number of shares subject to each
such options. These options were cancelled as a result of Dr. Notelovitz's
resignation as an executive officer of the Company in January 1997.
55
<PAGE>
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers
who held unexercised options at December 31, 1996:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Number of Securities Underlying In-the-Money
Shares Unexercised Options at Options at
Acquired December 31, 1996 (#) December 31, 1996($)(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 ..... -- -- 15,475 9,285 -- --
-- -- 2,707 -- 1,936 --
-- -- 6,266 6,267 2,350 2,350
Morris Notelovitz, M.D., Ph.D -- -- -- 40,000(4) -- --
</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 and are subject
to stockholder approval of amendments to increase the number of shares of
Common Stock authorized under the 1992 Plan to 1,300,000 shares, 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. 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 850,000 shares of Common Stock reserved for issuance
thereunder. The Board of Directors has adopted, subject to stockholder approval,
an amendment to the 1992 Plan increasing the shares reserved for issuance under
the 1992 Plan to 1,300,000. 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
56
<PAGE>
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.
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 108,479 shares at exercise prices ranging from $0.625
to $1.55 per share and there were outstanding under the 1992 Plan options to
purchase 1,000,837 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.
57
<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 day's 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.
58
<PAGE>
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.
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.
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.
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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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth at March 31, 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.
<TABLE>
<CAPTION>
Percentage
Beneficially
Number of Owned
Shares -------------------------
Beneficially Prior to the After the
Name and Address Owned(1) Offering Offering
---------------- -------- ------- -------
<S> <C> <C> <C>
Alphi Investment Management Company
155 Pfingsten Road, Suite 360
Deerfield, IL 60013 ................................... 820,600(2) 8.56% 4.79%
Bay Area Fertility and Gynecology Medical Group, Inc.
5601 Norris Canyon Road, Suite 300
San Ramon, CA 94583 .................................. 333,333(3) 3.48 1.95
FMR Corp.
82 Devonshire Street
Boston, MA 02109 ...................................... 805,500(4) 8.40 4.70
Morris Notelovitz
2801 N.W. 58th Blvd.
Gainesville, FL 32605 ................................. 666,666(5) 6.95 3.89
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
Chicago, IL 60657 ...................................... 1,142,857(6) -- 6.67
Gerardo Canet ............................................. 258,799(7)(8) 2.64 1.49
Peter O. Callan ........................................... 17,500(7) * *
Lois A. Dugan ............................................. 32,125(7) * *
Jay Higham ................................................ 27,000(7) * *
Donald S. Wood, Ph.D. ..................................... 34,300(7) * *
Vicki L. Baldwin .......................................... 53,132(7) * *
Elliott D. Hillback, Jr. .................................. 21,750(7)(10) * *
Patricia M. McShane, M.D. ................................. 29,110(7) * *
Sarason D. Liebler ........................................ 38,200(7) * *
Lawrence J. Stuesser ...................................... 81,750(7)(10) * *
All executive officers and directors
as a group (13 persons) ................................ 622,255(11) 6.21 3.54
</TABLE>
- ----------
* Represents less than 1%
(1) As of March 31, 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 1.60 shares of Common Stock, he would own 2.5% 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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<PAGE>
(3) Represents shares issued by the Company to acquire the exclusive right to
manage the Bay Area Fertility and Gynecology Medical Group, Inc. as part of
the Bay Area Acquisition.
(4) 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.
(5) 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.
(6) 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.
(7) Includes (or consists of) currently exercisable options to purchase Common
Stock as follows: Gerardo Canet -- 208,799; Peter Callan -- 17,500; Lois
Dugan -- 28,125; Jay Higham -- 25,000; Patricia McShane -- 29,110; Donald
Wood-- 32,300; Elliott Hillback, Jr. -- 21,750; Lawrence Stuesser --
21,750; and Sarason Liebler -- 21,750.
(8) Excludes (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) an estimated 1,142,857 shares of Common
Stock to be issued to FCI in the Pending Acquisition for which Gerardo
Canet will have an irrevocable proxy to vote for a two year period
following the closing of the Pending Acquisition.
(9) 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.
(10) Excludes 31,600 shares of Common Stock held by family members of Lawrence
Stuesser for which Mr. Stuesser has disclaimed beneficial ownership.
(11) Includes currently exercisable options to purchase 434,673 shares of Common
Stock. If all of the shares described in notes (7), (8) and (9) were
included, the number of shares owned would be 1,457,133 shares and the
percentage ownership, would be 14.54% prior to the offering and 8.30% after
the offering. Includes 4,000 shares of Common Stock and currently
exercisable options to purchase 28,125 shares of Common Stock, held by Lois
Dugan, who resigned as an executive officer of the Company effective in
April 16, 1997.
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<PAGE>
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 May 2, 1997, eleven quarterly dividend
payments have been suspended resulting in $364,000 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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<PAGE>
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,
64
<PAGE>
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.
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.
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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<PAGE>
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 17,130,497 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 2,142,856 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 1,503,846 shares of Common Stock (including
option grants subject to stockholder approval), of which options and warrants to
purchase 848,523 shares are currently exercisable. Of such shares subject to
options and warrants, approximately 529,741 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, 265,030 shares of Common Stock are issuable upon
conversion of the Convertible Preferred Stock. Upon conversion, such shares of
Common Stock will be freely tradable in the public market.
After the offering, holders of an aggregate of 2,142,856 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."
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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.
Confirmations 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.
67
<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.
68
<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 ....... F-3
Consolidated Statement of Operations for the years ended
December 31, 1994, 1995 and 1996 ................................ F-4
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1994, 1995 and 1996 .................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 ............................... F-6
Notes to Consolidated Financial Statements ........................ F-7
Bay Area Fertility and Gynecology Medical Group
Report of Independent Accountants ................................. F-23
Balance Sheet as of December 31, 1996 ............................. F-24
Statement of Operations for the year ended
December 31, 1996 ............................................... F-25
Statement of Cash Flows for the year ended
December 31, 1996 ............................................... F-26
Notes to Financial Statements ..................................... F-27
Fertility Centers of Illinois, S.C.
Report of Independent Accountants ................................. F-29
Combined Balance Sheet as of December 31, 1995 and 1996 ........... F-30
Combined Statement of Operations for the years ended
December 31, 1995 and 1996 ...................................... F-31
Combined Statement of Stockholders' Equity for the
years ended December 31, 1995 and 1996 .......................... F-32
Combined Statement of Cash Flows for the years ended
December 31, 1995 and 1996 ...................................... F-33
Notes to Combined Financial Statements ............................ F-34
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.
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,
-------------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 7,883 $ 3,761
Short term investments ..................................... 1,500 2,000
Patient accounts receivable, less allowance for doubtful
accounts of $64 and $113 in 1995 and 1996, respectively .. 1,271 2,770
Management fees receivable, less allowance for doubtful
accounts of $0 and $50 in 1995 and 1996, respectively .... 1,125 1,249
Research fees receivable ................................. -- 232
Other current assets ....................................... 508 897
Controlled assets of Medical Practices (see Note 2)
Cash ..................................................... 296 191
Accounts receivable, less allowance for doubtful accounts
of $25 and $146 in 1995 and 1996, respectively ......... 1,449 459
Other current assets ....................................... 14 --
-------- --------
Total controlled assets of Medical Practices ....... 1,759 650
Total current assets ............................... 14,046 11,559
-------- --------
Fixed assets, net ............................................. 2,266 3,186
Intangible assets, net ........................................ 1,761 5,894
Other assets .................................................. 198 211
-------- --------
Total assets ....................................... $ 18,271 $ 20,850
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 181 $ 1,020
Accrued liabilities ........................................ 1,307 1,652
Due to Medical Practices-- (see Notes 2 and 5) ............. 606 326
Dividends accrued on Preferred Stock ....................... 946 331
Current portion of exclusive management rights obligation .. 297 222
Current portion of long-term debt .......................... 274 426
Patient deposits ........................................... 411 490
-------- --------
Total current liabilities .......................... 4,022 4,467
-------- --------
Exclusive management rights obligation ........................ 978 1,213
Long-term debt ................................................ 340 692
Commitments and Contingencies -- (see Note 14) ................ -- --
Shareholders' equity:
Preferred Stock, $1.00 par value --
3,785,378 and 3,165,644 shares authorized in 1995 and
1996, respectively -- 2,500,000 undesignated; 1,285,378
and 665,644 shares designated as Series A Cumulative
Convertible of which 785,378 and 165,644 were issued
and outstanding in 1995 and 1996, respectively ........... 785 166
Common Stock, $.01 par value-- 25,000,000 shares authorized;
6,086,910 and 9,230,557 shares issued and outstanding in
1995 and 1996, respectively .............................. 61 92
Capital in excess of par ................................... 31,785 35,410
Accumulated deficit ........................................ (19,700) (21,190)
-------- --------
Total shareholders' equity ......................... 12,931 14,478
-------- --------
Total liabilities and shareholders' equity ......... $ 18,271 $ 20,850
======== ========
</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 years ended December 31,
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues, net (see Note 2) ........................... $ 17,578 $ 16,711 $ 18,343
Medical Practice retainage (see Note 2) .............. 3,824 3,063 2,680
-------- -------- --------
Revenues after Medical Practice retainage (see Note 2) 13,754 13,648 15,663
Costs of services rendered ........................... 10,998 9,986 12,398
-------- -------- --------
Network sites' contribution .......................... 2,756 3,662 3,265
-------- -------- --------
General and administrative expenses .................. 3,447 3,680 4,339
Clinical service development expenses ................ 452 290 323
Amortization of intangible assets .................... -- 73 331
Interest income ...................................... (519) (626) (415)
Interest expense ..................................... 40 20 36
-------- -------- --------
Total other expenses ................................. 3,420 3,437 4,614
(Loss) income before income taxes .................... (664) 225 (1,349)
Provision for income and capital taxes ............... 150 155 141
-------- -------- --------
Net (loss) income .................................... (814) 70 (1,490)
Less: Dividends accrued and/or paid on Preferred Stock 1,146 600 132
-------- -------- --------
Net loss applicable to Common Stock before
consideration for induced conversion of
Preferred Stock ................................... $ (1,960) $ (530) $ (1,622)
======== ======== ========
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)
======== ======== ========
Weighted average number of shares of
Common Stock outstanding .......................... 6,081 6,087 7,602
======== ======== ========
</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
========== ======= ========= === ======== ======== ========
</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 years ended December 31,
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ............................................ $ (814) $ 70 $(1,490)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization ............................. 770 775 1,116
Writeoff of fixed assets .................................. 275 21 --
Changes in assets and liabilities net of effects from
acquired businesses --
(Increase) decrease in assets:
Accounts receivable ....................................... (142) (94) (1,318)
Management fees receivable ................................ -- (1,125) (124)
Research fees receivable .................................. -- -- 10
Other current assets ...................................... 22 (304) (379)
Other assets .............................................. 1 (21) (13)
(Increase) decrease in controlled assets of Medical Practices:
Accounts receivable ....................................... 316 806 990
Other current assets ...................................... 15 25 14
Increase (decrease) in liabilities:
Accounts payable .......................................... 175 (502) 839
Accrued liabilities ....................................... (56) 3 106
Due to Medical Practices .................................. 124 (131) (280)
Patient deposits .......................................... (109) (77) 79
-------- -------- -------
Net cash (used in) provided by operating activities ............. 577 (554) (450)
-------- -------- -------
Cash flows (used in) provided by investing activities:
Purchase of short term investments ........................... -- (1,500) (500)
Payment for exclusive management rights and acquired
physician practices ....................................... -- (177) (984)
Purchase of net assets of acquired businesses ................ -- (168) (394)
Purchase of fixed assets and leasehold improvements .......... (913) (1,152) (1,498)
Sale of fixed assets and leasehold improvements .............. -- 651 86
-------- -------- -------
Net cash used in investing activities ........................... (913) (2,346) (3,290)
-------- -------- -------
Cash flows (used in) provided by financing activities:
Principal repayments on debt ................................. (78) (84) (193)
Principal repayments under capital lease obligations ......... (326) (173) (216)
Repurchase of Convertible Preferred Stock .................... -- (358) (83)
Used for recapitalization costs .............................. (776) -- (33)
Dividends paid on Convertible Preferred Stock ................ (800) -- --
Proceeds from exercise of Common Stock options ............... 23 -- 38
-------- -------- -------
Net cash used in financing activities ........................... (1,957) (615) (487)
-------- -------- -------
Net decrease in cash ............................................ (2,293) (3,515) (4,227)
Cash at beginning of period ..................................... 13,987 11,694 8,179
-------- -------- -------
Cash at end of period ........................................... $ 11,694 $ 8,179 $ 3,952
======== ======== =======
</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. The Company provides
management services to a nationwide network of medical providers that currently
consists of nine 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. In addition, the financial
statements of three Network sites managed by the Company, of which one
management agreement was terminated in November 1996, are included in these
consolidated financial statements as the Company has unilateral and perpetual
control of the revenues and expenses generated from these 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.
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.
Under four of the agreements, one of which was terminated in January 1997,
the Company receives as compensation for its management services a three-part
management fee comprised of : (i) a fixed percentage of net revenues, (ii)
reimbursed cost of services (costs incurred in managing a Network site and any
costs paid on behalf of the site) 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. 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
Network site are recorded in cost of services rendered.
F-7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under three management agreements, one of which was terminated in November
1996, the Company consolidates its revenue and expenses with the Network sites
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
Network site including physicians' and other medical fees, direct materials,
rent, etc. (the "Medical Practice retainage"). Remaining revenue, if any, is
used to reimburse the Company for other direct administrative expenses which are
recorded as cost of services and/or to pay the Company a management fee. Under
the arrangements between the Company and the Medical Practice, the Company is
liable for payment of all liabilities relating to the Network site's operations.
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 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 research
study contracts 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 research 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.
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 will report the minority interest in any profits of NMF as a
separate expense line item on the income statement. Any unpaid minority equity
will be presented as a liability on the Company's consolidated balance sheet.
Minority interest at December 31, 1996 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.
F-8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. As of December 31, 1996,
approximately $836,000 of accounts receivable were a function of Network site
revenue (i.e., the Company purchased the accounts receivable from the Medical
Practice) and the $2,393,000 balance was 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
research study contracts between the pharmaceutical companies and AWMC.
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, of the $1,759,000 and $650,000 controlled
assets of Medical Practices, $279,000 and $117,000, respectively, was restricted
for payment of the amounts due to Medical Practices and the balance of
$1,480,000 and $533,000, respectively, was 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 consisted of the following
(000's omitted):
1995 1996
---- ----
Exclusive management rights ......... $1,621 $2,178
Goodwill ............................ 50 3,935
Trademarks .......................... 372 394
------ ------
Total ........................... 2,043 6,507
Less-- accumulated amortization ..... (282) (613)
------ ------
Total ........................... $1,761 $5,894
====== ======
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 were $73,000, $0 and $209,000 at
December 31, 1995, respectively, and $270,000, $91,000 and $252,000 at December
31, 1996, 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 consisted of the following
(000's omitted):
1995 1996
---- ----
Furniture, office and other equipment ............ $ 1,617 $ 2,145
Medical equipment ................................ 1,319 1,954
Leasehold improvements ........................... 728 1,246
Assets under capital leases ...................... 1,453 1,426
------- -------
Total ........................................ 5,117 6,771
Less--Accumulated depreciation and amortization .. (2,851) (3,585)
------- -------
$ 2,266 $ 3,186
======= =======
Assets under capital leases primarily consist of medical equipment.
Accumulated amortization relating to capital leases at December 31, 1995 and
1996 was $908 and $1,065, respectively.
NOTE 4 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1995 and 1996 consisted of the
following (000's omitted):
1995 1996
---- ----
Deferred compensation ........................... $ 314 $ 357
Accrued payroll ................................. -- 226
Deferred research revenue ....................... -- 118
Accrued state taxes ............................. 93 166
Deferred rent ................................... 286 166
Westchester Network site closing reserve ........ -- 90
Other ........................................... 614 529
------ ------
Total accrued liabilities ....................... $1,307 $1,652
====== ======
NOTE 5 -- DUE TO MEDICAL PRACTICES:
Due to Medical Practices at December 31, 1995 and 1996 consisted of the
following (000's omitted):
1995 1996
---- -----
Accrued hospital contract fees .................. $446 $ 354
Accrued professional fees and affiliates, net ... 130 (46)
Accrued other ................................... 30 18
---- -----
Total due to Medical Practices .................. $606 $ 326
==== =====
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 include the results of these transactions,
with the exception of the Bay Area Fertility transaction which was completed in
January 1997 (see Note 18), from their respective dates 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
F-11
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 Fertility
transaction which was closed in January 1997.
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.
F-12
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
======
NOTE 8 -- DEBT:
Debt at December 31, 1995 and 1996 consisted of the following (000's
omitted):
1995 1996
---- ----
Acquisition note payable ...................... $ -- $ 525
Notes payable to Medical Practices employed
by the Company .............................. -- 220
Obligations under capital lease ............... 485 269
Construction loan ............................. 129 51
Other ......................................... -- 53
----- -------
Total debt .................................... 614 1,118
Less--Current portion ......................... (274) (426)
----- -------
Long-term debt ................................ $ 340 $ 692
===== =======
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%
and 8.25% at December 31, 1995 and 1996, 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 and $139,000 at December 31, 1995 and 1996,
respectively.
F-13
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 in
1994, 1995 and 1996, respectively. Refer to Note 14 -- "Commitments and
Contingencies -- Commitments to Medical Providers."
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
1994, 1995 and 1996 of $150,000, $155,000 and $140,000, 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 to $6,584,000 at December 31, 1995 from $7,115,000
at December 31, 1996 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):
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-14
<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>
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.
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
F-15
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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; ten quarterly
dividend payments have been suspended as of December 31, 1996 resulting in
$331,000 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 1.45 shares of Common Stock for each share of
Preferred Stock as of December 31, 1996.
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
December 31, 1996.
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.
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
F-16
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 ...................... 406,710 $ 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-17
<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 in 1995.
Pro forma net loss and earnings per share in 1996 would be $313,000 and $0.04
higher, respectively, versus reported amounts. The weighted average fair value
of options granted during 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 1995 and
1996, respectively; dividend yield of 0% in both years; volatility of 115.18%
and 108.72% in 1995 and 1996; risk-free interest rate of 6.3% and 6.7% in 1995
and 1996; 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 was $314,000 and $357,000, respectively. Total compensation cost
recognized in income for the year ended December 31, 1995 and 1996 was $81,000
and $43,000, 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 1995 1996 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter ....... $ 4,132 $ 4,175 $ 618 $ 818 $ (122) $ (74) $(.05) $(0.04)
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 $3,662 $3,265 $ 70 $(1,490) $(.09) $(0.21)
======= ======= ====== ====== ====== ======= ===== ======
</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.
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
F-18
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 and $189,000 under this agreement in 1995 and 1996,
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.
Line of Credit
In November 1996, the Company obtained a $1,500,000 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 .75% per annum. The Credit Facility terminates on April 1, 1998 and is
secured by the Company's assets. As of December 31, 1996, there were no amounts
outstanding under the Credit Facility.
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 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.
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 Network site. The aggregate amount paid pursuant to such agreements was
$1,443,000, $1,136,000 and $856,000 in 1994, 1995 and 1996, respectively.
F-19
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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., pending 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 have appealed this decision. The
Company believes that if denial of class certification is affirmed on appeal,
this legal action will not have a material adverse effect on the financial
position or the operating results of the Company.
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.
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
F-20
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, there were accrued dividends on Preferred
Stock outstanding of $946,000 and $331,000, 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.
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 and $155,000 and $119,000 were paid in
the years ended December 31, 1994, 1995 and 1996, respectively.
Interest paid in cash during 1994, 1995 and 1996 amounted to $40,000,
$20,000 and $35,000, respectively. Interest received during 1994, 1995 and 1996
amounted to $498,000, $648,000 and $412,000, respectively.
F-21
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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-22
<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.
Price Waterhouse LLP
Stamford, Connecticut
March 24, 1997
F-23
<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-24
<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-25
<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-26
<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-27
<PAGE>
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
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-28
<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.
Price Waterhouse LLP
Stamford, Connecticut
April 28, 1997
F-29
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 426,972 $ 427,707
Patient accounts receivable, less allowance for doubtful accounts
of $81,901 and $165,352 in 1995 and 1996, respectively ....... 1,021,587 1,583,230
Receivable from IVF Illinois .................................... 63,575 106,312
Note receivable from related party .............................. -- 100,000
Other current assets ............................................ 90,143 64,385
---------- ----------
Total current assets ........................................ 1,602,277 2,281,634
Fixed assets, net ............................................... 606,026 598,462
Investment in IVF Illinois ...................................... 75,000 75,000
Other assets .................................................... 65,183 57,784
---------- ----------
Total assets ................................................ $2,348,486 $3,012,880
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........................ $ 204,500 $ 207,700
Equipment payable ............................................... -- 76,259
Taxes payable ................................................... 88,285 215,039
Employee loans .................................................. 66,768 33,520
Accrued pension and profit sharing .............................. 354,400 90,241
Current portion of long-term debt ............................... 246,935 162,060
Patient deposits ................................................ 39,458 504,381
Other liabilities ............................................... -- 5,602
---------- ----------
Total current liabilities ................................... 1,000,346 1,294,802
Long-term debt .................................................. -- 159,568
Commitments and contingencies ................................... -- --
Stockholders' equity:
Common stock (4,050 shares issued and outstanding at
December 31, 1995 and 1996) .................................. 4,500 4,500
Capital in excess of par ........................................ 29,000 29,000
Accumulated earnings ............................................ 1,314,640 1,525,010
---------- ----------
Total stockholders' equity .................................. 1,348,140 1,558,510
---------- ----------
Total liabilities and stockholders' equity .................. $2,348,486 $3,012,880
========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-30
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF OPERATIONS
For the years ended
December 31,
-------------------
1995 1996
---- ----
Revenues, net ................................ $ 7,044,850 $ 8,338,791
Costs of services rendered ................... 5,601,743 6,735,923
----------- -----------
Contribution ................................. 1,443,107 1,602,868
General and administrative expenses .......... 1,073,302 1,122,407
Interest income .............................. (4,486) (11,679)
Interest expense ............................. 24,296 33,168
----------- -----------
Total other expenses ......................... 1,093,112 1,143,896
----------- -----------
Income before income taxes ................... 349,995 458,972
Provision for taxes .......................... 92,823 145,102
----------- -----------
Net income ................................... $ 257,172 $ 313,870
=========== ===========
See accompanying notes to the combined financial statements.
F-31
<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
===== ======= -======= ========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-32
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF CASH FLOWS
For the years ended
December 31,
---------------------
1995 1996
---- ----
Cash flows from operating activities:
Net income ........................................... $ 257,172 $ 313,870
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 112,517 137,146
Loss on sale of fixed assets ....................... 27,956 42,268
Bad debt reserve ................................... 41,081 83,451
Changes in assets and liabilities:
(Increase) decrease in assets:
Patient accounts receivable ...................... (345,827) (645,094)
Other assets ..................................... (50,346) (11,580)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities ......... 76,655 3,200
Taxes payable .................................... 85,783 126,754
Employee loans ................................... 2,905 (33,248)
Accrued pension and profit sharing ............... 354,400 (264,159)
Patient deposits ................................. 31,958 464,923
Other accrued liabilities ........................ (10,000) 81,861
--------- ---------
Net cash provided by operating activities .............. 584,254 299,392
Cash flows used in investing activities:
Purchase of fixed assets and leasehold improvements .. (238,270) (169,850)
Cash flows (used in) provided by financing activities:
Net (decrease) increase in debt ...................... (41,379) 74,693
Note receivable ...................................... -- (100,000)
Distributions to stockholders ........................ (130,000) (103,500)
--------- ---------
Net cash used in financing activities .................. (171,379) (128,807)
Net increase in cash ................................... 174,605 735
Cash at beginning of period ............................ 252,367 426,972
--------- ---------
Cash at end of period .................................. $ 426,972 $ 427,707
========= =========
Supplemental information:
Taxes paid in cash ................................... $ 8,765 $ 20,990
========= =========
Interest paid in cash ................................ $ 24,296 $ 33,168
========= =========
See accompanying notes to the combined financial statements.
F-33
<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 commonly
controlled entities (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.
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 and $709,240 at December 31, 1995 and 1996, 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.
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.
F-34
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
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 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. 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 consisted of the
following:
1995 1996
---- ----
Furniture, office and other equipment ..... $ 496,801 $ 575,820
Medical equipment ......................... 477,284 510,412
Leasehold improvements .................... 138,998 144,316
----------- -----------
Total ................................. 1,113,083 1,230,548
Less -- accumulated depreciation and
amortization (507,057) (632,086)
----------- -----------
$ 606,026 $ 598,462
=========== ===========
Depreciation and amortization expense totaled $112,517 and $137,146,
respectively, for the years ended December 31, 1995 and 1996.
NOTE 4 -- DEBT:
Debt at December 31, 1995 and 1996 consisted of the following:
1995 1996
---- ----
Business term loan ............... $ 196,935 $ 321,628
Business line of credit .......... 50,000 --
--------- ---------
Total debt ....................... 246,935 321,628
Less -- current portion .......... (246,935) (162,060)
--------- ---------
Long-term debt ................... $ -- $ 159,568
========= =========
F-35
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
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. The line of credit expired in March 1997.
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.
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%
==== ====
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 have been reflected in revenues, net
in the statement of operations. Accounts receivable from IVF Illinois were
$63,575 and $106,312 at December 31, 1995 and 1996, respectively. The Company's
interest in earnings of IVF Illinois was insignificant for the years ended
December 31, 1995 and 1996.
F-36
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The $100,000 note receivable at December 31, 1996 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.
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
========= ========
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-37
<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.................................. 17
Dividend Policy.................................. 18
Price Range of Common Stock...................... 18
Capitalization................................... 19
Dilution......................................... 20
Selected Consolidated and Pro Forma
Combined Financial Data........................ 21
Unaudited Pro Forma Combined
Financial Information.......................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 28
Business......................................... 34
Management....................................... 51
Certain Transactions............................. 59
Principal Stockholders........................... 60
Description of Capital Stock..................... 62
Shares Eligible for Future Sale.................. 66
Plan of Distribution............................. 67
Legal Matters.................................... 67
Experts.......................................... 68
Available Information............................ 68
Index to Financial Statements.................... F-1
==========================================================
==========================================================
6,400,000 Shares
IntegraMed(SM)
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
Nasdaq Listing Fee ........................... 17,500
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**
==========
- ----------
* 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.
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 issuable to Raymond James &
Associates, Inc. (vii)
4.5 -- Form of Warrant issued 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)
10.2 -- Copy of Registrant's 1992 Stock Option Plan, including
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)
II-2
<PAGE>
Exhibit
Number Exhibit
------- -------
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)
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)
II-3
<PAGE>
Exhibit
Number Exhibit
------- -------
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)
10.53 -- Employment Agreement between Morris Notelovitz, M.D.,
Ph.D. and Registrant (xii)
II-4
<PAGE>
Exhibit
Number Exhibit
------- -------
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.
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.
(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
II-6
<PAGE>
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.
PRICE WATERHOUSE LLP
Stamford, CT
May 5, 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 5th day of May, 1997.
INTEGRAMED AMERICA, INC.
/s/ GERARDO CANET
-----------------------------------------
By: Gerardo Canet, President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Gerardo Canet and
Dwight P. Ryan or either of them, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign any or all amendments
(including post-effective amendments) to this Registration Statement and any
related Registration Statement filed under Rule 462(b), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
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.
Signature Title Date
--------- ----- ----
/s/ GERARDO CANET President, Chief Executive May 5, 1997
- ------------------------------ Officer and Director
Gerardo Canet (Principal Executive Officer)
/s/ DWIGHT P. RYAN Vice President, May 5, 1997
- ------------------------------ Chief Financial Officer
Dwight P. Ryan (Principal Financial and
Accounting Officer)
/s/ VICKI L. BALDWIN Director May 5, 1997
- ------------------------------
Vicki L. Baldwin
/s/ ELLIOT D. HILLBACK, JR. Director May 5, 1997
- ------------------------------
Elliot D. Hillback, Jr.
/s/ SARASON D. LIEBLER Director May 5, 1997
- ------------------------------
Sarason D. Liebler
/s/ PATRICIA M. MCSHANE, M.D. Director May 5, 1997
- ------------------------------
Patricia M. McShane, M.D.
/s/ LAWRENCE J. STUESSER Director May 5, 1997
- ------------------------------
Lawrence J. Stuesser
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
--------- -------- -------------- ---------
IntgraMed America, Inc.:
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------
(1) Uncollectible accounts written off.
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Page
- ------ ------- ----
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 issuable to Raymond James &
Associates, Inc. (vii)
4.5 -- Form of Warrant issued 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)
10.2 -- Copy of Registrant's 1992 Stock Option Plan, including
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)
<PAGE>
Exhibit
Number Exhibit Page
- ------ ------- ----
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)
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)
<PAGE>
Exhibit
Number Exhibit Page
- ------ ------- ----
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)
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)
<PAGE>
Exhibit
Number Exhibit Page
- ------ ------- ----
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
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.
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)
- --------
(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.
<PAGE>
(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.
(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
[Draft-- 5/5/97]
INTEGRAMED AMERICA, INC.
___________ Shares of Common Stock, $0.01 par value per share
PLACEMENT AGENCY AGREEMENT
_________________, 1997
Vector Securities International, Inc.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Dear Sir or Madam:
IntegraMed America, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell ____________ shares (the "Shares") of common stock, par value
$.01 per share (the "Common Stock"), to certain investors (collectively, the
"Investors"). The Company desires to engage you as its exclusive placement agent
(the "Placement Agent") in connection with such issuance and sale. The Common
Stock is more fully described in the Registration Statement (as hereinafter
defined).
The Company hereby confirms its agreements with the Placement Agent as
follows:
1. Agreement to Act as Placement Agent.
On the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions of this
Agreement, the Placement Agent agrees to act as the Company's exclusive
placement agent in connection with the issuance and sale, on a best efforts
basis, by the Company of the Shares to the Investors. The Company shall pay to
the Placement Agent 7.0% of the gross proceeds received by the Company from
the sale of the Shares as set forth on the cover page of the Prospectus (as
hereinafter defined). Such fee shall be in addition to, but not in lieu of, any
fees, expenses or warrants owing by the Company to the Placement Agent under the
letter agreement dated March 8, 1996, as amended on September 12, 1996 and
February 4, 1997 (the "Advisory Agreement"), between the Company and the
Placement Agent relating to the Company's retention of the Placement Agent as a
financial advisor to the Company in connection with the acquisition by the
Company of Fertility Centers of Illinois, SC ("FCI").
<PAGE>
2. Delivery and Payment. Concurrently with the execution and delivery of
this Agreement, the Company, the Placement Agent and Citibank, N.A., as escrow
agent (the "Escrow Agent"), shall enter into an Escrow Agreement substantially
in the form of Exhibit A attached hereto (the "Escrow Agreement"), pursuant to
which an escrow account will be established, at the Company's expense, for the
benefit of the Investors (the "Escrow Account"). Prior to the Closing Date (as
defined below), (i) each of the Investors will deposit an amount equal to the
Price to Public per Share as shown on the cover page of the Prospectus (as
hereinafter defined) multiplied by the number of Shares purchased by it in the
Escrow Account, and (ii) the Escrow Agent will notify the Company and the
Placement Agent in writing whether the Investors have deposited in the Escrow
Account funds in the amount equal to the proceeds of the sale of all of the
Shares offered hereby (the "Requisite Funds") into the Escrow Account. At 10:00
a.m., New York City time, on _____________, 1997, or at such other time on such
other date as may be agreed upon by the Company and the Placement Agent but in
no event prior to the date on which the Escrow Agent shall have received all of
the Requisite Funds (such date is hereinafter referred to as the "Closing
Date"), the Escrow Agent will release the Requisite Funds from the Escrow
Account for collection by the Company and the Placement Agent as provided in the
Escrow Agreement and the Company shall deliver the Shares to the Investors,
which delivery may be made through the facilities of The Depository Trust
Company. The closing (the "Closing") shall take place at the office of Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038. All actions
taken at the Closing shall be deemed to have occurred simultaneously.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Placement Agent shall
request by written notice to the Company. For the purpose of expediting the
checking and packaging of certificates for the Shares, the Company agrees to
make such certificates available for inspection at least 24 hours prior to
delivery to the Investors.
3. Representations and Warranties of the Company. The Company represents
and warrants and covenants to the Placement Agent that:
(a) A registration statement (Registration No. 333-______) on Form S-1
relating to the Shares, including a preliminary prospectus relating to the
Shares and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company, under
the provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The Commission has not issued any order
preventing or suspending the use of the Prospectus or the Preliminary Prospectus
(as defined below). The term "Preliminary Prospectus" as used herein means a
preliminary prospectus relating to the Shares as contemplated by Rule 430 or
Rule 430A ("Rule 430A") of the Rules and Regulations included at any time as
part of the registration statement. Copies of such registration statement and
amendments and of each related Preliminary Prospectus have been
-2-
<PAGE>
delivered to the Placement Agent. If such registration statement has not become
effective, a further amendment to such registration statement, including a form
of final prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus relating to the
Shares containing information permitted to be omitted at the time of
effectiveness by Rule 430A will be filed by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations promptly after
execution and delivery of this Agreement. The term "Registration Statement"
means the registration statement as amended at the time it becomes or became
effective (the "Effective Date"), including all material incorporated by
reference therein and any information deemed to be included by Rule 430A. The
term "Prospectus" means the prospectus relating to the Shares as first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no such filing is required, the form of final prospectus relating to the Shares
included in the Registration Statement at the Effective Date, in either case,
including all material, if any, incorporated by reference therein.
(b) On the date that any Preliminary Prospectus was filed with the
Commission, the date the Prospectus is first filed with the Commission pursuant
to Rule 424(b) (if required), at all times subsequent to and including the
Closing Date and when any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the Prospectus is filed with
the Commission, the Registration Statement, each Preliminary Prospectus and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply with all applicable
provisions of the Act and the Rules and Regulations and did or will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, at the date the Prospectus or any amendment
or supplement to the Prospectus is filed with the Commission and at the Closing
Date the Prospectus did not or will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company has not distributed any offering material in connection
with the offering or sale of the Common Stock, other than the Registration
Statement, the Preliminary Prospectus and the Prospectus.
(c) The Company is, and at the Closing Date will be, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has, and at the Closing Date will have, full corporate power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus. The Company is, and at the Closing
Date will be, duly licensed or qualified to conduct its business and in good
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standing as a foreign organization in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such licensing or qualification necessary, except where failure to so
license or qualify does not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries (as hereinafter defined), taken
as a whole. Except for the stock of the Subsidiaries and as disclosed in the
Registration Statement, the Company does not own, and at the Closing Date will
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the articles or certificate of incorporation and of the bylaws
of the Company and the Subsidiaries, and all amendments thereto have been
delivered to the Placement Agent, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date.
(d) All of the Company's subsidiaries (as defined in the Act) are
identified on Exhibit 21.1 to the Registration Statement and are referred to
herein as a "Subsidiary" and collectively as the "Subsidiaries." Each Subsidiary
is, and at the Closing Date will be, duly organized, validly existing and in
good standing in the jurisdiction of its incorporation. Each Subsidiary has, and
at the Closing Date will have, full corporate power and authority to conduct all
the activities conducted by it, to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration Statement or
Prospectus. Each Subsidiary is, and at the Closing Date will be, duly licensed
or qualified to conduct its business and in good standing as a foreign
organization in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it makes such
licensing or qualification necessary, except where failure to so license or
qualify does not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole. All the outstanding shares
of capital stock of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable, and are wholly owned by the
Company directly, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance, except as described in the Registration Statement
or Prospectus.
(e) Each individual physician, individual physician practice, group
medical practice and professional corporation with which the Company is
affiliated, through employment agreements or management agreements, is listed on
Schedule I hereto, and is referred to herein individually as a "Medical
Practice." Each Medical Practice is duly organized and is duly qualified or
licensed by, and is in good standing in, each jurisdiction in which it conducts
its businesses and in which the failure to be so qualified or licensed,
individually or in the aggregate, would have a material adverse effect on the
condition (financial or other), business, prospects. properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a whole.
(f) The issued and outstanding shares of capital stock of the Company
have been duly authorized, validly issued, are fully paid and nonassessable and
are
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<PAGE>
not subject to any preemptive or similar rights. The Company has an authorized,
issued and outstanding capitalization as set forth under the caption
"Capitalization" in the Prospectus. The description of the securities of the
Company in the Registration Statement and the Prospectus is, and at the Closing
Date will be, complete and accurate in all respects. Except as set forth in the
Registration Statement and the Prospectus, neither the Company nor the
Subsidiaries has outstanding, and at the Closing Date will not have outstanding,
any options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or exchangeable for, or any
contracts or commitments to issue or sell, any shares of capital stock or other
securities.
(g) This Agreement has been duly authorized and validly executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto. The Escrow Agreement has been duly authorized
and validly executed and delivered by the Company and is a legal, valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto.
(h) The issuance and sale of the Shares have been duly authorized by
the Company, and the Shares, when issued and paid for in accordance with this
Agreement, will be duly and validly issued, fully paid and nonassessable and
will not be subject to preemptive or similar rights. The holders of the Shares
will not be subject to personal liability by reason of being such holders. The
Shares, when issued, will conform to the description thereof set forth in the
Prospectus.
(i) The consolidated financial statements and the related notes and
schedules included in the Registration Statement and the Prospectus present
fairly the consolidated financial condition of the Company and the Subsidiaries
and (as to financial statements and related notes included in the Registration
Statement and the Prospectus or any amendment or supplement thereto pursuant to
Rule 3-05 of Regulation S-X) of acquired physician practices or practices the
acquisition of which is probable ("Acquisition Practices"), as the case may be,
as of the respective dates thereof and the results of operations, stockholder's
equity (deficit) and cash flows at the respective dates and for the respective
periods covered thereby, all in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the entire period
involved, except as otherwise disclosed therein. No other financial statements
or schedules of the Company, the Subsidiaries, or any other entity are required
by the Act or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. Price Waterhouse LLP (the "Accountants"), who have
reported on such financial statements and schedules, are independent accountants
with respect to the Company, the Subsidiaries and the Acquisition Practices as
required by the Act and the Rules and Regulations. Such financial statements and
the related notes and schedules included in the
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<PAGE>
Registration Statement and the Prospectus have been prepared in conformity with
the requirements of the Act and the Rules and Regulations and present fairly the
information presented therein; the pro forma financial information included in
the Registration Statement and the Prospectus (and any amendment or supplement
thereto) has been prepared in conformity with the applicable published rules and
regulations of the Commission with respect to pro forma financial information,
and the assumptions used in preparing such information are reasonable; and the
other financial and statistical information and data included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company and the
Subsidiaries and of Acquisition Practices, as the case may be.
(j) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date, except as set forth in or contemplated by the Registration Statement and
the Prospectus, (i) there has not been and will not have been any change in the
capitalization of the Company or the Subsidiaries other than non-material
changes in the ordinary course of business, or any material adverse change in
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company or the Subsidiaries arising for any
reason whatsoever, (ii) the Company and the Subsidiaries have not incurred nor
will any of them incur any material liabilities or obligations, direct or
contingent, nor has the Company or the Subsidiaries entered into nor will any of
them enter into any material transactions other than pursuant to this Agreement,
the Registration Statement and the transactions referred to herein and therein
and (iii) the Company has not and will not have paid or declared any dividends
or other distributions of any kind on any class of its capital stock.
(l) Any real property and buildings held under lease to the Company or
the Subsidiaries are held or leased by them under valid, binding and enforceable
leases conforming to the description thereof set forth in the Registration
Statement and the Prospectus, with such exceptions as do not interfere with the
use made and proposed to be made of such property and buildings by the Company
or the Subsidiaries, as the case may be.
(m) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such
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<PAGE>
terms are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and is not required to be registered under the
Investment Company Act.
(n) Except as set forth or referred to in the Registration Statement
and the Prospectus, there are no actions, suits or proceedings pending, or to
the Company's knowledge, threatened, against or affecting the Company or the
Subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially adversely affect the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a whole.
(o) The Company and each Subsidiary has, and at the Closing Date will
have, all governmental or regulatory licenses, permits, consents, orders,
franchises, certificates of need, approvals and other authorizations ("Permits")
necessary to carry on their respective businesses as presently conducted and in
the manner described in the Prospectus, including, without limitation, such
Permits as are required (i) under such federal and state healthcare laws,
statutes and regulations as are applicable to the Company and the Subsidiaries
and (ii) to receive reimbursement under Medicare/Medicaid. The Company and each
of the Subsidiaries has fulfilled and performed in all material respects their
respective obligations with respect to the Permits, and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any such Permit, subject in each case to such qualifications as
may be set forth in the Prospectus. Except as described in the Prospectus, none
of the Permits contains any restriction that is materially burdensome to the
Company or any of the Subsidiaries.
(p) The Company and each Subsidiary has, and at the Closing Date will
have, (i) complied with all laws, regulations and orders applicable to any of
them or their businesses, where the failure to so comply would have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole and (ii) performed all its obligations required
to be performed, and is not, and at the Closing Date will not be, to the
Company's knowledge, in default, under any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement, lease,
contract or other agreement or instrument (collectively, a "contract or other
agreement") to which any of them is a party or by which its property is bound or
affected, except as otherwise set forth in the Registration Statement and the
Prospectus and except where such default would not have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries, taken as
a whole, and, to the Company's knowledge, no other party under any contract or
other agreement to which either the Company or the Subsidiaries is a party is in
default in any material respect thereunder. Neither the Company nor the
Subsidiaries is in violation of any provision of its organizational or governing
documents.
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<PAGE>
(q) There are no material Medicare, Medicaid or other managed care
recoupment or recoupments of any third-party payor being sought, threatened,
requested or claimed against the Company or any of the Subsidiaries.
(r) Neither the Company nor any of the Subsidiaries is in material
violation of any healthcare law, ordinance, administrative or governmental rule
or regulation applicable to the Company or any of the Subsidiaries, including,
without limitation, those relating to reimbursement by government agencies and
fraudulent or wrongful billings.
(s) Neither the Company nor any of the Subsidiaries nor any employee
or agent of the Company or any Subsidiary has made any payment of funds or
received or retained any funds in violation of any healthcare law, rule or
regulation, including, without limitation, those prohibiting fee-splitting or
fees for the referral of patients.
(t) The businesses of the Company, the Subsidiaries and the Medical
Practices do not violate in a material respect any healthcare statute,
administrative or governmental rule or regulation of the United States
applicable to the Company, any of the Subsidiaries or any of the Medical
Practices, including, but not limited to, 42 U.S.C. ss. 1395nn, 42 U.S.C.
ss.1396(b), 42 U.S.C. ss.1320a-7b(b), or any healthcare judgment, injunction,
order or decree of any court or governmental entity or instrumentality of the
United States having jurisdiction over the Company, any of the Subsidiaries or
any of the Medical Practices.
(u) The statements in the Registration Statement and Prospectus under
the captions "Risk Factors--Government Regulation" and "Business--Government
Regulation," insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
(v) To the best knowledge of the Company, (i) there are no actions,
suits or proceedings pending or threatened, against or affecting the Medical
Practices or FCI (together with the Medical Practices, the "Practices"), before
or by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign; (ii) none of the
Practices is in violation of its certificate or articles of incorporation or
by-laws, or other organizational documents, or of any law, ordinance,
administrative or governmental rule or regulation applicable to the Practices or
of any decree of any court or governmental agency or body having jurisdiction
over the Practices or in default in the performance of any obligation, agreement
or condition contained in any contract or other agreement to which it, the
Company or any of the Subsidiaries is a party or by which any of their
respective properties may be bound; (iii) each Practice has such Permits as are
necessary to own such Practice's properties and to conduct such Practice's
business in the manner described in the Prospectus; each Practice has fulfilled
and performed all its obligations with respect to such Permits, and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other impairment of the rights of the
holder of any such Permit, subject in each case to such qualifications as may be
set forth
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<PAGE>
in the Prospectus; and, except as described in the Prospectus, none of
such Permits contains any restriction that is burdensome to such Practice; (iv)
there are no Medicare or Medicaid or other managed care recoupment or
recoupments of any third-party payor being sought, requested, claimed or
threatened against any of the Practices; (v) the Practices is not in material
violation of any healthcare law, ordinance, administrative or governmental rule
or regulation applicable to the Practices, including, without limitation, those
relating to reimbursement by government agencies and fraudulent or wrongful
billings; and (vi) neither the Practices nor any employee or agent of the
Practices has made any payment of funds or received or retained any funds in
violation of any healthcare law, rule or regulation, including, without
limitation, those prohibiting fee-splitting or fees for the referral of
patients.
(w) The Company has all corporate power and authority to enter into
this Agreement and the Escrow Agreement, and to carry out the provisions and
conditions hereof and thereof, and all consents, authorizations, approvals and
orders required in connection herewith and therewith have been obtained, except
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD").
(x) Neither (i) the issuance, offering and sale of the Shares pursuant
hereto, nor (ii) the compliance by the Company with the other provisions hereof
require the consent, approval, authorization, registration, filing or
qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or Blue Sky laws or the
bylaws and rules of the NASD and, if the Registration Statement is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act.
(y) Neither the execution of this Agreement or the Escrow Agreement,
nor the issuance, offering or sale of the Shares, nor the consummation of any of
the transactions contemplated herein or in the Escrow Agreement, nor the
compliance by the Company with the terms and provisions hereof or thereof will
conflict with, or will result in a breach of, any of the terms and provisions
of, or has constituted or will constitute a default under, or has resulted in or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiaries pursuant to the
terms of any contract or other agreement to which the Company or the
Subsidiaries may be bound or to which any of the property or assets of the
Company or the Subsidiaries; nor will such action result in any violation of the
provisions of the Company's or the Subsidiaries' organizational or governing
documents, or any statute or any order, rule or regulation applicable to the
Company or the Subsidiaries or of any court or of any federal, state or other
regulatory authority or other government body having jurisdiction over the
Company or the Subsidiaries.
(z) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which
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<PAGE>
the Company or the Subsidiaries is a party have been duly authorized, executed
and delivered by the Company or the Subsidiaries, constitute legal, valid and
binding agreements of the Company or the Subsidiaries, as the case may be, and
are enforceable against the Company or the Subsidiaries in accordance with the
terms thereof, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto.
(aa) No statement, representation or warranty made by the Company in
this Agreement or made in any certificate or document required by this Agreement
or the Escrow Agreement to be delivered to the Placement Agent, the Investors or
the Escrow Agent was or will be, when made, inaccurate, untrue or incorrect in
any material respect.
(bb) The Company and its directors, officers or controlling persons
have not taken, directly or indirectly, any action intended, or which might
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Common Stock.
(cc) No holder of securities of the Company has rights to the
registration of any securities of the Company as a result of the filing of the
Registration Statement, other than rights which are not execrable due to the
Placement Agent's determination to include only securities sold directly from
the Company.
(dd) The Common Stock is currently listed on the Nasdaq National
Market (the "NNM").
(ee) Neither the Company nor the Subsidiaries is involved in any
material labor dispute nor is any such dispute threatened.
(ff) None of the Company or the Subsidiaries or any of their
respective employees or agents has made any payment of funds of the Company or
the Subsidiaries, or received or retained any such funds in violation of any
law, rule or regulation where such actions are of a character required to be
disclosed in the Prospectus.
(gg) The Company, each of the Subsidiaries and each of the Medical
Practices is insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; all policies of insurance and fidelity or
surety bonds insuring the Company, any of the Subsidiaries, any of the Medical
Practices and their respective businesses, assets, employees, officers and
directors are in full force and effect; the Company, the Subsidiaries and the
Medical Practices are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company,
any of the Subsidiaries or any of the Medical Practices under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause. The Company, each of the
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<PAGE>
Subsidiaries and each of the Medical Practices maintains insurance of the types
and in amounts generally deemed adequate for its business and consistent with
insurance coverage maintained by similar companies and businesses, all of which
insurance is in full force and effect. None of the Company, the Subsidiaries or
the Medical Practices has been refused any insurance coverage sought or applied
for; and none of the Company, the Subsidiaries or the Medical Practices has
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially adversely affect the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole.
(hh) The business, operations and properties of the Company and the
Subsidiaries have been and are being conducted in compliance with all applicable
laws, ordinances, rules, regulations, licenses, permits, approvals, plans,
authorizations or requirements relating to occupational safety and health, or
pollution, or protection of health or the environment (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances, materials
or wastes into ambient air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous or
liquid in nature) of any governmental department, commission, board, bureau,
agency or instrumentality of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto, and neither the Company nor the Subsidiaries has received any
notice from any governmental instrumentality or any third party alleging any
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances and/or damages to natural resources).
(ii) Each officer, director and securityholder of the Company listed
on Exhibit B hereto has delivered to the Placement Agent an agreement in the
form of Attachment A hereto to the effect that he or she will not, without the
prior written consent of the Placement Agent, offer to sell, sell, contract to
sell, grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of any option to purchase or other disposition) of any shares of
capital stock of the Company or securities convertible into, or exchangeable or
execrable for, shares of capital stock of the Company for a period of ___ months
after the date hereof.
(jj) The Company has delivered to the Placement Agent an agreement in
the form of Attachment B hereto to the effect that it will not without the prior
written consent of the Placement Agent, offer, sell, or otherwise dispose (or
announce any offer, sale, grant of any option to purchase or other disposition)
of any shares of capital stock of the Company or securities convertible into, or
exchangeable or execrable for, shares of capital stock of the Company for a
period of ___ days after the date hereof.
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<PAGE>
4. Agreements of the Company. The Company covenants and agrees with the
Placement Agent as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus would be required by law to be
delivered in connection with sales of the Shares by an underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Placement Agent within a reasonable period of time prior to the filing thereof
and the Placement Agent shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Placement Agent promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the securities or other governmental authority
(including, without limitation, the Commission) of any jurisdiction for
amendments or supplements to the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by any securities or other
governmental authority (including, without limitation, the Commission) of any
jurisdiction of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose or the threat
thereof, (4) of the happening of any event during the period mentioned in
Section 4(a) that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are made, not
misleading and (5) of receipt by the Company or any representative or attorney
of the Company of any other communication from the securities or other
governmental authority (including, without limitation, the Commission) of any
jurisdiction relating to any of the Registration Statement, any Preliminary
Prospectus or the Prospectus. If at any time any securities or other
governmental authority (including, without limitation, the Commission) of any
jurisdiction shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement, pursuant to Rule 430A,
it will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to said Rule 430A and to notify
the Placement Agent promptly of all such filings.
(c) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would, in the judgment of
counsel to the Company or counsel to the Placement Agent, include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or the Registration Statement, as then amended
or supplemented, would, in the judgment of counsel to the Company or counsel to
the Placement
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<PAGE>
Agent, include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, or if for
any other reason it is necessary, in the judgment of counsel to the Company or
counsel to the Placement Agent, at any time to amend or supplement the
Prospectus or the Registration Statement to comply with the Act or the Rules and
Regulations, the Company will promptly notify the Placement Agent and, subject
to Section 4(a) hereof, will promptly prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance and will deliver to the Placement Agent,
without charge, such number of copies thereof as the Placement Agent may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the Placement Agent.
(d) The Company will furnish to the Placement Agent and its counsel,
without charge, (i) two signed copies of the registration statement described in
Section 3(a) hereof and each pre-effective amendment thereto, including
financial statements and schedules, and all exhibits thereto and (ii) so long as
a prospectus relating to the Shares is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Placement Agent may reasonably request.
(e) The Company will comply with all the undertakings contained in the
Registration Statement.
(f) Prior to the sale of the Shares to the Investors, the Company will
cooperate with the Placement Agent and its counsel in connection with the
registration or qualification of the Shares for offer and sale under the state
securities or Blue Sky laws of such jurisdictions as the Placement Agent may
request; provided, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
(g) During the period of five years commencing on the Effective Date,
the Company will furnish to the Placement Agent copies of such financial
statements and other periodic and special reports as the Company may from time
to time distribute generally to the holders of any class of its capital stock,
and will furnish to the Placement Agent a copy of each annual or other report it
shall be required to file with the Commission.
(h) The Company will make generally available to holders of its
securities, as soon as may be practicable, but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the Effective Date falls, a consolidated earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months ended
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
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<PAGE>
(i) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the Shares to facilitate
the sale or resale of any of the Shares.
(j) The Company will apply the net proceeds from the offering and sale
of the Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
5. Expenses. Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company will pay all costs
and expenses incident to the performance of the obligations of the Company under
this Agreement, including but not limited to costs and expenses of or relating
to (1) the preparation, printing and filing of the Registration Statement
(including each pre- and post-effective amendment thereto) and exhibits thereto,
each Preliminary Prospectus, the Prospectus and any amendment or supplement to
the Prospectus, including all fees, disbursements and other charges of counsel
to the Company, (2) the preparation and delivery of certificates representing
the Shares, (3) furnishing (including costs of shipping and mailing) such copies
of the Registration Statement (including all pre- and post-effective amendments
thereto), the Prospectus and any Preliminary Prospectus, and all amendments and
supplements to the Prospectus, as may be requested for use in connection with
the direct placement of the Shares, (4) the listing of the Common Stock on the
NNM, (5) any filings required to be made by the Placement Agent with the NASD
and the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions designated pursuant to Section
4(f), including the reasonable fees, disbursements and other charges of counsel
to the Placement Agent in connection therewith, up to a maximum of $20,000, and
the preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (6) fees, disbursements and other charges of counsel to the Company
and (7) the fees of the Escrow Agent. The Company shall reimburse the Placement
Agent for all its travel, legal and other out-of-pocket expenses incurred in
connection with the engagement hereunder, up to a maximum of $125,000. Such
expenses shall be in addition to, but not in lieu of, any fees, expenses or
warrants owing by the Company to the Placement Agent under the Advisory
Agreement.
6. Conditions of the Obligations of the Placement Agent. The obligations of
the Placement Agent hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Placement Agent not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Placement Agent and all filings required by Rule
424 of the Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall be
pending or
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threatened by any securities or other governmental authority (including, without
limitation, the Commission), (ii) no order suspending the effectiveness of the
Registration Statement or the qualification or registration of the Shares under
the securities or Blue Sky laws of any jurisdiction shall be in effect and no
proceeding for such purpose shall be pending before or threatened or
contemplated by any securities or other governmental authority (including,
without limitation, the Commission), (iii) any request for additional
information on the part of the staff of any securities or other governmental
authority (including, without limitation, the Commission) shall have been
complied with to the satisfaction of the staff of the Commission or such
authorities and (iv) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Placement Agent and the Placement Agent did
not object thereto in good faith, and the Placement Agent shall have received
certificates, dated the Closing Date and signed by the President and Chief
Executive Officer or the Chairman of the Board of Directors of the Company, and
the Chief Financial Officer of the Company (who may, as to proceedings
threatened, rely upon the best of their information and belief), to the effect
of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company or the Subsidiaries, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement and the Prospectus and
(ii) neither the Company nor the Subsidiaries shall have sustained any material
loss or interference with its business or properties from fire, explosion, flood
or other casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order or
decree, which is not set forth in the Registration Statement and the Prospectus,
if in the judgment of the Placement Agent any such development makes it
impracticable or inadvisable to consummate the sale and delivery of the Shares
to Investors at the public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or the Subsidiaries or any of
its officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling decision or finding would materially and adversely affect
the business, properties, business properties, condition (financial or
otherwise) or results of operations of the Company or its Subsidiaries.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date, as if made on such date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the
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Company at or prior to the Closing Date shall have been duly performed,
fulfilled or complied with.
(f) The Placement Agent shall have received an opinion, dated the
Closing Date, of Bachner, Tally, Polevoy & Misher LLP, counsel to the Company,
in form and substance satisfactory to the Placement Agent, to the effect that:
(i) each of the Company and the Subsidiaries has been duly organized
and is validly existing in good standing under the laws of its jurisdiction
of incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or in good standing would not have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole;
(ii) each of the Company and the Subsidiaries has full power and
authority to conduct all the activities conducted by it, to own or lease
all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus; and the Company
has all corporate power and authority to enter into this Agreement and the
Escrow Agreement, and to carry out the provisions and conditions hereof and
thereof, and all consents, authorizations, approvals and orders required in
connection herewith and therewith have been obtained;
(iii) the Company has an authorized capitalization as set forth under
the caption "Capitalization" in the Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued,
and are fully paid and nonassessable and free of preemptive or similar
rights; no holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for any
of the Shares; no holders of securities of the Company are entitled to have
such securities registered under the Registration Statement; and, to the
best of such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitment,
plan or arrangement to, issue or register any shares of capital stock or
other securities of the Company or the Subsidiaries other than as disclosed
in the Registration Statement and the Prospectus;
(iv) the issuance and sale of the Shares have been duly authorized by
the Company, and the Shares, when issued and paid for in accordance with
this Agreement, will be duly and validly issued and outstanding, fully paid
and nonassessable and will not be subject to preemptive or similar rights;
the holders of the Shares will not be subject to personal liability by
reason of being such holders; and the Shares, when issued, will conform to
the description thereof set forth in the Prospectus.
(v) the statements set forth under the heading "Description of Capital
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Stock" in the Prospectus, insofar as such statements purport to summarize
certain provisions of the securities of the Company, constitute a fair
summary of such provisions;
(vi) the execution and delivery of this Agreement and the Escrow
Agreement have been duly authorized by all necessary action of the Company
and each has been duly executed and delivered by the Company, and each is
the legal, valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject, as to enforcement, to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and, in the case of this Agreement, except
as rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws; the Escrow
Agreement conforms to the description thereof set forth in the Prospectus;
(vii) no legal or governmental proceedings are pending to which the
Company or the Subsidiaries or to which the property of the Company or the
Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein,
and, to such counsel's knowledge after due inquiry, no such proceedings
have been threatened against the Company or the Subsidiaries or with
respect to any of their respective assets; and no contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that
is not described therein or filed as required;
(viii) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to such
counsel's knowledge after due inquiry, no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto and no order directed at any amendment or supplement thereto has
been issued, and no proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission;
(ix) the Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined under the Investment Company Act, and
is not required to be registered under the Investment Company Act;
(x) the statements set forth in the Prospectus under the captions
"Risk Factors," "Business," "Description of Capital Stock," "Management"
and "Principal Stockholders," insofar as such statements constitute matters
of law or legal conclusions, have been reviewed by such counsel and are
accurate in all material respects (it being understood that such counsel
need express no opinion with respect to statements set forth under the
captions "Risk Factors--Government Regulation," and "Business--
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Government Regulation");
(xi) the registration statement described in Section 3(a) hereof as
originally filed with respect to the Shares and each amendment thereto and
the Prospectus (in each case, not including the financial statements and
other financial and statistical information contained therein, as to which
such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(xii) no default exists, and no event has occurred which, with notice
or lapse of time or both, would constitute a default in the due performance
and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which
the Company or the Subsidiaries is a party or by which the Company or the
Subsidiaries is bound or may be affected, where such default would have a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole;
(xiii) neither the issuance, offering and sale of the Shares pursuant
hereto nor the compliance by the Company with the other provisions of this
Agreement and with the provisions of the Escrow Agreement require the
consent, approval, authorization, registration, filing or qualification of
or with any governmental authority, except such as have been obtained (it
being understood that such counsel need express no opinion with respect to
state securities or Blue Sky Laws or the bylaws and rules of the NASD);
(xiv) neither the execution or delivery of this Agreement or the
Escrow Agreement, nor the issuance, offering or sale of the Shares, nor the
compliance by the Company with the terms and provisions hereof or thereof
will conflict with, or result in a breach or violation of, any of the terms
and provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or of the Subsidiaries pursuant to the terms of, (A)
any contract or other agreement to which the Company or the Subsidiaries is
a party or by which the Company or the Subsidiaries or any of their
respective properties or assets are subject, (B) the organizational or
governing documents of the Company or the Subsidiaries, (C) any statute,
rule or regulation applicable to the Company or the Subsidiaries, or (D)
any judgment, decree or order of any court or other governmental authority
or any arbitrator known to such counsel and applicable to the Company or
the Subsidiaries;
(xv) the Shares have been authorized for quotation on the NNM;
(xvi) to the best knowledge of such counsel after reasonable inquiry,
neither the Company nor any of the Subsidiaries is in violation of any law,
ordinance,
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administrative or governmental rule or regulation applicable to the Company
or any of the Subsidiaries, or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of the
Subsidiaries, the effect of which could have a material adverse effect on
the Company and the Subsidiaries, taken as a whole; and
(xvii) to the best of such knowledge of such counsel after reasonable
inquiry, the Company, each of the Subsidiaries and each of the Medical
Practices has full power and authority and all Permits as are required
under applicable law to own, lease and operate their respective properties
and to conduct their respective businesses as now being conducted as
described in the Prospectus, including, without limitation, such Permits as
are required (x) under such Federal and state healthcare laws, statutes and
regulations as are applicable to the Company, the Subsidiaries and the
Medical Practices and (y) to receive reimbursement under Medicare/Medicaid.
Such counsel shall also state that in the course of the preparation of the
Registration Statement and the Prospectus, such counsel has participated in
conferences with officers and representatives of the Company and with the
Accountants, at which conferences the contents of the Registration Statement and
the Prospectus were discussed and, on the basis of the foregoing, that they have
no reason to believe that the Registration Statement, as of its effective date
and as of the date of such opinion, contained or contains any untrue statement
of a material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (other than financial statements and schedules and other financial
and statistical data included therein, as to which such counsel need express no
view).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdictions in which such counsel are not admitted
to practice, to the extent satisfactory in form and substance to counsel for the
Placement Agent, upon the opinion of local counsel. The foregoing opinion shall
also state that the Placement Agent is justified in relying upon such opinions
of local counsel, and copies of such opinions shall be delivered to the
Placement Agent and their counsel.
References to the Registration Statement and the Prospectus in this
paragraph (f) shall include any amendment or supplement thereto at the date of
such opinion.
(g) The Placement Agent shall have received an opinion, dated the
Closing Date, of __________________, special counsel to the Company, in form and
substance satisfactory to the Placement Agent, to the effect that the statements
in the Registration Statement and Prospectus under the captions "Risk
Factors--Government Regulation" and
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"Business--Government Regulation," insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to therein.
References to the Registration Statement and the Prospectus in this
paragraph (g) shall include any amendment or supplement thereto at the date of
such opinion.
(h) Concurrently with the execution and delivery of this Agreement,
or, if the Company elects to rely on Rule 430A, on the date of the Prospectus,
the Accountants shall have furnished to the Placement Agent a letter, dated the
date of its delivery (the "Original Letter"), addressed to the Placement Agent
and in form and substance satisfactory to the Placement Agent, confirming that
(i) they are independent public accountants with respect to the Company and the
Subsidiaries within the meaning of the Act and the Rules and Regulations; (ii)
in their opinion, the financial statements and any supplementary financial
information and schedules (and pro forma financial information) included in the
Registration Statement and examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations; (iii) on the basis of procedures, not constituting an
examination in accordance with generally accepted auditing standards, set forth
in detail in the Original Letter, a reading of the latest available interim
financial statements of the Company and the Subsidiaries, inspections of the
minute books of the Company and the Subsidiaries since the latest audited
financial statements included in the Prospectus, inquiries of officials of the
Company responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in the Original Letter to a date
not more than five days prior to the date of the Original Letter, nothing came
to their attention that caused them to believe that: (A) the unaudited financial
statements and schedules of the Company and the Subsidiaries included in the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations, or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with the basis for the audited
financial statements included in the Prospectus; (B) any other unaudited income
statement data and balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited financial statements from which
such data and items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in the
Prospectus; (C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited financial statements
referred to in clause (A) and any unaudited income statement data and balance
sheet items included in the Prospectus and referred to in clause (B) were to be
determined on a basis substantially consistent with the basis for the audited
financial statements included in the Prospectus; (D) as of a specified date not
more than five days prior to the date of the Original Letter, there have been
any changes in the capital stock of the Company or any increase in the long-term
debt of the Company, or any decreases in net current assets or net assets or
other items specified by the Placement Agent, or any increases in any items
specified by the Placement Agent, in each case as compared with
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amounts shown in the latest balance sheet included in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in the Original Letter; and
(E) for the period from the date of the latest financial statements included in
the Prospectus to the specified date referred to in Clause (D), there were any
decreases in revenues or the total or per share amounts of net income or other
items specified by the Placement Agent, or any increases in any items specified
by the Placement Agent, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length specified
by the Placement Agent, except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are described in the
Original Letter; (iv) in addition to the examination referred to in their
reports included in the Prospectus and the procedures referred to in clause
(iii) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Placement Agent, which are derived from the general
accounting, financial or other records of the Company or the Subsidiaries, as
the case may be, which appear in the Prospectus or in Part II of, or in exhibits
or schedules to, the Registration Statement, and have compared such amounts,
percentages and financial information with such accounting, financial and other
records and have found them to be in agreement; and (v) on the basis of a
reading of the unaudited pro forma consolidated condensed financial statements
included in the Registration Statement and Prospectus, carrying out certain
specified procedures that would not necessarily reveal matters of significance
with respect to the comments set forth in this clause (v), inquiries of certain
officials of the Company and the Subsidiaries who have responsibility for
financial and accounting matters and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in the
unaudited pro forma consolidated condensed financial statements, nothing came to
their attention that caused them to believe that the unaudited pro forma
consolidated condensed financial statements do not comply in form in all
material respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments have not been properly applied
to the historical amounts in the compilations of such statements. At the Closing
Date, the Accountants shall have furnished to the Placement Agent a letter,
dated the date of its delivery, which shall confirm, on the basis of a review in
accordance with the procedures set forth in the Original Letter, that nothing
has come to their attention during the period from the date of the Original
Letter referred to in the prior sentence to a date (specified in the letter) not
more than five days prior to the Closing Date which would require any change in
the Original Letter if it were required to be dated and delivered at the Closing
Date.
(i) At the Closing Date, there shall be furnished to the Placement
Agent a certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Placement Agent, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, (x) the Registration Statement does not contain any untrue
statement of a material fact or
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omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and (y) the Prospectus
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (B) since the Effective Date no event has occurred
as a result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein not untrue or misleading in any
material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required herein to be performed by the
Company on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be complied with
by the Company on or prior to the delivery of such certificate has been
duly, timely and fully complied with.
(iv) No stop order suspending the effectiveness of the Registration
Statement or of any part thereof has been issued and no proceedings for
that purpose have been instituted or are contemplated by the Commission.
(v) Subsequent to the date of the most recent financial statements in
the Prospectus, there has been no material adverse change in the financial
position or results of operations of the Company or the Subsidiaries,
except as set forth in or contemplated by the Prospectus.
(j) The Shares shall be qualified for sale in such states as the
Placement Agent may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date.
(k) The Shares shall have been authorized for quotation on the NNM.
(l) The Company shall have furnished to the Placement Agent such
certificates, in addition to those specifically mentioned herein, as the
Placement Agent may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date of the representations
and warranties of the Company as to the performance by the Company of its
obligations hereunder, or as to the fulfillment of the conditions concurrent and
precedent to the obligations hereunder of the Placement Agent.
7. Indemnification.
(a) The Company shall indemnify and hold harmless the Placement Agent,
the directors, officers, employees and agents of the Placement Agent and each
person, if
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any, who controls the Placement Agent within the meaning of Section 15 of the
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, liabilities,
expenses and damages, joint or several, (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which it, or any of them, may become subject under the Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based on
(i) any untrue statement or alleged untrue statement made by the Company in
Section 3 of this Agreement, (ii) any untrue statement or alleged untrue
statement of any material fact contained in (A) any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus and (B) any application or other
document, or any amendment or supplement thereto, executed by the Company based
upon written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or Blue Sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each, an "Application") or (iii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any supplement to the Registration Statement or the Prospectus
or any Application a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company will not be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person and is based solely on
an untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to the Placement Agent
furnished in writing to the Company by the Placement Agent expressly for
inclusion in the Registration Statement, any Preliminary Prospectus or the
Prospectus; and provided further, that such indemnity with respect to any
Preliminary Prospectus shall not inure to the benefit of any indemnified person
where the person asserting any such loss, claim, damage, liability or action
purchased Shares which are the subject thereof to the extent that any such loss,
claim, damage or liability (i) results from the fact that such Placement Agent
failed to send or give a copy of the Prospectus (as amended or supplemented) to
such person at or prior to the confirmation of the sale of such Shares to such
person in any case where such delivery is required by the Act and (ii) arises
out of or is based upon an untrue statement or omission of a material fact
contained in such Preliminary Prospectus that was corrected in the Prospectus
(or any amendment or supplement thereto), unless such failure to deliver the
Prospectus (as amended or supplemented) was the result of noncompliance by the
Company with Section 4(d). This indemnity agreement will be in addition to any
liability which the Company may otherwise have. The Company will not, without
the prior written consent of the Placement Agent, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification has been sought hereunder
(whether or not such Placement Agent or any person who controls such Placement
Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act is a party to each claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Placement Agent
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and each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(b) The Placement Agent will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, each director of the Company and
each officer of the Company who signs the Registration Statement to the same
extent as the foregoing indemnity from the Company to the Placement Agent, but
only insofar as losses, claims, liabilities, expenses or damages arise out of or
are based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to the
Placement Agent furnished in writing to the Company by the Placement Agent
expressly for use in the Registration Statement, any Preliminary Prospectus or
the Prospectus. This indemnity agreement will be in addition to any liability
that the Placement Agent might otherwise have. The Company acknowledges that,
for all purposes under this Agreement, the statements set forth under the
caption "Plan of Distribution" in any Preliminary Prospectus and the Prospectus
constitute the only information relating to the Placement Agent furnished in
writing to the Company by the Placement Agent expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by, or
otherwise prejudices, the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below and except for the reasonable costs of investigation
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
a conflict exists (based on advice of counsel to the indemnified party) between
the indemnified party and the indemnifying party that would prevent the counsel
selected by the indemnifying party from representing the indemnified party (in
which case the indemnifying party will not have the right to direct the defense
of such
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action on behalf of the indemnified party) or (3) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. The
Company will not, without the prior written consent of the Placement Agent,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
has been sought hereunder (whether or not the Placement Agent or any person who
controls the Placement Agent within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Placement Agent and each such controlling person
from all liability arising out of such claim, action, suit or proceeding. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Placement Agent,
the Company and the Placement Agent will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Placement Agent such as persons who control the Company within the meaning of
the Act or the Exchange Act, officers of the Company who signed the Registration
Statement and directors of the Company, who also may be liable for contribution)
to which the Company and the Placement Agent may be subject in such proportion
as shall be appropriate to reflect the relative benefits received by the Company
on the one hand and the Placement Agent on the other. The relative benefits
received by the Company on the one hand and the Placement Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting Company expenses) received by the Company as set
forth in the table on the cover page of the Prospectus bear to the fee received
by the Placement Agent hereunder. If, but only if, the allocation provided by
the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company, on the one hand, and the Placement Agent on the
other, with respect to the statements or omissions which resulted in such loss,
claim, liability, expense or damage, or action in respect thereof, as well as
any other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or
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alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Placement Agent, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), the Placement Agent shall
not be required to contribute any amount in excess of the fee received by it
under this Agreement, and no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), any person who controls a
party to this Agreement within the meaning of the Act or the Exchange Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against such party in respect of which a claim for contribution
may be made under this Section 7(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 7(d). No party will be liable
for contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The provisions of this Section 7 shall be in addition to, but not
in lieu of, any indemnification obligations of the Company under the
indemnification letter agreement dated March 8, 1996 between the Company and the
Placement Agent.
8. Termination.
(a) The obligations of the Placement Agent under this Agreement may be
terminated at any time prior to the Closing Date, by notice to the Company from
the Placement Agent, without liability on the part of the Placement Agent to the
Company if, prior to delivery and payment for the Shares, in the sole judgment
of the Placement Agent (i) trading in the Common Stock of the Company shall have
been suspended by the Commission or by the NNM, (ii) trading in securities
generally on the New York Stock Exchange or the NNM shall have been suspended or
limited or minimum or maximum prices shall have been generally established on
any of such exchanges, or additional material governmental restrictions, not in
force on the date of this Agreement, shall have been imposed upon trading in
securities generally by any of such exchanges or by order of the Commission or
any court or other governmental authority, (iii) a general banking moratorium
shall have been declared by Federal
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<PAGE>
or New York State authorities or (iv) any material adverse change in the
financial or securities markets in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis shall have occurred, the effect of
any of which is such as to make it, in the sole judgment of the Placement Agent,
impracticable or inadvisable to market the Shares on the terms and in the manner
contemplated by the Prospectus.
(b) The obligations of the parties under this Agreement shall be
automatically terminated in the event that the Requisite Funds have not been
deposited by the Investors into the Escrow Account by the close of business on
the date scheduled for the Closing.
9. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, One
Manhattanville Road, Purchase, New York 10577, Attention: President or (b) if to
the Placement Agent, at the office of Vector Securities International, Inc.,
1751 Lake Cook Road, Suite 350, Deerfield, Illinois 60015, Attention: Barry M.
Deutsch. Any such notice shall be effective only upon receipt. Any notice under
Section 7 may be made by facsimile or telephone, but if so made shall be
subsequently confirmed in writing.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and the
Placement Agent set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Placement Agent or any controlling person
referred to in Section 7 hereof and (ii) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 7 hereof shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement.
11. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the Placement Agent, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the
indemnification and contribution contained in Sections 7(a) and (d) of this
Agreement shall also be for the benefit of the directors, officers, employees
and agents of the Placement Agent and any person or persons who control the
Placement Agent within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnification and contribution contained in Sections
7(b) and (d) of this Agreement shall also be for the benefit of the directors of
the Company, the officers of the Company who have signed the Registration
Statement and any
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person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No Investor shall be deemed a
successor because of such purchase.
12. Headings. Section headings in this Agreement are for convenience of
reference only, do not constitute a part of this Agreement, and shall not affect
its interpretation.
13. Changes. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Company and the Placement Agent.
14. Applicable Law. The validity and interpretations of this Agreement, and
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
15. 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
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If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate hereof, whereupon it will
become a binding agreement between the Company and the Placement Agent in
accordance with its terms.
Very truly yours,
INTEGRAMED AMERICA, INC.
By:___________________________________
Name:
Title:
The foregoing Placement Agency
Agreement is hereby confirmed
and accepted as of the date
first above written.
VECTOR SECURITIES INTERNATIONAL, INC.
By: _________________________________________
Name:
Title:
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<PAGE>
EXHIBIT 1
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ______________, 1997, by and among INTEGRAMED
AMERICA, INC., a Delaware corporation (the "Company"), VECTOR SECURITIES
INTERNATIONAL, INC. (the "Placement Agent") and CITIBANK, N.A., a national
banking institution incorporated under the laws of the United States of America
(the "Escrow Agent").
WHEREAS, the Company proposes to sell an aggregate of __________ shares of
its common stock, par value $.01 per share (the "Shares"), for an aggregate of
$_________________, all as described in the Company's registration statement on
Form S-1 (Registration No. 333-_______)(which, together with all amendments or
supplements thereto is referred to herein as the "Registration Statement");
WHEREAS, the Shares are being offered by the Company to investors whom the
Placement Agent has introduced to the Company, pursuant to registration under
the Securities Act of 1933, as amended, and pursuant to registration or
exemptions from registration under state securities laws;
WHEREAS, the offering of the Shares will terminate on ______________, 1997
(the "Final Closing Date") and, if subscriptions for the total number of Shares
being offered pursuant to the Registration Statement have not been received by
the Company on or before the Final Closing Date, no Shares will be sold and all
payments made by subscribers will be refunded by the Escrow Agent with interest
earned thereon, if any; and
WHEREAS, with respect to all subscription payments received from
subscribers, the Company proposes to establish an escrow account with the Escrow
Agent at the office of its Escrow Administration, 120 Wall Street, 13th Floor,
New York, New York 10043.
NOW, THEREFORE, it is agreed as follows:
1. Establishment of Escrow. The Escrow Agent hereby agrees to receive and
disburse the proceeds from the offering of the Shares and any interest earned
thereon in accordance herewith.
2. Deposit of Escrowed Property. The Placement Agent, on behalf of the
subscribers for the Shares, shall from time to time, but in no event later than
12:00 noon on the date following receipt by the Placement Agent, cause to be
wired to or deposited with, or, cause the subscribers for the Shares to wire or
deposit with, the Escrow Agent funds or checks of
<PAGE>
the subscribers delivered in payment for Shares (the "Escrowed Property"). Any
checks delivered to the Escrow Agent pursuant to the terms hereof shall be made
payable to or endorsed to the order of the Escrow Agent. The Escrow Agent upon
receipt of such checks shall present such checks for payment to the drawee-bank
under such checks. Any checks not honored by the drawee-bank thereunder after
the first presentment for payment shall be returned to the Placement Agent, on
behalf of such subscriber, in the same manner notices are delivered pursuant to
Section 6. Upon receipt of funds or checks from the Placement Agent, the Escrow
Agent shall credit such funds and the amount of such checks to a
non-interest-bearing account (the "Escrow Account") held by the Escrow Agent. If
following the credit of the amount of any check to the Escrow Account such check
is dishonored, the Escrow Agent, if such dishonored check amount shall have been
invested pursuant to Section 3, shall liquidate to the extent of such dishonored
check amount such investments and debit the Escrow Account for the amount of
such dishonored check plus, if any, the amount of interest and other income
earned with respect to any investment of such dishonored check amount.
3. Investment of Escrowed Property. The Escrow Agent on the second business
day ("business day" defined for purposes of this Escrow Agreement as any day
which is not a Saturday, a Sunday or a day on which banks or trust companies in
the City and State of New York are authorized or obligated by law, regulation or
executive order to remain closed) succeeding (unless such deposit is made in
federal or other immediately available or "same day" funds, in which case, on
the business day next succeeding) the credit of any subscription proceeds to the
Escrow Account pursuant to Section 2 and until release of such proceeds in
accordance with the terms hereof, shall deposit such proceeds in a Citibank
Money Market Deposit Account, pursuant to Rule 15c2-4 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, in accordance with the terms set forth on Exhibit A hereto (made a part
of this Escrow Agreement as if herein set forth). The Escrow Agent shall in no
event be liable for any loss resulting from any change in interest rates
applicable to proceeds invested pursuant to this Section. Interest on proceeds
invested pursuant to this Section shall accrue from the date of investment of
such proceeds until the termination of such investment pursuant to the terms
hereof and shall be paid as set forth in Section 5.
4. List of Subscribers. The Placement Agent shall furnish or cause to be
furnished to the Escrow Agent, at the time of each deposit of funds or checks
pursuant to Section 2, a list, substantially in the form of Exhibit B hereto,
containing the name of, the address of, the number of Shares subscribed for by,
the subscription amount delivered to the Escrow Agent on behalf of, and the
social security or taxpayer identification number, if applicable, of, each
subscriber whose funds are being deposited, and to which is attached a completed
W-9 form (or, in the case of any subscriber who is not a United States citizen
or resident, a W-8 form) for each listed subscriber. The Escrow Agent shall
notify the Placement Agent and the Company of any discrepancy between the
subscription amounts set forth on any list delivered pursuant to this Section 4
and the subscription amounts received by the Escrow Agent. The Escrow Agent is
authorized to revise such list to reflect the actual subscription amounts
received and the release of any subscription amounts pursuant to Section 5.
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5. Withdrawal of Subscription Amounts. (a) If the Escrow Agent shall
receive a notice, substantially in the form of Exhibit C hereto (an "Offering
Termination Notice"), from the Company, the Escrow Agent shall (i) promptly
after receipt of such Offering Termination Notice and the clearance of all
checks received by the Escrow Agent as Escrowed Property, liquidate any
investments that shall have been made pursuant to Section 3 and send to each
subscriber listed on the list held by the Escrow Agent pursuant to Section 4
whose total subscription amount shall not have been released pursuant to
paragraph (b) or (c) of this Section 5, in the manner set forth in paragraph (d)
of this Section 5, a check to the order of such subscriber in the amount of the
remaining subscription amount held by the Escrow Agent as set forth on such list
held by the Escrow Agent, and (ii) promptly after the fourth business day of the
month immediately following the month in which the investments made pursuant to
Section 3 were terminated pursuant to this paragraph, send, in the manner set
forth in paragraph (e) of this Section 5, a check to the order of each such
subscriber in the amount of interest and other income earned and not yet paid
with respect to any investment of such subscriber's funds. The Escrow Agent
shall notify the Company and the Placement Agent of the distribution of such
funds to the subscribers.
(b) In the event that (i) the Shares have been subscribed for and
funds in respect thereof shall have been deposited with the Escrow Agent on or
before the Final Closing Date and (ii) no Offering Termination Notice shall have
been delivered to the Escrow Agent, the Company and the Placement Agent, shall
deliver to the Escrow Agent a joint notice, substantially in the form of Exhibit
D hereto (a "Closing Notice"), designating the date on which Shares are to be
sold and delivered to the subscribers thereof (the "Closing Date"), which date
shall not be earlier than the clearance of any checks received by the Escrow
Agent as Escrowed Property, the proceeds of which are to be distributed on such
Closing Date, and identifying the subscribers and the number of Shares to be
sold to each thereof on such Closing Date, not less than two (2) nor more than
seven (7) business days prior to such Closing Date. The Escrow Agent, after
receipt of such Closing Notice and the clearance of such checks:
(i) on or prior to the Closing Date identified in such Closing
Notice, shall liquidate any investments that shall have been made
pursuant to Section 3 to the extent of the subscription amount to be
distributed pursuant to the immediately succeeding clause (ii);
(ii) on such Closing Date, pay to the Company and the Placement
Agent, in federal or other immediately available funds and otherwise
in the manner specified by the Company in such Closing Notice, an
amount equal to the aggregate of the subscription amounts paid by the
subscribers identified in such Closing Notice for the Shares to be
sold on such Closing Date as set forth on the list held by the Escrow
Agent pursuant to Section 4; and
(iii) promptly after the fourth business day of the month
immediately following the month in which the investments made pursuant
to Section 3 were terminated pursuant to such Closing Notice, shall
send, in the manner set forth in paragraph (e) of this Section 5, a
check to the order of each subscriber identified in such Closing
Notice in the amount of interest and other income earned and not yet
paid with respect to any investment
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of each such subscriber's funds distributed on such Closing Date. At
the time of such transfer, the Escrow Agent shall identify in writing
to the Company and the Placement Agent the amount of the interest
earned for the account of each subscriber and the date such
subscription was received.
(c) If at any time and from time to time prior to the release of any
subscriber's total subscription amount pursuant to paragraph (a) or (b) of this
Section 5 from escrow, the Company shall deliver to the Escrow Agent a notice,
substantially in the form of Exhibit E hereto (a "Subscription Termination
Notice"), to the effect that any or all of the subscriptions of such subscriber
have been rejected by the Company (a "Rejected Subscription"), the Escrow Agent
(i) promptly after receipt of such Subscription Termination Notice and, if such
subscriber delivered a check in payment of its Rejected Subscription, after the
clearance of such check, shall liquidate, to the extent of the sum of such
subscriber's Rejected Subscription amount as set forth in the Subscription
Termination Notice, any investments that shall have been made pursuant to
Section 3 and send to such subscriber, in the manner set forth in paragraph (e)
of this Section 5, a check to the order of such subscriber in the amount of such
Rejected Subscription amount, and (ii) promptly after the fourth business day of
the month immediately following the month in which the investments made pursuant
to Section 3 were terminated pursuant to this paragraph, shall send to such
subscriber, in the manner set forth in paragraph (e) of this Section 5, a check
to the order of such subscriber in the amount of interest and other income
earned and not yet paid with respect to any investment of such subscriber's
Rejected Subscription amount. At the time of such transfer, the Escrow Agent
shall identify in writing to the Company and the Placement Agent the amount of
the interest earned for the account of each subscriber and the date such
subscription was received.
(d) On a date following the transfer of any interest earned for the
account of each subscriber pursuant to Section 5(a), (b) or (c), but not later
than January 31, 1998, the Escrow Agent shall provide each subscriber with tax
form 1099 setting forth the amount of such interest.
(e) For the purposes of this Section 5, any check that the Escrow
Agent shall be required to send to any subscriber shall be sent to such
subscriber by first class mail, postage prepaid, at such subscriber's address
furnished to the Escrow Agent pursuant to Section 4.
6. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be (a) delivered by hand or (b)
sent by mail, registered or certified, with proper postage prepaid, and
addressed as follows:
if to the Company, to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
Attention: President
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with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attention: Sheldon E. Misher, Esq.
if to the Placement Agent, to:
Vector Securities International, Inc.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Attention: Barry M. Deutsch
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: James R. Tanenbaum, Esq.
if to the Escrow Agent, to:
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall be effective when deposited in the
mails, except that notices and communications to the Escrow Agent and notices of
changes of address shall not be effective until received.
7. Concerning the Escrow Agent. To induce the Escrow Agent to act
hereunder, it is further agreed by the Company and Placement Agent that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds held hereunder
except as directed in this Escrow Agreement. Uninvested funds held hereunder
shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth all the duties of the
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Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Escrow Agreement against the
Escrow Agent. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct, and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, and the other parties hereto shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor Escrow
Agent) from and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorneys' fees and disbursements,
arising out of and in connection with this Escrow Agreement. Without limiting
the foregoing, the Escrow Agent shall in no event be liable in connection with
its investment or reinvestment of any cash held by it hereunder in good faith,
in accordance with the terms hereof, including without limitation any liability
for any delays (not resulting from gross negligence or willful misconduct) in
the investment or reinvestment of the Escrowed Property, or any loss of interest
incident to any such delays.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in good faith and in accordance with such
advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only. Any payments
of income from the Escrow Account shall be subject to withholding regulations
then in force with respect to United States taxes. The parties hereto will
provide the Escrow Agent with appropriate W-9 forms for tax I.D., number
certification, or non-resident alien certifications.
This paragraph (f) and paragraph (c) of this Section 7 shall survive
notwithstanding any termination of this Escrow Agreement or the resignation of
the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom of selling or retaining or taking or refraining from any action
with respect to any
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securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) at any time may
be discharged from its duties and obligations hereunder by the delivery to it of
notice of termination signed by both the Company and the Placement Agent or at
any time may resign by giving written notice to such effect to the Company and
the Placement Agent. Upon any such termination or resignation, the Escrow Agent
shall deliver the Escrowed Property to any successor escrow agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction if no such successor escrow agent is agreed upon, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Escrow Agreement. The termination or resignation
of the Escrow Agent shall take effect on the earlier of (i) the appointment of a
successor (including a court of competent jurisdiction) or (ii) the day that is
30 days after the date of delivery: (A) to the Escrow Agent of the other
parties' notice of termination or (B) to the other parties hereto of the Escrow
Agent's written notice of resignation. If at that time the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after that time shall be to keep the Escrowed Property safe until
receipt of a designation of successor escrow agent or a joint written
disposition instruction by the other parties hereto or any enforceable order of
a court of competent jurisdiction.
(j) The Escrow Agent shall have no responsibility for the contents of
any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement among or between the other
parties hereto and/or the subscribers of the Shares resulting in adverse claims
or demands being made in connection with the Escrowed Property, or in the event
that the Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrowed Property
until the Escrow Agent shall have received (i) a final and non-appealable order
of a court of competent jurisdiction directing delivery of the Escrowed Property
or (ii) a written agreement executed by the other parties hereto and consented
to by the subscribers directing delivery of the Escrowed Property, in which
event the Escrow Agent shall disburse the Escrowed Property in accordance with
such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and
non-appealable. The Escrow Agent shall act on such court order and legal opinion
without further question.
(l) As consideration for its agreement to act as Escrow Agent as
herein described, the Company agrees to pay the Escrow Agent the fee set forth
on Exhibit F hereto (made a part of this Escrow Agreement as if herein set
forth). In addition, the Company agrees to reimburse the Escrow Agent for all
reasonable expenses, disbursements and advances incurred or made by the Escrow
Agent in performance of its duties hereunder (including reasonable fees,
expenses and disbursements of its counsel).
(m) All parties hereto irrevocably (i) submit to the jurisdiction of
any New
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York State or federal court sitting in New York City in any action or proceeding
arising out of or relating to this Escrow Agreement, (ii) agree that all claims
with respect to such action or proceeding shall be heard and determined in such
New York State or federal court and (iii) waive, to the fullest extent possible,
the defense of an inconvenient forum. The other parties hereby consent to and
grant any such court jurisdiction over the persons of such parties and over the
subject matter of any such dispute and agree that delivery or mailing of process
or other papers in connection with any such action or proceeding in the manner
provided hereinabove, or in such other manner as may be permitted by law, shall
be valid and sufficient service thereof.
(n) No printed or other matter in any language (including, without
limitation, the Registration Statement, the Prospectus, notices, reports and
promotional material) which mentions the Escrow Agent's name or the rights,
powers, or duties of the Escrow Agent shall be issued by the other parties
hereto or on such parties' behalf unless the Escrow Agent shall first have given
its specific written consent thereto. The Escrow Agent hereby consents to the
use of its name and the reference to the escrow arrangement in the Registration
Statement and in the Prospectus.
8. Miscellaneous.
(a) This Escrow Agreement shall be binding upon and inure solely to
the benefit of the parties hereto and their respective successors and assigns,
heirs, administrators and representatives, and the subscribers of the Shares and
shall not be enforceable by or inure to the benefit of any other third party
except as provided in paragraph (i) of Section 7 with respect to the termination
of, or resignation by, the Escrow Agent. No party may assign any of its rights
or obligations under this Escrow Agreement without the written consent of the
other parties.
(b) This Escrow Agreement shall be construed in accordance with and
governed by the internal law of the State of New York (without reference to its
rules as to conflicts of law).
(c) This Escrow Agreement may only be modified by a writing signed by
all of the parties hereto and consented to by the subscribers of the Shares
adversely affected by such modifications. No waiver hereunder shall be effective
unless in a writing signed by the party to be charged.
(d) This Escrow Agreement shall terminate upon the payment pursuant to
Section 5 of all amounts held in the Escrow Account.
(e) The section headings herein are for convenience only and shall not
affect the construction thereof. Unless otherwise indicated, references to
Sections are to Sections contained herein.
(f) This Escrow Agreement may be executed in one or more counterparts
but all such separate counterparts shall constitute but one and the same
instrument; provided that,
-8-
<PAGE>
although executed in counterparts, the executed signature pages of each such
counterpart may be affixed to a single copy of this Agreement which shall
constitute an original.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By:__________________________________
Name:
Title:
VECTOR SECURITIES INTERNATIONAL, INC.
By:__________________________________
Name:
Title:
CITIBANK, N.A.
By:___________________________________
Name:
Title:
-10-
<PAGE>
EXHIBIT A
Citibank Insured Money Market Deposit Accounts
Deposits/Withdrawals may be made to the Citibank Money Market Deposit
Account ("MMDA") established under the Escrow Agreement to which this Exhibit is
attached only through the Escrow Account. All transaction and balance reporting
of the MMDA will be included as part of the Escrow Account Statement. Activity
in the MMDA will be reflected as the equivalent of dollars on deposit in a
Citibank Money Market Deposit Account. Deposits/Withdrawals to the MMDA will be
made only as permitted by the Escrow Agreement to which this Exhibit is
attached. The MMDA has certain regulatory restrictions as well as some minimum
requirements:
1. By regulation, Citibank, N.A. is required to reserve the right to
require seven days' prior notice of any withdrawals of funds from an account;
provided, however, that, if Citibank, N.A. elects to exercise its right to
require seven days' prior notice, it shall exercise such right as to all such
accounts established.
2. A daily balance of $10,000 must be maintained on deposit in the MMDA. If
the MMDA should fall below $10,000 on any day, Citibank, N.A. will be authorized
to transfer the remaining balance to the Escrow Account.
3. Rates will be determined by Citibank, N.A. and can be determined by
calling your custody account officer.
4. Balances up to $100,000 (total on deposit at Citibank, N.A.) are
FDIC-insured.
A-1
<PAGE>
EXHIBIT B
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
Date:_________
Deposit Date: List Number:_________
Investment Date: Page_______ of _____
Batch Number: Approved By:_________
JOB#:_________
For Bank use only
<TABLE>
<CAPTION>
TITLE:
-------------------
- -----------------------------------------------------------------------------------------------------------
* *AMOUNT OF * *TAX ID NO./ | | FOR BANK
NAME * DEPOSIT * SHARES * ADDRESS |SOC.SEC. NO. * * USE ONLY * * * *
- ---------------- -------- --------- ---------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* * TAX CODE *
* * * * * * EXEMPT(Y/N)
* * * * * * W-9(YR) NRA
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1000(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III |*
</TABLE>
B-1
<PAGE>
EXHIBIT C
[Form of Offering Termination Notice]
________________, 1997
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Dear Mr. Gartenberg:
Pursuant to Section 5(a) of the Escrow Agreement dated as of
_______________, 1997 (the "Escrow Agreement") among IntegraMed America, Inc.,
(the "Company"), Vector Securities International, Inc. and you, the Company
hereby notifies you of the termination of the offering of the Shares (as that
term is defined in the Escrow Agreement) and directs you to make payments to
subscribers as provided for in Section 5(a) of the Escrow Agreement.
Very truly yours,
INTEGRAMED AMERICA, INC.
By: _______________________________
Name:
Title:
C-1
<PAGE>
EXHIBIT D
[Form of Closing Notice]
_______________, 1997
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Ladies and Gentlemen:
Pursuant to Section 5(b) of the Escrow Agreement dated as of
______________, 1997, (the "Escrow Agreement") among IntegraMed America, Inc.
(the "Company"), Vector Securities International, Inc. and you, the Company
hereby certifies that it has received subscriptions for the Shares (as that term
is defined in the Escrow Agreement) and the Company will sell and deliver Shares
to the subscribers thereof at a closing to be held on _______________, 1997 (the
"Closing Date"). The names of the subscribers concerned, the number of Shares
subscribed for by each of such subscribers and the related subscription amounts
are set forth on Schedule I annexed hereto.
Please accept these instructions as standing instructions for the closing
to be held on the Closing Date. The parties hereto certify that they do not wish
to have a call back regarding these instructions.
We hereby request that the aggregate subscription amount be paid to you,
the Placement Agent and us as follows:
1. To the Company, $_________;
2. To Vector Securities International, Inc., $_________; and
3. To the Escrow Agent, $_________.
D-1
<PAGE>
These instructions may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.
Very truly yours,
INTEGRAMED AMERICA, INC.
By: _____________________________
Name:
Title:
VECTOR SECURITIES INTERNATIONAL, INC.
By: ______________________________
Name:
Title:
D-2
<PAGE>
SCHEDULE I
Name of Number of Subscription
Subscriber Shares Amount
- ---------- ------ ------
D-3
<PAGE>
EXHIBIT E
[Form of Subscription Termination Notice]
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Dear Mr. Gartenberg:
Pursuant to Section 5(c) of the Escrow Agreement dated as of
______________, 1997 (the "Escrow Agreement") among IntegraMed America, Inc.
(the "Company"), Vector Securities International, Inc. and you, the Company
hereby notifies you that the following subscription(s) have been rejected:
Dollar
Name of Amount of Subscribed Amount of
Subscriber Shares Rejected Rejected Subscription
- ---------- --------------- ---------------------
Very truly yours,
INTEGRAMED AMERICA, INC.
By: ____________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT F
Fee to Citibank N.A.: $5,000.00
F-1
<PAGE>
EXHIBIT 2
Vector Securities International, Inc.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Ladies and Gentlemen:
The undersigned has been informed that IntegraMed America, Inc., a Delaware
corporation (the "Company"), intends to file a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended,
with the Securities and Exchange Commission, which Registration Statement
contemplates the public offering of shares of the Company's Common Stock through
you as the Placement Agent.
In connection with the foregoing, in order to induce you, as Placement
Agent, to enter into an Agreement with the Company and to proceed with the
proposed public offering, the undersigned agrees to the following:
For a period of thirteen (90) days following the effective date of the
Company's public offering of securities, the undersigned will not offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any options, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into
or execrable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the undersigned or are hereafter
acquired), without the prior written consent of Vector Securities
International, Inc. In order to enforce this covenant, the Company may
impose stop-transfer instructions with respect to all of the undersigned's
shares of Common Stock until the end of such period.
If the Company's public offering has not been completed by 5:00 p.m., New
York City time, on October 31, 1997, this agreement shall then terminate and be
of no further force and effect.
_________________________________
Signature
_________________________________
Print Name
_________________________________
Date
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
IVF AMERICA, INC.
Pursuant to Section 242 of the General Corporation Law, the undersigned,
Gerardo Canet, President of IVF America, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY THAT:
1. The name of the corporation is IVF America, Inc.
2. The Certificate of Incorporation of the Corporation, as amended, is
hereby amended as follows:
A. Article FIRST of the amended Certificate of Incorporation is
deleted in its entirety and replaced by the following new paragraph:
The name of the Corporation (hereinafter called the "Corporation") is
IntegraMed America, Inc.
3. By unanimous written consent of the Board of Directors of the
Corporation pursuant to Section 141 of the General Corporation Law of the State
of Delaware, resolutions were duly adopted setting forth the foregoing amendment
to the Certificate of Incorporation, declaring said amendment to be advisable
and seeking the written consent of stockholders of the Corporation to such
amendment.
<PAGE>
4. Said amendment was duly adopted by written consent of the stockholders
of the Corporation at the annual meeting held on June 11, 1996, in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware by a majority in voting power of the shares of the capital stock of
the Corporation's stockholders and written notice of such action has been given
to the Corporation's stockholders who have not given their consent thereto; and
said amendment was duly adopted in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Board of Directors of IVF America, Inc. has caused
this certificate to be signed by Gerardo Canet, its President.
Dated: June 11, 1996
IVF AMERICA, INC.
By: /s/ Gerardo Canet
-----------------------------
Gerardo Canet - President
-2-
MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC.
and
FERTILITY CENTERS OF ILLINOIS, S.C.
THIS MANAGEMENT AGREEMENT, dated February 28, 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 60657 ("FCI").
RECITALS:
FCI specializes in the treatment of human infertility encompassing the
provision of in vitro fertilization and other assisted reproductive services
("Infertility Services"). All the issued and outstanding shares of capital stock
of FCI are owned by Brian Kaplan, M.D., Aaron Lifchez, M.D., Jacob Moise, M.D.
and Jorge Valle, M.D. (collectively referred to as "Physicians" or
"Stockholders").
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.
FCI desires to obtain the services of INMD in performing such management
and administrative functions, on its behalf and all medical entities in the
United States in which FCI's Stockholders have a financial interest or
affiliation tied to FCI, to permit FCI to devote its efforts on a concentrated
and continuous basis to the rendering of Infertility Services to its patients .
In addition, FCI 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 , FCI hereby agrees
to purchase from INMD
<PAGE>
the management and administrative services herein described and INMD agrees to
provide such services on the terms and conditions provided herein.
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 FCI's medical practice, including, but not limited
to, fixed assets and leasehold improvements.
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 FCI.
1.1.3 "Base Management Fee" shall mean an annual fee paid by FCI to
INMD in an amount equal to a percentage of FCI's annual Physician and Other
Professional Revenues, and FCI Management Fees. The Base Management Fee
shall cover the cost of management services provided by INMD corporate
staff to FCI, as more specifically described in Section 2.3.
1.1.4 "Cost of Services" shall mean all ordinary and necessary
expenses of FCI and all direct ordinary and necessary operating expenses of
INMD, without mark-up, incurred in connection with the management of FCI's
medical practice , as more specifically described in Section 2.1; provided,
however, Costs of Services shall be adjusted for all pass throughs,
including, but not limited to, drug, laboratory, pathology,
anesthesiologist and operating room fees that generate no economic benefits
to FCI.
1.1.5 "Facilities" shall mean the medical office and clinical space of
FCI, including any satellite locations, related businesses and all medical
group business operations of FCI, which are utilized by FCI 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 "FCI Management Fees" shall mean all fees, whether received or
accrued, and actually recorded each month, including management fees, and
fees from other operations or affiliations of FCI, including, but not
limited to IVF Illinois, an Illinois corporation and ultrasound revenues by
Physician-Stockholders of FCI.
- 2 -
<PAGE>
1.1.8 "Infertility Services" shall mean the treatment of human
infertility encompassing the provision of in vitro fertilization and other
assisted reproductive services provided by FCI or any Physician Employee
and Other Professional Employee.
1.1.9 "Other Professional Employee" shall mean a non-physician
individual who provides 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.
1.1.10 "Physician-Employee" shall mean an individual, including a
Physician-Stockholder, who is an employee of FCI or is otherwise under
contract with FCI to provide professional services to FCI patients and is
duly licensed as a physician in the State of Illinois.
1.1.11 "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 FCI 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 ultrasound fees from
businesses owned or operated by Physician-Stockholders. Physician and Other
Professional Revenues 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, per
Physician-Stockholder.
1.1.12 "Physician-Stockholder" shall mean a Physician and any future
physician duly licensed to practice medicine in Illinois who becomes a
stockholder of FCI.
1.1.13 "Revenues" shall mean the sum of all Physician and Other
Professional Revenues, and FCI Management Fees; provided, however, Revenues
shall be adjusted for pass throughs, as provided for in Section 1.1.11,
that generate no economic benefit to FCI.
1.1.14 "Technical Employees" shall mean technicians such as
embryologists and other laboratory personnel, ultrasonographers and
phlebotomist who provide services to FCI. All Technical Employees shall be
INMD Employees or independent contractors.
- 3 -
<PAGE>
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 FCI:
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 FCI, 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
FCI, 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 FCI, such as direct costs of printing
marketing materials prepared by INMD;
2.1.4 Any sales and use taxes assessed against FCI related to the
operation of FCI'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 FCI to outside counsel in connection
with matters specific to the operation of FCI 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 FCI including fire, theft,
general liability and malpractice insurance for
Physician-Employees of the FCI;
2.1.9 Professional licensure fees and board certification fees of
Physician Employees and Other Professional-Employees rendering
Infertility Services on behalf of FCI;
- 4 -
<PAGE>
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 3.7 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, including but not limited to
travel and entertainment expenses and car allowances, relative to
FCI; and
2.1.14 Such other costs and expenses directly incurred by INMD or FCI
necessary for the management or operation of FCI.
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 FCI;
2.2.2 Any INMD overhead charges;
2.2.3 Any federal or state income taxes of FCI or INMD other than as
provided above; and
2.25 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 of INMD including all legal, accounting, financial, marketing,
management and administrative assistance provided by INMD corporate and regional
staff which aren't provided for in Section 2.1.
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF INMD
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 FCI hereby appoints INMD as FCI'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, with FCI's advice and consent,
its duties and responsibilities pursuant to the terms of this Agreement to
provide management and administrative services (the
- 5 -
<PAGE>
"Management Services"). Physician-Employees of FCI and only
Physician-Employees of FCI 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. To the extent that they assist
FCI in performing medical functions, all Technical Employees provided by
INMD shall be subject to the professional supervision of FCI .
3.1.2 INMD will, on behalf of FCI, bill patients and collect
professional fees for Infertility Services rendered by FCI at the
Facilities, outside the Facilities for FCI's hospitalized patients, and for
all other Infertility Services rendered by any Physician Employee or Other
Professional Employee. FCI 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 FCI's name and on its behalf; (ii) to collect accounts
receivable resulting from such billing in FCI'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 FCI (and/or in the name of any
Physician Employee or Other Professional Employee rendering Infertility
Services to patients of FCI) 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 FCI , with FCI's advice
and consent, to collect any accounts and monies owed to FCI, to enforce the
rights of FCI 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 will provide the administrative services function of
supervising and maintaining (on behalf of FCI) 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 FCI 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 Management
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. FCI shall have unrestricted access to all of
its records at all times.
3.1.4 INMD will supply to FCI 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 FCI's medical practice at the Facilities.
- 6 -
<PAGE>
3.1.5 Subject to FCI's prior approval, INMD shall design and implement
an appropriate marketing and public relations program on behalf of FCI,
with appropriate emphasis on public awareness of the availability of
Infertility Services from FCI. The public relations program shall be
conducted in compliance with applicable laws and regulations governing
advertising by the medical profession. FCI shall approve all advertising
and marketing materials prior to use.
3.1.6 INMD will assist FCI in recruiting additional physicians,
including such administrative functions as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, FCI shall interview and make the ultimate decision as to
the suitability of any physician to become associated with FCI All
physicians recruited by INMD and accepted by FCI shall be employees of or
independent contractors to FCI.
3.1.7 INMD will assist FCI in negotiating any managed care contracts
to which FCI desires to become a party. INMD will provide administration
assistance to FCI in fulfilling its obligations under any such contract.
3.1.8 INMD will arrange for legal and accounting services as may be
reasonably required in the ordinary course of FCI'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 FCI.
3.1.9 INMD will negotiate for and cause premiums to be paid with
respect to the insurance provided for in Article 10.
3.1.10 INMD will 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 FCI's medical practice
at the Facilities.
3.2 FACILITIES. INMD will provide the Facilities necessary for the
operation of FCI's medical practice, as set forth in Exhibit 3.2 hereto,
including but not limited to, the use of the 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 Facilities' physical operations. INMD
will provide for the cleanliness of the Facilities, and timely maintenance and
cleanliness of the equipment, furniture and furnishings located therein. INMD
will consult with FCI regarding the condition, use and needs for the Facilities,
equipment, services and improvements thereto. FCI shall have the right to review
all proposed leases for office space and INMD shall consult with FCI with
respect to the terms of such leases and use its best efforts to ensure that the
leases provide for reason assignment. Additionally, INMD shall use its best
efforts to ensure that equipment leases provide for reasonable assignment. INMD
shall have no right to close any Facility without the advice and consent of FCI.
- 7 -
<PAGE>
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Subject to the agreement and approval of
FCI, INMD will hire and appoint an Executive Director to manage and administer
all of 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, will implement the policies agreed upon by INMD and FCI and will
generally perform the administrative duties assigned to the Executive Director
by INMD.
3.3.2 PERSONNEL. INMD will provide non-professional support personnel
and administrative personnel, clerical, secretarial, bookkeeping and collection
personnel reasonably necessary for the efficient operation of FCI at the
Facilities. Such personnel will be under the direction, supervision and control
of INMD, with Technical Employees and Other Professional Employees subject to
the professional supervision of FCI. If FCI is dissatisfied with the services of
any person delivering non-professional services, FCI will 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
will be governed by the overriding principle and goal of facilitating the FCI's
provision of high quality medical care and laboratory services. INMD will make
every effort to honor the specific requests of FCI with regard to the assignment
of INMD's employees, including the Executive Director.
3.4 FINANCIAL PLANNING AND GOALS. INMD will prepare, for the approval of
FCI, an annual capital and operating budget (the "Budget") reflecting the
anticipated revenues and expenses, sources and uses of capital for growth of
FCI's practice and for the provision of Infertility Services at the Facilities.
INMD will present the Budget to FCI for its approval at least thirty (30) days
prior to the commencement of the Fiscal Year. INMD will indicate the targeted
profit margin for FCI's practice at the Facilities which will be reflected in
the Budget. If the parties can not agree on the Budget for any Fiscal Year, the
Budget for the preceding Fiscal Year will serve as the Budget until such time as
the dispute can be resolved.
3.5 AUDITS AND STATEMENTS. INMD will prepare annual financial statements
for operations of FCI 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 FCI
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 FCI, but will provide support
documentation in connection with the same. Such support documentation will not
be destroyed without FCI's consent.
3.7 INVENTORY AND SUPPLIES. INMD shall order and purchase inventory and
supplies, and such other materials which are requested by FCI to enable FCI to
deliver Infertility Services in a cost-effective manner.
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3.8 QUALITY IMPROVEMENT. INMD shall assist FCI in fulfilling its
obligations to maintain a Quality Improvement Program and in meeting the goals
and standards of such program.
3.9 NEW PHYSICIAN SUBSDY. INMD agrees to assist FCI with the initial salary
component of any new Physician-Employee hired by FCI, on a case by case basis.
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF FCI
4.1 PROFESSIONAL SERVICES. FCI 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 Illinois. FCI shall ensure
that each Physician-Employee, Other Professional Employee and any other
professional provider associated with FCI is duly licensed to provide the
Infertility Services being rendered within the scope of such provider's
practice. In addition, FCI shall require each Physician-Employee to maintain a
DEA number and appropriate medical staff privileges as determined by FCI during
the term of this Agreement. In the event that any disciplinary actions or
medical malpractice actions are initiated against any Physician-Stockholder,
Physician-Employee or other professional provider, FCI shall promptly inform
the Executive Director and provide the underlying facts and circumstances of
such action.
4.2 MEDICAL PRACTICE. FCI 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. The medical practice conducted at the Facilities shall be
conducted solely by Physician-Employees employed by or serving as independent
contractors to FCI, and Other Professional Employees. 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
FCI shall determine that additional physicians are necessary, FCI shall
undertake and use its best efforts to locate physicians who, in FCI's judgment,
possess the credentials and expertise necessary to enable such physician
candidates to become affiliated with FCI for the purpose of providing
Infertility Services. FCI shall cause each Physician-Employee to enter into an
employment agreement with FCI 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 FCI and INMD. Physicians shall also sign, and shall require each
shareholder to sign an Acknowledgment of Personal Responsibility in the form
attached hereto as Exhibit (C), unless this requirement is waived by INMD. FCI
covenants that it will not employ any physician unless the physician shall sign
such employment agreement before employment. FCI shall have complete control of
and responsibility for the hiring, compensation, supervision,
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evaluation and termination of its Physician Employees and Other Professional
Employees, although at the request of FCI, INMD shall consult with FCI
respecting such matters.
4.4 CONTINUING MEDICAL EDUCATION . FCI shall require its Physician
Employees and Other Professional Employees to participate in such continuing
medical education as FCI deems to be reasonably necessary for such physicians or
Other Professional Employees to remain current in the provision of Infertility
Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. FCI 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.
4.6 ARRANGEMENS WITH OTHER ENTITIES. FCI physicians are the sole providers
of physician services to IVF Illinois, an Illinois corporation, that in turn,
provides in vitro fertilization surgical procedures to patients of FCI. Revenues
from such services to IVF Illinois shall be accounted for and included in the
Revenues of FCI.
4.7 IVF ILLINOIS OWNERSHIP INTEREST. Each Physician or Physician-controlled
corporation having an ownership interest in IVF Illinois will on or before the
Closing Date transfer such ownership interest in IVF Illinois to FCI.
4.8 OTHER BUSINESSES. Each of Drs. Lifchez, Moise and Valle have ownership
interests in other businesses that are affiliated with FCI. These entities,
Fertility and Reproductive Endocrinology Associates, S.C., owned by Aaron
Lifchez, M.D.; F.R.E.A. Ultrasound Services, S.C., owned by Aaron Lifchez, M.D.
and Roberta Lifchez, his wife; Fertility and Reproductive Medicine Associates,
S.C., owned by Jorge Valle, M.D.; and, Jacob Moise, M.D., S.C., owned by Jacob
Moise, M.D. will as of the Closing Date, cease delivery of clinical and medical
services and assign to FCI all contracts for such services, and will cease
generating Revenues as herein defined.
ARTICLE 5
LICENSE OF INMD NAME
5.1 GRANT OF LICENSE. INMD hereby grants to FCI a revocable and
non-assignable license for the term of this Agreement to use the names
REPRODUCTIVE SCIENCE CENTER, FERTILITY CENTERS OF ILLINOIS and any other service
names, trademark names and logos of INMD (the "Trade Names") in conjunction with
the provision of Infertility Services by FCI at the Facilities. Notwithstanding
the License granted to FCI hereunder, INMD retains the absolute right to use and
license the Trade Names to others.
5.2 FICTITIOUS NAME PERMIT. If necessary, FCI shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious
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name permit which allows FCI 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 FCI
in obtaining any such original, amended or renewal fictitious name permit.
5.3 RIGHTS OF INMD. FCI 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, FCI shall not in any manner represent that it has any
ownership interest in the Trade Names, and FCI's use shall not create in FCI'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 FCI shall inure to the
benefit of INMD. FCI 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. FCI 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 FCI or join FCI as a party thereto. FCI 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, FCI 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 FCI'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 FCI and shall not be a Cost of Services.
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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 the
following amounts (collectively "Service Fees"):
6.1.1 an amount reflecting all Cost of Services (whether incurred by
INMD or FCI) paid or accrued by INMD pursuant to the terms of this
Agreement;
6.1.3. during each year of this Agreement, a Base Management Fee of an
amount equal to six percent (6%) of Revenues; and
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
Management Fee as a % of Revenues Additional Management Fee
--------------------------------- -------------------------
50% and Below 10% of Revenues
51% to 60% 8% of Revenues
61% to 70% 6% of Revenues
71% to 80% 4% of Revenues
81% or More 0% of Revenues
Years 6 through 20 of this Agreement
50% and Below 12% of Revenues
51% to 60% 10% of Revenues
61% to 70% 7% of Revenues
71% to 80% 5% of Revenues
81% or More 0% of Revenues
6.2 ACCOUNTS RECEIVABLE. On or before the 15th business day of each month,
INMD shall reconcile the accounts receivable of FCI arising during the previous
calendar month. Accounts receivable shall be defined as all receivables recorded
each month (net of Adjustments) on the books of the FCI INMD shall transfer or
pay such amount to FCI equal to the accounts 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 FCI, as
described in Section 2.1 above. FCI shall cooperate with INMD and execute all
necessary
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documents in connection with the 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 deposited in a bank account at a bank designated by INMD. To
the extent FCI comes into possession of any payments in respect of such accounts
receivable, FCI shall direct such payments to INMD for deposit in bank accounts
designated by INMD.
6.3 ADVANCES. In addition to the purchase of the Accounts Receivable set
forth in 6.2 above, INMD agrees to advance funds to FCI, to meet Cost of
Services, provide working capital or fund mergers with other physicians or
physician groups into FCI ("Advance"). Such Advances shall be made only with the
consent of FCI.
6.3.1 Any Advance hereunder shall be a debt owed to INMD by FCI and
shall have payment priority over any distribution to
Physician-Shareholders. Any Advance shall be repaid from any distribution
to Physician-Stockholders 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 on an Advance 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
accounts receivable of FCI and distributions to FCI Shareholders.
ARTICLE 7
EXCLUSIVE MANAGEMENT RIGHT AND TERM
7.1 INMD agrees to pay FCI the sum of $8 Million ("Management Fee") for the
exclusive right to manage FCI during the term of this Agreement (the "Exclusive
Management Right"), which amount shall be paid, as follows, on a mutually agreed
date which is within 30 days (the "Closing Date") of completion of an offering
of INMD securities pursuant to which INMD receives at least $6.0 million or
more, net (the " Offering"):
7.1.1 $2.0 Million in INMD unregistered Common Stock for which FCI and
its assigns will have piggyback rights subject to underwriter approval. (
If INMD proposes to sell any shares of Common Stock in a public offering
that is registered under the Securities Act of 1933, then FCI shall have
the right to include in such offering all or a portion of the shares of
INMD Common Stock issued to FCI in this transaction [so called "piggyback
rights"], provided, however, that if the offering is an underwritten public
offering, FCI's piggyback rights would be subject to "cut-back" to the
extent determined bythe managing underwriters.) The number of INMD shares
("Shares") to be issued will be determined based upon the average closing
price of INMD's Common Stock for the 10 day-period prior to the third
business day before the Closing Date; provided, however, that in no event
will the price per share exceed $3.25 or be less than $1.75 for purposes of
calculating the number of shares
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to be issued to FCI. For a period of two years following the Closing, FCI
and its assignees will give Gerardo Canet, President and Chief Executive
Officer of INMD or his designee, voting proxy as to the Shares with respect
to (i) election of Directors or any amendment to INMD's Certificate of
Incorporation affecting Directors and (ii) any change in stock options for
management and Directors; and
7.1.2 $6.0 Million in certified funds.
7.2 The term of this Agreement shall begin on 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 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.
7.3 The obligations of INMD hereunder, including its obligations under
Section 7.1, are subject to:
7.3.1 INMD receiving at least $6.0 million or more, net, in the
Offering. INMD shall communicate weekly with FCI concerning the status of the
Offering;
7.3.2 Satisfactory completion by INMD of its due diligence
investigation regarding this proposed Agreement;
7.3.3 Negotiation and execution of a mutually satisfactory asset
purchase agreement, containing, among other things, representations, warranties,
covenants, indemnities and conditions, pursuant to which INMD will acquire
certain assets from FCI; and
7.3.4 Delivery by FCI of executed Physician Employment Agreements in
the form of Exhibit 4.3 hereto for each Physician-Stockholder and each
Physician-Employee.
7.4 FCI shall cooperate with INMD in connection with the Offering,
including making available all required financial and business information. In
connection therewith, FCI will give access to its employees, books and records
and other documentation as INMD, its legal, accounting and other representatives
may require to accomplish the Offering.
7.5 If INMD has not satisfied the contingency set forth in Section 7.3.1
within six (6) months of execution of this Agreement, this Agreement may be
voided by either party by giving written notice by certified mail, return
receipt requested or overnight express delivery service.
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7.6 Within 15 days after the Closing Date, INMD shall cause a
Physician-Stockholder designated by FCI (the "FCI Director") to be appointed to
INMD's Board of Directors. At the next annual meeting of shareholders at which
the FCI Director is up for re-election, INMD shall use its best efforts to cause
the FCI Director to be nominated for re-election and cause Gerardo Canet to vote
the Shares in favor of such re-election.
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. 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 FCI 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.
8.2 TERMINATION BY INMD FOR PROFESSIONAL DISCIPLINARY ACTIONS. FCI shall be
obligated to suspend a physician whose authorization to practice medicine is
suspended, revoked
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or not renewed. INMD may terminate this Agreement upon 10 days prior written
notice to FCI if a Physician's authorization to practice medicine is suspended,
revoked or not renewed and FCI has failed to suspend such physician; provided,
however, such action may not be taken until FCI has been given 30 days to
resolve such physician's authorization to practice medicine. FCI 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 a 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 FCI (Section 8.1.1), for a material breach by FCI (Section 8.1.2),
or FCI fails to suspend a physician whose license is suspended, revoked or not
renewed (Section 8.2), FCI agrees, within 90 days of the date of termination of
this Agreement, at INMD's option, to purchase from INMD the FCI Assets as set
forth in Sections 9.1.1 and 9.1.3 below.
9.1.1 The purchase price of the FCI Assets will be the net book value
determined in accordance with GAAP, consistently applied, as at the date of
the termination.
9.1.2 In addition to purchasing the FCI Assets pursuant to Section
9.1, FCI shall pay INMD 100% of the preceding 12-months' revenues over $10
Million and any and all outstanding unpaid Advances.
9.1.3 In addition to the obligations set forth in Sections 9.1 and
9.2, during the first 5 years of this Agreement FCI shall repay INMD such
portion of the Exclusive Management Fee in excess of an amount determined
by multiplying the number of years the Management Agreement has been in
effect rounded off to the nearest quarter of the year by $1.6 million
("Earned Amount"). The Earned Amount is then deducted from the $8.0 Million
FCI actually received from INMD for the Exclusive Management Right. Any
repayment may be made in the same proportion of INMD Common Stock and cash
which was received under Section 7.1, with the INMD Common Stock price per
share, for purposes of the repayment, being the same as the price per share
that existed when FCI received the INMD Common Stock from INMD. FCI shall
be entitled to a credit under this Section 9.1.3 in an amount equal to
payment received by INMD as a result of Section 3 certain Personal
Responsibility Agreements among INMD, FCI and FCI's Physician-Stockholders
dated February 28, 1997.
9.1.4 If a purchase is completed under this Section 9.1, FCI shall
assume all leases for offices and equipment used directly for the
management and operation of FCI's
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business and may hire such employees from INMD as it determines are
necessary to operate the medical practice and business.
9.2 TERMINATION BY FCI In the event this Agreement is terminated by FCI 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 FCI option, to sell
to FCI the FCI Assets as set forth in Sections 9.1.1, to 9.1.3 together with
leasehold improvements.
9.2.1 If a termination occurs under this Section 9.2, FCI shall assume
all leases for offices and equipment used directly for the management and
operation of FCI's business and may hire such employees from INMD as it
determines are necessary to operate the medical practice and business.
9.2.2 In the event FCI exercise 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 FCI does not exercise the option within 90 days of
termination, FCI shall have relinquished its right and interest to the FCI
Assets and INMD shall be free to use or dispose of the FCI 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 FCI Assets, and assign all right,
title and interest in and to and obligations under the Lease(s) to FCI and
return to FCI all security deposits. FCI 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 FCI Assets free and clear of all
liens, encumbrances or security interests thereon.
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 the insurance
coverage, FCI shall be named as additional insureds on the INMD's public
liability and
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property damage insurance policies. Evidence of such policies shall be presented
to FCI within thirty (30) days after the coverage is effected.
10.2 INMD shall use its best efforts to cause FCI to be made an additional
insured under INMD's professional liability coverage; provided, however,
conditions for being made an additional insured shall be (i) FCI utilizing
patient informed consent forms supplied by INMD and (ii) FCI complying with
requirements of INMD's insurance company. A Certificate of Insurance evidencing
such policies shall be presented to FCI within thirty (30) days after FCI being
named an additional insured. If FCI isn't made an insured, FCI shall carry
professional liability insurance covering FCI and FCI's employees in the amount
of $1 million per incident, $3 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
thirty (30) days after such coverage is effected.
10.3 FCI 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
MISCELLANEOUS
11.1 INDEPENDENT CONTRACTOR. INMD and FCI are independent contracting
parties. In this regard, the parties agree that:
11.1.1 The relationship between INMD and FCI 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 FCI;
11.1.2 Notwithstanding the authority granted to INMD herein, INMD and
FCI agree that FCI shall retain the full authority to direct all of the
medical, professional, and ethical aspects of its medical practices;
11.1.3 Any powers of FCI not specifically vested in INMD by the terms
of this Agreement shall remain with FCI;
11.1.4 FCI shall, at all times, be the sole employer of the Physician
Employees, the Other Professional Employees required by law to be employees
of FCI and all other professional personnel engaged by FCI 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 FCI;
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11.1.5 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;
11.1.6 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
11.1.7 Matters involving the internal agreements and finances of FCI,
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 FCI, and other employees of
FCI, disposition of FCI 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 FCI and licensing, shall remain the sole responsibility of FCI
and the individual Physician-Stockholder(s).
11.2 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.
11.3 EQUITABLE RELIEF. Without limiting other possible remedies available to
a non-breaching party for the breach of the covenants contained herein,
including the right of INMD to cause FCI to enforce any and all provisions of
the employment agreements described in Section 4.3 hereof, 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.
11.4 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.
11.5 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
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INMD may assign this Agreement to any subsidiary or affiliate of INMD without
the consent of the other parties and FCI may assign this Agreement to a newly
created Subchapter S corporation that the Physician-Stockholders anticipate
creating and into which FCI will be merged. 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.
11.6 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.
11.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, 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 Section 11.4
hereof, shall be determined by binding arbitration in the State of Illinois,
County of Cook (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, 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 Paragraph shall be brought in
the Courts of the State of Illinois or the United States District Court for the
Northern District of Illinois, to whose jurisdiction for such purposes FCI and
INMD hereby irrevocably consent and submit.
11.8 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.
11.9 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.
11.10 NOTICES. Any noticeor other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service, such as Fedex or Airborne Express,
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prepaid, and shall be deemed given when received. Any such notice or
communication shall be sent to the address set forth below:
11.10.1 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
11.10.2 If for FCI at:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street,
Suite 509
Chicago, Illinois 60657
Attention: Aaron S. Lifchez, M.D., President
With a copy to:
Norman H. Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
Any party hereto, by like notice to the other parties, may designate such
other address or addresses to which notice must be sent.
11.11 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.
11.12 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.
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11.13 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 other's 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 FCI will designate at each
others request the specific information which INMD or FCI considers to be
Confidential Information.
11.14 INDEMNIFICATION.
11.14.1 INMD agrees to indemnify and hold harmless FCI, 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 11.15.1 shall survive termination of
this Agreement.
11.14.2 FCI 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 FCI 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.
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11.15 FINDER'S FEE. For any established physician practice in the States of
Illinois, Indiana, Iowa, Michigan and Wisconsin, after date of this Agreement
and during the first five (5) years hereof, that FCI or one of its
Physician-Stockholders introduces to INMD as a prospect for a management
agreement ("Prospect") and such Prospect enters into a management agreement with
INMD, FCI shall be eligible for a finder's fee of 2% of the Prospect's annual
Revenues for each of the first 3 years of the management agreement; provided,
the Prospect enters into a management agreement for not less than ten (10)
years.
11.15.1 The finder's fee provided for in Section 11.15 shall not apply
with respect to any management agreement between Dr. Edward Marut and INMD.
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:______________________________________
GERARDO CANET, PRESIDENT
FERTILITY CENTERS OF ILLINOIS, S.C.
BY:_______________________________________
AARON S. LIFCHEZ, M.D., PRESIDENT
ASSET PURCHASE AGREEMENT
AGREEMENT made this 28th day of February, 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 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
60657 ( "Seller").
RECITALS
Buyer is engaged in the business of owning certain assets and providing
management and administrative services to medical practices specializing in the
treatment of human infertility, encompassing the provision of in vitro
fertilization and other assisted reproductive services ("Infertility Services");
and
Aaron S. Lifchez, M.D., Jorge Valle, M.D. Jacob Moise, M.D., and Brian
Kaplan, M.D. are Illinois physicians (collectively, "Physicians") engaged in the
practice of providing Infertility Services through Seller (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 February 28, 1997.
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, free and clear of all liens and encumbrances, as set forth in Exhibit
1.01 ("Practice Assets").
(b) Practice Assets to be acquired by Buyer shall include the name
FERTILITY CENTERS OF ILLINOIS, and Seller agrees to change its name within 30
days of the Closing
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Date, if requested to do so by Buyer.
(c) Seller will prior to the Closing Date acquire certain fixed assets
from F.R.E.A. Ultrasound Services, S.C., which is owned by Aaron Lifchez, M.D.
and Roberta Lifchez, his wife; Fertility and Reproductive Endocrinology
Associates, S.C., owned by Aaron Lifchez, M.D.; Fertility & Reproductive
Medicine Associates, S.C., owned by Jorge Valle, M.D.; and, Jacob Moise, M.D.,
S.C., owned by Jacob Moise, M.D. (collectively referred to herein as "Associated
Practice Assets"). The Associated Practice Assets will be included in the
Practice Assets to be acquired by Buyer, at net book value, on the Closing Date.
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 to or interest in, the
assets listed in Exhibit 1.02 ( collectively, "Excluded Assets").
ARTICLE II
PURCHASE PRICE
2.01 Purchase Price.
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 on the
Closing Date the net book value, determined in accordance with GAAP, of Seller's
fixed assets (the "Purchase Price").
2.02 Manner of Payment
Buyer shall pay the Purchase Price on the Closing Date in certified
funds.
2.03 Allocation of Purchase Price
The purchase price shall be allocated among the assets of Seller as
set forth on Exhibit 2.03 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.
2.04 Closing Statement.
Seller shall deliver to Buyer unaudited statements dated not more than
three (3) days prior to Closing Date ( 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.
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2.05 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 (the following
being collectively referred to as "Assumed Liabilities") only those liabilities
set forth in Exhibit 2.05. 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 2.05.
ARTICLE III
CLOSING
The closing ( the "Closing") of the transactions contemplated by this
Agreement shall be held at 2:00 p.m. on a mutually agreed date which is within
30 days (the "Closing Date") of completion of an offering of Buyer's securities
pursuant to which Buyer receives at least $6.0 million or more, net (the
"Offering")at the offices of Vector Securities, 1751 Lake Cook Road, Suite 350,
Deerfield, Illinois 60015 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 represents and warrants to Buyer, for the purpose of inducing Buyer
to enter into and consummate this Agreement, that:
4.01 Organization and Power
(a) Seller is a duly formed and existing medical corporation organized
under the laws of Illinois, whose only shareholders are Physicians. Each
Physician is duly licensed to practice medicine in the State of Illinois.
(b) Seller has full right, power and authority to enter into this
Agreement and to consummate the transactions herein contemplated and Seller has
received the consent of the Physician authorizing and approving this Agreement
and the transactions contemplated hereby.
(c) This Agreement constitutes the valid and binding obligation of
Seller fully enforceable against Seller in accordance with its terms.
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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 2.05 (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.
(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 financial statements of Seller
consisting of Statement of Assets, Liabilities and Stockholders' Equity-Income
Tax Basis for the years ended October 31, 1994, 1995 and 1996, together with a
Statement of Assets, Liabilities and Stockholders' Equity-Income Tax Basis for
the two-month period ended December 31, 1996 (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 in the Financial Statements or which are not listed on Exhibit
2.05 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
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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 December 31, 1996:
(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 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 affecting, or which would adversely
affect, 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 and belief, 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 and belief, 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
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set forth on Exhibit 4.07(a).
(b) To the best of Seller's knowledge and belief, 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) To the best of Seller's knowledge and belief, 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 third-party payors.
(b) Neither Seller nor any of it's 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 4.09(a). 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
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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,
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 November 28, 1993,
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.
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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, 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.
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 Warranties"), shall survive the consummation of
the transactions contemplated by this Agreement
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for a period of one (1) year after the Closing Date; 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) After the Closing Date, Buyer shall indemnify Seller against, and
defend and hold Seller harmless from Claims arising out of or in connection with
(i) any breach of the Representations and Warranties, 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 the
Practice 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) and
Seller shall give Buyer reasonable opportunity to defend and/or settle such
Claim at Buyer's 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 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
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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
(a) 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, 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.
(b) After the date of this Agreement, Seller will deliver to Buyer
copies of all interim financial statements since December 31, 1996 ("Interim
Financial Statements") with five (5) days after preparation of the Interim
Financial Statements, but in no event later than three (3) business days prior
to the Closing Date. Seller will not have any liabilities, debts or obligations,
whether accrued, absolute or contingent, and whether due or to become due, which
will not be reflected in the Interim Financial Statements or which are not
listed on Exhibit 2.05 if such liabilities are to be assumed by Buyer.
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
CONDITION TO OBLIGATIONS
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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 2.01 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,
nor shall any such suit, action or proceeding be threatened except as disclosed
on Exhibit 4.07(a);
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(c) Buyer receiving at least $6.0 million or more, net, in the
Offering.
(d) Seller shall have delivered in form reasonably satisfactory to
Buyer and consistent with this Agreement the documents identified below:
1. A Certificate of Good Standing of Seller, dated not earlier than
thirty (30) days prior to the Closing Date, from the Secretary of State of
Seller's incorporation.
2. 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.
3. An assignment of all office and equipment leases listed on Exhibits
4.09 (a). Buyer will credit Seller with or provide to Seller an amount equal to
any security deposit held by the Lessor under such lease(s).
4. 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.
5. 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 Exhibits 1.01.
6. The opinion of Norman H. Goldman, Esq., legal counsel to Seller and
Physicians, dated the Closing Date, in the form annexed hereto as Exhibit
8.01(d) 6.
7. Certified copies of resolutions adopted by Seller and Physicians
authorizing and approving the transaction contemplated by this Agreement.
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
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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 pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service, such as Fedex or Airborne Express, 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:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street, Suite 509
Chicago, Illinois 60657
Attention: Aaron Lifchez, M.D.
With a copy to:
Norman H. Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
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.
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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.
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 Illinois, 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 Illinois, County of Cook
(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
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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 Illinois or the United States District Court for the
Northern District of Illinois, to whose jurisdiction for such purposes FCI and
INMD 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:_____________________________
Gerardo Canet, President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:__________________________________
Aaron Lifchez, M.D., President
15
PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into February 28, 1997 by and between 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 60657
("FCI") and Aaron Lifchez, M.D. residing at 29 Regentwood Road, Northfield,
Illinois 60093 ("Physician").
R E C I T A L S:
FCI specializes in the 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 andrology services (all of the foregoing
are referred to herein as "Infertility Services").
Physician is duly licensed to practice medicine in the State of Illinois,
specializes in the provision of Infertility Services and has experience in
infertility treatment including surgical skills required in the course of
providing Infertility Services.
FCI 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 FCI and INMD dated
February 28, 1997 ("INMD-FCI Agreement").
In order to further facilitate the provision of Infertility Services, FCI
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. FCI 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 provide patient care and clinical backup as
required to ensure the proper provision of services to patients of FCI at FCI's
office at the address set forth in Schedule A (the "Offices"), and/or such other
location as shall be mutually agreed to by FCI and Physician. Physician agrees
to devote substantially all of Physician's professional time, effort and ability
to FCI'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 FCI without the express written consent of FCI and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided 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 to and be the sole property of FCI. 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
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medical activities shall require the express written consent of FCI 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 FCI hereunder shall be billed and collected by FCI; provided, however,
that pursuant to the terms of the INMD-FCI Agreement, INMD shall carry out
billing and collection functions on behalf of FCI. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to FCI
patients shall become the property of FCI, and Physician agrees immediately to
turn over to FCI any such fees received by Physician during the term hereof.
Physician hereby authorizes FCI, and/or INMD on FCI'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
FCI, 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 FCI for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order to
provide Infertility Services to FCI 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 (the "Hospital") within the geographic area
of FCI's office. FCI shall use reasonable efforts to assist Physician in
maintaining such privileges. The failure of the Physician to maintain privileges
at the Hospital in good standing shall be deemed a cause for termination of this
Agreement.
6. INMD-FCI AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-FCI Agreement and acknowledges that FCI has substantial responsibilities,
rights and obligations under said agreement. Physician agrees to at all times
act in such manner as to avoid causing FCI to be in breach of the INMD-FCI
Agreement, and Physician further agrees that to the extent applicable to FCI and
to the responsibilities of the Physician hereunder, he shall assist FCI in
carrying out its obligations under the INMD-FCI Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. FCI shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as FCI 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 FCI. Physician acknowledges that FCI shall have
final authority over: (a) the acceptance or
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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 FCI, 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 legal or medical concerns.
9. MEDICAL RECORDS. All medical records of patients to whom Physician
provides Infertility or other medical Services on behalf of FCI during the term
hereof shall be the property of FCI. A copy of any medical records of such
patients will be made available to Physician upon request.
10. TERM. The initial term of this Agreement shall begin on the effective
date of the INMD-FCI Agreement 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-FCI 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 medical staff privileges
at the Hospital, 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;
(vi) By either party without cause upon giving the other six months'
prior written 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
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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 FCI, 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 Illinois;
(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 FCI of any such professional disciplinary
proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify FCI 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 FCI 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 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
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FCI and INMD. For purposes of this Agreement, the term "Infertility Information"
shall mean such technical, scientific, and business information provided to
Physician by FCI or INMD which is designated by FCI 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 FCI 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 FCI or INMD,
as the case may be.
(b) Without limiting other possible remedies available to FCI for the
breach of this covenant, Physician agrees that injunctive or other equitable
relief shall be available to enforce this covenant, such relief to be without
the necessity of posting 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 FCI or INMD will designate the specific
information which FCI 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-FCI
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 FCI.
For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation, such as the Chicago Tribune.
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 FCI.
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(b) Covenant Not to Compete. Physician agrees not to compete with the
business of FCI, 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.
After this Agreement has been in effect for six years, Physician shall not be
subject to any non-compete restrictions upon termination of this Agreement.
(ii) The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last twelve months
of Physician's employment by FCI (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 ten (10) 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
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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 FCI, provided those services are for patients of FCI,
nor prohibit Physician from fulfilling his contract with FCI, 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. FCI, 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 FCI 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 FCI 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.
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 FCI
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:
Aaron Lifchez, M.D.
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29 Regentwood Road
Northfield, Illinois 60093
If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Peter Callan, Vice President
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 Illinois. 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 Illinois, County of Cook (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 Illinois.
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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 FCI shall not be construed to waive or limit the need for such
consent in any other or subsequent instance.
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.
Fertility Centers of Illinois, S.C.
By:_______________________________
Aaron Lifchez, M.D., President
Physician:
__________________________________
Aaron Lifchez, M.D.
SCHEDULE A
Office Location(s)
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3000 Halsted Street, Suite 509, Chicago, Illinois 60657
1585 North Barrington Road, Suite 305, Hoffman Estates, Illinois 60194
1535 Lake Cook Road, Suite 406, Northbrook, Illinois 60062
3703 West Lake Avenue, Suite 106, Glenview, Illinois 60025
1 South 224 Summit Avenue, Suite 302, Oakbrook Terrace, Illinois 60181
71 West 156th Street, Suite 208, Harvey, Illinois 60426
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from FCI. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under
FCI's current income distribution and expense allocation formula. Such draw will
be calculated based on FCI's annual budget which shall be prepared with the
input and assistance of Physician and INMD. Any changes in this allocation
requires a majority vote of FCI's shareholders.
FCI will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, FCI 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 FCI 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.
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.
BENEFITS
Physician shall receive such benefits as are historical and consistent with
FCI's practice prior to the INMD-FCI Agreement. The costs of such benefits shall
be consistent with costs typically experienced by INMD in connection with other
medical practices it manages.
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PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into February 28, 1997 by and between 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 60657
("FCI") and Brian Kaplan, M.D. residing at 950 North Michigan Avenue, #2602,
Chicago, Illinois 60611 ("Physician").
R E C I T A L S:
FCI specializes in the 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 andrology services (all of the foregoing are referred to
herein as "Infertility Services").
Physician is duly licensed to practice medicine in the State of Illinois,
specializes in the provision of Infertility Services and has experience in
infertility treatment including surgical skills required in the course of
providing Infertility Services.
FCI 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 FCI and INMD dated
February 28, 1997 ("INMD-FCI Agreement").
In order to further facilitate the provision of Infertility Services, FCI
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. FCI 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 provide patient care and clinical backup as
required to ensure the proper provision of services to patients of FCI at FCI's
office at the address set forth in Schedule A (the "Offices"), and/or such other
location as shall be mutually agreed to by FCI and Physician. Physician agrees
to devote substantially all of Physician's professional time, effort and ability
to FCI' 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 FCI without the express written consent of FCI and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided 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 to and be the sole property of FCI. 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
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medical activities shall require the express written consent of FCI 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 FCI hereunder shall be billed and collected by FCI; provided, however,
that pursuant to the terms of the INMD-FCI Agreement, INMD shall carry out
billing and collection functions on behalf of FCI. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to FCI
patients shall become the property of FCI, and Physician agrees immediately to
turn over to FCI any such fees received by Physician during the term hereof.
Physician hereby authorizes FCI, and/or INMD on FCI'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
FCI, 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 FCI for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order to
provide Infertility Services to FCI 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 (the "Hospital") within the geographic area
of FCI's office. FCI shall use reasonable efforts to assist Physician in
maintaining such privileges. The failure of the Physician to maintain privileges
at the Hospital in good standing shall be deemed a cause for termination of this
Agreement.
6. INMD-FCI AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-FCI Agreement and acknowledges that FCI has substantial responsibilities,
rights and obligations under said agreement. Physician agrees to at all times
act in such manner as to avoid causing FCI to be in breach of the INMD-FCI
Agreement, and Physician further agrees that to the extent applicable to FCI and
to the responsibilities of the Physician hereunder, he shall assist FCI in
carrying out its obligations under the INMD-FCI Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. FCI shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as FCI 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 FCI. Physician acknowledges that FCI shall have
final authority over: (a) the acceptance or
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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 FCI, 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 legal or medical concerns.
9. MEDICAL RECORDS. All medical records of patients to whom Physician
provides Infertility or other medical Services on behalf of FCI during the term
hereof shall be the property of FCI. A copy of any medical records of such
patients will be made available to Physician upon request.
10. TERM. The initial term of this Agreement shall begin on the effective
date of the INMD-FCI Agreement 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 may be extended for
periods of five (5) years each or portions thereof, at the option of Physician,
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-FCI 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 medical staff privileges
at the Hospital, 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;
(vi) By either party without cause upon giving the other six months'
prior written 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
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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 FCI, 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 Illinois;
(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 FCI of any such professional disciplinary
proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify FCI 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 FCI 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 Services Information, as defined herein, during the
term of this Agreement or during any extension or renewal
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thereof, and for a period of one (1) year thereafter, except as expressly
consented to in writing by FCI and INMD. For purposes of this Agreement, the
term "Infertility Information" shall mean such technical, scientific, and
business information provided to Physician by FCI or INMD which is designated by
FCI 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
FCI 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 FCI or INMD, as the case may be.
(b) Without limiting other possible remedies available to FCI for the
breach of this covenant, Physician agrees that injunctive or other equitable
relief shall be available to enforce this covenant, such relief to be without
the necessity of posting 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 FCI or INMD will designate the specific
information which FCI 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-FCI
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, the
business of any person who is or was a patient or client of FCI during the
12-month period preceding termination of this Agreement. For purposes of this
Section, solicitation shall not include any general advertising in a newspaper
of general circulation, such as the Chicago Tribune. 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
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would not have been known by Physician except by reason of the knowledge thereof
gained as an employee or shareholder of FCI.
(b) Covenant Not to Compete. Physician agrees not to compete with the
business of FCI, 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 termination occurs during the first 2 years of this Agreement.
After this Agreement has been in effect for two years,Physician shall not be
subject to any non-compete restrictions upon termination of this Agreement.
(ii) The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last twelve months
of Physician's employment by FCI (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 ten (10) 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.
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(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 FCI, provided those services are for patients of FCI,
nor prohibit Physician from fulfilling his contract with FCI, 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. FCI, 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 FCI 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 FCI 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.
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 FCI
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:
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If to Physician:
Brian Kaplan, M.D.
950 North Michigan Avenue, #2602
Chicago, Illinois 60611
If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Peter Callan, Vice President
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 Illinois. 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 Illinois, County of Cook (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
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vacate an arbitral award or otherwise enforce this Paragraph shall be brought in
the Courts of the State of Illinois.
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 FCI shall not be construed to waive or limit the need for such
consent in any other or subsequent instance.
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.
Fertility Centers of Illinois, S.C.
By:_________________________________
Aaron Lifchez, M.D., President
Physician:
____________________________________
Brian Kaplan, M.D.
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SCHEDULE A
Office Location(s)
3000 Halsted Street, Suite 509, Chicago, Illinois 60657
1585 North Barrington Road, Suite 305, Hoffman Estates, Illinois 60194
1535 Lake Cook Road, Suite 406, Northbrook, Illinois 60062
3703 West Lake Avenue, Suite 106, Glenview, Illinois 60025
1 South 224 Summit Avenue, Suite 302, Oakbrook Terrace, Illinois 60181
71 West 156th Street, Suite 208, Harvey, Illinois 60426
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from FCI. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under
FCI's current income distribution and expense allocation formula. Such draw will
be calculated based on FCI's annual budget which shall be prepared with the
input and assistance of Physician and INMD. Any changes in this allocation
requires a majority vote of FCI's shareholders.
FCI will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, FCI 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 FCI 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.
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.
BENEFITS
Physician shall receive such benefits as are historical and consistent with
FCI's practice prior to the INMD-FCI Agreement. The costs of such benefits shall
be consistent with costs typically experienced by INMD in connection with other
medical practices it manages.
12
PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into February 28, 1997 by and between 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 60657
("FCI") and Jacob Moise, M.D. residing at 329 BelAir Drive, Glenview, Illinois
60025 ("Physician").
R E C I T A L S:
FCI specializes in the 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 andrology services (all of the foregoing are referred to
herein as "Infertility Services").
Physician is duly licensed to practice medicine in the State of Illinois,
specializes in the provision of Infertility Services and has experience in
infertility treatment including surgical skills required in the course of
providing Infertility Services.
FCI 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 FCI and INMD dated
February 28, 1997 ("INMD-FCI Agreement").
In order to further facilitate the provision of Infertility Services, FCI
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. FCI 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 provide patient care and clinical backup as
required to ensure the proper provision of services to patients of FCI at FCI's
office at the address set forth in Schedule A (the "Offices"), and/or such other
location as shall be mutually agreed to by FCI and Physician. Physician agrees
to devote substantially all of Physician's professional time, effort and ability
to FCI'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 FCI without the express written consent of FCI and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided 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 to and be the sole property of FCI. 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
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medical activities shall require the express written consent of FCI 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 FCI hereunder shall be billed and collected by FCI; provided, however,
that pursuant to the terms of the INMD-FCI Agreement, INMD shall carry out
billing and collection functions on behalf of FCI. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to FCI
patients shall become the property of FCI, and Physician agrees immediately to
turn over to FCI any such fees received by Physician during the term hereof.
Physician hereby authorizes FCI, and/or INMD on FCI'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
FCI, 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 FCI for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order to
provide Infertility Services to FCI 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 (the "Hospital") within the geographic area
of FCI's office. FCI shall use reasonable efforts to assist Physician in
maintaining such privileges. The failure of the Physician to maintain privileges
at the Hospital in good standing shall be deemed a cause for termination of this
Agreement.
6. INMD-FCI AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-FCI Agreement and acknowledges that FCI has substantial responsibilities,
rights and obligations under said agreement. Physician agrees to at all times
act in such manner as to avoid causing FCI to be in breach of the INMD-FCI
Agreement, and Physician further agrees that to the extent applicable to FCI and
to the responsibilities of the Physician hereunder, he shall assist FCI in
carrying out its obligations under the INMD-FCI Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. FCI shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as FCI 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 FCI. Physician acknowledges that FCI shall have
final authority over: (a) the acceptance or
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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 FCI, 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 legal or medical concerns.
9. MEDICAL RECORDS. All medical records of patients to whom Physician
provides Infertility or other medical Services on behalf of FCI during the term
hereof shall be the property of FCI. A copy of any medical records of such
patients will be made available to Physician upon request.
10. TERM. The initial term of this Agreement shall begin on the effective
date of the INMD-FCI Agreement 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 may be extended for
periods of five (5) years each or portions thereof, at the option of Physician,
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-FCI 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 medical staff privileges
at the Hospital, 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;
(vi) By either party without cause upon giving the other six months'
prior written 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
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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 FCI, 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 Illinois;
(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 FCI of any such professional disciplinary
proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify FCI 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 FCI 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 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
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FCI and INMD. For purposes of this Agreement, the term "Infertility Information"
shall mean such technical, scientific, and business information provided to
Physician by FCI or INMD which is designated by FCI 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 FCI 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 FCI or INMD,
as the case may be.
(b) Without limiting other possible remedies available to FCI for the
breach of this covenant, Physician agrees that injunctive or other equitable
relief shall be available to enforce this covenant, such relief to be without
the necessity of posting 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 FCI or INMD will designate the specific
information which FCI 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-FCI
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, the
business of any person who is or was a patient or client of FCI during the
12-month period preceding termination of this Agreement. For purposes of this
Section, solicitation shall not include any general advertising in a newspaper
of general circulation, such as the Chicago Tribune. 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 FCI.
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(b) Covenant Not to Compete. Physician agrees not to compete with the
business of FCI, 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 termination occurs during the first 2 years of this Agreement.
After this Agreement has been in effect for two years,Physician shall not be
subject to any non-compete restrictions upon termination of this Agreement.
(ii) The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last twelve months
of Physician's employment by FCI (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 ten (10) 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
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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 FCI, provided those services are for patients of FCI,
nor prohibit Physician from fulfilling his contract with FCI, 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. FCI, 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 FCI 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 FCI 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.
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 FCI
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:
Jacob Moise, M.D.
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329 BelAir Drive
Glenview, Illinois 60025
If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Peter Callan, Vice President
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 Illinois. 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 Illinois, County of Cook (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 Illinois.
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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 FCI shall not be construed to waive or limit the need for such
consent in any other or subsequent instance.
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.
Fertility Centers of Illinois, S.C.
By:_________________________________
Aaron Lifchez, M.D., President
Physician:
____________________________________
Jacob Moise, M.D.
SCHEDULE A
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Office Location(s)
3000 Halsted Street, Suite 509, Chicago, Illinois 60657
1585 North Barrington Road, Suite 305, Hoffman Estates, Illinois 60194
1535 Lake Cook Road, Suite 406, Northbrook, Illinois 60062
3703 West Lake Avenue, Suite 106, Glenview, Illinois 60025
1 South 224 Summit Avenue, Suite 302, Oakbrook Terrace, Illinois 60181
71 West 156th Street, Suite 208, Harvey, Illinois 60426
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from FCI. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under
FCI's current income distribution and expense allocation formula. Such draw will
be calculated based on FCI's annual budget which shall be prepared with the
input and assistance of Physician and INMD. Any changes in this allocation
requires a majority vote of FCI's shareholders.
FCI will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, FCI 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 FCI 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.
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.
BENEFITS
Physician shall receive such benefits as are historical and consistent with
FCI's practice prior to the INMD-FCI Agreement. The costs of such benefits shall
be consistent with costs typically experienced by INMD in connection with other
medical practices it manages.
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PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into February 28, 1997 by and between 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 60657
("FCI") and Jorge Valle, M.D. residing at 2125 Hybernia Drive, Highland Park,
Illinois 60035 ("Physician").
R E C I T A L S:
FCI specializes in the 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 andrology services (all of the foregoing are referred to
herein as "Infertility Services").
Physician is duly licensed to practice medicine in the State of Illinois,
specializes in the provision of Infertility Services and has experience in
infertility treatment including surgical skills required in the course of
providing Infertility Services.
FCI 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 FCI and INMD dated
February 28, 1997 ("INMD-FCI Agreement").
In order to further facilitate the provision of Infertility Services, FCI
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. FCI 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 provide patient care and clinical backup as
required to ensure the proper provision of services to patients of FCI at FCI's
office at the address set forth in Schedule A (the "Offices"), and/or such other
location as shall be mutually agreed to by FCI and Physician. Physician agrees
to devote substantially all of Physician's professional time, effort and ability
to FCI'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 FCI without the express written consent of FCI and INMD.
3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be provided 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 to and be the sole property of FCI. 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
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medical activities shall require the express written consent of FCI 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 FCI hereunder shall be billed and collected by FCI; provided, however,
that pursuant to the terms of the INMD-FCI Agreement, INMD shall carry out
billing and collection functions on behalf of FCI. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to FCI
patients shall become the property of FCI, and Physician agrees immediately to
turn over to FCI any such fees received by Physician during the term hereof.
Physician hereby authorizes FCI, and/or INMD on FCI'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
FCI, 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 FCI for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in order to
provide Infertility Services to FCI 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 (the "Hospital") within the geographic area
of FCI's office. FCI shall use reasonable efforts to assist Physician in
maintaining such privileges. The failure of the Physician to maintain privileges
at the Hospital in good standing shall be deemed a cause for termination of this
Agreement.
6. INMD-FCI AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-FCI Agreement and acknowledges that FCI has substantial responsibilities,
rights and obligations under said agreement. Physician agrees to at all times
act in such manner as to avoid causing FCI to be in breach of the INMD-FCI
Agreement, and Physician further agrees that to the extent applicable to FCI and
to the responsibilities of the Physician hereunder, he shall assist FCI in
carrying out its obligations under the INMD-FCI Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. FCI shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as FCI 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 FCI. Physician acknowledges that FCI shall have
final authority over: (a) the acceptance or
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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 FCI, 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 legal or medical concerns.
9. MEDICAL RECORDS. All medical records of patients to whom Physician
provides Infertility or other medical Services on behalf of FCI during the term
hereof shall be the property of FCI. A copy of any medical records of such
patients will be made available to Physician upon request.
10. TERM. The initial term of this Agreement shall begin on the effective
date of the INMD-FCI Agreement 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-FCI 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 medical staff privileges
at the Hospital, 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;
(vi) By either party without cause upon giving the other six months'
prior written 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
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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 FCI, 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 Illinois;
(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 FCI of any such professional disciplinary
proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify FCI 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 FCI 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 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
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FCI and INMD. For purposes of this Agreement, the term "Infertility Information"
shall mean such technical, scientific, and business information provided to
Physician by FCI or INMD which is designated by FCI 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 FCI 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 FCI or INMD,
as the case may be.
(b) Without limiting other possible remedies available to FCI for the
breach of this covenant, Physician agrees that injunctive or other equitable
relief shall be available to enforce this covenant, such relief to be without
the necessity of posting 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 FCI or INMD will designate the specific
information which FCI 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-FCI
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 FCI.
For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation, such as the Chicago Tribune.
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 FCI.
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(b) Covenant Not to Compete. Physician agrees not to compete with the
business of FCI, 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.
After this Agreement has been in effect for six years, Physician shall not be
subject to any non-compete restrictions upon termination of this Agreement.
(ii) The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last twelve months
of Physician's employment by FCI (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 ten (10) 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
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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 FCI, provided those services are for patients of FCI,
nor prohibit Physician from fulfilling his contract with FCI, 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. FCI, 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 FCI 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 FCI 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.
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 FCI
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:
Jorge Valle, M.D.
2125 Hybernia Drive
Highland Park, Illinois 60035
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If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: Executive Director
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Peter Callan, Vice President
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 Illinois. 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 Illinois, County of Cook (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 Illinois.
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
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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 FCI shall not be construed to waive or limit the need for such
consent in any other or subsequent instance.
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.
Fertility Centers of Illinois, S.C.
By:__________________________________
Aaron Lifchez, M.D., President
Physician:
_____________________________________
Jorge Valle, M.D.
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SCHEDULE A
Office Location(s)
3000 Halsted Street, Suite 509, Chicago, Illinois 60657
1585 North Barrington Road, Suite 305, Hoffman Estates, Illinois 60194
1535 Lake Cook Road, Suite 406, Northbrook, Illinois 60062
3703 West Lake Avenue, Suite 106, Glenview, Illinois 60025
1 South 224 Summit Avenue, Suite 302, Oakbrook Terrace, Illinois 60181
71 West 156th Street, Suite 208, Harvey, Illinois 60426
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from FCI. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under
FCI's current income distribution and expense allocation formula. Such draw will
be calculated based on FCI's annual budget which shall be prepared with the
input and assistance of Physician and INMD. Any changes in this allocation
requires a majority vote of FCI's shareholders.
FCI will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, FCI 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 FCI 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.
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.
BENEFITS
Physician shall receive such benefits as are historical and consistent with
FCI's practice prior to the INMD-FCI Agreement. The costs of such benefits shall
be consistent with costs typically experienced by INMD in connection with other
medical practices it manages.
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PERSONAL RESPONSIBILITY AGREEMENT
AARON LIFCHEZ, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated February 28,
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"), Fertility Centers of Illinois, S.C., an
Illinois medical corporation ("FCI"), whose principal place of business is 3000
North Halsted Street, Suite 509, Chicago, Illinois 60657, and Aaron Lifchez,
M.D., residing at 29 Regentwood Road, Northfield, Illinois 60093 ("Lifchez").
RECITALS:
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and FCI
A. Lifchez, Brian Kaplan, M.D., Jacob Moise, M.D., and Jorge Valle, M.D.
(collectively, "Physicians") are the sole shareholders of FCI, the entity
through which Physicians exclusively conduct their practice of medicine.
B. Pursuant to the Management Agreement, INMD has transferred to the
Physicians through FCI cash in amount of $6,000,000 and stock in INMD valued at
$2,000,000.
C. The services Physicians have offered and intend to continue offering
through FCI are unique in terms of how these services are rendered and the
relative unavailability of similar services from other physicians, and in terms
of Physicians' reputation, and involve medical, professional and technical
services. Through INMD's resources, the parties intend to maintain and enhance
the technology which Physicians offer through FCI
D. Physicians intend that FCI be the entity through which they henceforth
conduct their practice of medicine, and have each entered into a
Physician-Shareholder Employment Agreement effective of even date with FCI (the
"Employment Agreement"). This Agreement is also made with reference to the
Employment Agreement, which defines Lifchez's and the other Physicians'
respective rights and responsibilities with respect to FCI and their medical
practices, including but not limited to compensation terms and a covenant not to
compete.
E. While it is the objective of the parties to this Agreement and the
Management Agreement that the FCI expand its presence, hire additional and
replacement physicians, and otherwise seek to maintain and establish good will
apart from the continued full-time commitment
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of each of Lifchez and the other Physicians, the parties also acknowledge that
at present the identity of FCI is not institutional, but rather is co-extensive
with the individual practices of its current shareholders.
F. Lifchez recognizes that the success of FCI and of INMD's investment in
administrative and technologic resources depends on his commitment and the
commitment of each of the other Physicians to continue to practice medicine
exclusively through FCI. INMD has made substantial payments to Lifchez and the
other Physicians to assure their availability and dedication to FCI and has made
and plans to make a substantial investment in equipment and other resources for
FCI in reliance on the ability to amortize such investments based on such
assurances from Lifchez and each of the other Physicians.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Lifchez to exerting
his best efforts to support the operation of FCI under its Management Agreement
with INMD. Lifchez acknowledges that each of the Physicians has executed a
similar agreement with INMD.
Therefore, INMD, FCI, and Lifchez agree as follow:
1. Term and Termination. This Agreement shall commence on the effective
date of the Management Agreement and expire five (5) years thereafter (the
"Term").
2. FCI as Representative of Lifchez's Interests. Lifchez acknowledges that
INMD is entering into the Management Agreement with FCI upon Lifchez's
stipulation that FCI represents his entire medical practice. It is agreed,
therefore, that for purposes of assuring continuity of the commitments under the
Management Agreement, that FCI is deemed the alter ego of Lifchez, with specific
rights and responsibilities existing between Lifchez and INMD, as set forth
herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to Article 7 of the Management Agreement, INMD has paid
FCI, for the benefit of Physicians, a Right to Manage Fee in the sum of
$6,000,000 cash and $2,000,000 in INMD stock. If, during the Term of this
Agreement, Lifchez should cease to practice medicine through FCI, except as a
result of death or "permanent disability", as defined in the Employment
Agreement, Lifchez shall be obligated to forthwith pay to INMD a prorata portion
of $1.2 million, determined by multiplying the number of years this Agreement
has been in effect rounded off to the nearest quarter of the year by $240,000
("Vested Amount"). The Vested Amount is then deducted from the $1.2 million
resulting in the amount Lifchez is obligated to pay INMD. Lifchez may pay up to
25% of the sums due INMD under this paragraph in the form of INMD Sock, at the
same price per share FCI received the INMD Stock from INMD. Payments to INMD
under this paragraph shall not entitle Lifchez to any interest in the assets of
FCI or INMD.
3.2 The parties acknowledge that through an effective transition plan,
FCI may add another physician to its practice so that Lifchez's retirement or
other reduction in his availability
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to FCI does not adversely affect INMD revenues under the Management Agreement,
but that there are no assurances of such a transition's success. Lifchez may
request INMD to waive or reduce his repayment obligation by submitting a written
transition plan to INMD for its consideration. Lifchez shall submit such a
transition plan as soon as possible if he plans to reduce his availability to
FCI, 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 Lifchez, FCI, 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 Lifchez'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 Lifchez by FCI and FCI's shareholders. Approval of the
request shall be discretionary for INMD, but shall not be unreasonably withheld.
3.3 Lifchez may assign all or a portion of his payment obligations
under this Section to a new or an existing shareholder of FCI who has executed
the agreements with FCI 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 FCI and in an amendment to this Agreement.
4. FCI's Compliance with the Management Agreement. Lifchez agrees to exert
his best efforts to cause FCI to fulfill each of its obligations under the
Management Agreement.
5. Physician-Shareholder Employment Agreement.
5.1 FCI agrees to exert its best efforts to: (i) comply with the terms
of the Employment Agreement which, if FCI does not comply, would excuse Lifchez
or any of the other Physicians or other physician employees or shareholders of
FCI from complying with his covenant not to compete with FCI, his assignment of
all Professional Revenues to FCI and other terms confirming that physician's
commitment to practicing medicine solely through FCI 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 each of the Physicians and other physician
employees and shareholders of FCI the Exclusive Practice Covenants and Lifchez
agrees to exert his best efforts to cause FCI to comply with each of the
aforementioned obligations.
5.2 FCI and Lifchez further agree that INMD is a third-party
beneficiary of the Exclusive Practice Covenants with respect to Lifchez and the
other Physicians 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 FCI FCI and Lifchez
further agree that the Exclusive Practice Covenants and any other terms of the
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.
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6. Scope of Covenant Not to Compete. Lifchez and FCI agree that the scope
and term of Lifchez's covenant not to compete, insofar as it is for the benefit
of INMD, shall be as follows:
6.1 The term of the covenant not to compete (the Non-Competition
Period") shall be for a period of one (1) year after the termination of the
Employment Agreement in the event such termination occurs during the initial
term of the Employment Agreement. After the Employment Agreement has been in
effect for six (6) years, Lifchez shall not be subject to any non-compete
restrictions.
6.2 The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last 12 months of
Lifchez's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Lifchez agrees that he shall
not advertise or market Infertility Services, engage in the practice of medicine
in which he provides Infertility Services, 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 ten (10) miles of a
Current Medical Office.
6.4 For purposes of this Section, the following definitions shall
apply:
6.4.1 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.
6.4.2 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.
6.4.3 The term "Infertility Services" shall have the same
meaning as set forth in the Management Agreement, except that Lifchez
shall not be prohibited from providing obstetrics and general
gynecological services.
6.5 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
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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.
6.6 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 FCI, provided those services are for patients of FCI, nor
prohibit Physician from fulfilling his contract with FCI, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. FCI, INMD and Lifchez each acknowledges that: (i)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of FCI 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 Lifchez or other disputes under this Agreement or the Employment Agreement;
and (iv) the FCI and INMD have been induced to enter into this Agreement and
their other respective agreements with Lifchez, in part, due to the
representation by Lifchez that he will abide by and be bound by the aforesaid
covenants and restraints.
7. Commitment to Pay Management Fees. Lifchez has agreed in the Employment
Agreement not to compete with FCI during the term of his employment by FCI and
for at least one (1) year thereafter, and recognizes that in the event that he
should compete with FCI, INMD would suffer damages in addition to the loss of
Lifchez's unique services. Lifchez therefore agrees that during the term of his
Employment Agreement with FCI, 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 FCI, or offers
services or assists other persons in offering services in the Service Area which
are similar to any of those offered by FCI while he was still a director,
officer or shareholder of FCI or active in providing services on behalf of FCI,
he shall owe INMD management fees equal to one-twelfth of:
7.1 One-fourth 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 Lifchez was engaging in such competitive acts so as to
materially adversely affect FCI's operations (the "Pre-Competition
Period").
7.2 One-fourth of the Base Management Fee which INMD earned during the
Pre-Competition Period.
7.3 One-fourth of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
5
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7.4 One-fourth of any advances or other payments owed by FCI to INMD
at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of FCI and any breach of FCI's contracts with Lifchez
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. 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 such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
9. 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.
10. Confidential Information. Lifchez acknowledges and agrees to maintain
the confidentiality of INMD and FCI Confidential Information as defined in the
Management Agreement and in any agreements he may have with FCI, 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.
11. 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.
12. 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 Lifchez. 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.
13. 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
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relinquishment of such right at any other time or times.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois 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 Illinois, County of Cook (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, 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 Illnois or the
United States District Court for the Northern District of Illinois, to whose
jurisdiction for such purposes the parties hereby irrevocably consent and
submit.
15. 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.
16. 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.
17. Notices. Any notice or other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service such as Fedex or Airborne Express, prepaid, and shall be deemed
given when received. Any such notice or communciation shall be sent to the
address set forth below:
If for INMD at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Gerardo Canet, President
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With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
If for Lifchez at:
Aaron Lifchez, M.D.
29 Regentwood Road
Northfield, Illinois 60093
If for FCI at:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
Suite 509
Chicago, Illinois 60657
Attention: President
With a copy to:
Norman Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
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.
AARON LIFCHEZ:
_____________________________________
Aaron Lifchez, M.D.
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INTEGRAMED AMERICA, INC.,
By: _________________________________
Gerardo Canet, President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:____________________________________
Aaron Lifchez, M.D., President
9
PERSONAL RESPONSIBILITY AGREEMENT
JACOB MOISE, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated February 28,
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"), Fertility Centers of Illinois, S.C., an
Illinois medical corporation ("FCI"), whose principal place of business is 3000
North Halsted Street, Suite 509, Chicago, Illinois 60657, and Jacob Moise, M.D.
residing at 329 BelAir Drive, Glenview, Illinois 60025 ("Moise")
RECITALS:
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and FCI
A. Moise, Brian Kaplan, M.D., Aaron Lifchez, M.D., and Jorge Valle, M.D.
(collectively, "Physicians") are the sole shareholders of FCI, the entity
through which Physicians exclusively conduct their practice of medicine.
B. Pursuant to the Management Agreement, INMD has transferred to the
Physicians through FCI cash in amount of $6,000,000 and stock in INMD valued at
$2,000,000.
C. The services Physicians have offered and intend to continue offering
through FCI are unique in terms of how these services are rendered and the
relative unavailability of similar services from other physicians, and in terms
of Physicians' reputation, and involve medical, professional and technical
services. Through INMD's resources, the parties intend to maintain and enhance
the technology which Physicians offer through FCI
D. Physicians intend that FCI be the entity through which they henceforth
conduct their practice of medicine, and have each entered into a
Physician-Shareholder Employment Agreement effective of even date with FCI(the
"Employment Agreement"). This Agreement is also made with reference to the
Employment Agreement, which defines Moise's and the other Physicians' respective
rights and responsibilities with respect to FCI and their medical practices,
including but not limited to compensation terms and a covenant not to compete.
E. While it is the objective of the parties to this Agreement and the
Management Agreement that the FCI expand its presence, hire additional and
replacement physicians, and otherwise seek to maintain and establish good will
apart from the continued full-time commitment
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of each of Moise and the other Physicians, the parties also acknowledge that at
present the identity of FCI is not institutional, but rather is co-extensive
with the individual practices of its current shareholders.
F. Moise recognizes that the success of FCI and of INMD's investment in
administrative and technologic resources depends on his commitment and the
commitment of each of the other Physicians to continue to practice medicine
exclusively through FCI INMD has made substantial payments to Moise and the
other Physicians to assure their availability and dedication to FCI and has made
and plans to make a substantial investment in equipment and other resources for
FCI in reliance on the ability to amortize such investments based on such
assurances from Moise and each of the other Physicians.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Moise to exerting his
best efforts to support the operation of FCI under its Management Agreement with
INMD. Moise acknowledges that each of the Physicians has executed a similar
agreement with INMD.
Therefore, INMD, FCI, and Moise agree as follow:
1. Term and Termination. This Agreement shall commence on the effective
date of the Management Agreement and expire five (5) years thereafter (the
"Term").
2. FCI as Representative of Moise's Interests. Moise acknowledges that INMD
is entering into the Management Agreement with FCI upon Moise's stipulation that
FCI represents his entire medical practice. It is agreed, therefore, that for
purposes of assuring continuity of the commitments under the Management
Agreement, that FCI is deemed the alter ego of Moise, with specific rights and
responsibilities existing between Moise and INMD, as set forth herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to Article 7 of the Management Agreement, INMD has paid
FCI, for the benefit of Physicians, a Right to Manage Fee in the sum of
$6,000,000 cash and $2,000,000 in INMD stock. If, during the Term of this
Agreement, Moise should cease to practice medicine through FCI, except as a
result of death or "permanent disability", as defined in the Employment
Agreement, Moise shall be obligated to forthwith pay to INMD the following
amount, based on the quarter of termination:
Quarter of Termination Repayment Amount
---------------------- ----------------
1 $2.0 million
2 $1.9 million
3 $1.8 million
4 $1.7 million
5 $1.6 million
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6 $1.5 million
7 $1.4 million
8 $1.3 million
9 $960,000
10 $880,000
11 $800,000
12 $720,000
13 $640,000
14 $560,000
15 $480,000
16 $400,000
17 $320,000
18 $240,000
19 $160,000
20 $80,000
Moise may pay up to 25% of the sums due INMD under this paragraph in the
form of INMD stock, at the same price per share which FCI received the INMD
Stock from INMD. Payments to INMD under this paragraph shall not entitle Moise
to any interest in the assets of FCI or INMD.
3.2 The parties acknowledge that through an effective transition plan,
FCI may add another physician to its practice so that Moise's retirement or
other reduction in his availability to FCI does not adversely affect INMD
revenues under the Management Agreement, but that there are no assurances of
such a transition's success. Moise may request INMD to waive or reduce his
repayment obligation by submitting a written transition plan to INMD for its
consideration. Moise shall submit such a transition plan as soon as possible if
he plans to reduce his availability to FCI, 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 Moise, FCI, 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 Moise'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 Moise by FCI and
FCI's shareholders. Approval of the request shall be discretionary for INMD, but
shall not be unreasonably withheld.
3.3 Moise may assign all or a portion of his payment obligations under
this Section to a new or an existing shareholder of FCI who has executed the
agreements with FCI 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 FCI and in an amendment to this Agreement.
4. FCI's Compliance with the Management Agreement. Moise agrees to exert
his best efforts to cause FCI to fulfill each of its obligations under the
Management Agreement.
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5. Physician-Shareholder Employment Agreement.
5.1 FCI agrees to exert its best efforts to: (i) comply with the terms
of the Employment Agreement which, if FCI does not comply, would excuse Moise or
any of the other Physicians or other physician employees or shareholders of FCI
from complying with his covenant not to compete with FCI, his assignment of all
Professional Revenues to FCI and other terms confirming that physician's
commitment to practicing medicine solely through FCI 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 each of the Physicians and other physician
employees and shareholders of FCI the Exclusive Practice Covenants and Moise
agrees to exert his best efforts to cause FCI to comply with each of the
aforementioned obligations.
5.2 FCI and Moise further agree that INMD is a third-party beneficiary
of the Exclusive Practice Covenants with respect to Moise and the other
Physicians 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 FCI FCI and Moise further
agree that the Exclusive Practice Covenants and any other terms of the
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. Moise and FCI agree that the scope and
term of Moise's covenant not to compete, insofar as it is for the benefit of
INMD, shall be as follows:
6.1 The term of the covenant not to compete (the Non-Competition
Period") shall be for a period of one (1) year after the termination of the
Employment Agreement in the event the Employment Agreement is terminated within
the first 2 years after its effective date. After the Employment Agreement has
been in effect for two years, Moise shall not be subject to any non-compete
restrictions.
6.2 The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last 12 months of
Moise's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Moise agrees that he shall not
advertise or market Infertility Services, engage in the practice of medicine in
which he provides Infertility Services, 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 ten (10) miles of a Current
Medical Office.
6.4 For purposes of this Section, the following definitions shall
apply:
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6.4.1 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.
6.4.2 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.
6.4.3 The term "Infertility Services" shall have the meaning set
forth in the Management Agreement, except that Moise shall not be
prohibited from providing obstetrics and general gynecological services.
6.5 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.
6.6 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 FCI, provided those services are for patients of FCI, nor
prohibit Physician from fulfilling his contract with FCI, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. FCI, INMD and Moise each acknowledges that: (i)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of FCI 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 Moise or other disputes under this Agreement or the Employment Agreement; and
(iv) the FCI and INMD have been induced to enter into this Agreement and their
other respective agreements with Moise, in part, due to the representation by
Moise that he will abide by and be bound by the aforesaid covenants and
restraints.
7. Commitment to Pay Management Fees. Moise has agreed in the
Employment
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Agreement not to compete with FCI during the term of his employment by FCI and
for at least one (1) year thereafter in the event the Employment Agreement
terminates within its first 2 years, and recognizes that in the event that he
should compete with FCI, INMD would suffer damages in addition to the loss of
Moise's unique services. Moise therefore agrees that during the term of his
Employment Agreement with FCI, 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 FCI, or offers
services or assists other persons in offering services in the Service Area which
are similar to any of those offered by FCI while he was still a director,
officer or shareholder of FCI or active in providing services on behalf of FCI,
he shall owe INMD management fees equal to one-twelfth of:
7.1 One-fourth 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 Moise was engaging in such competitive acts so as to
materially adversely affect FCI's operations (the "Pre-Competition
Period").
7.2 One-fourth of the Base Management Fee which INMD earned during the
Pre-Competition Period.
7.3 One-fourth of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
7.4 One-fourth of any advances or other payments owed by FCI to INMD
at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of FCI and any breach of FCI's contracts with Moise
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. 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 such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
9. 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.
10. Confidential Information. Moise acknowledges and agrees to maintain the
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confidentiality of INMD and FCI Confidential Information as defined in the
Management Agreement and in any agreements he may have with FCI, 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.
11. 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.
12. 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 Moise. 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.
13. 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.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois 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 Illinois, County of Cook (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, 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 Illnois or the
United States District Court for the Northern District of Illinois, to whose
jurisdiction for such purposes the parties hereby irrevocably consent and
submit.
15. 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
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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.
16. 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.
17. Notices. Any notice or other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service such as Fedex or Airborne Express, prepaid, and shall be deemed
given when received. Any such notice or communciation shall be sent to the
address 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
If for Moise at:
Jacob Moise, M.D.
329 BelAir Drive
Glenview, Illinois 60025
If for FCI at:
Fertility Centers of Illinois, S.C.
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3000 North Halsted Street
Suite 509
Chicago, Illinois 60657
Attention: President
With a copy to:
Norman Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
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.
JACOB MOISE:
____________________________________
Jacob Moise, M.D.
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INTEGRAMED AMERICA, INC.,
By: _________________________________
Gerardo Canet, President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:____________________________________
Aaron Lifchez, M.D., President
10
PERSONAL RESPONSIBILITY AGREEMENT
BRIAN KAPLAN, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated February 28,
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"), Fertility Centers of Illinois, S.C., an
Illinois medical corporation ("FCI"), whose principal place of business is 3000
North Halsted Street, Suite 509, Chicago, Illinois 60657, and Brian Kaplan,
M.D., residing at 950 North Michigan Avenue,#2602, Chicago, Illinois 60611
("Kaplan").
RECITALS:
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and FCI
A. Kaplan, Aaron Lifchez, M.D., Jacob Moise, M.D. and Jorge Valle, M.D.
(collectively, "Physicians") are the sole shareholders of FCI, the entity
through which Physicians exclusively conduct their practice of medicine.
B. Pursuant to the Management Agreement, INMD has transferred to the
Physicians through FCI cash in amount of $6,000,000 and stock in INMD valued at
$2,000,000.
C. The services Physicians have offered and intend to continue offering
through FCI are unique in terms of how these services are rendered and the
relative unavailability of similar services from other physicians, and in terms
of Physicians' reputation, and involve medical, professional and technical
services. Through INMD's resources, the parties intend to maintain and enhance
the technology which Physicians offer through FCI
D. Physicians intend that FCI be the entity through which they henceforth
conduct their practice of medicine, and have each entered into a
Physician-Shareholder Employment Agreement effective of even date with FCI(the
"Employment Agreement"). This Agreement is also made with reference to the
Employment Agreement, which defines Kaplan's and the other Physicians'
respective rights and responsibilities with respect to FCI and their medical
practices, including but not limited to compensation terms and a covenant not to
compete.
E. While it is the objective of the parties to this Agreement and the
Management Agreement that the FCI expand its presence, hire additional and
replacement physicians, and
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otherwise seek to maintain and establish good will apart from the continued
full-time commitment of each of Kaplan and the other Physicians, the parties
also acknowledge that at present the identity of FCI is not institutional, but
rather is co-extensive with the individual practices of its current
shareholders.
F. Kaplan recognizes that the success of FCI and of INMD's investment in
administrative and technologic resources depends on his commitment and the
commitment of each of the other Physicians to continue to practice medicine
exclusively through FCI INMD has made substantial payments to Kaplan and the
other Physicians to assure their availability and dedication to FCI and has made
and plans to make a substantial investment in equipment and other resources for
FCI in reliance on the ability to amortize such investments based on such
assurances from Kaplan and each of the other Physicians.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Kaplan to exerting his
best efforts to support the operation of FCI under its Management Agreement with
INMD. Kaplan acknowledges that each of the Physicians has executed a similar
agreement with INMD.
Therefore, INMD, FCI, and Kaplan agree as follow:
1. Term and Termination. This Agreement shall commence on the effective
date of the Management Agreement and expire five (5) years thereafter (the
"Term").
2. FCI as Representative of Kaplan's Interests. Kaplan acknowledges that
INMD is entering into the Management Agreement with FCI upon Kaplan's
stipulation that FCI represents his entire medical practice. It is agreed,
therefore, that for purposes of assuring continuity of the commitments under the
Management Agreement, that FCI is deemed the alter ego of Kaplan, with specific
rights and responsibilities existing between Kaplan and INMD, as set forth
herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to Article 7 of the Management Agreement, INMD has paid
FCI, for the benefit of Physicians, a Right to Manage Fee in the sum of
$6,000,000 cash and $2,000,000 in INMD stock. If, during the Term of this
Agreement, Kaplan should cease to practice medicine through FCI, except as a
result of death or "permanent disability", as defined in the Employment
Agreement, Kaplan shall be obligated to forthwith pay to INMD the following
amount, based on the quarter of termination:
Quarter of Termination Repayment Amount
---------------------- ----------------
1 $2.0 million
2 $1.9 million
3 $1.8 million
4 $1.7 million
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5 $1.6 million
6 $1.5 million
7 $1.4 million
8 $1.3 million
9 $960,000
10 $880,000
11 $800,000
12 $720,000
13 $640,000
14 $560,000
15 $480,000
16 $400,000
17 $320,000
18 $240,000
19 $160,000
20 $80,000
Kaplan may pay up to 25% of the sums due INMD under this paragraph in the
form of INMD stock, at the same price per share which FCI received the INMD
Stock from INMD. Payments to INMD under this paragraph shall not entitle Kaplan
to any interest in the assets of FCI or INMD.
3.2 The parties acknowledge that through an effective transition plan,
FCI may add another physician to its practice so that Kaplan's retirement or
other reduction in his availability to FCI does not adversely affect INMD
revenues under the Management Agreement, but that there are no assurances of
such a transition's success. Kaplan may request INMD to waive or reduce his
repayment obligation by submitting a written transition plan to INMD for its
consideration. Kaplan shall submit such a transition plan as soon as possible if
he plans to reduce his availability to FCI, 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 Kaplan, FCI, 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 Kaplan'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 Kaplan by
FCI and FCI's shareholders. Approval of the request shall be discretionary for
INMD, but shall not be unreasonably withheld.
3.3 Kaplan may assign all or a portion of his payment obligations
under this Section to a new or an existing shareholder of FCI who has executed
the agreements with FCI 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 FCI and in an amendment to this Agreement.
4. FCI's Compliance with the Management Agreement. Kaplan agrees to exert
his best efforts to cause FCI to fulfill each of its obligations under the
Management Agreement.
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5. Physician-Shareholder Employment Agreement.
5.1 FCI agrees to exert its best efforts to: (I) comply with the terms
of the Employment Agreement which, if FCI does not comply, would excuse Kaplan
or any of the other Physicians or other physician employees or shareholders of
FCI from complying with his covenant not to compete with FCI, his assignment of
all Professional Revenues to FCI and other terms confirming that physician's
commitment to practicing medicine solely through FCI 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 each of the Physicians and other physician
employees and shareholders of FCI the Exclusive Practice Covenants and Kaplan
agrees to exert his best efforts to cause FCI to comply with each of the
aforementioned obligations.
5.2 FCI and Kaplan further agree that INMD is a third-party
beneficiary of the Exclusive Practice Covenants with respect to Kaplan and the
other Physicians 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 FCI FCI and Kaplan
further agree that the Exclusive Practice Covenants and any other terms of the
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. Kaplan and FCI agree that the scope
and term of Kaplan's covenant not to compete, insofar as it is for the benefit
of INMD, shall be as follows:
6.1 The term of the covenant not to compete (the Non-Competition
Period") shall be for a period of one (1) year after the termination of the
Employment Agreement in the event the Employment Agreement is terminated within
the first 2 years after its effective date. After the Employment Agreement has
been in effect for two years, Kaplan shall not be subject to any non-compete
restrictions.
6.2 The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last 12 months of
Kaplan's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Kaplan agrees that he shall not
advertise or market Infertility Services, engage in the practice of medicine in
which he provides Infertility Services, 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 ten (10) miles of a Current
Medical Office.
6.4 For purposes of this Section, the following definitions shall
apply:
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6.4.1 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.
6.4.2 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.
6.4.3 The term "Infertility Services" shall have the meaning
set forth in the Management Agreement, except that Kaplan shall not be
prohibited from providing obstetrics and general gynecological
services.
6.5 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.
6.6 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 FCI, provided those services are for patients of FCI, nor
prohibit Physician from fulfilling his contract with FCI, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. FCI, INMD and Kaplan each acknowledges that: (I)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of FCI 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 Kaplan or other disputes under this Agreement or the Employment Agreement;
and (iv) the FCI and INMD have been induced to enter into this Agreement and
their other respective agreements with Kaplan, in part, due to the
representation by Kaplan that he will abide by and be bound by the aforesaid
covenants and restraints.
7. Commitment to Pay Management Fees. Kaplan has agreed in the Employment
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<PAGE>
Agreement not to compete with FCI during the term of his employment by FCI and
for at least one (1) year thereafter in the event the Employment Agreement
terminates within its first 2 years, and recognizes that in the event that he
should compete with FCI, INMD would suffer damages in addition to the loss of
Kaplan's unique services. Kaplan therefore agrees that during the term of his
Employment Agreement with FCI, 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 FCI, or offers
services or assists other persons in offering services in the Service Area which
are similar to any of those offered by FCI while he was still a director,
officer or shareholder of FCI or active in providing services on behalf of FCI,
he shall owe INMD management fees equal to one-twelfth of:
7.1 One-fourth 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 Kaplan was engaging in such competitive acts so as to
materially adversely affect FCI's operations (the "Pre-Competition
Period").
7.2 One-fourth of the Base Management Fee which INMD earned during the
Pre-Competition Period.
7.3 One-fourth of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
7.4 One-fourth of any advances or other payments owed by FCI to INMD
at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of FCI and any breach of FCI's contracts with Kaplan
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. 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 such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
9. 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.
10. Confidential Information. Kaplan acknowledges and agrees to maintain
the
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confidentiality of INMD and FCI Confidential Information as defined in the
Management Agreement and in any agreements he may have with FCI, 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.
11. 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.
12. 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 Kaplan. 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.
13. 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.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois 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 Illinois, County of Cook (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, 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 Illinois or the
United States District Court for the Northern District of Illinois, to whose
jurisdiction for such purposes the parties hereby irrevocably consent and
submit.
15. 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
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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.
16. 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.
17. Notices. Any notice or other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service such as Fedex or Airborne Express, prepaid, and shall be deemed
given when received. Any such notice or communication shall be sent to the
address 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
If for Kaplan at:
Brian Kaplan, M.D.
950 North Michigan Avenue, # 2602
Chicago, Illinois 60611
If for FCI at:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
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Suite 509
Chicago, Illinois 60657
Attention: President
With a copy to:
Norman Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
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.
BRIAN KAPLAN:
_____________________________________
Brian Kaplan, M.D.
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INTEGRAMED AMERICA, INC.,
By: _________________________________
Gerardo Canet, President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:____________________________________
Aaron Lifchez, M.D., President
10
PERSONAL RESPONSIBILITY AGREEMENT
JORGE VALLE, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated February 28,
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"), Fertility Centers of Illinois, S.C., an
Illinois medical corporation ("FCI"), whose principal place of business is 3000
North Halsted Street, Suite 509, Chicago, Illinois 60657, and Jorge Valle, M.D.,
residing at 2125 Hybernia Drive, Highland Park, Illinois 60035 ("Valle").
RECITALS:
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and FCI
A. Valle, Brian Kaplan, M.D., Aaron Lifchez, M.D., and Jacob Moise, M.D.
(collectively, "Physicians") are the sole shareholders of FCI, the entity
through which Physicians exclusively conduct their practice of medicine.
B. Pursuant to the Management Agreement, INMD has transferred to the
Physicians through FCI cash in amount of $6,000,000 and stock in INMD valued at
$2,000,000.
C. The services Physicians have offered and intend to continue offering
through FCI are unique in terms of how these services are rendered and the
relative unavailability of similar services from other physicians, and in terms
of Physicians' reputation, and involve medical, professional and technical
services. Through INMD's resources, the parties intend to maintain and enhance
the technology which Physicians offer through FCI
D. Physicians intend that FCI be the entity through which they henceforth
conduct their practice of medicine, and have each entered into a
Physician-Shareholder Employment Agreement effective of even date with FCI (the
"Employment Agreement"). This Agreement is also made with reference to the
Employment Agreement, which defines Valle's and the other Physicians' respective
rights and responsibilities with respect to FCI and their medical practices,
including but not limited to compensation terms and a covenant not to compete.
E. While it is the objective of the parties to this Agreement and the
Management Agreement that the FCI expand its presence, hire additional and
replacement physicians, and otherwise seek to maintain and establish good will
apart from the continued full-time commitment
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of each of Valle and the other Physicians, the parties also acknowledge that at
present the identity of FCI is not institutional, but rather is co-extensive
with the individual practices of its current shareholders.
F. Valle recognizes that the success of FCI and of INMD's investment in
administrative and technologic resources depends on his commitment and the
commitment of each of the other Physicians to continue to practice medicine
exclusively through FCI. INMD has made substantial payments to Valle and the
other Physicians to assure their availability and dedication to FCI and has made
and plans to make a substantial investment in equipment and other resources for
FCI in reliance on the ability to amortize such investments based on such
assurances from Valle and each of the other Physicians.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Valle to exerting his
best efforts to support the operation of FCI under its Management Agreement with
INMD. Valle acknowledges that each of the Physicians has executed a similar
agreement with INMD.
Therefore, INMD, FCI, and Valle agree as follow:
1. Term and Termination. This Agreement shall commence on the effective
date of the Management Agreement and expire five (5) years thereafter (the
"Term").
2. FCI as Representative of Valle's Interests. Valle acknowledges that INMD
is entering into the Management Agreement with FCI upon Valle's stipulation that
FCI represents his entire medical practice. It is agreed, therefore, that for
purposes of assuring continuity of the commitments under the Management
Agreement, that FCI is deemed the alter ego of Valle, with specific rights and
responsibilities existing between Valle and INMD, as set forth herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to Article 7 of the Management Agreement, INMD has paid
FCI, for the benefit of Physicians, a Right to Manage Fee in the sum of
$6,000,000 cash and $2,000,000 in INMD stock. If, during the Term of this
Agreement, Valle should cease to practice medicine through FCI, except as a
result of death or "permanent disability", as defined in the Employment
Agreement, Valle shall be obligated to forthwith pay to INMD a prorata portion
of $1.2 million, determined by multiplying the number of years this Agreement
has been in effect rounded off to the nearest quarter of the year by $240,000
("Vested Amount"). The Vested Amount is then deducted from the $1.2 million
resulting in the amount Valle is obligated to pay INMD. Valle may pay up to 25%
of the sums due INMD under this paragraph in the form of INMD Sock, at the same
price per share FCI received the INMD Stock from INMD. Payments to INMD under
this paragraph shall not entitle Valle to any interest in the assets of FCI or
INMD.
3.2 The parties acknowledge that through an effective transition plan,
FCI may add another physician to its practice so that Valle's retirement or
other reduction in his availability
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to FCI does not adversely affect INMD revenues under the Management Agreement,
but that there are no assurances of such a transition's success. Valle may
request INMD to waive or reduce his repayment obligation by submitting a written
transition plan to INMD for its consideration. Valle shall submit such a
transition plan as soon as possible if he plans to reduce his availability to
FCI, 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 Valle, FCI, 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 Valle'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 Valle by FCI and FCI's shareholders. Approval of the
request shall be discretionary for INMD, but shall not be unreasonably withheld.
3.3 Valle may assign all or a portion of his payment obligations under
this Section to a new or an existing shareholder of FCI who has executed the
agreements with FCI 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 FCI and in an amendment to this Agreement.
4. FCI's Compliance with the Management Agreement. Valle agrees to exert
his best efforts to cause FCI to fulfill each of its obligations under the
Management Agreement.
5. Physician-Shareholder Employment Agreement.
5.1 FCI agrees to exert its best efforts to: (i) comply with the terms
of the Employment Agreement which, if FCI does not comply, would excuse Valle or
any of the other Physicians or other physician employees or shareholders of FCI
from complying with his covenant not to compete with FCI, his assignment of all
Professional Revenues to FCI and other terms confirming that physician's
commitment to practicing medicine solely through FCI 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 each of the Physicians and other physician
employees and shareholders of FCI the Exclusive Practice Covenants and Valle
agrees to exert his best efforts to cause FCI to comply with each of the
aforementioned obligations.
5.2 FCI and Valle further agree that INMD is a third-party beneficiary
of the Exclusive Practice Covenants with respect to Valle and the other
Physicians 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 FCI FCI and Valle further
agree that the Exclusive Practice Covenants and any other terms of the
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.
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6. Scope of Covenant Not to Compete. Valle and FCI agree that the scope and
term of Valle's covenant not to compete, insofar as it is for the benefit of
INMD, shall be as follows:
6.1 The term of the covenant not to compete (the Non-Competition
Period") shall be for a period of one (1) year after the termination of the
Employment Agreement in the event such termination occurs during the initial
term of the Employment Agreement. After the Employment Agreement has been in
effect for six (6) years, Valle shall not be subject to any non-compete
restrictions.
6.2 The geographic scope of the covenant not to compete (the "Service
Area") is ten (10) miles from any offices maintained by FCI for the rendition of
professional or other medical services to patients during the last 12 months of
Valle's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Valle agrees that he shall not
advertise or market Infertility Services, engage in the practice of medicine in
which he provides Infertility Services, 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 ten (10) miles of a Current
Medical Office.
6.4 For purposes of this Section, the following definitions shall
apply:
6.4.1 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.
6.4.2 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.
6.4.3 The term "Infertility Services" shall have the same meaning
as set forth in the Management Agreement, except that Valle shall not be
prohibited from providing obstetrics and general gynecological services.
6.5 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
4
<PAGE>
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.
6.6 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 FCI, provided those services are for patients of FCI, nor
prohibit Physician from fulfilling his contract with FCI, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. FCI, INMD and Valle each acknowledges that: (i)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of FCI 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 Valle or other disputes under this Agreement or the Employment Agreement; and
(iv) the FCI and INMD have been induced to enter into this Agreement and their
other respective agreements with Valle, in part, due to the representation by
Valle that he will abide by and be bound by the aforesaid covenants and
restraints.
7. Commitment to Pay Management Fees. Valle has agreed in the Employment
Agreement not to compete with FCI during the term of his employment by FCI and
for at least one (1) year thereafter, and recognizes that in the event that he
should compete with FCI, INMD would suffer damages in addition to the loss of
Valle's unique services. Valle therefore agrees that during the term of his
Employment Agreement with FCI, 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 FCI, or offers
services or assists other persons in offering services in the Service Area which
are similar to any of those offered by FCI while he was still a director,
officer or shareholder of FCI or active in providing services on behalf of FCI,
he shall owe INMD management fees equal to one-twelfth of:
7.1 One-fourth 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 Valle was engaging in such competitive acts so as to
materially adversely affect FCI's operations (the "Pre-Competition
Period").
7.2 One-fourth of the Base Management Fee which INMD earned during the
Pre-Competition Period.
7.3 One-fourth of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
5
<PAGE>
7.4 One-fourth of any advances or other payments owed by FCI to INMD
at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of FCI and any breach of FCI's contracts with Valle
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. 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 such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
9. 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.
10. Confidential Information. Valle acknowledges and agrees to maintain the
confidentiality of INMD and FCI Confidential Information as defined in the
Management Agreement and in any agreements he may have with FCI, 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.
11. 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.
12. 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 Valle. 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.
13. 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
6
<PAGE>
relinquishment of such right at any other time or times.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois 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 Illinois, County of Cook (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, 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 Illnois or the
United States District Court for the Northern District of Illinois, to whose
jurisdiction for such purposes the parties hereby irrevocably consent and
submit.
15. 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.
16. 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.
17. Notices. Any notice or other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service such as Fedex or Airborne Express, prepaid, and shall be deemed
given when received. Any such notice or communciation shall be sent to the
address set forth below:
If for INMD at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Gerardo Canet, President
7
<PAGE>
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
If for Valle at:
Jorge Valle, M.D.
2125 Hybernia Drive
Highland Park, Illinois 60035
If for FCI at:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
Suite 509
Chicago, Illinois 60657
Attention: President
With a copy to:
Norman Goldman, Esq.
Goldman & Piersma, P.C.
2833 Lincoln Street
Highland, Indiana 46322-1994
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.
JORGE VALLE:
_____________________________________
8
<PAGE>
Jorge Valle, M.D.
INTEGRAMED AMERICA, INC.,
By: _________________________________
Gerardo Canet, President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:__________________________________
Aaron Lifchez, M.D., President
9
================================================================================
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE PAGE OF PAGES
1 4
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
2. AMENDMENT/MODIFICATION NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQ. NO. 5. PROJECT NO. (If applicable)
P00002 02/11/97 YMECO0-5226-6911
- -----------------------------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE DADA19 7. ADMINISTERED BY (if other than item 6) CODE k29
DIR OF CONTRACTING WALTER REED AMC MARY L. POOLE
ATTN MCHL 2 BLDG T 20 TEL: (202) 782-1416
6825 16TH STREET NW
WASHINGTON DC 20307-5000
- -----------------------------------------------------------------------------------------------------------------------------------
8. NAME AND ADDRESS OF CONTRACTOR Vendor ID: 0003056 [X] 9A. AMENDMENT OF SOLICITATION NO.
(No., street, county, State and ZIP Code)
IVF AMERICA --------------------------------------------------------
9B. DATED (SEE ITEM 11)
ONE MANHATTANVILE RD
PURCHASE NY 10577-2100 --------------------------------------------------------------
X 10A. MODIFICATION OF CONTRACT/ORDER NO.
DADA15-96-C-0009
--------------------------------------------------------
10B. DATED (SEE ITEM 13)
12/06/95
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CODE FACILITY CODE
- --------------------------------------------------------------------------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
- --------------------------------------------------------------------------------
[ ] The above numbered solicitation is amended as set forth in Item 14. The hour
and date specified for receipt of Offers [ ] is extended, [ ] is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 3 and 15, and returning ___ copies of the amendment; (b)
By acknowledging receipt of this amendment on each copy of the offer submitted;
or (c) By separate letter or telegram which includes a reference to the
solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE
RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND
DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this
amendment you desire to change an offer already submitted, such change may be
made by telegram or letter, provided each telegram or letter makes reference to
the solicitation and this amendment, and is received prior to the opening hour
and date specified.
- --------------------------------------------------------------------------------
12. ACCOUNTING AND APPROPRIATION DATA Mod Obligated Amount US $0.00
(If required)
NO COST TO THE GOVERNMENT
- --------------------------------------------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
- --------------------------------------------------------------------------------
[X] A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE
- --- CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN
ITEM 10A.
- --------------------------------------------------------------------------------
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office,
appropriation date, etc.)
- --------------------------------------------------------------------------------
x C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
FAR 52-243-5
- --------------------------------------------------------------------------------
D. OTHER (Specify type of modification and authority)
- --------------------------------------------------------------------------------
E. IMPORTANT: Contractor [ ] is not, [x] is required to sign this document and
return 2 copies to the issuing office.
- --------------------------------------------------------------------------------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
1. Subject modification is issued to incorporate a Novation Agreement by
Far 52-243-5 to change the contractor name from "IVG America, Inc." to
IntegraMed America, Inc. One Manhattanville Road, Purchase, New York
10577-2100.
2. Changed to incorporate in the Statement of Work as cited:
Except as provided herein, all terms and conditions of the document referenced
in item 9A or 10A, as heretofore changed, remains unchanged and in full force
and effect.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Donald S. Wood, Ph.D., Vice President ROLAND THOMAS K63
- ---------------------------------------------------------------------------------------------------------------
15B. CONTRACTOR/OFFEROR 15C. DATE SIGNED 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED
/s/ Donald S. Wood Mar. 17, 1997 By /s/ Roland Thomas 3/31/97
----------------------- -------------------------
(Signature of person (Signature of Contracting
authorized to sign) Officer)
===============================================================================================================
</TABLE>
<PAGE>
SF 30 CONTINUATION SHEET
2a. Paragraph C.1.a.3, The Government will furnish supplies to include
(transfer Catheters) at no cost to the Contractor.
2b. Paragraph C.1.a.7, The Government (Walter Reed Army Medical Center) will
not be liable for losses due to a Mission essential activities, or damage
to physical facility.
2c. Paragraph C.1.a.9, The Contractor must provide two (2) RN's to serve as
coordinators.
2d. Paragraph C.1.b.5, The Government (WRAMC) will also provide Gonadotrogains
at no cost to the Contractor.
3. Changed to incorporate in Section-F, Paragraph F.2, Performance:
1. Paragraph-1. Services must be performed and available seven (7) days a
week and during all holidays an IV Cycle.
1a. Paragraph-2. Services is changed to "several cycles over an
approximate 30 week period."
1b. Paragraph-3. Deleted option period 01 November thru 30 November.
4. First option period 01 January 1997 thru 31 December 1997, The directed
cost to patient is changed one each line items as cited no cost to the
Government:
1. Line Item #0002aa is changed to: $2350.00 per unit price
2. Line Item #0002ab is changed to: $4350.00 per unit price
3. Line Item #0002ac is changed to: $2000.00 per unit price
4. Line Item #0002ad is changed to: $250.00 per unit price
/////////////////////////////////Last item/////////////////////////////////////
2
<PAGE>
SUPPLIES OR SERVICES AND PRICES/COSTS
Contractor to supply all labor, materials, equipment, and supervision for
developing and staffing an In Vitro Fertilization/Gamete Intra Fallopian
Transfer Laboratory at Walter Reed Army Medical Center. All work shall be
performed in accordance with the Statement of Work and all terms and conditions
of the Contract.
<TABLE>
<CAPTION>
ITEM DESCRIPTION QUANTITY U/I UNIT PRICE AMOUNT
- ---- ----------- -------- --- ---------- ------
<C> <S> <C> <C> <C> <C>
0001 BASE YEAR
01 JANUARY 1996 THRU 31 DECEMBER 1996
0001AA BASIC In Vitro Fertilization (IVF) 300.00 EA 0.000000 0.00
0001AB BASIC IVF PLUS INTRACYTOPLASMIC 30.00 EA 0.000000 0.00
INJECTION (ICSI)
0001AC GAMETE INTRAFALLOPIAN TRANSFER (GIFT) 60.00 EA 0.000000 0.00
0001AD BASIC IVF PLUS ASSISTED HATCHING 100.00 EA 0.000000 0.00
0001AE CRYOPRESERVATION OF EMBRYOS 200.00 EA 0.000000 0.00
0001AF STORAGE OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0001AG THAWING OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0002 FIRST OPTION PERIOD 1 JANUARY 1997 THRU
31 DECEMBER 1997
0002AA BASIC IVF 300.00 EA 0.000000 0.00
0002AB BASIC IVF PLUS INTRACYTOPLASMIC 30.00 EA 0.000000 0.00
INJECTION (ICSI)
0002AC GAMETE INTRAFALLOPIAN TRANSFER (GIFT) 60.00 EA 0.000000 0.00
0002AD BASIC IVF PLUS ASSISTED HATCHING 100.00 EA 0.000000 0.00
0002AE CRYOPRESERVATION OF EMBRYOS 200.00 EA 0.000000 0.00
0002AF STORAGE OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0002AG THAWING OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0003 SECOND OPTION PERIOD 01 JANUARY 1998
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ITEM DESCRIPTION QUANTITY U/I UNIT PRICE AMOUNT
- ---- ----------- -------- --- ---------- ------
<C> <S> <C> <C> <C> <C>
0003 no
0003 no
0003 (Continued)
THRU 31 DECEMBER 1998
0003AA BASIC IVF 300.00 EA 0.000000 0.00
0003AB BASIC IVF PLUS INTRACYTOPLASMIC 30.00 EA 0.000000 0.00
INJECTION (ICSI)
0003AC GAMETE INTRAFALLOPIAN TRANSFER (GIFT) 60.00 EA 0.000000 0.00
0003AD BASIC IVF PLUS ASSISTED HATCHING 100.00 EA 0.000000 0.00
0003AE CRYOPRESERVATION OF EMBRYOS 200.00 EA 0.000000 0.00
0003AF STORAGE OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0003AG THAWING OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0004 THIRD OPTION PERIOD
01 JANUARY 1999 THRU 31 DECEMBER 1999
0004AA BASIC IVF 300.00 EA 0.000000 0.00
0004AB BASIC IVF PLUS INTRACYTOPLASMIC 30.00 EA 0.000000 0.00
INJECTION (ICSI)
0004AC GAMETE INTRAFALLOPIAN TRANSFER (GIFT) 60.00 EA 0.000000 0.00
0004AD BASIC IVF PLUS ASSISTED HATCHING 100.00 EA 0.000000 0.00
0004AE CRYOPRESERVATION OF EMBRYOS 200.00 EA 0.000000 0.00
0004AF STORAGE OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
0004AG THAWING OF CRYOPRESERVED EMBRYOS 200.00 EA 0.000000 0.00
</TABLE>
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
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>
December 31,
-----------------------------------------------------
Primary 1996 1995 1994 1993 1992
- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net (loss) income ............................. $(1,490) $ 70 $ (814) $(4,597) $(1,956)
Less: Dividends accrued and/or paid
on Preferred Stock............................. (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 ................. $(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 ...................... $(4,914) $ (530) $(1,960) $(5,345) $(1,927)
======= ====== ======= ======= =======
Net loss per share of Common Stock
before consideration for induced
conversion of Preferred Stock ................. $ (0.21) $(0.09) $ (0.32) $ (2.01) $ (0.94)
Assumed per share value of
conversion inducement.......................... 0.47 -- -- -- --
------- ------ ------- ------- -------
Net loss per share of Common Stock............. $ (0.68) $ (.09) $ (0.32) $ (2.01) $ (0.94)
======= ====== ======= ======= =======
Weighted average number of shares
of Common Stock outstanding.................... 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
options and warrants using average
or ending market price ........................ -- -- -- -- 35
------- ------ ------- ------- -------
Average number of common stock
and common stock equivalents outstanding ...... 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>
December 31,
-----------------------------------------------------
Fully Diluted 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net (loss) income applicable to
Common Stock before consideration for
induced conversion of Preferred Stock.......... $(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.............. $(4,782) $ 70 $ (814) $(4,597) $(1,927)
======= ====== ====== ======= =======
Weighted average number of shares
of Common Stock outstanding ................... 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 options
and warrants using average or
ending market price ........................... 197 508 27 46 35
Shares of Common Stock issued upon
assumed conversion of
Preferred Stock ............................... 250 980 989 2,200 --
------- ------ ------ ------- -------
Average number of shares of Common
Stock and Common Stock
equivalents outstanding ....................... 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 ................. $ (0.18) $ 0.01 $(0.11) -- $ (0.94)
Assumed per share value of
conversion inducement.......................... 0.47 -- -- -- --
------- ------ ------ ------- -------
Net loss per share of Common Stock
and Common Stock Equivalents .................. $ (0.65) $ 0.01 $(0.11) $ (0.94) $ (0.94)
======= ====== ====== ======= =======
</TABLE>
