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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 0-20260
Commission File No. 1-11440
INTEGRAMED AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1150326
(I.R.S. Employer Identification No.)
One Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip Code)
(914) 253-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Series A Cumulative Convertible Preferred Stock, $1.00 par value
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CRF ss. 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K [ ]
Aggregate market value of voting stock (Common Stock, $.01 par value and
Preferred Stock, $1.00 par value) held by non-affiliates of the Registrant was
approximately $33.5 million on March 19, 1998 based on the closing sale price of
the Common Stock and Preferred Stock on such date.
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding was approximately 21,344,423 on March 19, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
Registrant's definitive proxy statement for the fiscal year ended December
31, 1997 to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and the Exhibit Index hereto.
PART I
ITEM 1. Business
Company Overview
IntegraMed America, Inc. (the "Company") is a physician practice management
company specializing in women's reproductive health care, with a focus on
infertility and assisted reproductive technology ("ART") services. The Company
provides comprehensive management services to a nationwide network of medical
providers currently consisting of twelve 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.
The Company operates under 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.
Currently, there are eleven Network Sites in the RSC Division (the "Reproductive
Science Centers") with twenty-three locations in ten states and the District of
Columbia. Currently, there is one Network Site with two locations under the AWM
Division which commenced operations in June 1996.
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
1996 were over $1,035 billion, with approximately $202 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 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
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provides physician groups 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.
The trends that are leading physicians to affiliate with physician practice
management companies are magnified in the field of reproductive medicine 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 in 1995 approximately 10% of women between the ages of 15 and 44,
or 6.1 million women, had impaired fertility. According to industry sources,
annual expenditures relating to infertility services exceed $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 1,500 infertility specialists of which approximately 600 are
reproductive endocrinologists. There are approximately 400 facilities providing
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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.
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 20 million peri-menopausal women (ages
40-50) and approximately 39 million post-menopausal women (over age 50). An
additional 42 million women in the United States will reach age 50 over the next
20 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 reproductive health care services. The primary elements
of the Company's strategy include (i) establishing additional Network Sites,
(ii) increasing revenues at the Network Sites, (iii) increasing operating
efficiencies at the Network Sites, (iv) developing a nationwide integrated
information system and (v) further developing the AWM Division.
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 specializing in infertility and ART services. The Company
will primarily focus its acquisition activities on larger group practices
operating in major cities, as Medical Practices providing infertility and ART
services require high fixed overhead which smaller physician group practices
(two physicians) and sole practitioners have difficulty in supporting. The
Company believes that a number of beneficial factors will contribute to the
successful expansion of its network. These factors include (i) the high quality
reputation of the Company in providing management services in the areas of
infertility and ART services, (ii) the Company's experience and expertise in
increasing revenues and lowering costs at its Medical Practices, (iii) the
Company's success in improving patient outcomes by providing management services
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to its Medical Practices and (iv) the Company's affiliations and relationships
with leading academic institutions, health care companies and managed care
organizations and other third-party payors.
Increasing Revenues at the Network Sites
The Company intends to increase revenues derived under its management
agreements by assisting the Medical Practices in (i) adding additional
physicians to achieve multi-physician group practices with sizable market
presence, (ii) adding services offered at the Medical Practices which have
previously been outsourced, such as laboratory and ART services, (iii)
increasing marketing and practice development efforts and (iv) increasing the
participation of the Medical Practices in clinical trials of new drugs under
development.
Increasing Operating Efficiencies at the Network Sites
The Company intends to increase the operating efficiencies of its Network
Sites. 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.
Developing a Nationwide, Integrated Information System
The Company plans to utilize its established base of Network Sites to
develop a nationwide, integrated information system to collect and analyze
clinical, patient, administrative and financial data. The Company believes it
will be able to use this data to control expenses, measure patient outcomes,
improve patient care, develop and manage utilization rates and maximize
reimbursements. The Company also believes an integrated information system will
allow the Medical Practices to more effectively compete for and price managed
care contracts, in large part because an information network can provide these
managed care organizations with access to patient outcomes and cost data.
Further Developing the AWM Division
With the establishment of its current AWM Network Site, the Company has
developed a clinical care model, which it is still refining, 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 seek
to enter into long-term management agreements with hospitals pursuant to which
the Company would assist hospitals so that they may offer a multidisciplinary
approach for the treatment of peri- and post-menopausal women. 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.
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Management Services
The Company provides comprehensive management services to support the
Medical Practices. 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.
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, which the Company is still refining, 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
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program has contributed to improved pregnancy rates at the RSC Network Sites.
Physicians at the Medical Practices also can access a number of customized
practice and research based systems designed by the Company for analyzing
clinical data.
Access to Technology
By affiliating with the Company's network, Medical Practices gain access to
advanced technologies, as well as diagnostic and clinical procedures. For
example, through participation in clinical trials of new drugs under development
for major pharmaceutical companies, Medical Practices have the opportunity to
apply technologies developed in a research environment to the clinical setting.
Additionally, participation in clinical trials gives Medical Practices
preferential involvement in cutting edge therapies and provide these practices
with an additional source of revenue. Furthermore, the Company sponsors research
conducted at leading ART programs, including Monash University, Australia.
The Network Sites
Each of the Company's Network Sites consists of a location or locations
where the Company has a management agreement with a Medical Practice, which in
turn employs the physicians or where, in the case of the AWM Network Site, the
Company owns the Medical Practice and directly employs the physicians. 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 twelve Network
Sites with 25 locations in eleven states and the District of Columbia and 58
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
------------ ---- --------- ------------- -------------
RSC DIVISION
<S> <C> <C> <C> <C>
Reproductive Science Center of Boston........ Waltham, MA 2 5 July 1988
Reproductive Science Associates.............. Mineola, NY 2 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 1 7 May 1995
Reproductive Science Associates.............. Kansas City, MO 1 1 November 1995
Reproductive Science Center of Walter Reed
Army Medical Center........................ Washington, DC 1 7 December 1995
Reproductive Science Center of Dallas........ Carrollton, TX 1 1 May 1996
Reproductive Science Center of the Bay Area
Fertility and Gynecology Medical Group..... San Ramon, CA 1 3 January 1997
Reproductive Sciences Medical
Center of San Diego........................ La Jolla, CA 1 1 June 1997
Fertility Centers of Illinois, S.C........... Chicago, IL 8 9 August 1997
Shady Grove Fertility Centers................ Rockville, MD
Annandale, VA
Washington, DC 4 6 March 1998
AWM DIVISION
Women's Medical & Diagnostic Center......... Gainesville, FL 2 3 June 1996 (2)
</TABLE>
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(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) Represents the date of acquisition of the AWM Network Site.
Recent Acquisitions
In January 1997, the Company acquired certain assets of Bay Area Fertility
and acquired the right to manage the Bay Area Fertility and Gynecology Medical
Group, Inc., a California professional corporation which is the successor to Bay
Area Fertility's medical practice. The aggregate purchase price was
approximately $2.1 million, consisting of $1.5 million in cash and 333,333
shares of Common Stock. The majority of the purchase price was allocated to
exclusive management rights.
In June 1997, the Company acquired certain assets of and the right to
manage Reproductive Sciences Medical Center, Inc. ("RSMC"), a California
professional corporation located near San Diego, CA (the "San Diego
Acquisition"). The aggregate purchase price for the San Diego Acquisition was
approximately $900,000, consisting of $50,000 in cash and 145,454 shares of
Common Stock payable at closing and $650,000 payable upon the achievement of
certain specified milestones, at RSMC's option, in cash or in shares of the
Company's Common Stock, based on the closing market price of the Common Stock on
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the third business day prior to issuance. On March 10, 1998, the Company
received notice from RSMC claiming that the Company has materially breached its
management agreement with RSMC and demanding that the alleged breaches be
remedied. Contrary to RSMC's assertions, the Company believes both that it has
materially performed its obligations under the management agreement with RSMC
and that RSMC has materially breached its obligations to the Company under the
management agreement, as well as other agreements with the Company. While the
Company continues to perform, it is endeavoring to submit the dispute to binding
arbitration, which is the governing dispute-resolution process required under
the management agreement, and may be compelled to seek rescission of all
agreements with RSMC. The Company can offer no assurance that resolution of this
matter will not result in the termination of the management agreement or
otherwise adversely impact the Company.
In August 1997, the Company acquired certain fixed assets of and the right
to manage Fertility Centers of Illinois, S.C. ("FCI"), a physician group
practice comprised of six physicians and six locations in the Chicago, Illinois
area. The aggregate purchase price was approximately $8.6 million, consisting of
approximately $6.6 million in cash and 1,009,464 shares of Common Stock.
Approximately $8.0 million of the aggregate purchase price was allocated to
exclusive management rights and $559,000 was allocated to certain fixed assets.
Simultaneous with closing on the FCI transaction, the Company, on behalf of
FCI, completed its first in-market merger with the addition of Edward L. Marut,
MD to the FCI practice. The aggregate purchase price was $803,000 in cash, of
which $750,000 was allocated to exclusive management rights and $53,000 was
allocated to certain fixed assets.
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the FCI practice. The Company acquired certain
assets of Advocate Medical Group, S.C. ("AMG") and Advocate MSO, Inc. and
acquired the right to manage AMG's infertility practice conducted under the name
Center for Reproductive Medicine ("CFRM"). Simultaneous with closing on this
transaction, the Company amended its management agreement with FCI to include
two of the three physicians practicing under the name CFRM. The aggregate
purchase price was approximately $1.5 million, consisting of approximately $1.2
million in cash and 184,314 shares of Common Stock. The majority of the purchase
price was allocated to exclusive management rights.
In March 1998, the Company acquired the majority of the capital stock of
Shady Grove Fertility Centers, Inc. ("Shady Grove"), currently a Maryland
business corporation which provides management services, and formerly a Maryland
professional corporation engaged in providing infertility services. Prior to the
closing of the transaction, Shady Grove had entered into a twenty-year
management agreement with Levy, Sagoskin and Stillman, M.D., P.C. (the "Shady
Grove P.C."), an infertility physician group practice comprised of six
physicians and four locations surrounding the greater Washington, D.C. area. The
Company will acquire the balance of the Shady Grove capital stock on or about
November 1, 1998. The aggregate purchase price for all of the Shady Grove
capital stock was approximately $5.7 million, consisting of approximately $2.8
million in cash, $1.4 million in Common Stock, and $1.5 million in promissory
notes. The purchase price was allocated to the various assets and liabilities
assumed and the balance was allocated to exclusive management rights.
In regard to the shares of Company Common Stock issued in the above
transactions, with the exception of the shares issued in the Bay Area Fertility
transaction, Gerardo Canet, President and Chief Executive Officer of the
Company, was granted a voting proxy with respect to (i) the election of
Directors or any amendment to the Company's Certificate of Incorporation
affecting Directors and (ii) any change in stock options for management and
directors for a two-year period from each transaction's respective closing date.
The Company is evaluating and is engaged in discussions with regard to
several potential acquisitions. However, 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.
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Clinical and Medical Services
RSC Network Sites
The RSC Network Sites offer conventional infertility and ART services and
either have, or subcontract with, 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.
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 and sperm programs. IVF is performed by combining an egg and sperm in
a laboratory and, if fertilization is successful, transferring the resulting
embryo into the woman's uterus. GIFT is performed by inserting an egg and sperm
directly into a woman's fallopian tube with a resulting embryo floating into the
uterus. ZIFT and TET are procedures in which an egg is fertilized in the
laboratory and the resulting embryo is then transferred to the woman's fallopian
tube. ZIFT and TET are identical except for the timing of the transfer of the
embryo. FET is a procedure whereby previously harvested embryos are transferred
to the woman's uterus. Women who are unable to produce eggs but who otherwise
have normal reproductive systems can use the donor egg program in which a donor
is recruited to provide eggs for fertilization that are transferred to the
recipient woman. Current techniques used in connection with ART services include
intra-cytoplasmic sperm injection, assisted hatching and cryopreservation of
embryos.
Development of New Clinical Services
Since 1989, the Company has sponsored research by Monash University in
Melbourne, Australia ("Monash") relating to the development of new ART services
and techniques. In July 1995, the Company entered into a three-year agreement
with Monash University which provides for Monash to conduct research in ART and
human fertility to be funded by a minimum annual payment of 220,000 Australian
dollars by the Company, the results to be jointly owned by the Company and
Monash. If certain milestones are met as specified in the agreement, the
Company's annual payment may be a maximum of 300,000 Australian dollars in year
two and 380,000 Australian dollars in year three. Minimum payments of 55,000
Australian dollars and payments for the attainment of certain research
milestones will be made quarterly throughout the term of the agreement from July
1, 1995 until June 30, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." This research led to the world's first birth of a healthy infant
from immature oocyte (egg) technology in 1994. Immature oocyte services involve
using transvaginal ultrasound-guided aspiration to obtain immature oocytes from
a woman's ovaries, maturing and fertilizing of the oocytes in vitro and
transferring one or more of the resulting embryos into the woman's uterus for
development of a possible pregnancy. The Company anticipates that this
technology may, in certain circumstances, facilitate treatment of infertility by
stimulating follicular development without the use of drugs.
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The Company also has sponsored research by Genzyme Genetics, a division of
Genzyme Corp., relating to preimplantation embryo genetic testing (the fusion of
advances in genetic testing and embryology). Pursuant to the terms of the
agreement, each party was required to fund certain costs relating to the
research projects as well as to contribute up to an aggregate of $300,000 to
fund the joint development program. This agreement terminated in December 1996.
The Company retains the right to technology developed prior to the termination.
The Company believes that preimplantation embryo genetic testing could
potentially offer infertile couples utilizing ART services a higher probability
of the birth of a healthy baby after fertilization, as well as offer fertile
couples at high risk of transmitting a genetic disorder the option to utilize
ART services to achieve pregnancy with a higher degree of certainty that the
fetus will be free of the genetic disorder for which it was tested.
Laboratory Services
All of the RSC Network Sites either have, or subcontract with, a
state-of-the-art laboratory for the Medical Practice 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 initial clinical care model
for future AWM Network Sites, although it is still undergoing development. 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 AWM Division concentrates its efforts in the following three areas: clinical
care, clinical research and educational programs.
Clinical Care
The AWM Division has adopted a clinical care model based on the fact that
the health risk factors of peri- and post- menopausal women can be objectively
measured and once identified, treated. Clinical services include complete
cardiovascular assessment, urodynamic analysis, bone densitometry, hormone
replacement therapy, physical therapy, exercise stress testing, nutrition
assessment/dietary recommendation, psychological/sexual counseling, as well as
mammography and laboratory tests designed to provide early detection of cancers
of the breast, colon and reproductive organs. Clinical services are provided at
the AWM Network Site by physicians and health professionals who specifically
focus on peri-and post-menopausal women.
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. 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.
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
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and products designed specifically for the needs of adult women. 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 25 years
and are generally subject to termination due to insolvency, bankruptcy or
material breach of contract. Generally, no shareholder of the Medical Practice
may assign his interest in the Medical Practice without the Company's prior
written consent.
The management agreements provide that all patient medical care at a
Network Site is provided by the physicians at the Medical Practice and that the
Company generally is responsible for the management and operation of all other
aspects of the Network Site. The Company provides the equipment, facilities and
support necessary to operate the Medical Practice and employs substantially all
such other non-physician personnel as are necessary to provide technical,
consultative and administrative support for the patient services at the Network
Site. Under certain management agreements, the Company is committed to provide a
clinical laboratory. Under the management agreements, the Company may also
advance funds to the Medical Practice to provide new services, utilize new
technologies, fund projects, purchase the net accounts receivable, provide
working capital or fund mergers with other physicians or physician groups.
Under the Company's current form of management agreement, which is in use
at seven 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 generally equal to 6%; (ii) reimbursed costs of services (costs
incurred in managing a Network Site and any costs paid on behalf of the Network
Site); and (iii) a fixed or variable percentage of earnings after the Company's
management fees and any guaranteed physician compensation, or an additional
fixed or variable percentage of net revenues which generally results in the
Company receiving up to an additional 15% of net revenues.
Under another form of management agreement, which had been in use at two
Network Sites during 1997, the Company recorded all patient service revenues
and, out of such revenues, the Company paid the Medical Practices' expenses,
physicians' and other medical compensation, direct materials and certain
hospital contract fees. Specifically, under the management agreement for the
Boston Network Site, the Company guaranteed a minimum physician compensation
based on an annual budget jointly determined by the Company and the physicians.
Remaining revenues, if any, which represented the Company's management fees,
were used by the Company for other direct administrative expenses which were
recorded as costs of services. Under the management agreement for the Long
Island Network Site, the Company's management fee was payable only out of
remaining revenues, if any, after the payment of all expenses of the Medical
Practice. Under these arrangements, the Company had been liable for payment of
all liabilities incurred by the Medical Practices and had been at risk for any
losses incurred in the operation thereof. Effective in October 1997 and January
1998, due to changes in the management agreements related to the Long Island and
Boston Network Sites, respectively, the Company will no longer display patient
service revenues of the Long Island and Boston Medical Practices in "Revenues,
net" in the Company's consolidated statement of operations. The revised
management agreements provide for the Company to receive a specific management
fee which the Company will report in "Revenues, net" in its consolidated
statement of operations. Under the revised management agreement for the Long
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Island Network Site, as compensation for its management services the Company
will receive a fixed fee (initially equal to $345,000 per annum), subject to
annual increases, plus reimbursed costs of services. Under the revised
management agreement for the Boston Network Site, as compensation for its
management services the Company will receive a three- part management fee
consistent to the majority of the Company's existing management agreements. The
revised agreements provide for increased incentives and risk-sharing for the
Company's affiliated Medical Providers.
In addition, two of the Company's Network Sites are affiliated with medical
centers. Under one of these management agreements, the Company primarily
provides endocrine testing and administrative and finance services for a fixed
percentage of revenues, equal to 15% of net revenues, and reimbursed costs of
services. Under the second of these management agreements, the Company's
revenues are derived from certain ART laboratory services performed; the Company
directly bills patients for these services, and out of these revenues, the
Company pays its direct costs.
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.
Personal Responsibility Agreements
Commencing with management agreements entered into during 1997, 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 of the Medical Practice. If the physician should cease to practice
medicine through the respective contracted Medical Practice during the first
five years of the related management agreement, except as a result of death or
permanent disability, the PR Agreement obligates the physician to repay a
ratable portion of the fee paid by the Company to the Medical Practice for the
exclusive right to manage such Medical Practice. The PR Agreement also contains
covenants for the physician not to compete with the Company during the term of
his or her employment agreement with the Medical Practice and for a certain
period thereafter.
Affiliate Care/Satellite Service Agreements
Medical Practices at the Network Sites may also have affiliate care
agreements and satellite service agreements with physicians who are not employed
by the Medical Practices or the Company located in the geographic area of the
Network Sites. Under an affiliate care agreement, the Medical Practice contracts
with a physician for the Medical Practice to provide certain ART services for
the physician's patients. Under a satellite service agreement, the Medical
Practice contracts with a physician for such physician to provide specific
services for the Medical Practice's patients, such as ultrasound monitoring,
blood drawing and endocrine testing.
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Reliance on Third-Party Vendors
The RSC Network Sites are dependent on three third-party vendors that
produce fertility medications (Lupron, Metrodin and Fertinex) that are vital to
the provision of infertility and ART services. Should any of these vendors
experience a supply shortage, it may have an adverse impact on the operations of
the RSC Network Sites. To date, the RSC Network Sites have not experienced any
such adverse impacts.
Competition
The business of providing health care services is intensely competitive, as
is the physician practice management industry, and each is continuing to evolve
in response to pressures to find the most cost-effective method of providing
quality health care. The Company experiences competitive pressures for the
acquisition of the assets of, and the provision of management services to,
additional physician practices. Although the Company focuses on physician
practices that provide infertility, ART and adult women's reproductive 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 current 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, physician 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 in the areas of infertility and ART services
is largely based on pregnancy rates and other patient outcomes. Accordingly, the
ability of a Medical Practice to compete is largely dependent on its ability to
achieve adequate pregnancy rates and patient satisfaction levels.
A number of physician practice management companies have emerged with a
focus on routine obstetrics and gynecology. In addition, other health care
corporations, medical providers and physician practice management companies may
decide to enter into the adult women's health care market, particularly if the
Company's concept to establish a multi-disciplinary approach to treat peri- and
post-menopausal women gains market acceptance. In addition, private practice
physician groups often contract with pharmaceutical companies to perform
clinical trials relating to women's health care. These physician group practices
compete with the AWM Network Site in obtaining contracts for clinical trials.
Effects of Third-Party Payor Contracts
Traditionally, ART services have been paid for directly by patients and
conventional infertility services have been largely covered by indemnity
insurance or managed care payors. Currently, there are several states that
mandate offering certain benefits of varying degrees for infertility and ART
services. In some cases, the mandate is limited to an obligation on the part of
the payor to offer the benefit to employers. In Massachusetts, Rhode Island,
Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage of
conventional infertility services as well as certain ART services.
Over the past few years much attention has been focused on clinical
outcomes in managed care. Infertility is a disorder which naturally lends itself
to developing a managed care plan. First, infertility has a clearly defined
endpoint: an infertile couple either conceives or does not conceive. Second, the
treatment regimens and protocols used for treating infertile couples have
predictable outcomes that make it possible to develop statistical tables for the
probability of success. Third, it is possible to develop rational treatment
plans over a limited period of time for infertile couples. However, there can be
no assurance that third-party payors will increase reimbursement coverage for
ART services.
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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 California, Massachusetts and Illinois, have greater than 50% of
their costs reimbursed by their health care insurance carrier. In California,
the majority of the patient costs are not reimbursed. In Massachusetts and
Illinois, where comprehensive infertility and ART services insurance
reimbursement is mandated, virtually all patient costs are reimbursed.
The majority of diagnostic and therapeutic services offered through the
Company's AWM Division are currently covered by third-party payors. As these
services emphasize prevention and screening, the Company believes that they will
continue to be covered by third-party payors.
Government Regulation
As a participant in the health care industry, the Company's operations and
its relationships with the Medical Practices are subject to extensive and
increasing regulation by various governmental entities at the federal, state and
local levels. The Company believes its operations and those of the Medical
Practices are in material compliance with applicable health care laws.
Nevertheless, the laws and regulations in this area are extremely complex and
subject to changing interpretation and many aspects of the Company's business
and business opportunities have not been the subject of federal or state
regulatory review or interpretation. Accordingly, there is no assurance that the
Company's operations have been in compliance at all times with all such laws and
regulations. In addition, there is no assurance that a court or regulatory
authority will not determine that the Company's past, current or future
operations violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, there could
be a material adverse effect on the Company's business, financial condition and
operating results. There can be no assurance that such laws will be interpreted
in a manner consistent with the Company's practices. There can be no assurance
that a review of the Company or the Medical Practices by courts or regulatory
authorities will not result in a determination that would require the Company or
the Medical Practices to change their practices. There also can be no assurance
that the health care regulatory environment will not change so as to restrict
the Company's or the Medical Practices' existing operations or their expansions.
Any significant restructuring or restriction could have a material adverse
effect on the Company's business, financial condition and operating results.
Corporate Practice of Medicine Laws. The Company's operations in
Massachusetts, New York, New Jersey, Pennsylvania, District of Columbia, Texas,
California, Illinois, Maryland and Virginia may be subject to prohibitions
relating to the corporate practice of medicine. The laws of these states
prohibit corporations other than professional corporations or associations from
practicing medicine or exercising control over physicians, and prohibit
physicians from practicing medicine in partnership with, or as employees of, any
person not licensed to practice medicine and may prohibit a corporation other
than professional corporations or associations (or, in some states, limited
liability companies) from acquiring the goodwill of a medical practice. In the
context of management contracts between a corporation not authorized to practice
medicine and the physicians or their professional entity, the laws of most of
these states focus on the extent to which the corporation exercises control over
the physicians and on the ability of the physicians to use their own
professional judgment as to diagnosis and treatment. The Company believes its
operations are in material compliance with applicable state laws relating to the
corporate practice of medicine. The Company performs only non-medical
administrative services, and in certain circumstances, clinical laboratory
services. The Company does not represent to the public that it offers medical
services, and the Company does not exercise influence or control over the
practice of medicine by physicians with whom it contracts in these states. In
each of these states, the Medical Practice is the sole employer of the
physicians, and the Medical Practice retains the full authority to direct the
medical, professional and ethical aspects of its medical practice. However,
although the Company believes its operations are in material compliance with
applicable state corporate practice of medicine laws, the laws and their
interpretations vary from state to state, and they are enforced by regulatory
authorities that have broad discretionary authority. There can be no assurance
that these laws will be interpreted in a manner consistent with the Company's
practices or that other laws or regulations will not be enacted in the future
that could have a material adverse effect on the Company's business, financial
condition and operating results. If a corporate practice of medicine law is
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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. In addition, expansion of the Company's
operations to new jurisdictions could require structural and organizational
modifications of the Company's relationships with the Medical Practices in order
to comply with additional state statutes.
Fee-Splitting Laws. The Company's operations in the states of New York,
California and Illinois are subject to express fee-splitting prohibitions. The
laws of these states prohibit physicians from splitting professional fees with
non- physicians and health care professionals not affiliated with the physician
performing the services generating the fees. In New York, this prohibition
includes any fee the Company may receive from the Medical Practices which is set
in terms of a percentage of, or otherwise dependent on, the income or receipts
generated by the physicians. In certain states, such as California and New York,
any fees that a non-physician receives in connection with the management of a
physician practice must bear a reasonable relationship to the services rendered,
based upon the fair market value of such services. Under Illinois law, the
courts have broadly interpreted the fee-splitting prohibition in that state to
prohibit compensation arrangements that include (i) fees that a management
company may receive based on a percentage of net profits generated by
physicians, despite the performance of legitimate management services, (ii) fees
received by a management company engaged in obtaining referrals for its
physician where the fees are based on a percentage of certain billings collected
by the physician and (iii) purchase price consideration to a seller of a medical
practice based on a percentage of the buyer's revenues following the
acquisition. Several of the other states where the Company has operations, such
as Texas and New Jersey, do not expressly prohibit fee-splitting but do have
corporate practice of medicine prohibitions. In these states, regulatory
authorities frequently interpret the corporate practice of medicine prohibition
to encompass fee-splitting, particularly in arrangements where the compensation
charged by the management company is not reasonably related to the services
rendered.
The Company believes that its current operations are in material compliance
with applicable state laws relating to fee-splitting prohibitions. However,
there can be no assurance that these laws will be interpreted in a manner
consistent with the Company's practices or that other laws or regulations will
not be enacted in the future that could have a material adverse effect on the
Company's business, financial condition and operating results. If a
fee-splitting law is interpreted in a manner that is inconsistent with the
Company's practices, the Company could be required to restructure or terminate
its relationship with the applicable Medical Practice in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could have a material
adverse effect on the Company's business, financial condition and operating
results. In addition, expansion of the Company's operations to new jurisdictions
could require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with additional
state statutes.
With respect to the Chicago and Shady Grove Network Sites, 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 respective 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 $1.0 million per year,
retroactive to the effective date of the agreement. In such event, the
management fees derived from these Medical Practices may decrease. Because the
Company can not predict or guarantee the actions of regulatory authorities,
there is a risk that a regulatory authority may disagree with the compensation
arrangement and challenge the same. In the event of such challenge, the
compensation arrangement may not be upheld. Moreover, if a management agreement
was amended to provide for an annual fixed fee payable to the Company, the
contribution from the Network Site could be materially reduced.
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Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
Currently less than 5% of the revenues of the Medical Practices are derived from
Medicare and none of such revenues are derived from Medicaid. Federal law (the
"Federal Antikickback Law") prohibits, with some exceptions, the solicitation or
receipt of remuneration in exchange for, or the offer or payment of remuneration
to induce, the referral of federal health care program beneficiaries, including
Medicare or Medicaid patients, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by Medicare,
Medicaid and other federal and state health programs.
With respect to the Federal Antikickback Law, the Office of the Inspector
General ("OIG") has promulgated regulatory "safe harbors" under the Federal
Antikickback Law that describe payment practices between health care providers
and referral sources that will not be subject to criminal prosecution and that
will not provide the basis for exclusion from the federal health care programs.
Relationships and arrangements that do not fall within the safe harbors are not
illegal per se, but will subject the activity to greater governmental scrutiny.
Many of the parties with whom the Company contracts refer or are in a position
to refer patients to the Company. Although the Company believes that it is in
material compliance with the Federal Antikickback Law, there can be no assurance
that such law or the safe harbor regulations promulgated thereunder will be
interpreted in a manner consistent with the Company's practices. The breadth of
the Federal Antikickback Law, the paucity of court decisions interpreting the
law and the safe harbor regulations, and the limited nature of regulatory
guidance regarding the safe harbor regulations have resulted in ambiguous and
varying interpretations of the Federal Antikickback Law. The OIG or the
Department of Justice ("DOJ") could determine that the Company's past or current
policies and practices regarding its contracts and relationships with the
Medical Practices violate the Federal Antikickback Law. In such event, no
assurance can be given that the Company's interpretation of these laws will
prevail. The failure of the Company's interpretation of the Federal Antikickback
Law to prevail could have a material adverse effect on the Company's business,
financial condition and operating results.
Federal Referral Laws. Federal law also prohibits, with some exceptions,
physicians from referring Medicare or Medicaid patients to entities for certain
enumerated "designated health services" with which the physician (or members of
his or her immediate family) has an ownership or investment relationship, and an
entity from filing a claim for reimbursement under the Medicare or Medicaid
programs for certain enumerated designated health services if the entity has a
financial relationship with the referring physician. Significant prohibitions
against physician referrals were enacted by the United States Congress in the
Omnibus Budget Reconciliation Act of 1993. These prohibitions, known as "Stark
II," amended prior physician self-referral legislation known as "Stark I" by
dramatically enlarging the field of physician-owned or physician-interested
entities to which the referral prohibitions apply. The designated health
services enumerated under Stark II include: clinical laboratory services,
radiology services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services.
Significantly, certain "in-office ancillary services" furnished by group
practices are excepted from the physician referral prohibitions of Stark II. The
Company believes that its practices either fit within this and other exceptions
contained in such statutes, or have been structured so as to not implicate the
statute in the first instance, and therefore, the Company believes it is in
compliance with such legislation. Nevertheless, future regulations or
interpretations of current regulations could require the Company to modify the
form of its relationships with the Medical Practices. Moreover, the violation of
Stark I or Stark II by the Medical Practices could result in significant fines,
loss of reimbursement and exclusion from the Medicare and Medicaid programs
which could have a material adverse effect on the Company.
Recently, Congress enacted the Health Insurance Portability and Accounting
Act of 1996, which includes an expansion of certain fraud and abuse provisions
(including the Federal Antikickback Law and Stark II) to other federal health
care programs and a separate criminal statute prohibiting "health care fraud."
Due to the breadth of the statutory provisions of the fraud and abuse laws and
the absence of definitive regulations or court decisions addressing the type of
arrangements by which the Company and its Medical Practices conduct and will
conduct their business, from time to time certain of their practices may be
subject to challenge under these laws.
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False Claims. Under separate federal statutes, submission of claims for
payment that are "not provided as claimed" may lead to civil money penalties,
criminal fines and imprisonment and/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 kickbacks in return for the
referral of patients in each state in which the Company has operations. Several
of these laws apply to services reimbursed by all payors, not simply Medicare or
Medicaid. Violations of these laws may result in prohibition of payment for
services rendered, loss of licenses as well as fines and criminal penalties.
State statutes and regulations that prohibit payments intended to induce
the referrals of patients to health care providers range from statutes and
regulations that are substantially the same as the federal laws and the safe
harbor regulations to regulations regarding unprofessional conduct. These laws
and regulations vary significantly from state to state, are often vague, and, in
many cases, have not been interpreted by courts or regulatory agencies. Adverse
judicial or administrative interpretations of such laws could require the
Company to modify the form of its relationships with the Medical Practices or
could otherwise have a material adverse effect on the Company's business,
financial condition and operating results.
In addition, New York, New Jersey, California, Florida, Pennsylvania,
Illinois, Maryland and Virginia have enacted laws on self-referrals that apply
generally to the health care profession, and the Company believes it is likely
that more states will follow. These state self-referral laws include outright
prohibitions on self-referrals similar to Stark or a simple requirement that
physicians or other health care professionals disclose to patients any financial
relationship the physicians or health care professionals have with a health care
provider that is being recommended to the patients. The Company's operations in
New York, New Jersey, California and Illinois have laboratories which are be
subject to prohibitions on referrals for services in which the referring
physician has a beneficial interest. However, New York, New Jersey, California
and Maryland have an exception for "in-office ancillary services" similar to the
federal exception and in Illinois, the self-referral laws do not apply to
services within the health care worker's office or group practice or to outside
services as long as the health care worker directly provides health services
within the entity and will be personally involved with the provision of care to
the referred patient. The Company believes that the laboratories in its
operations fit within exceptions contained in such statutes or are not subject
to the statute at all. Each of the laboratories in the states in which these
self-referral laws apply are owned by the Medical Practice in that state and are
located in the office of such Medical Practice. However, there can be no
assurance that these laws will be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in the
future that could have a material adverse effect on the Company's business,
financial condition or operating results. In addition, expansion of the
Company's operations to new jurisdictions could require structural and
organizational modifications of the Company's relationships with the Medical
Practices in order to comply with new or revised state statutes.
Antitrust Laws. In connection with corporate practice of medicine laws
referred to above, the Medical Practices with whom the Company is affiliated
necessarily are organized as separate legal entities. As such, the Medical
Practices may be deemed to be persons separate both from the Company and from
each other under the antitrust laws and, accordingly, subject to a wide range of
laws that prohibit anti-competitive conduct among separate legal entities. The
Company believes it is in compliance with these laws and intends to comply with
any state and federal laws that may affect its development of health care
networks. There can be no assurance, however, that a review of the Company's
business by courts or regulatory authorities would not have a material adverse
effect on the operation of the Company and the Medical Practices.
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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.
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
19
<PAGE>
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 March 16, 1998, the Company had 372 employees, 4 of whom are
executive management, 343 are employed at the Network Sites and 29 are employed
at the Company's headquarters. Of the Company's employees, 60 persons at the
Network Sites and 4 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.
ITEM 2. Properties
The Company's headquarters and executive offices are 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 location from either third-party landlords or from
the Medical Provider(s). Costs associated with these agreements are included in
either "Medical Practice retainage" or in "Cost of services rendered" and, with
regard to agreements entered into in 1995 and thereafter, such costs are
typically reimbursed to the Company as part of its management fee; reimbursed
costs are included in "Revenues, net".
The Company believes its executive offices and the space occupied by the
Network Sites are adequate.
20
<PAGE>
ITEM 3. 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 appealed this decision. In June 1997,
the Appellate Division of the Supreme Court of the State of New York, Second
Department affirmed the lower court decision. As a result of prior court
proceedings and the June 1997 decision, the plaintiffs are left with lack of
informed consent as the sole claim against defendants for which defendants have
moved for summary judgment based on the untimeliness of this claim.
There are a few 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
21
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
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 May 1996 and
prior to the name change under the symbol "IVFA" since May 21, 1993. Prior
thereto, the Company's Common Stock had been trading on the Nasdaq SmallCap
Market since October 8, 1992. The following table sets forth the high and low
closing sales price for the Common Stock, as reported on the Nasdaq National
Market.
Common Stock
------------
High Low
---- ---
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.......... 1.88 1.34
Third Quarter........... 2.50 1.41
Fourth Quarter.......... 2.38 1.31
On March 16, 1998, there were approximately 276 holders of record of the
Common Stock, excluding beneficial owners of shares registered in nominee or
street name.
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
$0.80 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 December 31, 1997, fourteen
quarterly dividend payments have been suspended resulting in approximately
$464,000 of dividend payments being in arrears.
22
<PAGE>
ITEM 6. Selected Financial Data
The following selected financial data are 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 Annual Report on Form 10-K.
Statement of Operations Data:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- --------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues, net................................ $24,169 $18,343 $16,711 $17,578 $16,025
Medical Provider retainage..................` 1,531 2,680 3,063 3,824 4,605
------- ------- ------- ------- -------
Revenues after Medical Provider retainage.... 22,638 15,663 13,648 13,754 11,420
Costs of services rendered................... 17,251 12,398 9,986 10,998 10,222
------- ------- ------- ------- -------
Network Sites' contribution.................. 5,387 3,265 3,662 2,756 1,198
------- ------- ------- ------- -------
General and administrative expenses.......... 4,192 4,339 3,680 3,447 3,079
Equity in loss of Partnerships (1)........... -- -- -- -- 1,793
Total other (income) expenses
(including income taxes)................... 821 416 (88) 123 923
------- ------- ------- ------- -------
Net income (loss)............................ 374 (1,490) 70 (814) (4,597)
Less: Dividends accrued and/or paid on
Preferred Stock........................... 133 132 600 1,146 748
------- ------- ------- ------- -------
Net income (loss) applicable to Common
Stock .................................... $ 241 $(1,622) $ (530) $(1,960) $(5,345)
======= ======= ======== ======= =======
Basic earnings (loss) per share before
consideration for induced conversion
of Preferred Stock (2).................... $ 0.02 $ (0.21) $ (.09) $ (0.32) $ (2.01)
======= ======= ======== ======= =======
Diluted earnings (loss) per share before
consideration for induced conversion
of Preferred Stock (2).................... $ 0.02 $ (0.68) $ (.09) $ (0.32) $ (2.01)
======= ======= ======== ======= =======
Weighted average shares-- basic.............. 2,405 7,602 6,087 6,081 2,654
======= ======= ======== ======= =======
Weighted average shares-- diluted............ 12,616 7,602 6,087 6,081 2,654
======= ======= ======== ======= =======
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital (3).......................... $ 4,082 $ 7,092 $10,024 $ 11,621 $ 14,435
Total assets (3)............................. 36,101 20,850 18,271 17,733 20,238
Total indebtedness (4)....................... 2,928 2,553 1,889 356 708
Accumulated deficit.......................... (20,816) (21,190) (19,700) (19,770) (18,956)
Shareholders' equity......................... 25,993 14,478 12,931 13,819 16,532
</TABLE>
(1) Effective September 1, 1993 and December 31, 1993, the Company dissolved
its 50% partnership interests in the Pennsylvania and Michigan
Partnerships, respectively, which had been accounted for under the equity
method. The management fees therefrom were reported under "Revenues, net"
in the consolidated statement of operations.
(2) Refer to Note 11 - Shareholders' Equity to the Company's Consolidated
Financial Statements - regarding the impact of the Company's Second Offer
on net loss per share in 1996.
(3) Includes controlled assets of certain Medical Providers of $0, $650,000,
$1,759,000, $2,783,000 and $3,148,000, at December 31, 1997, 1996, 1995,
1994 and 1993, respectively.
(4) Total indebtedness as of December 31, 1997 and 1996 included $1,863,000 and
$1,435,000 of exclusive management rights obligation, respectively.
23
<PAGE>
ITEM 7. 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, 1997. It should
be read in conjunction with the Company's Consolidated Financial Statements, the
related notes thereto and other financial and operating information included in
this Form 10-K.
Overview
During 1997 the Company acquired four new management agreements, including
the agreement with Fertility Centers of Illinois, S.C. ("FCI"), the most
significant management agreement to date. The Company also consummated an equity
offering which raised gross proceeds of $9.6 million and net proceeds of
approximately $8.3 million, a significant portion of which were used to acquire
certain fixed assets of and the right to manage FCI. In addition the Company
achieved Revenues, net growth of approximately 31.8%, Network Sites'
contribution growth of approximately 65% and its first full year of positive
earnings per share.
During the first quarter of 1998, the Company closed on an equity private
placement of $5.5 million with Morgan Stanley Venture Partners III, L.P., the
venture capital affiliate of Morgan Stanley, Dean Witter, Discover & Co.
providing for the purchase of 3,235,294 shares of the Company's Common Stock at
a price of $1.70 per share and 240,000 warrants to purchase shares of the
Company's Common Stock, at a nominal exercise price. Approximately half of these
funds were or will be used by the Company to purchase the capital stock of Shady
Grove Fertility Centers, Inc. ("Shady Grove") and the right to manage Levy,
Sagoskin and Stillman M.D., P.C. (the "Shady Grove P.C.") an infertility
physician group practice comprised of six physicians and four locations in the
greater Washington, D.C. area. The Shady Grove management agreement represents
the second most significant management agreement entered into by the Company to
date.
Effective in October 1997 and January 1998, due to the Company revising the
terms of the management agreements related to the Long Island and Boston Network
Sites, respectively, the Company will no longer display patient service revenues
of the Long Island and Boston Medical Practices in "Revenues, net" in the
Company's consolidated statement of operations. The revised management
agreements provide for the Company to receive a specific management fee which
the Company will report in "Revenues, net" in its consolidated statement of
operations. Under the revised management agreement for the Long Island Network
Site, as compensation for its management services, the Company will receive a
fixed fee (initially equal to $345,000 per annum), subject to annual increases,
plus reimbursed costs of services. Under the revised management agreement for
the Boston Network Site, as compensation for its management services, the
Company will receive a three-part management fee consistent to the majority of
the Company's existing management agreements. The revised agreements provide for
increased incentives and risk-sharing for the Company's affiliated Medical
Practices. The terms of the revised management agreements and the change in
reporting revenues associated therewith, will most likely result in lower
comparative revenues for the Long Island and Boston Network Sites, however, the
Company believes the Network Site contribution related to the Long Island and
Boston Network Sites will not be adversely impacted. As the Company will no
longer be displaying patient service revenues for the Long Island and Boston
Network Sites, the "Medical Provider retainage" line item in the Company's
consolidated statement of operations and the "Controlled assets of Medical
Practices" section in the Company's consolidated balance sheet will no longer be
applicable. Refer to the following RSC Division discussion.
During 1997, the Company derived its revenue pursuant to ten management
agreements and from the AWM Division. For the year ended December 31, 1997, the
management agreements relating to the Boston, New Jersey and Chicago ("FCI")
Network Sites each provided over 10% of the Company's revenues.
The Medical Practices managed by the Company are parties to managed care
contracts. Approximately 61% and 65% of the Company's revenues, net for the
years ended December 31, 1997 and 1996, respectively, were derived from revenues
received by the Medical Practices from third-party payors. To date, the Company
has not been negatively impacted by existing trends related to managed care
contracts. As the Company's management fees for managing such Medical Practices
are based on revenues and/or earnings of the respective Medical Practices,
24
<PAGE>
changes in managed care practices, including changes in covered procedures or
reimbursement rates could adversely affect the Company's management fees in the
future.
Recent Acquisitions
In January 1997, the Company acquired certain assets of Bay Area Fertility
and acquired the right to manage the Bay Area Fertility and Gynecology Medical
Group, Inc., a California professional corporation which is the successor to Bay
Area Fertility's medical practice. The aggregate purchase price was
approximately $2.1 million, consisting of $1.5 million in cash and 333,333
shares of Common Stock. The majority of the purchase price was allocated to
exclusive management rights.
In June 1997, the Company acquired certain assets of and the right to
manage Reproductive Sciences Medical Center, Inc. ("RSMC"), a California
professional corporation located near San Diego, CA (the "San Diego
Acquisition"). The aggregate purchase price for the San Diego Acquisition was
approximately $900,000, consisting of $50,000 in cash and 145,454 shares of
Common Stock payable at closing and $650,000 payable upon the achievement of
certain specified milestones, at RSMC's option, in cash or in shares of the
Company's Common Stock, based on the closing market price of the Common Stock on
the third business day prior to issuance. On March 10, 1998, the Company
received notice from RSMC claiming that the Company has materially breached its
management agreement with RSMC and demanding that the alleged breaches be
remedied. Contrary to RSMC's assertions, the Company believes both that it has
materially performed its obligations under the management agreement with RSMC
and that RSMC has materially breached its obligations to the Company under the
management agreement, as well as other agreements with the Company. While the
Company continues to perform, it is endeavoring to submit the dispute to binding
arbitration, which is the governing dispute-resolution process required under
the management agreement, and may be compelled to seek rescission of all
agreements with RSMC. The Company can offer no assurance that resolution of this
matter will not result in the termination of the management agreement or
otherwise adversely impact the Company.
In August 1997, the Company acquired certain fixed assets of and the right
to manage Fertility Centers of Illinois, S.C. ("FCI"), a physician group
practice comprised of six physicians and six locations in the Chicago, Illinois
area. The aggregate purchase price was approximately $8.6 million, consisting of
approximately $6.6 million in cash and 1,009,464 shares of Common Stock.
Approximately $8.0 million of the aggregate purchase price was allocated to
exclusive management rights and $559,000 was allocated to certain fixed assets.
Simultaneous with closing on the FCI transaction, the Company, on behalf of
FCI, completed its first in-market merger with the addition of Edward L. Marut,
MD to the FCI practice. The aggregate purchase price was $803,000 in cash, of
which $750,000 was allocated to exclusive management rights and $53,000 was
allocated to certain fixed assets.
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the FCI practice. The Company acquired certain
assets of Advocate Medical Group, S.C. ("AMG") and Advocate MSO, Inc. and
acquired the right to manage AMG's infertility practice conducted under the name
Center for Reproductive Medicine ("CFRM"). Simultaneous with closing on this
transaction, the Company amended its management agreement with FCI to include
two of the three physicians practicing under the name CFRM. The aggregate
purchase price was approximately $1.5 million, consisting of approximately $1.2
million in cash and 184,314 shares of Common Stock. The majority of the purchase
price was allocated to exclusive management rights.
In March 1998, the Company acquired the majority of the capital stock of
Shady Grove Fertility Centers, Inc. ("Shady Grove"), currently a Maryland
business corporation which provides management services, and formerly a Maryland
professional corporation engaged in providing infertility services. Prior to the
closing of the transaction, Shady Grove had entered into a twenty-year
management agreement with Levy, Sagoskin and Stillman, M.D., P.C. (the "Shady
Grove P.C."), an infertility physician group practice comprised of six
physicians and four locations surrounding the greater Washington, D.C. area. The
Company will acquire the balance of the Shady Grove capital stock on or about
November 1, 1998. The aggregate purchase price for all of the Shady Grove
25
<PAGE>
capital stock was approximately $5.7 million, consisting of approximately $2.8
million in cash, $1.4 million in Common Stock, and $1.5 million in promissory
notes. The promissory notes are payable in two aggregate annual installments of
$750,000, due on April 1, 1999 and 2000, respectively, and bear interest at an
annual rate of 8.5%. On March 12, 1998, the closing date, the following
consideration was paid to two of the three shareholder physicians: (i)
approximately $1.8 million in cash, (ii) approximately $1.2 million in stock or
639,551 shares of Common Stock, and (iii) approximately $1.1 million in
promissory notes. The Company will pay the balance of the aggregate purchase
price on or about November 1, 1998 (the "Second Closing Date"), when the balance
of the Shady Grove stock is transferred to the Company. The number of shares of
Company Common Stock to be issued on the Second Closing Date, which will have a
fair market value of approximately $200,000, will be determined based upon the
average closing price of the Company's Common Stock for the ten-day trading
period prior to the third business day before the Second Closing Date; provided,
however, that in no event will the price per share exceed $2.00 or be less than
$1.70 for purposes of this calculation.
In regard to the shares of Company Common Stock issued in the above
transactions, with the exception of the shares issued in the Bay Area Fertility
transaction, Gerardo Canet, President and Chief Executive Officer of the
Company, was granted a voting proxy with respect to (i) the election of
Directors or any amendment to the Company's Certificate of Incorporation
affecting Directors and (ii) any change in stock options for management and
directors for a two-year period from each transaction's respective closing date.
The Company is evaluating and is engaged in discussions with regard to
several potential acquisitions. However, 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.
RSC Division
During the year ended December 31, 1997, the operations of the RSC Division
were conducted pursuant to ten management agreements.
Under six of the Company's management agreements, the Company receives a
three-part management fee as compensation for its management services comprised
of: (i) a fixed percentage of net revenues generally equal to 6%, (ii)
reimbursed costs of services (costs incurred in managing a Network Site and any
costs paid on behalf of the Network Site) and (iii) a fixed or variable
percentage of earnings after the Company's management fees and any guaranteed
physician compensation, or an additional fixed or variable percentage of net
revenues which generally results in the Company receiving up to an additional
15% of net revenues. Direct costs incurred by the Company in performing its
management services and costs incurred on behalf of the Network Site are
recorded as cost of services rendered. The physicians receive as compensation
all earnings remaining after payment of the Company's management fee. The
Company's compensation pursuant to the management agreement relating to Shady
Grove will also be determined and recorded in this manner.
Under the Company's management agreements for the Boston and Long Island
Network Sites in effect for the year ended December 31, 1997, the Company
displayed the patient service revenues of the Medical Practices which are
reflected in "Revenues, net" on its consolidated statement of operations. Under
these agreements, the Company recorded all patient service revenues and, out of
such revenues, the Company paid the Medical Practices' expenses, physicians' and
other medical compensation, direct materials and certain hospital contract fees
(the "Medical Practice retainage"). Specifically, under the management agreement
for the Boston Network Site, the Company guaranteed a minimum physician
compensation based on an annual budget primarily determined by the Company.
Remaining revenues, if any, which represented the Company's management fees,
were used by the Company for other direct administrative expenses which were
recorded as costs of services. Under the management agreement for the Long
Island Network Site, the Company's management fee was payable only out of
remaining revenues, if any, after the payment of all expenses of the Medical
Practice. The management agreements related to the Long Island and Boston
Network Sites were revised effective in October 1997 and January 1998,
respectively. As a result, the Company will no longer display the patient
service revenues of the Medical Practices in "Revenues, net" in its consolidated
statement of operations. See "Overview".
26
<PAGE>
Under the Company's management agreement for the New Jersey Network Site,
the Company primarily provides endocrine testing and administrative and finance
services for a fixed percentage of revenues, equal to 15% of net revenues, and
reimbursed costs of services. Under the management agreement for the Walter Reed
Network Site, the Company's revenues are derived from certain ART laboratory
services performed, and the Company bills patients directly for these services.
The Company's direct costs are reimbursed out of these revenues with the balance
representing the Company's Network Site contribution. All direct costs incurred
by the Company are recorded as costs of services.
The management agreements are typically for terms of ten to 25 years and
are generally subject to termination due to insolvency, bankruptcy or material
breach of contract by the other party.
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
costs of services rendered. The Company retains as Network Site contribution an
amount determined using the three-part management fee calculation described
above. The remaining balance is paid as compensation to the employed physicians
and is recorded by the Company as costs 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 costs of services rendered.
The Company's 51% interest in the National Menopause Foundation, Inc.
("NMF") is included in the Company's consolidated financial statements. The
Company records 100% of the revenues and costs of NMF and reports 49% of any
profits of NMF as minority interest on the Company's consolidated balance sheet.
Results of Operations
Calendar Year 1997 Compared to Calendar Year 1996
Revenues for 1997 were approximately $24.2 million as compared to
approximately $18.3 million for 1996, an increase of 31.8%. Revenues under
management agreements relating to Network Sites managed by the Company prior to
January 1, 1997, excluding the Westchester and East Long Meadow, MA Network Site
agreements which were terminated in November 1996 and January 1997,
respectively, increased 23.4%. This increase in existing Network Site revenue
was due to a full year of operations from two Network Sites which were acquired
in 1996 and to an increase in procedure volume at certain other existing Network
Sites. For the year ended December 31, 1997, the Company's RSC Division and AWM
Division contributed 91.4% and 8.6%, respectively, of the Company's total
revenues compared to 95.9% and 4.1% for the same period in 1996, respectively.
RSC Division revenues for the year ended December 31, 1997 were
approximately $22.1 million as compared to $17.6 million for the year ended
December 31, 1996, an increase of 25.6%. Revenues under the RSC Division were
comprised of (i) patient service revenues, (ii) three-part management fees and
(iii) at the New Jersey Network Site, management fees based on a percentage of
revenues and reimbursed costs of services. Patient service revenues for the year
ended December 31, 1997 were $10.2 million compared to $11.4 million for the
year ended December 31, 1996 , a decrease of 11.3%. Patient service revenues
27
<PAGE>
decreased due to the termination of the Westchester Network Site agreement in
November 1996. The decrease in patient service revenues was partially offset by
significant increases in revenue at the Long Island and Walter Reed Network
Sites attributable to increases in procedure volume at such Network Sites.
Three-part management fee revenues more than doubled to approximately $8.3
million for the year ended December 31, 1997 compared to approximately $3.2
million for the year ended December 31, 1996. The increase in three-part
management fee revenues was primarily attributable to new management agreements
entered into in 1997 and to there being a full year of revenues for the two
agreements which were entered into during 1996, partially offset by the
termination of the East Long Meadow, MA Network Site agreement in January 1997.
Management fees based on a percentage of revenues and reimbursed costs of
services of the New Jersey Network Site were approximately $3.7 million in 1997
compared to approximately $3.0 million in 1996, an increase of 23.7%,
attributable to an increase in procedure volume at such Network Site. AWM
Division revenues for the year ended December 31, 1997 were approximately $2.1
million as compared to approximately $757,000 for the year ended December 31,
1996, primarily attributable to there being a full year of operations in this
Division in 1997 as compared to approximately seven months of operations in
1996.
Medical Practice retainage for 1997 was approximately $1.5 million as
compared to approximately $2.7 million in 1996, a decrease of 42.9%, due to the
termination of the Westchester Network Site agreement in November 1996.
Revenues after Medical Practice retainage were approximately $22.6 million
in 1997 as compared to $15.7 million in 1996, an increase of 44.5%, due to the
increase in "Revenues, net" and decrease in Medical Practice retainage discussed
above.
Costs of services rendered were approximately $17.3 million in 1997 as
compared to approximately $12.4 million in 1996, an increase of 39.1%. Such
increase was primarily due to the new management agreements entered into in 1997
and a full year of operations related to two Network Sites acquired in 1996 and
procedure volume growth at certain existing Network Sites, partially offset by
the termination of the Westchester and East Long Meadow, MA Network Site
agreements in November 1996 and January 1997, respectively. Costs of services in
1996 included a $365,000 charge recorded in the third quarter of 1996 associated
with closing the Westchester Network Site.
General and administrative expenses were approximately $4.2 million in 1997
as compared to approximately $4.7 million in 1996, a decrease of 10.1%. Such
decrease was primarily attributable to the absence of $522,000 in costs related
to establishing the AWM Division which were incurred in 1996 and to lower salary
and administrative costs related to regional offices, partly attributable to the
Company allocating portions of such costs to the respective Network Site's
operations commencing in the third quarter of 1997 and to the consolidation of
regional offices within the respective Network Site locations. These decreases
were partially offset by increases in consulting and investor relations costs.
Amortization of intangible assets was approximately $766,000 in 1997 as
compared to approximately $331,000 in 1996 and principally represented the
amortization of the purchase price paid by the Company for the exclusive right
to manage Network Sites and goodwill and other intangible asset amortization
related to the establishment of the AWM Division in June 1996. At December 31,
1997, the Company's consolidated financial statements reflect goodwill and other
intangible assets of approximately $18.4 million, which is being amortized over
periods ranging from three to 40 years. The Company anticipates that any future
acquisitions will involve the recording of a significant amount of goodwill and
intangible assets on its balance sheet.
Interest income for 1997 decreased to approximately $109,000 from
approximately $415,000 in 1996 due to a lower cash balance.
The provision for income taxes primarily reflected state income taxes in
1997 and 1996.
Net income was approximately $374,000 in 1997 as compared to a net loss of
approximately $1.5 million in 1996. This net income was primarily due to a $2.1
million increase in Network Site contribution attributable to the new management
agreements entered into in 1997, a full year of operations related to two
Network Sites acquired in 1996, procedure volume growth at certain existing
Network Sites, and the absence of losses associated with the Westchester Network
Site agreement which was terminated in November 1996.
28
<PAGE>
In addition, general and administrative expenses decreased by $470,000. These
positive variances were partially offset by a $435,000 increase in amortization
of intangible assets and a $306,000 decrease in interest income.
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%. For the year ended
December 31, 1996, the Company's RSC Division and AWM Division contributed 95.9%
and 4.1%, respectively, of the Company's total revenues.
RSC Division revenues for the year ended December 31, 1996 were
approximately $17.6 million as compared to $16.7 million for the year ended
December 31, 1995, an increase of 5.2%. Revenues under the RSC Division were
comprised of (i) patient service revenues, (ii) three-part management fees and
(iii) at the New Jersey Network Site, management fees based on a percentage of
revenues and reimbursed costs of services. Patient service revenues for the year
ended December 31, 1996 were $11.4 million compared to $13.8 million for the
year ended December 31, 1995, a decrease of 17.1%. Patient service revenues
decreased due to a 52.9% decrease in patient service revenues related to the
Westchester Network Site agreement which the Company terminated in November 1996
and to the effects of the Company's new management agreement 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 described below) and are no longer recorded as patient service
revenues. The decrease in patient service revenues was partially offset by 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. The 1996 results also 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. Three-part management fee revenues
were approximately $3.2 million for the year ended December 31, 1996 compared to
approximately $981,000 for the year ended December 31, 1995. The increase in
three-part management fee revenues was primarily attributable to new management
agreements entered into in the second quarter of 1996 and to there being a full
year of revenues for those agreements that were entered into during 1995.
Management fees based on a percentage of revenues and reimbursed costs of
services of the New Jersey Network Site were approximately $3.0 million in 1996
compared to approximately $1.9 million in 1995, an increase of 55.9%,
attributable to there being a full year under the new management agreement. AWM
Division revenues for the year ended December 31, 1996 were approximately
$757,000.
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.
Revenues after Medical Practice retainage were approximately $15.7 million
in 1996 as compared to $13.6 million in 1995, an increase of 14.8%. The increase
was due to the new management agreements entered into in the second quarter of
1996. The increase in revenues was partially offset by the net decrease in
management fees related to the Boston, Westchester, Long Island and New Jersey
Network Sites. Management fees (i.e., patient service revenues less Medical
Practice retainage) related to the Boston, Westchester and Long Island Network
Sites (in which the Company displayed the patient service revenues on its
consolidated statement of operations for the year ended December 31, 1996) were
approximately $8.2 million in 1996 compared to management fees related to the
Boston, Westchester, Long Island and New Jersey Network Sites (in which the
Company displayed the patient service revenues on its consolidated statement of
operations for the year ended December 31, 1995) which were approximately $10.8
million in 1995, a decrease of 23.4%. The decrease was primarily due to the
29
<PAGE>
decrease in patient service revenues at the Westchester Network Site and the
termination of the Westchester Network Site Agreement in November 1996. In
addition, the decrease was also due to the effects of the Company's new
management agreement 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 and are no longer
recorded as patient service revenues. While the change in the New Jersey
agreement resulted in a decrease in management fees for the Network Sites in
which the Company displayed patient service revenues, the revenues after Medical
Practice retainage related to the New Jersey Network Site were approximately the
same for both periods. The decrease in such management fees was partially offset
by the increase in management fees related to the Long Island Network Site.
Costs of services rendered were approximately $12.4 million in 1996 as
compared to approximately $10.0 million in 1995, an increase of 24.2%. Such
increase was primarily due to the Network Sites acquired by the Company in the
second and fourth quarters of 1995 and the second quarter of 1996, and to a
$365,000 charge recorded in the third quarter of 1996 associated with closing
the Westchester Network Site. These increases were partially offset by the
effects of the new management contract related to the New Jersey Network Site,
which included the reversal of $120,000 in deferred rent, and lower occupancy
and direct material costs related to the Long Island Network Site due to the
relocation and operational changes effected at this Network Site in the second
quarter of 1995.
General and administrative expenses were approximately $4.7 million in 1996
as compared to approximately $4.0 million in 1995, an increase of 17.4%. 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.
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.
The provision for income taxes primarily reflected state income 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.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. In August 1997, the Company consummated an offering
of 6,400,000 shares of Common Stock (the "Offering"). The Offering raised gross
proceeds of $9.6 million and net proceeds of approximately $8.3 million.
Approximately $6.6 million of the net proceeds of the Offering was used to
acquire certain fixed assets of and the right-to-manage FCI.
30
<PAGE>
During the first quarter of 1998, the Company closed on an equity private
placement of $5.5 million with Morgan Stanley Venture Partners III, L.P., the
venture capital affiliate of Morgan Stanley, Dean Witter, Discover & Co.
providing for the purchase of 3,235,294 shares of the Company's Common Stock at
a price of $1.70 per share and 240,000 warrants to purchase shares of the
Company's Common Stock, at a nominal exercise price. Approximately half of these
funds were or will be used by the Company to purchase the capital stock of Shady
Grove Fertility Centers, Inc. and the right to manage the Shady Grove, P.C.'s
infertility medical practice.
The balance of the proceeds of the Offering and the equity private
placement have been and will continue to be used for working capital and other
general corporate purposes, including possible future acquisitions of the assets
of, and the right to manage, additional physician practices.
At December 31, 1997, the Company had working capital of approximately
$4.1 million, approximately $1.9 million of which consisted of cash and cash
equivalents, compared to working capital of $7.1 million at December 31, 1996
(including $650,000 of controlled assets of Medical Practices), approximately
$6.0 million of which consisted of cash and cash equivalents (including $191,000
of controlled cash) and short term investments. The net decrease in working
capital at December 31, 1997 was principally due to payments of $10.6 million
for exclusive management rights and related asset purchase acquisition costs and
payments of approximately $2.1 million for the purchase of fixed assets and
leasehold improvements related to new and existing Network Sites, partially
offset by $8.3 million in net proceeds from the Offering and an aggregate
increase in receivables and other current assets.
During 1997, the Company entered into three new management agreements and
completed its first in-market merger with the addition of one physician to the
FCI practice. The aggregate purchase price of these transactions, exclusive of
acquisition costs, was approximately $12.4 million, consisting of approximately
$9.0 million in cash and 1,488,251 shares of the Company's Common Stock.
Included in this aggregate purchase price is $650,000 payable upon the
achievement of certain specified milestones, at RSMC's option, in cash or in
shares of the Company's Common Stock, based on the closing market price of the
Common Stock on the third business day prior to issuance.
During the first quarter of 1998, the Company completed its second
in-market merger with the addition of two physicians to the FCI practice and
entered into one new management agreement with the Shady Grove, P.C. The
aggregate purchase price of these transactions, exclusive of acquisition costs,
was approximately $7.2 million, consisting of approximately $4.0 million in
cash, $1.5 million in promissory notes, 823,865 shares of the Company's Common
Stock, and approximately an additional $200,000 in shares of the Company's
Common Stock. A portion of the aggregate purchase price related to the Shady
Grove acquisition will be paid in November 1998 as follows: approximately $1.0
million in cash, $403,000 in promissory notes and approximately $200,000 in
shares of the Company's Common Stock. The promissory notes are payable in two
aggregate annual installments of $750,000, due on April 1, 1999 and 2000,
respectively, and bear interest at an annual rate of 8.5%. The number of shares
of Company Common Stock to be issued in November 1998 will be determined based
upon the average closing price of the Company's Common Stock for the ten-day
trading period prior to the third business day before the Second Closing Date,
provided, however, that in no event will the price per share exceed $2.00 or be
less than $1.70 for purposes of this calculation.
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 is in the process of obtaining a line of credit to
fund its acquisition strategy over the next year.
As of December 31, 1997, under two of its management agreements, the
Company is obligated to advance funds to the Medical Practices to provide a
minimum physician draw (up to an aggregate of approximately $265,000 in 1998)
and to provide new services, utilize new technologies, fund projects, purchase
the net accounts receivable of the Medical Practices 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.
31
<PAGE>
As of December 31, 1997, $250,000 was outstanding under the Company's $1.5
million credit facility dated November 21, 1996 (the "Credit Facility") with
First Union National Bank (the "Bank"). As March 15, 1998, $1.5 million was
outstanding under the Credit Facility. Borrowings under the Credit Facility bear
interest at the Bank's prime rate plus 0.75% per annum. The Credit Facility
terminates on July 1, 1998 and is secured by the Company's assets.
On November 13, 1997, the Company entered into a $4.0 million non-restoring
line of credit dated November 13, 1997 with the Bank (the "New Credit
Facility"). Borrowings under the New Credit Facility bear interest at the Bank's
prime rate plus 1% per annum. Accrued interest only on borrowings is payable
commencing December 1, 1997 and all principal and accrued interest is due and
payable on April 30, 1999. The New Credit Facility will be cross collateralized
and cross-defaulted with the Credit Facility and is secured by the Company's
assets. As of December 31, 1997, no amounts were outstanding under the New
Credit Facility. As of March 15, 1998, $750,000 was outstanding under the New
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 $144,000 and $189,000
under this agreement for the years ended December 31, 1997 and 1996,
respectively.
As of December 31, 1997, dividend payments of $464,000 on the Series A
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock") were
in arrears. The Company does not anticipate the payment of any dividends on the
Convertible Preferred Stock in the foreseeable future.
New Accounting Standards
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128, the Company
disclosed dual presentation of basic and diluted earnings per share (EPS) on the
face of the statement of operations and a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation in Note 10 of the Consolidated Financial Statements.
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 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "EITF") issued EITF No. 97-2. The EITF reached a consensus
concerning certain matters relating to the physician practice management ("PPM")
industry with respect to the consolidation of professional corporation revenues
and the accounting for business corporations. As an interim step before the
consensus, the EITF allowed PPMs to display the revenues and expenses of managed
physician practices in the statement of operations (the "alternative display
method") if the terms of the management agreement provided the PPM with a "net
profits or equivalent interest" in the net profits of the medical services
furnished by the Medical Practices. It is the Company's understanding that the
EITF did not and would not object to the use of the alternative display method
in PPM financial statements for periods ending before December 15, 1998. As the
Company does not consolidate its managed Network Sites, the adoption of EITF
97-2 in 1998 will not have a material impact on the Company's financial
32
<PAGE>
position, cash flows or results of operations. As discussed below, the Company
will discontinue the display of revenues for its Long Island and Boston Network
Sites due to changes in the respective management agreements.
Since inception through December 31, 1997, the management agreements
related to the Long Island and Boston Network Sites have been incorporated in
the Company's consolidated financial statements via the display method as the
Company believed that these management agreements provided it with a "net
profits or equivalent interest" in the net profits of the medical services
furnished by the Medical Practices at the Long Island and Boston Network Sites.
Consequently, for the Long Island and Boston Network Sites, the Company has
presented the Medical Practices' patient services revenue, less amounts retained
by the Medical Practices, or "Medical Practice retainage", as "Revenues after
Medical Practice retainage" in the accompanying consolidated statement of
operations ("display method"). Effective in October 1997 and January 1998, due
to changes in the management agreements related to the Long Island and Boston
Network Sites, respectively, the Company will no longer display the patient
services revenue of the Long Island and Boston Medical Practices. The revised
management agreements provide for the Company to receive a specific management
fee which the Company will report in "Revenues, net" in the statement of
operations.
Also in 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information," was
issued. It establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating its
options for disclosure and will adopt the statement for the fiscal year
commencing January 1, 1998.
Forward Looking Statements
This Form 10-K and discussions and/or announcements made by or on behalf of
the Company, contain 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.
Forward-looking statements may be identified by the use of forward-looking
terminology such as, "may," "will," "expect," "believe," "estimate,"
"anticipate," "continue," or similar terms, variations of those terms or the
negative of those terms. The Company's actual results may differ materially from
those described in these forward-looking statements due to the following
factors: the Company's ability to acquire additional management agreements,
including the Company's ability to finance future growth, the loss of
significant management agreement(s), the profitability or lack thereof at
Network Sites managed by the Company, the Company's ability to transition sole
practitioners to group practices, the development of the AWM Division, increases
in overhead due to expansion, the exclusion of infertility, ART and other
women's reproductive healthcare services from insurance coverage, government
laws and regulation regarding health care, changes in managed care contracting,
and the timely development of and acceptance of new infertility, ART, genetic
and/or women's healthcare technologies and techniques.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
33
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to the executive officers and directors of
the Company is incorporated by reference from the Company's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 9, 1998.
ITEM 11. Executive Compensation
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 9,
1998.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 9,
1998.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 9,
1998.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1.
(3) The exhibits that are listed on the Index to Exhibits
herein which are filed herewith as a management agreement or
compensatory plan or arrangement are: 10.95, 10.96, 10.97,
10.98, 10.99, 10.100, 10.101, 10.102, 10.103, 10.104, 10.105,
10.106, 10.107, 10.108, 10.109, 10.110, 10.111, and 10.112
(b) Reports on Form 8-K.
On January 20, 1997, the Company filed with the Securities
and Exchange Commission a Form 8-K reporting the
completion of an asset purchase and long term management
agreement with Bay Area Fertility and Gynecology Medical
Group.
(c) Exhibits.
34
<PAGE>
The list of exhibits required to be filed with this Annual Report on
Form 10-K is set forth in the Index to Exhibits herein.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Item 8 and 14 (a)(1) and (2)
Contents
Page
INTEGRAMED AMERICA, INC.
Report of Independent Accountants................................. F-2
Consolidated Balance Sheet as of December 31, 1997 and 1996....... F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1996 and 1995............................... F-4
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.................. F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.............................. F-6
Notes to Consolidated Financial Statements........................ F-7
FERTILITY CENTERS OF ILLINOIS, S.C.
Report of Independent Accountants.................................... F-29
Combined Balance Sheet as of August 19, 1997 and December 31, 1996... F-30
Combined Statement of Operations for the period January 1, 1997
through August 19, 1997 and for the years ended
December 31, 1996 and 1995........................................ F-31
Combined Statement of Shareholders' Equity for the period
January 1, 1997 through August 19, 1997 and for the
years ended December 31, 1996 and 1995............................ F-32
Combined Statement of Cash Flows for the period January 1, 1997
through August 19, 1997 and for the years ended
December 31, 1996 and 1995....................................... F-33
Notes to Combined Financial Statements............................... F-34
MPD MEDICAL ASSOCIATES (MA), P.C
Report of Independent Accountants................................. F-40
Balance Sheet as of December 31, 1997 and 1996.................... F-41
Statement of Operations for the years ended December 31, 1997,
1996 and 1995................................................... F-42
Notes to Financial Statements..................................... F-43
FINANCIAL STATEMENT SCHEDULE
Report of Independent Accounts on Financial Statement Schedule... S-1
II Valuation and Qualifying Accounts.......................... S-2
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Stamford, Connecticut
February 16, 1998
F-2
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all amounts in thousands)
<CAPTION>
December 31,
------------
1997 1996
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents....................................................... $ 1,930 $ 3,761
Short term investments.......................................................... -- 2,000
Patient accounts receivable, less allowance for doubtful accounts
of $180 and $113 in 1997 and 1996, respectively............................... 7,061 2,770
Management fees receivable, less allowance for doubtful accounts
of $214 and $50 in 1997 and 1996, respectively................................ 1,600 1,249
Other current assets............................................................ 1,757 1,129
Controlled assets of Medical Practices (see Note 2)
Cash.......................................................................... -- 191
Accounts receivable, less allowance for doubtful accounts
of $146 in 1996............................................................. -- 459
------- --------
Total controlled assets of Medical Practices.......................... -- 650
Total current assets.................................................. 12,348 11,559
------- --------
Fixed assets, net.................................................................. 4,742 3,186
Intangible assets, net............................................................. 18,445 5,894
Other assets....................................................................... 566 211
------- --------
Total assets.......................................................... $36,101 $ 20,850
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 1,475 $ 1,020
Accrued liabilities............................................................. 2,260 1,652
Due to Medical Practices--(see Notes 2 and 7)................................... 1,745 326
Dividends accrued on Preferred Stock............................................ 464 331
Current portion of exclusive management rights obligation....................... 472 222
Note payable and current portion of long-term debt.............................. 614 426
Patient deposits................................................................ 1,236 490
------- --------
Total current liabilities............................................. 8,266 4,467
------- --------
Exclusive management rights obligation............................................. 1,391 1,213
Long-term debt..................................................................... 451 692
Commitments and Contingencies-- (see Note 14)...................................... -- --
Shareholders' equity:
Preferred Stock, $1.00 par value 3,165,644 shares authorized in 1997 and 1996--
2,500,000 undesignated; 665,644 shares designated as Series A Cumulative
Convertible of which 165,644 were issued and outstanding in 1997 and 1996,
respectively.................................................................. 166 166
Common Stock, $.01 par value-- 25,000,000 shares authorized; 17,198,616
and 9,230,557 shares issued and outstanding in 1997 and 1996, respectively.... 172 92
Capital in excess of par........................................................ 46,471 35,410
Accumulated deficit............................................................. (20,816) (21,190)
------- --------
Total shareholders' equity............................................ 25,993 14,478
------- --------
Total liabilities and shareholders' equity............................ $36,101 $ 20,850
======= ========
See accompanying notes to the consolidated financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues, net (see Note 2)........................................ $24,169 $18,343 $16,711
Medical Practice retainage (see Note 2)........................... 1,531 2,680 3,063
------- ------- -------
Revenues after Medical Practice retainage (see Note 2)............ 22,638 15,663 13,648
Costs of services rendered........................................ 17,251 12,398 9,986
------- ------- -------
Network Sites' contribution....................................... 5,387 3,265 3,662
------- ------- -------
General and administrative expenses............................... 4,192 4,662 3,970
Amortization of intangible assets................................. 766 331 73
Interest income................................................... (109) (415) (626)
Interest expense.................................................. 60 36 20
------- ------- -------
Total other expenses.............................................. 4,909 4,614 3,437
------- ------- -------
Income (loss) before income taxes................................. 478 (1,349) 225
Provision for income and capital taxes............................ 104 141 155
------- ------- -------
Net income (loss)................................................. $ 374 $(1,490) $ 70
======= ======= =======
Basic earnings (loss) per share before consideration
for induced conversion of Preferred Stock (see Note 10)........ $ 0.02 $ (0.21) $ (0.09)
======= ======= =======
Diluted earnings (loss) per share before consideration
for induced conversion of Preferred Stock (see Note 10)........ $ 0.02 $ (0.21) $ (0.09)
======= ======= =======
Basic earnings (loss) per share (see Note 10)..................... $ 0.02 $ (0.68) $ (0.09)
======= ======= =======
Diluted earnings (loss) per share (see Note 10)................... $ 0.02 $ (0.68) $ (0.09)
======= ======= =======
Weighted average shares - basic................................... 12,405 7,602 6,087
======= ======= =======
Weighted average shares - diluted................................. 12,616 7,602 6,087
======= ======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(all amounts in thousands, except share amounts)
<CAPTION>
Cumulative Convertible Total
Preferred Stock Common Stock
---------------- ---------------- 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, 1994..... 863,878 $864 6,086,910 $61 $32,664 $(19,770) $13,819
Dividends accrued to preferred
shareholders ................ -- -- -- -- (600) -- (600)
Purchase and retirement of
Preferred Stock.............. (78,500) (79) -- -- (279) -- (358)
Net income....................... -- -- -- -- -- 70 70
------- ----- ---------- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1995..... 785,378 785 6,086,910 61 31,785 (19,700) 12,931
Conversion of Preferred Stock to
Common Stock, net of issuance
costs and the reversal of
accrued Preferred Stock
dividends.................... (608,234) (608) 2,432,936 24 1,298 -- 714
Issuance of Common Stock
for acquisition.............. -- -- 666,666 7 2,493 -- 2,500
Dividends accrued to preferred
shareholders ................ -- -- -- -- (132) -- (132)
Purchase and retirement of
Preferred Stock.............. (11,500) (11) -- -- (72) -- (83)
Exercise of Common Stock options. -- -- 44,045 -- 38 -- 38
Net loss......................... -- -- -- -- -- (1,490) (1,490)
------- ----- ---------- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1996..... 165,644 166 9,230,557 92 35,410 (21,190) 14,478
Issuance of Common Stock, net of
issuance costs............... -- -- 6,400,000 64 8,229 -- 8,293
Issuance of Common Stock
for acquisition.............. -- -- 1,488,251 14 2,860 -- 2,874
Other issuances of Common Stock.. -- -- 61,058 1 83 -- 84
Dividends accrued to preferred
shareholders ................ -- -- -- -- (133) -- (133)
Exercise of Common Stock options. -- -- 18,750 1 22 -- 23
Net income....................... -- -- -- -- -- 374 374
------- ----- ---------- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1997..... 165,644 $ 166 17,198,616 $172 $46,471 $(20,816) $25,993
======= ===== ========== ==== ======= ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)............................................ $ 374 $(1,490) $ 70
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization.............................. 1,812 1,116 775
Writeoff of fixed and intangible assets.................... 95 -- 21
Changes in assets and liabilities net of effects from
acquired businesses --
(Increase) decrease in assets:
Patient accounts receivable................................ (4,291) (1,318) (94)
Management fees receivable................................. (351) (124) (1,125)
Other current assets....................................... (628) (369) (304)
Other assets............................................... (333) (13) (21)
(Increase) decrease in controlled assets of Medical Practices:
Patient accounts receivable................................ 459 990 806
Other current assets....................................... -- 14 25
Increase (decrease) in liabilities:
Accounts payable........................................... 455 839 (502)
Accrued liabilities........................................ 608 106 3
Due to Medical Practices................................... 1,419 (280) (131)
Patient deposits........................................... 746 79 (77)
------- ------- --------
Net cash provided by (used in) operating activities.............. 365 (450) (554)
------- ------- --------
Cash flows (used in) provided by investing activities:
Purchase of short term investments........................... -- (500) (1,500)
Proceeds from short term investments......................... 2,000 -- --
Payment for exclusive management rights and acquired
physician practices........................................ (10,007) (984) (177)
Purchase of net assets of acquired businesses................ (661) (394) (168)
Purchase of fixed assets and leasehold improvements.......... (2,053) (1,498) (1,152)
Proceeds from sale of fixed assets and leasehold
improvements............................................... 139 86 651
------- ------- --------
Net cash (used in) provided by investing activities.............. (10,582) (3,290) (2,346)
------- ------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock....................... 9,601 -- --
Used for stock issue costs................................... (1,308) -- --
Proceeds from bank under Credit Facility..................... 250 -- --
Principal repayments on debt................................. (235) (193) (84)
Principal repayments under capital lease obligations ........ (136) (216) (173)
Repurchase of Convertible Preferred Stock.................... -- (83) (358)
Used for recapitalization costs.............................. -- (33) --
Proceeds from exercise of Common Stock options............... 23 38 --
------- ------- --------
Net cash provided by (used in) financing activities.............. 8,195 (487) (615)
------- ------- --------
Net decrease in cash............................................. (2,022) (4,227) (3,515)
Cash at beginning of period...................................... 3,952 8,179 11,694
------- ------- --------
Cash at end of period............................................ $ 1,930 $ 3,952 $ 8,179
======= ======= ========
See accompanying notes to the consolidated financial statements.
</TABLE>
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 reproductive health care, with a focus on
infertility and assisted reproductive technology ("ART") services. The Company
provides comprehensive management services to a nationwide network of medical
providers (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.
The Company operates under 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.
As of December 31, 1997, there were ten Network Sites in the RSC Division (the
"Reproductive Science Centers") with seventeen locations in eight states and the
District of Columbia and there was one Network Site with two locations under the
AWM Division which commenced operations in June 1996.
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. The Company derives its revenues
from patient service revenues, management agreements with a three-part
management fee and, with respect to the New Jersey Network Site, a management
agreement with fees based on a percentage of the revenues and reimbursed costs
of services of such Network Site. The Company does not consolidate the results
of its managed Network Sites.
In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "EITF") issued EITF No. 97-2. The EITF reached a consensus
concerning certain matters relating to the physician practice management ("PPM")
industry with respect to the consolidation of professional corporation revenues
and the accounting for business corporations. As an interim step before the
consensus, the EITF allowed PPMs to display the revenues and expenses of managed
physician practices in the statement of operations (the "alternative display
method") if the terms of the management agreement provided the PPM with a "net
profits or equivalent interest" in the net profits of the medical services
furnished by the Medical Practices. It is the Company's understanding that the
EITF did not and would not object to the use of the alternative display method
in PPM financial statements for periods ending before December 15, 1998. As the
Company does not consolidate its managed Network Sites, the adoption of EITF
97-2 in 1998 will not have a material impact on the Company's financial
position, cash flows or results of operations. As discussed below, the Company
will discontinue the display of revenues for its Long Island and Boston Network
Sites due to changes in the respective management agreements.
Since inception through December 31, 1997, the management agreements
related to the Long Island and Boston Network Sites have been incorporated in
the Company's consolidated financial statements via the display method as the
Company believed that these management agreements provided it with a "net
profits or equivalent interest" in the net profits of the medical services
furnished by the Medical Practices at the Long Island and Boston Network Sites.
Consequently, for the Long Island and Boston Network Sites, the Company has
presented the
F-7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Medical Practices' patient services revenue, less amounts retained by the
Medical Practices, or "Medical Practice retainage", as "Revenues after Medical
Practice retainage" in the accompanying consolidated statement of operations
("display method"). Effective in October 1997 and January 1998, due to changes
in the management agreements related to the Long Island and Boston Network
Sites, respectively, the Company will no longer display the patient services
revenue of the Long Island and Boston Medical Practices. The revised management
agreements provide for the Company to receive a specific management fee which
the Company will report in "Revenues, net" in the consolidated statement of
operations.
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 1997, the RSC Division's operations were comprised of ten management
agreements.
Under six of the agreements the Company receives as compensation for its
management services a three-part management fee comprised of: (i) a fixed
percentage of net revenues generally equal to 6%, (ii) reimbursed cost of
services (costs incurred in managing a Medical Practice and any costs paid on
behalf of the Medical Practice) and (iii) a fixed or variable percentage of
earnings after management fees and any guaranteed physician compensation, or an
additional fixed or variable percentage of net revenues which generally results
in the Company receiving up to an additional 15% of net revenues. All management
fees are reported as "Revenues, net" by the Company. Direct costs incurred by
the Company in performing its management services and costs incurred on behalf
of the Medical Practice are recorded in costs of services rendered. The
physicians receive as compensation all remaining earnings after payment of the
Company's management fee.
Under another form of management agreement, which had been in use at two
Network Sites during 1997, the Company recorded all patient service revenues
and, out of such revenues, the Company paid the Medical Practices' expenses,
physicians' and other medical compensation, direct materials and certain
hospital contract fees. Specifically, under the management agreement for the
Boston Network Site, the Company guaranteed a minimum physician compensation
based on an annual budget jointly determined by the Company and the physicians.
Remaining revenues, if any, which represented the Company's management fees,
were used by the Company for other direct administrative expenses which were
recorded as costs of services. Under the management agreement for the Long
Island Network Site, the Company's management fee was payable only out of
remaining revenues, if any, after the payment of all expenses of the Medical
Practice. Under these arrangements, the Company had been liable for payment of
all liabilities incurred by the Medical Practices and had been at risk for any
losses incurred in the operation thereof. Effective in October 1997 and January
1998, due to changes in the management agreements related to the Long Island and
Boston Network Sites, respectively, the Company will no longer display patient
service revenues of the Long Island and Boston Medical Practices which have been
reflected in "Revenues, net" in the Company's consolidated statement of
operations. The revised management agreements provide for the Company to receive
a specific management fee which the Company will report in "Revenues, net" in
its consolidated statement of operations. Under the revised management agreement
for the Long Island Network Site, as compensation for its management services
the Company will receive a fixed fee (initially equal to $345,000 per annum),
subject to annual increases, plus reimbursed costs of services. Under the
revised management agreement
F-8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the Boston Network Site, as compensation for its management services the
Company will receive a three-part management fee consistent to the majority of
the Company's existing management agreements. The revised agreements provide for
increased incentives and risk-sharing for the Company's affiliated Medical
Providers.
Two of the Company's Network Sites are affiliated with medical centers.
Under one of these management agreements, the Company primarily provides
endocrine testing and administrative and finance services for a fixed percentage
of revenues, equal to 15% of net revenues, and reimbursed costs of services.
Under the second of these management agreements, the Company's revenues are
derived from certain ART laboratory services performed, and directly billed to
the patients by the Company; out of these patient service 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
costs 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 patient service revenues of the Network
Site and records all direct costs incurred as costs 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 costs of services rendered. The Medical Practices receive a fixed
monthly draw which may be adjusted quarterly by the Company based on the
respective Network Site's actual operating results.
Revenues in the AWM Division also include amounts earned under contracts
relating to clinical trials between the Network Site and various pharmaceutical
companies. The Network Site contracts with major pharmaceutical companies
(sponsors) to perform women's medical care research mainly to determine the
safety and efficacy of a medication. Research revenues are recognized pursuant
to each respective contract in the period which the medical services (as
stipulated by the research study protocol) are performed and collection of such
fees is considered probable. Net realization is dependent upon final approval by
the sponsor that procedures were performed according to study protocol. Payments
collected from sponsors in advance for services are included in accrued
liabilities, and costs incurred in performing the research studies are included
in costs 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 patient service revenues
and costs of NMF and reports 49% of any profits of NMF as minority interest on
the Company's consolidated balance sheet. Minority interest at December 31, 1997
and 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-9
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short term investments --
Short term investments consist of investments in corporate commercial paper
with an original maturity of less than one year but greater than three months
and are available for sale. Investments are recorded at cost, which approximates
market.
Patient accounts receivable --
Patient accounts receivable represent receivables from patients for medical
services provided by the Medical Practices. Such amounts are recorded net of
contractual allowances and estimated bad debts and risk of loss due to
non-collectibility is borne by the Company. As of December 31, 1997, of the
total patient accounts receivable of approximately $7.1 million, approximately
$4.5 million of accounts receivable was a function of Network Site revenue
(i.e., the Company purchased the accounts receivable from the Medical Practice)
and the balance of approximately $2.6 million 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).
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, 1996, of the $650,000 controlled assets of Medical
Practices, $117,000 was restricted for payment of the amounts due to Medical
Practices and the balance of $533,000 was payable to the Company.
Controlled assets at December 31, 1997 were $0.
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-10
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets --
Intangible assets at December 31, 1997 and 1996 consisted of the following
(000's omitted):
1997 1996
---- ----
Exclusive management rights.................. $15,539 $ 2,178
Goodwill..................................... 3,890 3,935
Trademarks................................... 395 394
------- -------
Total................................... 19,824 6,507
Less-- accumulated amortization.............. (1,379) (613)
------- -------
Total................................... $18,445 $ 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 to twenty-five years. Goodwill
and other intangibles are amortized over periods ranging from three to forty
years. Trademarks are amortized over five to seven years. Accumulated
amortization of exclusive management rights, goodwill and trademarks was
$802,000, $283,000 and $294,000 at December 31, 1997, respectively, and
$270,000, $91,000 and $252,000 at December 31, 1996, respectively.
Due to Medical Practices --
As of December 31, 1997, Due to Medical Practices primarily represents net
distributions owed by the Company to the Medical Practices related to earnings
of the respective Medical Practice, the Company's management fee, the Company's
purchase of the Medical Practice's patient accounts receivable and the Company's
advances to the Medical Practice, if any.
As of December 31, 1996, 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.
F-11
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to Medical Practices excludes amounts owed by the Company to Medical
Practices for exclusive management rights (see Note 7).
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.
Earnings per share --
The Company determines earnings (loss) per share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128) which the
Company adopted in December 1997. All historical earnings (loss) per share have
been presented in accordance with FAS 128.
F-12
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- REVENUES, MEDICAL PRACTICE RETAINAGE AND COSTS OF SERVICES:
The following table sets forth for the years ended December 31, 1997, 1996
and 1995, revenues, Medical Practice retainage and costs of services for each of
the Company's three types of management agreements (patient service revenues,
three-part management fee and percent of revenues and reimbursed costs of
services) and revenues and costs of services for the AWM Division (000's
omitted):
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
Revenues, net:
RSC Division --
<S> <C> <C> <C>
Patient service revenues.................................. $10,154 $11,449 $13,820
Management fees--three part management fee................ 8,251 3,159 981
Management fees-- percent of revenues and reimbursed
costs of services of the New Jersey Network Site....... 3,685 2,978 1,910
------- ------- -------
Total RSC Division revenues, net............... 22,090 17,586 16,711
------- ------- -------
AWM Division-- revenues................................... 2,079 757 --
------- ------- -------
Total revenues, net............................ $24,169 $18,343 $16,711
======= ======= =======
Medical Practice retainage:
RSC Division --
Medical Practice retainage related to
patient service revenues............................ $ 1,531 $ 2,680 $3,063
======= ======= ======
Costs of services:
RSC Division --
Costs related to patient service revenues................. $6,282 $ 7,465 $ 7,963
Costs related to three part management fees............... 7,112 3,049 933
Costs related to New Jersey Network Site ................. 1,546 1,095 1,090
------- ------- -------
Total RSC division costs of services.............. 14,940 11,609 9,986
------- ------- -------
AWM Division--Costs of services.............................. 2,311 789 --
------- ------- -------
Total costs of services........................... $17,251 $12,398 $ 9,986
======= ======= =======
</TABLE>
For the years ended December 31, 1997 and 1996, the Boston Network Site,
which is reflected as patient service revenues under the RSC Division, provided
28.4% and 38.5% and 35.2% and 58.8% of "Revenues, net" and Network Sites'
contribution, respectively, of the Company. Summary financial information for
this Network Site is as follows (000's omitted):
<TABLE>
For the years ended December 31,
--------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues, net............................................. $6,868 $7,063 $6,594
Medical Practice retainage................................ 1,105 1,015 556
------ ------ ------
Revenues after Medical
Practice retainage..................................... 5,763 6,048 6,038
Costs of services rendered............................... 3,867 4,126 3,970
------ ------ ------
Network Site's contribution.............................. $1,896 $1,922 $2,068
====== ====== ======
</TABLE>
F-13
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, for the years ended December 31, 1997 and 1996, the New Jersey
Network Site, which management fee is based upon a percentage of revenues,
provided 15.3% and 16.2% and 39.7% and 57.7% of "Revenues, net" and Network
Sites' contribution, respectively, of the Company.
NOTE 4 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1997 and 1996 consisted of the following
(000's omitted):
1997 1996
------- -------
Furniture, office and other equipment..... $2,768 $ 2,145
Medical equipment......................... 2,093 1,954
Leasehold improvements.................... 2,408 1,246
Assets under capital leases............... 1,234 1,426
------ ------
Total................................. 8,503 6,771
Less--Accumulated depreciation and
amortization.......................... (3,761) (3,585)
------ -------
$4,742 $ 3,186
====== =======
Assets under capital leases primarily consist of medical equipment.
Accumulated amortization relating to capital leases at December 31, 1997 and
1996 was $1,011,000 and $1,065,000, respectively.
NOTE 5 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1997 and 1996 consisted of the
following (000's omitted):
1997 1996
---- ----
Accrued insurance............................... $ 483 $ --
Deferred compensation........................... 367 357
Accrued payroll and benefits.................... 239 226
Deferred research revenue....................... 223 118
Accrued state taxes............................. 198 166
Deferred rent................................... 147 166
Westchester Network Site closing reserve........ -- 90
Other........................................... 603 529
------ ------
Total accrued liabilities....................... $2,260 $1,652
====== ======
NOTE 6 -- ACQUISITIONS AND MANAGEMENT AGREEMENTS:
The transactions detailed below were accounted for by the purchase method
and the purchase price has been allocated to the assets acquired and liabilities
assumed based upon the estimated fair value at the date of acquisition. The
consolidated financial statements at and for the year ended December 31, 1997
and 1996 include the results of these transactions from their respective dates
of acquisition.
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.
F-14
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Company acquired certain assets of and the right to
manage Reproductive Science Medical Center, Inc. ("RSMC"), a California
professional corporation located near San Diego, CA (the "San Diego
Acquisition"). The aggregate purchase price for the San Diego Acquisition was
approximately $900,000, consisting of $50,000 in cash and 145,454 shares of
Common Stock payable at closing and $650,000 payable upon the achievement of
certain specified milestones, at RSMC's option, in cash or in shares of the
Company's Common Stock, based on the closing market price of the Common Stock on
the third business day prior to issuance. See Note 17.
In August 1997, the Company acquired certain fixed assets of and the right
to manage Fertility Centers of Illinois, S.C. ("FCI"), a physician group
practice comprised of six physicians and six locations in the Chicago, Illinois
area. The aggregate purchase price was approximately $8.6 million, consisting of
approximately $6.6 million in cash and 1,009,464 shares of Common Stock.
Approximately $8.0 million of the aggregate purchase price was allocated to
exclusive management rights and $559,000 was allocated to certain fixed assets.
Simultaneous with closing on the FCI transaction, the Company, on behalf of
FCI, completed its first in- market merger with the addition of Edward L. Marut,
MD to the FCI practice. The aggregate purchase price was $803,000 in cash, of
which $750,000 was allocated to exclusive management rights and $53,000 was
allocated to certain fixed assets.
On June 7, 1996, the Company entered into an Agreement and Plan of Merger
(the "Agreement") pursuant to which INMD Acquisition Corp. ("IAC"), a Florida
corporation and wholly-owned subsidiary of the Company, acquired all of the
outstanding stock of the following three related Florida corporations: The
Climacteric Clinic, Inc. ("CCI"), Midlife Centers of America, Inc. ("MCA"), and
Women's Research Centers, Inc. ("WRC"), America, (collectively, the "Merger
Companies"), and 51% of the outstanding stock of NMF, a related Florida
corporation. Pursuant to the Agreement, the Merger Companies were merged with
and into IAC, the surviving corporation in the Merger, which will continue its
corporate existence under the laws of the State of Florida under the name Adult
Women's Medical Center, Inc. ("AWMC"). In exchange for the shares of the Merger
Companies, the Company paid cash in an aggregate amount of $350,000 and issued
666,666 shares of Common Stock which had a market value of $2.5 million. In
exchange for the 51% of the outstanding stock of NMF, the Company paid cash in
an aggregate amount of $50,000 and issued a note in an amount of $600,000, which
is payable in sixteen quarterly installments of $37,500 beginning September 1,
1996 with simple interest at a rate of 4.16%. The Merger Companies and NMF
represent one of the locations under the Women's Medical & Diagnostic Center
("WMDC").
The aggregate purchase price of the Merger Companies of $2,850,000 was
allocated as follows to assets acquired and liabilities assumed: $338,000 to
current assets, $99,000 to fixed assets, $214,000 to intangible assets which
will be amortized over a three-year period, $235,000 to accrued liabilities,
$97,000 to debt and the balance of $2,531,000 to goodwill, which will be
amortized over a forty-year period. The aggregate purchase price of NMF of
$650,000 was allocated as follows: $2,000 to current assets, $30,000 to fixed
assets, $10,000 to current liabilities and the $628,000 balance to goodwill,
which will be amortized over a forty-year period.
On May 15, 1996, the Company acquired certain assets of and the right to
manage W.F. Howard, M.D., P.A. near Dallas, Texas (the "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.
The following unaudited pro forma results of operations for the year ended
December 31, 1997 have been prepared by management based on the audited
financial information of FCI and the unaudited financial information
F-15
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for Shady Grove, the Maryland professional corporation (Refer to Note 17 --
Subsequent Events -- regarding the Shady Grove acquisition), adjusted where
necessary, with respect to pre-acquisition periods, to the basis of accounting
used in the historical financial statements of the Company. Bay Area Fertility
results for the year ended December 31, 1997 are included from the date of
acquisition, January 7, 1997. The following unaudited pro forma results of
operations for the year ended December 31, 1996 have been prepared by management
based on the audited financial information of Bay Area Fertility Reproductive
Sciences Medical Center and of FCI and the unaudited financial information of
Shady Grove (the Maryland professional corporation), the Merger Companies and
NMF and the RSC of Dallas, 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
results to reflect operations as if the related management agreements had been
consummated on January 1, 1997 and 1996, 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 management agreement had been in effect on the dates indicated or which
may be obtained in the future.
<TABLE>
<CAPTION>
For the years ended
December 31,
(000's omitted)
-------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Revenues, net.............................................................. $33,813 $30,047
Income (loss) before income taxes (1)...................................... $ 1,700 $ (602)
Net income (loss) before consideration for induced conversion of
Preferred Stock in 1996................................................. $ 1,356 $ (889)
Basic earnings (loss) per share before consideration for induced
conversion of Preferred Stock in 1996................................... $ 0.08 $ (0.09)
Diluted earnings (loss) per share before consideration for induced
conversion of Preferred Stock in 1996................................... $ 0.08 $ (0.09)
</TABLE>
(1) Income (loss) before income taxes includes approximately $1.4 million and
$1.2 million of amortization of exclusive management rights and goodwill in
1997 and 1996, respectively.
NOTE 7 -- EXCLUSIVE MANAGEMENT RIGHTS OBLIGATION:
Exclusive management rights obligation represents the liability owed by the
Company to Medical Practices for the cost of acquiring the exclusive right to
manage the non-medical aspects of the Medical Practices' infertility practices.
Typically, the Company will pay cash for a portion of such cost at the inception
of the management agreement and pay the balance in equal installments over a
two- to three-year period or over the life of the agreement, where the term is
equal to ten years.
At December 31, 1997, aggregate exclusive management rights obligation
payments in future years were as follows (000's omitted):
1998........................................... $ 472
1999........................................... 459
2000........................................... 259
2001........................................... 159
2002........................................... 159
Thereafter..................................... 355
Total payments................................. $1,863
F-16
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- DEBT:
Debt at December 31, 1997 and 1996 consisted of the following (000's
omitted):
1997 1996
---- ----
Acquisition note payable............................. $ 375 $ 525
Note payable to Bank................................. 292 --
Notes payable to Medical Practices employed
by the Company................................. 220 220
Obligations under capital lease...................... 178 269
Construction loan.................................... -- 51
Other................................................ -- 53
----- ------
Total debt........................................... 1,065 1,118
Less--Current portion................................. (614) (426)
----- ------
Long-term debt....................................... $ 451 $ 692
===== ======
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 December 31, 1997, was 9.25%. The Credit
Facility terminates on July 1, 1998 and is secured by the Company's assets. At
December 31, 1997, $250,000 was outstanding under the Credit Facility and is
included in "Note payable and current portion of long-term debt" in the
accompanying consolidated balance sheet. At December 31, 1996, no amounts were
outstanding under the Credit Facility.
On November 13, 1997, the Company entered into a $4.0 million non-restoring
line of credit dated November 13, 1997 with the Bank (the "New Credit
Facility"). Borrowings under the New Credit Facility bear interest at the Bank's
prime rate plus 1% per annum. Accrued interest only on borrowings is payable
commencing December 1, 1997 and all principal and accrued interest is due and
payable on April 30, 1999. The New Credit Facility will be cross collateralized
and cross-defaulted with the Credit Facility and is secured by the Company's
assets. As of December 31, 1997, no amounts were outstanding under the New
Credit Facility.
In June 1996, the Company purchased a 51% interest in NMF for a total
purchase price of $650,000, of which $50,000 was paid at closing and the balance
is to be paid in sixteen quarterly installments of $37,500 beginning September
1, 1996. Interest is payable quarterly at the rate of 4.16% (see Note 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 January 1998, as part of a termination agreement, this note was
canceled.
In May 1992, the Company obtained a $350,000 construction loan for the
development of its New Jersey Network Site of which $0 and $51,000 were
outstanding at December 31, 1997 and 1996, respectively. The debt was payable in
fifty-four monthly installments of $6,481 commencing on April 1, 1993 through
September 1, 1997. Interest was payable at the bank's prime rate which was 8.25%
at December 31, 1996.
Capital lease obligations relate primarily to furniture and medical
equipment for the Network Sites. The current portion of capital lease
obligations was $131,000 and $139,000 at December 31, 1997 and 1996,
respectively.
The Company has operating leases for its corporate headquarters and for
medical office space relating to its managed Network Sites. In 1997 and 1996,
the Company also entered into operating leases for certain medical
F-17
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment. Aggregate rental expense under operating leases was $1,284,000,
$540,000 and $522,000 for the year ended December 31, 1997, 1996 and 1995,
respectively. Refer to Note 14 -- "Commitments and Contingencies -- Commitments
to Medical Practices."
At December 31, 1997, the minimum lease payments for assets under capital
and noncancelable operating leases in future years were as follows (000's
omitted):
Capital Operating
------- ---------
1998........................................... $140 $1,290
1999........................................... 46 1,164
2000........................................... 4 633
2001........................................... -- 462
2002........................................... -- 789
Thereafter..................................... -- 634
---- ------
Total minimum lease payments................... 190 $4,972
======
Less-- Amount representing interest............ (12)
----
Present value of minimum lease payments........ $178
====
NOTE 9 -- INCOME TAXES
The deferred tax provision was determined under the asset and liability
approach. Deferred tax assets and liabilities were recognized on differences
between the book and tax basis of assets and liabilities using presently enacted
tax rates. The provision for income taxes was the sum of the amount of income
tax paid or payable for the year as determined by applying the provisions of
enacted tax laws to the taxable income for that year and the net change during
the year in the Company's deferred tax assets and liabilities. The provision for
the years ended December 31, 1997, 1996 and 1995 of $104,000, $141,000 and
$155,000, 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.
At December 31, 1997, the Company had operating loss carryforwards of
approximately $18.2 million which expire in 2002 through 2012. For tax purposes,
there is an annual limitation of approximately $2.0 million on the utilization
of net operating losses resulting from changes in ownership attributable to the
Company's May 1993 Preferred Stock Offering and the August 1997 Common Stock
Offering and FCI acquisition.
Significant components of the noncurrent deferred tax assets (liabilities)
at December 31, 1997 and 1996 were as follows (000's omitted):
December 31,
------------
1997 1996
----- -----
Net operating loss carryforwards........... $6,900 $6,777
Other...................................... 500 438
Valuation allowance........................ (7,250) (7,115)
------ ------
Deferred tax assets........................ 150 100
Deferred tax liabilities................... (150) (100)
------- ------
Net deferred taxes......................... $ -- $ --
======= ======
F-18
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1997, 1996 and 1995 as a result of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at Federal statutory rate.......... $167,000 $(472,000) $ 79,000
State income taxes....................................... 104,000 141,000 155,000
Net operating profit or loss (providing)
not providing current year tax benefit................. (167,000) 472,000 (79,000)
-------- --------- ----------
Provision for income taxes............................... $104,000 $141,000 $ 155,000
======== ======== =========
</TABLE>
NOTE 10 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 1997, 1996, and 1995
is as follows (000's omitted, except for per share amounts):
<TABLE>
<CAPTION>
1997 1996(1) 1995
----------------------------- ----------------------------- ----------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator)Amount (Numerator)(Denominator)Amount (Numerator)(Denominator)Amount
--------- ----------- ------ ----------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)............ $374 $(1,490) $ 70
Less: Preferred stock
dividends accrued......... (133) (132) (600)
---- -------- -----
Basic EPS
Income (loss) available to
Common stockholders....... $241 12,405 $0.02 $(1,622) 7,602 $(0.21) $(530) 6,087 $(0.09)
==== ====== ===== ======= ===== ====== ===== ===== ======
Effect of Dilutive Securities
Options...................... -- 187 -- -- -- --
Warrants..................... -- 24 -- -- -- --
---- ------ ------- ----- ----- ----
Diluted EPS (1)
Income (loss) available to
Common stockholders + assumed
conversions............... $241 12,616 $0.02 $(1,622) 7,602 $(0.21) $(530) 6,087 $(0.09)
==== ====== ===== ======= ===== ====== ===== ===== ======
</TABLE>
(1) For the year ended December 31, 1996, basic and diluted earnings per share
of $(0.21) exclude the effect of the induced conversion of Preferred Stock in
1996. Net loss applicable to Common Stock before consideration for induced
conversion of Preferred Stock of $1,622,000 would be increased by $3,292,000,
the assumed value of Common Stock issued to induce conversion of Preferred
Stock, net of the reversal of $973,000 of accrued Preferred Stock dividends, to
arrive at the net loss applicable to Common Stock after consideration for
induced conversion of Preferred Stock of $4,914,000. The assumed per share value
of the conversion inducement was $(0.47) bringing the basic and diluted loss per
share of Common Stock to $(0.68) (after induced conversion of Preferred Stock).
F-19
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options to purchase 1,190,419 shares of Common Stock at prices ranging from
$1.87 to $3.75 per share were outstanding as of December 31, 1997 but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the Common shares. The approximate
remaining weighted average life of these options is 8.1 years.
For the year ended December 31, 1997, the 492,791 incremental shares from
the assumed conversion of Preferred Stock are excluded in computing the diluted
per share amount as they are antidilutive.
For the years ended December 31, 1996 and 1995, the effect of the assumed
conversion of options to purchase 1,066,816 shares of Common Stock at a weighted
average exercise price of $1.92 and options to purchase 843,202 shares of Common
Stock at a weighted average exercise price of $1.63, respectively, and 250 and
980 of incremental shares from the assumed conversion of Preferred Stock are
excluded in computing the diluted per share amount as they are antidilutive.
NOTE 11 -- SHAREHOLDERS' EQUITY:
In August 1997, the Company consummated an offering of 6,400,000 shares of
Common Stock (the "Offering"). The Offering raised gross proceeds of $9.6
million and net proceeds of approximately $8.3 million. Approximately $6.6
million of the net proceeds was used for the asset purchase and right-to-manage
agreement with Fertility Centers of Illinois, S.C. The balance of the proceeds
of the Offering have been and will continue to be used for working capital and
other general corporate purposes, including possible future acquisitions of the
assets of, and the right to manage, additional physician practices. In
connection with the Offering, five-year warrants to purchase 79,627 shares of
Common Stock at $1.81 per share were issued to Vector Securities International,
Inc. See Note 17.
As a result of the issuance of the Common Stock pursuant to the Company's
acquisitions in 1997 and 1996 and the Offering, 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 2.975 shares of Common Stock for each share of
Preferred Stock as of December 31, 1997.
On June 6, 1996, the Company made its second 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
F-20
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
offset by the reversal of $973,000accrued 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 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.
As of December 31, 1997, fourteen quarterly dividend payments have been
suspended resulting in approximately $464,000 of dividend payments being in
arrears.
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, 1997.
As of December 31, 1997, an aggregate of 774,805 warrants were outstanding
at a weighted average exercise price of $4.60.
NOTE 12 -- STOCK OPTIONS:
Under the 1988 Stock Option Plan (as amended), (the "1988 Plan") and the
1992 Stock Option Plan (the "1992 Plan"), 161,627 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
F-21
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Under the 1994 Outside Director Stock Purchase Plan ("Outside Director
Plan"), 125,000 shares of Common Stock are reserved for issuance. Under the
Outside Director Plan, 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, 1997 and 1996,
there were no options outstanding under the Outside Director Plan.
Stock option activity, under the 1988 and 1992 Plans combined, is
summarized as follows:
Number of
shares of
Common Stock
underlying Weighted Average
options exercise price
----------- ----------------
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
Granted
Option Price = Fair Market Value...... 362,484 $2.08
Exercised.................................. 18,750 $1.20
Canceled................................... 215,135 $2.38
---------
Options outstanding at December 31, 1997... 1,195,415 $1.90
=========
Options exercisable at:
December 31, 1995..................... 270,035 $1.47
December 31, 1996..................... 406,968 $1.54
December 31, 1997..................... 583,897 $1.66
Included in options that were canceled during 1997, 1996 and 1995 were
forfeitures (representing canceled unvested options only) of 155,580, 56,710 and
16,034, with weighted average exercise prices of $1.99, $2.30 and $2.10,
respectively.
The average remaining life of the 1,195,415 options outstanding at December
31, 1997, under the 1988 and 1992 Plan combined, was 7.8 years at exercise
prices ranging from $0.63 to $3.75.
F-22
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $771,000 lower and diluted earnings per share would be $0.05 lower for the
year ended December 31, 1997. Pro forma net loss and earnings per share for the
year ended December 31, 1996 would be $313,000 and $0.04 higher, respectively,
versus reported amounts. Pro forma net income would be $38,000 lower and loss
per share would be $0.01 higher for the year ended December 31, 1995. The
weighted average fair value of options granted during the years ended December
31, 1997, 1996 and 1995 was $1.58, $2.91 ( $1.99 for options granted at prices
higher than fair value) and $2.28, respectively. These values, which were used
as a basis for the pro forma disclosures, were estimated using the Black-Scholes
Options-Pricing Model with the following assumptions used for grants in the
years ended December 31, 1997, 1996 and 1995, respectively; dividend yield of 0%
in each year; volatility of 86.28%, 108.72%, and 115.18% in 1997, 1996 and 1995,
respectively; risk-free interest rate of 6.3%, 6.7% and 6.3% in 1997, 1996 and
1995, respectively; and an expected term of 6 years for each year.
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, 1997
and 1996 was $367,000 and $357,000, respectively. Total compensation cost
recognized in income for the years ended December 31, 1997 and 1996 was $20,000
and $43,000, respectively.
NOTE 13 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1997 and 1996 (in thousands, except
per share data) appear below:
<TABLE>
<CAPTION>
Network Sites' Net Net income (loss)
Revenues, net contribution income (loss) per share (1)
------------- ------------ ------------- -------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter....... $ 5,088 $ 4,175 $1,077 $ 818 $(45) $ (74) $(.01) $(0.04)
Second quarter...... 5,466 4,822 1,307 1,116 94 85 .01 (0.01)
Third quarter....... 5,822 5,016 1,326 577 108 (693) .01 (0.08)
Fourth quarter...... 7,793 4,330 1,677 754 217 (808) .01 (0.09)
------- ------- ------ ------- ---- -------
Total year.......... $24,169 $18,343 $5,387 $ 3,265 $374 $(1,490) $0.02 $(0.21)
======= ======= ====== ======= ==== =======
</TABLE>
(1) Refer to Note 11 -- Shareholders' Equity -- regarding the impact of the
Company's Second Offer on net loss per share in 1996.
F-23
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- COMMITMENTS AND CONTINGENCIES:
Clinical Services Development
The Company has commitments to fund clinical services development pursuant
to various collaboration agreements. Effective July 1, 1995, the Company entered
into a new three-year agreement with Monash University which provides for Monash
to conduct research in ART and human fertility to be funded by a minimum annual
payment of 220,000 in Australian dollars, the results to be jointly owned by the
Company and Monash. If certain milestones are met as specified in the Agreement,
the Company's annual payment may be a maximum of 300,000 Australian dollars in
year two and 380,000 Australian dollars in year three. Minimum payments of
55,000 Australian dollars and payments for the attainment of certain research
milestones will be made quarterly throughout the term of the Agreement, July 1,
1995 through June 30, 1998. The Company expensed approximately $144,000 and
$189,000 under this agreement for the years ended December 31, 1997 and 1996.
Under its contract for a joint development program for genetic testing with
Genzyme Genetics ("Genzyme"), the Company funded approximately $0 and $56,000 in
the years ended December 31, 1997 and 1996, respectively. The Company and
Genzyme mutually agreed to terminate this contract in December 1996; the Company
retained the right to use the technology developed under the contract through
this date.
Operating Leases
Refer to Note 8 for a summary of lease commitments.
Reliance on Third Party Vendors
The Network sites under the RSC Division are dependent on three third-party
vendors that produce patient fertility medications (lupron, metrodin and
fertinex)which are vital to the provision of ART services. Should any of these
vendors experience a supply shortage of medication, it may have an adverse
impact on the operations of the Network sites. To date, the Network sites under
the RSC Division have not experienced any such adverse impacts.
Employment Agreements
The Company has entered into employment and change in control severance
agreements with certain of its management employees, which include, among other
terms, noncompetitive provisions and salary and benefits continuation. The
Company's minimum aggregate commitment under these agreements at December 31,
1997 was approximately $1.8 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. Under two management agreements, the
Company has guaranteed certain physicians of the Medical Practices an annual
F-24
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amount of compensation (i.e., medical practice distributions) during the first
twelve months of the agreement. Minimum annual physician salary guaranteed at
December 31, 1997 was $265,000.
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 expensed pursuant to such agreements
was $558,000, $856,000 and $1,136,000, for the years ended December 31, 1997,
1996 and 1995.
Litigation
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 appealed this decision. In June 1997,
the Appellate Division of the Supreme Court of the State of New York, Second
Department affirmed the lower court decision. As a result of prior court
proceedings and the June 1997 decision, the plaintiffs are left with lack of
informed consent as the sole claim against defendants for which defendants have
moved for summary judgment based on the untimeliness of this claim.
There are a few 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:
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 1997, 1996 and 1995 for aggregate fees of approximately $93,000,
$17,000 and $22,000, respectively.
Pursuant to the Company's management agreement with FCI, Aaron Lifchez,
M.D., an employed shareholder physician of FCI, became a member of the Company's
Board of Directors in August 1997.
Under its contract for a joint development program for genetic testing with
Genzyme, the Company funded approximately $0, $56,000 and $134,000 in the years
ended December 31, 1997, 1996 and 1995, 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.
F-25
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company's acquisition of WMDC in June 1996 (see Note
7), Morris Notelovitz, M.D., Ph.D. (the "Physician") became a member of the
Company's Board of Directors, and under two long term employment agreements (the
"Employment Agreements"), one being with the Company and the other with AWMC,
the Physician agreed to serve as Vice President for Medical Affairs and Medical
Director of the AWM Division and agreed to provide medical services under the
AWM Division, as defined, respectively. Effective January 1, 1997, Dr.
Notelovitz resigned from his position as a director of the Company and
terminated the Employment Agreements (medical services under the Employment
Agreement with AWMC were terminated effective March 31, 1997) (see Note 8).
NOTE 16 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS:
In 1997, in connection with the Company's acquisition of certain assets of
and the right to manage Bay Area Fertility, RSMC and FCI, the Company issued an
aggregate of 1,488,251 shares of Common Stock.
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, in connection the Company's acquisition of certain assets of
and the right to manage W.F. Howard, M.D., P.A. located near Dallas, Texas, the
Company incurred a $550,000 obligation (see Note 7).
In 1996, in connection with the Company's acquisition of certain assets of
and the right to manage the Philadelphia Network Site, the Company incurred a
$1,000,000 obligation (see Note 7).
At December 31, 1997 and 1996 there were accrued dividends on Preferred
Stock outstanding of $464,000 and $331,000, respectively, (see Note 11).
Pursuant to the Second Offer (see Note 11), 608,234 shares of Preferred
Stock were converted into 2,432,936 shares of Common Stock during the year ended
December 31, 1996.
Controlled cash of Medical Practices decreased $191,000, $105,000 and
$193,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
State taxes, which primarily reflect Massachusetts income taxes and
Connecticut capital taxes, of $93,000, $119,000 and $155,000 were paid in the
years ended December 31, 1997, 1996 and 1995, respectively.
Interest paid in cash during the year ended December 31, 1997, 1996 and
1995, amounted to $60,000, $35,000 and $20,000, respectively. Interest received
during the years ended December 31, 1997, 1996 and 1995 amounted to $179,000,
$412,000 and $648,000, respectively.
F-26
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- SUBSEQUENT EVENTS -- (Unaudited):
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the FCI practice. The Company acquired certain
assets of Advocate Medical Group, S.C. ("AMG") and Advocate MSO, Inc. and
acquired the right to manage AMG's infertility practice conducted under the name
Center for Reproductive Medicine ("CFRM"). Simultaneous with closing on this
transaction, the Company amended its management agreement with FCI to include
two of the three physicians practicing under the name CFRM. The aggregate
purchase price was approximately $1.5 million, consisting of approximately $1.2
million in cash and 184,314 shares of Common Stock. The majority of the purchase
price was allocated to exclusive management rights.
On March 10, 1998, the Company received notice from RSMC claiming that the
Company has materially breached its management agreement with RSMC and demanding
that the alleged breaches be remedied. Contrary to RSMC's assertions, the
Company believes both that it has materially performed its obligations under the
management agreement with RSMC and that RSMC has materially breached its
obligations to the Company under the management agreement, as well as other
agreements with the Company. While the Company continues to perform, it is
endeavoring to submit the dispute to binding arbitration, which is the governing
dispute-resolution process required under the management agreement, and may be
compelled to seek rescission of all agreements with RSMC. The Company can offer
no assurance that resolution of this matter will not result in the termination
of the management agreement or otherwise adversely impact the Company.
During the first quarter of 1998, the Company closed on an equity private
placement of $5.5 million with Morgan Stanley Venture Partners III, L.P., the
venture capital affiliate of Morgan Stanley, Dean Witter, Discover & Co.
providing for the purchase of 3,235,294 shares of the Company's Common Stock at
a price of $1.70 per share and 240,000 warrants to purchase shares of the
Company's Common Stock, at a nominal exercise price. The Company used or will
use approximately half of these funds to acquire the majority of the capital
stock of Shady Grove Fertility Centers, Inc. ("Shady Grove"), currently a
Maryland business corporation which provides management services, and formerly a
Maryland professional corporation engaged in providing infertility services.
Prior to the closing of the transaction, Shady Grove had entered into a
twenty-year management agreement with Levy, Sagoskin and Stillman, M.D., P.C.
(the " Shady Grove P.C."), an infertility physician group practice comprised of
six physicians and four locations surrounding the greater Washington, D.C. area.
The Company will acquire the balance of the Shady Grove capital stock on or
about November 1, 1998. The aggregate purchase price for all of the Shady Grove
capital stock was approximately $5.7 million, consisting of approximately $2.8
million in cash, $1.4 million in Common Stock, and $1.5 million in promissory
notes The promissory notes are payable in two aggregate annual installments of
$750,000, due on April 1, 1999 and 2000, respectively, and bear interest at an
annual rate of 8.5%. The purchase price was allocated to the various assets and
liabilities assumed and the balance was allocated to exclusive management
rights. On March 12, 1998, the Closing Date, the following consideration was
paid: (i) approximately $1.8 million in cash, (ii) approximately $1.2 million in
stock or 639,551 shares of Common Stock, and (iii) approximately $1.1 million in
promissory notes. The Company will pay the balance of the aggregate purchase
price on or about November 1, 1998 (the "Second Closing Date"), when the balance
of the Shady Grove capital stock is transferred to the Company. The number of
shares of Company Common Stock to be issued on the Second Closing Date, which
will have a fair market value of approximately $200,000, will be determined
based upon the average closing price of the Company's Common Stock for the
ten-day trading period prior to the third business day before the Second Closing
Date, provided, however, that in no event will the price per share exceed $2.00
or be less than $1.70 for purposes of this calculation.
In connection with the Company's January 1998 equity private placement with
Morgan Stanley Venture Partners, M. Fazle Husain, General Partner, became a
member of the Company's Board of Directors.
F-27
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Company's management agreement with Shady Grove, Michael J.
Levy, M.D., an employed shareholder physician of the P.C., became a member of
the Company's Board of Directors effective March 12, 1998.
In March 1998, pursuant to Amendment No. 5 to the FCI management agreement,
the Company issued an aggregate of 60,000 warrants at an exercise price of $1.80
to the three shareholder physicians of FCI in exchange for an extension of the
term of the Company's management agreement from twenty to twenty-five years.
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 Fertility Centers of
Illinois, S.C. and its affiliated companies (the "Company") at August 19, 1997
and December 31, 1996, and the results of their operations and their cash flows
for the period January 1, 1997 through August 19, 1997 and the years ended
December 31, 1996 and 1995 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 3 to the combined financial statements, the Company
entered into agreements on August 19, 1997 to sell certain assets and give
IntegraMed America, Inc. the right to manage the Company over a twenty-year
period.
/s/Price Waterhouse LLP
- -----------------------
Price Waterhouse LLP
Stamford, Connecticut
February 16, 1998
F-29
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
August 19, December 31,
---------- ------------
1997 1996
---------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents........................................... $ 885,296 $ 427,707
Patient accounts receivable, less allowance for doubtful accounts
of $378,124 and $165,352 in 1997 and 1996, respectively........... 1,819,394 1,583,230
Receivable from IVF Illinois........................................ 53,600 106,312
Note receivable from related party.................................. 100,000 100,000
Other current assets................................................ 82,213 64,385
---------- ----------
Total current assets.......................................... 2,940,503 2,281,634
---------- ----------
Fixed assets, net................................................... 620,601 598,462
Investment in IVF Illinois.......................................... 75,000 75,000
Other assets........................................................ 216,274 57,784
---------- ----------
Total assets.................................................. $3,852,378 $3,012,880
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................ $ 400,359 $207,700
Equipment payable................................................... -- 76,259
Taxes payable....................................................... 588,879 215,039
Employee loans...................................................... 41,865 33,520
Accrued pension and profit sharing.................................. 64,066 90,241
Current portion of long-term debt................................... 27,494 162,060
Patient deposits.................................................... 392,335 504,381
Other liabilities................................................... 41,148 5,602
---------- ----------
Total current liabilities......................................... 1,556,146 1,294,802
---------- ----------
Long-term debt...................................................... 119,547 159,568
Commitments and contingencies....................................... -- --
Stockholders' equity:
Common stock (4,050 shares issued and outstanding at
August 19, 1997 and December 31, 1996, respectively).............. 4,500 4,500
Capital in excess of par............................................ 29,000 29,000
Accumulated earnings................................................ 2,143,185 1,525,010
---------- ----------
Total stockholders' equity.................................... 2,176,685 1,558,510
---------- ----------
Total liabilities and stockholders' equity.................... $3,852,378 $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
<TABLE>
<CAPTION>
For the period
January 1, 1997 For the For the
through year ended year ended
August 19, December 31, December 31,
----------- ----------- -----------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net.................................. $ 6,112,707 $ 8,338,791 $ 7,044,850
Costs of services rendered..................... 3,919,614 6,735,923 5,601,743
----------- ----------- -----------
Contribution................................... 2,193,093 1,602,868 1,443,107
General and administrative expenses............ 953,840 1,122,407 1,073,302
Interest income................................ (151) (11,679) (4,486)
Interest expense............................... 11,442 33,168 24,296
----------- ----------- -----------
Total other expenses........................... 965,131 1,143,896 1,093,112
----------- ----------- -----------
Income before income taxes..................... 1,227,962 458,972 349,995
Provision for taxes............................ 429,787 145,102 92,823
----------- ----------- -----------
Net income..................................... $ 798,175 $ 313,870 $ 257,172
=========== =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-31
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Total
Common Stock in Excess Accumulated Stockholders'
Shares Amount of Par Earnings Equity
------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1995............. 4,050 $4,500 $29,000 $1,187,468 $1,220,968
Net income................................ -- -- -- 257,172 257,172
Distributions to stockholders............. -- -- -- (130,000) (130,000)
----- ------ ------- ---------- ----------
Balance as of December 31, 1995........... 4,050 4,500 29,000 1,314,640 1,348,140
Net income................................ -- -- -- 313,870 313,870
Distributions to stockholders............. -- -- -- (103,500) (103,500)
----- ------ ------- ---------- ----------
Balance as of December 31, 1996........... 4,050 4,500 29,000 1,525,010 1,558,510
Net income................................ -- -- -- 798,175 798,175
Distributions to stockholders............. -- -- -- (180,000) (180,000)
----- ------ ------- ---------- ----------
Balance as of August 19, 1997............. 4,050 $4,500 $29,000 $2,143,185 $2,176,685
===== ====== ======= ========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-32
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
January 1, 1997 For the For the
through year ended year ended
August 19, December 31, December 31,
---------- ------------ ------------
1997 1996 1995
---------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.................................................... $ 798,175 $313,870 $257,172
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 91,555 137,146 112,517
Loss on sale of fixed assets................................ -- 42,268 27,956
Bad debt reserve............................................ 212,772 83,451 41,081
Changes in assets and liabilities:
(Increase) decrease in assets:
Patient accounts receivable............................... (448,936) (645,094) (345,827)
Other assets.............................................. 34,884 (11,580) (50,346)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities.................. 116,400 3,200 76,655
Taxes payable............................................. 373,840 126,754 85,783
Employee loans............................................ 7,628 (33,248) 2,905
Accrued pension and profit sharing........................ (26,175) (264,159) 354,400
Patient deposits.......................................... (112,086) 464,923 31,958
Other accrued liabilities................................. 36,236 81,861 (10,000)
--------- -------- ---------
Net cash provided by operating activities........................ 1,084,293 299,392 584,254
--------- -------- ---------
Cash flows used in investing activities:
Purchase of fixed assets and leasehold
improvements................................................ (272,117) (169,850) (238,270)
---------- --------- ---------
Cash flows (used in) provided by financing activities:
Net (decrease) increase in debt............................... (174,587) 74,693 (41,379)
Note receivable............................................... -- (100,000) --
Distributions to stockholders................................. (180,000) (103,500) (130,000)
---------- --------- ---------
Net cash used in financing activities............................ (354,587) (128,807) (171,379)
Net increase in cash............................................. 457,589 735 174,605
Cash at beginning of period...................................... 427,707 426,972 252,367
---------- --------- ---------
Cash at end of period............................................ $ 885,296 $427,707 $426,972
========= ======== ========
Supplemental information:
Taxes paid in cash............................................ $ 23,196 $ 20,990 $ 8,765
========= ======== ========
Interest paid in cash......................................... $ 11,442 $ 33,168 $ 24,296
========= ======== ========
See accompanying notes to the combined financial statements.
</TABLE>
F-33
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Fertility Centers of Illinois, S.C. and its affiliated companies (the
"Company") is a seven physician group practice with several 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 9)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of combination --
The accompanying combined financial statements of the Company comprise the
accounts of Fertility Centers of Illinois, S.C. and the following entities, each
of which is owned by one of the physician shareholders of Fertility Centers of
Illinois, S.C. (the "affiliated companies"): F.R.E.A. Ultrasound Services, Ltd.;
Fertility and Reproductive Medicine Associates, S.C.; Fertility and Reproductive
Endocrinology Associates, S.C.; and Jacob Moise, M.D.S.C. The combination of
these entities has been reflected at historical cost. All significant
intercompany transactions have been eliminated. The Company accounts for its
42.9% interest in IVF Illinois under the equity method of accounting.
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 $941,794 and
$709,240 at August 19, 1997 and December 31, 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
F-34
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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
period January 1, 1997 through August 19, 1997 and the year ended December 31,
1996 were from insurance companies.
Common stock --
The Company has 4,050 shares of common stock outstanding at August 19, 1997
and December 31, 1996, of which 3,000 shares each have a par value of $1; 1,000
shares have a stated value of $1,000; and 50 shares each have a par value of
$10.
Use of estimates in the preparation of the combined financial statements --
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management of the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 3 -- MANAGEMENT AGREEMENT WITH INTEGRAMED AMERICA, INC.
On August 19, 1997, the Company sold certain fixed assets and the right to
manage the Company to IntegraMed America, Inc. ("INMD"). The management
agreement provides INMD the rights to manage the Company through 2017. Pursuant
to the management agreement, the medical providers employed by the Company
provide all medical services and INMD provides all management and administrative
services to the Company's medical practice. In addition, INMD purchases all
accounts receivable generated subsequent to August 19, 1997 on a monthly basis.
F-35
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
Simultaneous with the closing of the sale to INMD, INMD, on behalf of the
Company, completed an in-market merger with the addition of Edward L. Marut, MD,
to the Company's practice.
The following unaudited supplemental information presents the operations of
the Company for the period January 1, 1997 through December 31, 1997. The period
from August 20, 1997 through December 31, 1997 represents the operating results
of the Company under its management agreement with IntegraMed America, Inc.
(in 000's):
<TABLE>
<CAPTION>
For the period For the period
January 1, 1997 August 20, 1997 For the
through through year ended
August 19, December 31, December 31,
-------------- ------------ ------------
1997 1997 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Revenues............................................. $6,113 $4,547 $10,660
Cost of services..................................... 3,920 2,045 5,965
Management fee to IntegraMed America................. -- 2,582 2,582
-------- ------- ---------
Contribution......................................... 2,193 (80) 2,113
General and administrative expenses.................. 954 -- 954
Interest expense, net................................ 11 -- 11
--------- -------- -----------
Total other expenses................................. 965 -- 965
-------- -------- ----------
Income (loss) before income taxes.................... 1,228 (80) 1,148
Provision for taxes.................................. 430 -- 430
-------- -------- ----------
Net income (loss).................................... $ 798 $ (80) $ 718
======= ======== =========
</TABLE>
Physician compensation expense was approximately $1.6 million and $2.0
million for the period January 1, 1997 to August 19, 1997 and for the period
August 20, 1997 to December 31, 1997, respectively.
NOTE 4 -- FIXED ASSETS, NET:
Fixed assets, net at August 19, 1997 and December 31, 1996 consisted of the
following:
August 19, December 31,
---------- ------------
1997 1996
---------- ------------
Furniture, office and other equipment............ $500,360 $ 575,820
Medical equipment................................ 287,131 510,412
Leasehold improvements........................... 119,875 144,316
--------- ----------
Total......................................... 907,366 1,230,548
Less-- accumulated depreciation and
amortization.................................. (286,765) (632,086)
-------- ----------
$620,601 $ 598,462
======== ==========
Depreciation and amortization expense totaled $91,555, $137,146, and
$112,517 for the period from January 1, 1997 through August 19, 1997 and the
years ended December 31, 1996 and 1995, respectively.
F-36
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 5 -- DEBT:
Debt at August 19, 1997 and December 31, 1996 consisted of the following:
August 19, December 31,
---------- ------------
1997 1996
---------- ------------
Business term loan........................ $147,041 $ 321,628
Less-- current portion.................... (27,494) (162,060)
-------- ---------
Long-term debt............................ $119,547 $ 159,568
======== =========
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, $0 of which was outstanding at August 19,
1997. The line of credit expired in March 1997 and was extended through March
1998.
NOTE 6 -- OPERATING LEASES:
The Company leases certain office space and equipment under lease
agreements extending one to five years. All lease obligations were transferred
to INMD on August 19, 1997 as part of the management agreement.
Rent expense under operating leases was $314,076, $463,428 and $227,712 for
the period January 1, 1997 through August 19, 1997 and the years ended December
31, 1996 and 1995, respectively.
NOTE 7 -- INCOME TAXES:
The Company's tax provision primarily represents current federal and state
income taxes. The Company had no significant deferred tax assets or liabilities
at August 19, 1997 or December 31, 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 period from January
1, 1997 through August 19, 1997 and the years ended December 31, 1996 and 1995,
respectively, as a result of the following:
1997 1996 1995
---- ---- ----
Tax expense at federal statutory rate.......... 35% 35% 35%
State income taxes, net of federal benefit..... 5% 5% 5%
Rate differential for S corporation status..... (5%) (8%) (13%)
--- --- ----
Provision for income taxes..................... 35% 32% 27%
=== === ====
F-37
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 8 -- 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, cash flows, or results of
operations.
NOTE 9 -- 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 period from January 1, 1997 through August 19,
1997 and the years ended December 31, 1996 and 1995 were $897,103, $1,213,536
and $906,193, respectively, have been reflected in "Revenues, net" in the
statement of operations. Accounts receivable from IVF Illinois was $53,600 and
$106,312 at August 19, 1997 and December 31, 1996, respectively. The Company's
interest in earnings of IVF Illinois was insignificant for the period January 1,
1997 through August 19, 1997 and the year ended December 31, 1996 and 1995,
respectively.
The $100,000 note receivable at August 19, 1997 and December 31, 1996
represents a note receivable from one physician which is due on demand with
interest payable of 6%.
NOTE 10 -- 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 1997 and 1996, based on the
funding requirements of U.S. federal governmental laws and regulations.
Net periodic pension costs for the period from January 1, 1997 through
August 19, 1997 and for the year ended December 31, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
August 19, December 31,
-------- ----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service costs - benefits earned during period........ $271,350 $278,176 $264,704
Interest cost on projected benefit obligation........ 21,628 15,882 --
Actual return on assets.............................. (52,438) (16,531) --
Net amortization and deferral........................ 352 1,984 --
-------- -------- --------
Net periodic pension costs........................... $240,892 $279,511 $264,704
======== ======== ========
</TABLE>
F-38
<PAGE>
FERTILITY CENTERS OF ILLINOIS, S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
The following table sets forth the plan's funded status at August 19, 1997
and December 31, 1996:
August 19, December 31,
--------- -----------
1997 1996
-------- --------
Actuarial present value of:
Vested benefit obligations.................. $636,567 $405,357
======== ========
Accumulated benefit obligations............. 887,396 563,045
======== ========
Projected benefit obligations............... 887,396 563,045
======== ========
Plan assets at fair value...................... 835,704 534,360
Unrecognized net loss.......................... -- 6,874
-------- --------
Projected benefit obligation in excess of
plan assets................................. $ 51,692 $ 21,811
======== ========
The assumptions used in the determination of net periodic pension cost and
the plan's funded status for the period January 1, 1997 through August 19, 1997
and the year ended December 31, 1996 were as follows:
1997 1996
------- -------
Rate of increase in future compensation levels...... 0% 0%
Discount rate....................................... 6.0% 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 $36,775, $47,346
and $39,696 for the period from January 1, 1997 through August 19, 1997 and for
the years ended December 31, 1996 and 1995, respectively.
F-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of MPD Medical Associates (MA), P.C.
In our opinion, the accompanying balance sheet and related statement of
operations present fairly, in all material respects, the financial position of
MPD Medical Associates (MA), P.C. (the "P.C.") at December 31, 1997 and 1996,
and the results of its operations for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the P.C.'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 described in Note 5, a statement of cash flows has been excluded from the
presentation of financial data related to the P.C., as under the terms of a
management agreement, IntegraMed America, Inc. controls all cash inflows and
outflows related to the P.C.'s operations.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Stamford, Connecticut
February 16, 1998
F-40
<PAGE>
MPD MEDICAL ASSOCIATES (MA), P.C.
BALANCE SHEET
(all dollar amounts in thousands, except per share amounts)
December 31,
-----------------
1997 1996
---- ----
ASSETS
Current assets:
Cash.................................................... $2 $2
-- --
Total current assets................................. 2 2
-- --
Total assets......................................... $2 $2
== ==
SHAREHOLDER'S EQUITY
Shareholder's equity:
Common Stock, $.01 par value -- 200,000 shares authorized,
issued and outstanding in 1997 and 1996, respectively... $2 $2
-- --
Total shareholder's equity........................... $2 $2
== ==
See accompanying notes to the financial statements.
F-41
<PAGE>
MPD MEDICAL ASSOCIATES (MA), P.C.
STATEMENT OF OPERATIONS
(all amounts in thousands)
For the years ended December 31,
--------------------------------
1997 1996 1995
------- ------- ------
Revenues, net (see Note 2)..................... $6,869 $7,063 $6,594
Physician compensation......................... 971 1,015 556
Management fee expense (see Notes 1 and 2)..... 5,898 6,048 6,038
------- ------- ------
Net income..................................... $ -- $ -- $ --
======= ======= ======
See accompanying notes to the financial statements.
F-42
<PAGE>
MPD MEDICAL ASSOCIATES (MA), P.C.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
MPD Medical Associates (MA), P.C. (the "P.C.") is a medical practice
located in the greater Boston, Massachusetts area which specializes in providing
gynecology and infertility services. The P.C. is 100% owned by Patricia McShane,
M.D.
The P.C. is managed by IntegraMed America, Inc. ("INMD") a public physician
practice management company. INMD has managed this practice since July 1988 and
the term of its current management agreement with the P.C. (the "management
agreement") expires in January 2006. Pursuant to the management agreement, the
medical providers employed by the P.C. provide all medical services and INMD
provides all management and administrative services to the P.C.'s medical
practice. Under the management agreement, INMD has guaranteed physician
compensation, or medical practice retainage, and is liable for all liabilities
incurred by the P.C. and is at risk for any loss in the operation thereof. As
compensation for its management services, the P.C. pays INMD any revenues
remaining after payment of physician compensation. Out of these remaining
revenues INMD pays all other costs of services related to the P.C. and the
balance, if any, represents INMD's net management fee.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue and cost recognition --
Revenues consist of patient service revenues. Patient revenues are recorded
on a net realizable basis after deducting contractual allowances and consist of
patient fees collected by INMD on behalf of the P. C. for gynecology and
infertility services performed by the P.C. 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 P.C. and the third
party payor.
Operating Assets and Liabilities --
Under the management agreement, INMD owns all operating assets of the P.C.
and is liable for all expenses and obligations of the P.C., therefore all
operating assets and liabilities related to the P.C.'s operations are reported
by INMD on its consolidated balance sheet.
Fixed assets --
INMD owns all of the fixed assets utilized by the P.C.'s medical providers.
Management fee expense --
Management fee expense represents payment to INMD for management and
administrative services to the P.C.
F-43
<PAGE>
Income taxes --
The P.C. has historically not incurred significant tax liabilities for
federal or state income taxes. Compensation to physician owners and INMD has
traditionally reduced taxable income to nominal levels. This relationship would
be expected to continue in the future. As a result of this practice, provisions
for income taxes and deferred tax assets and liabilities are not material and
have not been reflected in the financial statements.
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 P.C. 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 -- DEPENDENCE UPON REIMBURSEMENT BY THIRD PARTY PAYORS:
In Massachusetts, state mandate requires insurance coverage of conventional
infertility services as well as certain assisted reproductive technology
services. Approximately 85% to 91% of the P.C.'s revenues for the years ended
December 31, 1997, 1996 and 1995 were derived from revenues received from third
party payors.
NOTE 4 -- RELATED PARTY INFORMATION:
Patricia McShane, M.D. owns 100% of the outstanding common stock of the
P.C. and became a director of IntegraMed America in March 1997.
NOTE 5 -- CASH FLOW INFORMATION:
Under the management agreement INMD controls all cash inflows and outflows
related to the P.C.'s operations, therefore all operating, investing, and
financing cash flow activity is reported by INMD on its consolidated statement
of cash flows.
NOTE 6 -- SUBSEQUENT EVENT (unaudited):
Effective January 1, 1998, the P.C. entered into a new management agreement
which provides INMD the right to manage the P.C. through 2007. Pursuant to the
management agreement, the medical providers employed by the P.C. provide all
medical services and INMD provides all management and administrative services to
the P.C.'s medical practice. In return for these management and administrative
services, INMD receives a percentage of revenues and net income and reimbursed
costs of services.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of IntegraMed America, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 16, 1998 appearing on page F-2 of the 1997 Annual Report
to Shareholders of IntegraMed America, Inc. also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/Price Waterhouse LLP
- -----------------------
Price Waterhouse LLP
Stamford, Connecticut
February 16, 1998
S-1
<PAGE>
SCHEDULE II
INTEGRAMED AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions-
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions (1) Period
--------- -------- -------------- ------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for
doubtful accounts......................... $309,000 $470,000 $385,000 $394,000
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
- ----------------
(1) Uncollectible accounts written off.
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
Dated: March 20, 1997
By /s/ GERARDO CANET
---------------------------------------------
Gerardo Canet
President, Chief Executive Officer, Director and
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GERARDO CANET
- ------------------------------
Gerardo Canet President, March 20, 1998
Chief Executive Officer,
Director and Acting Chief
Financial Officer
(Principal Executive Officer)
/s/ VICKI L. BALDWIN
- ------------------------------
Vicki L. Baldwin Director March 20, 1998
/s/ ELLIOTT D. HILLBACK, JR.
- ------------------------------
Elliott D. Hillback, Jr. Director March 20, 1998
/s/ M. FAZLE HUSAIN
- ------------------------------
M. Fazle Husain Director March 20, 1998
/s/ MICHAEL J. LEVY
- ------------------------------
Michael J. Levy Director March 20, 1998
/s/ SARASON D. LIEBLER
- ------------------------------
Sarason D. Liebler Director March 20, 1998
/s/ AARON LIFCHEZ, M.D.
- ------------------------------
Aaron Lifchez, M.D. Director March 20, 1998
/s/ PATRICIA M. MCSHANE, M.D.
- ------------------------------
Patricia M. McShane, M.D. Director March 20, 1998
/s/ LAWRENCE J. STUESSER
- ------------------------------
Lawrence J. Stuesser Director March 20, 1998
/s/ CLAUDE E. WHITE
- ------------------------------
Claude E. White General Counsel and
Secretary March 20, 1998
<PAGE>
INDEX TO EXHIBITS
Item 14(c)
Exhibit
Number Exhibit
- ------- -------
3.1(a) -- Amended and Restated Certificate of Incorporation of Registrant
effecting, inter alia, reverse stock split (ii)
3.1(b) -- Amendment to 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)
3.2 -- 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)
3.2(b) -- Copy of By-laws of Registrant (As Amended and Restated on March 4,
1997).
4.1 -- Warrant Agreement of Robert Todd Financial Corporation. (i)
4.2 -- Copy of Warrant, as amended, issued to IG Labs. (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)
4.6 -- Warrant issued to Morgan Stanley Venture Partners III, L.P.
(xviii)
4.7 -- Warrant issed to Morgan Stanley Venture Partners III, L.P. (xviii)
4.8 -- Warrant issed to the Morgan Stanley Venture Partners Entrepreneur
Fund, L.P.
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 arrangement 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(a) -- Copy of lease for Registrant's executive offices relocated to
Purchase, New York (viii)
10.8 -- Copy of Lease Agreement for medical office in Mineola, New York
(i)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
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 (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)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
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, MD (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)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
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
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
IVF America, Inc., d/b/a IntegraMed America (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 IVF America, Inc. ("INMD") (xii)
10.55 -- Management Agreement between IVF America, Inc., d/b/a IntegraMed
America, Inc. and W.F. Howard, M.D., P.A. (xii)
10.56 -- Asset Purchase Agreement between IVF America, Inc., d/b/a/
IntegraMed America, Inc. 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 the
Registrant and Bay Area Fertility and Gynecology Medical Group,
Inc. (xiv)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.62 -- Asset Purchase Agreement dated January 7, 1997 by and between the
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 IntegraMed America, Inc., f/k/a IVF America
Inc.; Women's Medical & Diagnostic Center, Inc., f/k/a INMD
Acquisition Corp, and Morris Notelovitz, M.D. (xv)
10.66 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Donald I. Galen, M.D. (xv)
10.67 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Louis N. Weckstein, M.D. (xv)
10.68 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Arnold Jacobson, M.D. (xv)
10.69 -- Copy of 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 (xvi)
10.71 -- Asset Purchase Agreement between Registrant and Fertility Centers
of Illinois, S.C. dated February 28, 1997 (xvi)
10.72 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.73 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
10.74 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
10.75 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
10.76 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.77 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.78 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
10.79 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
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 dated February 11,
1997 (xvi)
10.81 -- Management Agreement between Registrant and Reproductive Sciences
Medical Center, Inc. (xvii)
10.82 -- Asset Purchase Agreement between Registrant and Samuel H. Wood,
M.D., Ph.D. (xvii)
10.83 -- Personal Responsibility Agreement between Registrant and Samual H.
Wood, M.D., Ph.D. (xvii)
10.84 -- Physician-Shareholder Employment Agreement between Reproductive
Sciences Medical Center, Inc. and Samuel H. Wood, M.D., Ph.D.
(xvii)
10.85 -- Physician-Shareholder Employment Agreement between Reproductive
Endocrine & Fertility Consultants, P.A. and Elwyn M. Grimes, M.D.
(xvii)
10.86 -- Amendment to Management Agreement between Registrant and
Reproductive Endocrine & Fertility Consultants, P.A. (xvii)
10.87 -- Amendment to Management Agreement between Registrant and Fertility
Centers of Illinois, S.C. dated May 2, 1997 (xvii)
10.88 -- Management Agreement between Registrant and MPD Medical
Associates, P.C. dated June 2, 1997 (xvii)
10.89 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates P.C. and Gabriel San Roman, M.D. (xvii)
10.90 -- Amendment No. 2 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated June 18, 1997 (xvii)
10.91 -- Commitment Letter dated June 30, 1997 between Registrant and First
Union National Bank (xvii)
10.92 -- Amendment No. 3 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated August 19, 1997 (xviii)
10.93 -- Amendment No. 4 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated January 9, 1998 (xx)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.94 -- Investment Agreement between Registrant and Morgan Stanley Venture
Partners III, L.P.., Morgan Stanley Venture Investors III, L.P.
and the Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
(xix)
10.95 -- Amendment No. 5 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated March 5, 1998.
10.96 -- Termination Agreement by and among Women's Medical & Diagnostic
Center, Inc., W. Banks Hinshaw, Jr., Ph.D., M.D., and Robin E.
Markle, M.D.
10.97 -- Loan Agreement between First Union National Bank and IntegraMed
America, Inc. dated November 13, 1997.
10.98 -- Management Agreement between IntegraMed America, Inc. and MPD
Medical Associates (MA), P.C. dated October 1, 1997
10.99 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates (MA), P.C. and Patricia McShane, M.D. dated October 1,
1997.
10.100 -- Asset Purchase and Sale Agreement by and among IntegraMed America,
Inc. and Fertility Centers of Illinois, S.C., Advocate Medical
Group, S.C. and Advocate MSO, Inc. dated January 9, 1998.
10.101 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and Laurence A. Jacobs, M.D. dated January 9, 1998.
10.102 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and John J. Rapisarda, M.D. dated January 9, 1998.
10.103 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
John J. Rapisarda, M.D. dated January 9, 1998.
10.104 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
Laurence A. Jacobs, M.D. dated January 9, 1998.
10.105 -- Management Agreement between Shady Grove Fertility Centers, P.C.
and Levy, Sagoskin and Stillman, M.D., P.C. dated March 11, 1998.
10.106 -- Submanagement Agreement between Shady Grove Fertility Centers,
Inc. and IntegraMed America, Inc. dated March 12, 1998.
10.107 -- Stock Purchase and Sale Agreement among Integramed America, Inc.
and Michael J. Levy, M.D., Robert J. Stillman, M.D. and Arthur W.
Sagoskin, M.D. dated March 12, 1998
10.108 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Arthur W. Sagoskin, M.D. dated March 12, 1998.
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.109 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Michael J. Levy, M.D. dated March 12, 1998.
10.110 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Michael J. Levy, M.D. dated March 11,
1998.
10.111 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Arthur W. Sagoskin, M.D. dated March
11, 1998.
10.112 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Robert J. Stillman, M.D. dated March
11, 1998.
21 -- List of Subsidiaries
23.1 -- Consent of Price Waterhouse LLP
27 -- Financial Data Schedule
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
- ------------------------------------
(i) Filed as Exhibit with identical exhibit number to Registrant's
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
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
Statement on Form 10-K for the period ended December 31, 1993.
(vii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-4 (Registration No. 33-82038) andincorporated
herein by reference thereto.
(viii) Files as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-K for the period ended December 31, 1994.
(ix) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(x) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.
(xi) Filed as Exhibit with identical number to Registrant's Statement on
Form 10-K for the period ended December 31, 1995.
(xii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated June 20, 1996.
(xiii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K/A dated August 20, 1996.
(xiv) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 20, 1997.
(xv) Filed as Exhibit with identical exhibit number to Statement on Form
10-K for the period ended December 31, 1996.
(xvi) Incorporated by Reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1
(registration No. 333-26551) filed with the Securities and Exchange
Commission on May 6, 1997.
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
(xvii) Incorporated by reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1
(Registration No. 333-26551) filed with the Securities and Exchange
Commission on June 20, 1997.
(xviii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997
and incorporated herein by reference thereto.
(xix) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 23, 1998.
(xx) Filed as Exhibit with identical exhibit number to Schedule 13D dated
February 11, 1998.
BY-LAWS
INTEGRAMED AMERICA, INC.
(As Amended March 4, 1997)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place, within or without the State
of Delaware, as shall be designated from time to time by the board of directors
and stated in the notice of the meeting or in a duly executed waiver thereof.
Meetings of the stockholders for any other purpose may be held at such place,
within or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Date and Time of Annual Meeting. Annual meetings of the
stockholders shall be held at such date and time as shall be designated from
time to time by the board of directors and stated in the notice of the meeting.
At each such annual meeting, the board of directors shall be elected by the
plurality vote of the holders of the authorized and outstanding shares of the
corporation's capital stock entitled to vote thereon.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 4. Voting List; Inspection. The officer or agent who has charge
of the stock transfer books of the corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or at any adjournment thereof,
arranged in alphabetical order within each class, series or group of
stockholders, and showing the address of each stockholder and the number of
shares registered in the name of each Stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by resolution of the board of
directors or by the chairman of the board or the president.
Section 6. Notice; Date and Time of Special Meetings. Written notice of
a special meeting, stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than sixty days before the date of the meeting, to each
stockholder of record entitled to vote at such meeting.
Section 7. Notice of Stockholder Business
(a) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the board of
directors or (iii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this by-law, who
shall be entitled to vote at such meeting and who complies with the notice
procedures set forth in this by-law.
(b) For business to be properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of paragraph (a) of this by-law, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 90 days nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the meeting is changed by more than 30 days from such anniversary date,
notice by the stockholder to be timely must be received no later than the close
of business on the 10th day following the earlier of the day on which notice of
the date of the meeting was mailed or public disclosure was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (iii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made and (iv) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
(c) Notwithstanding anything in these by-laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this by-law. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by these by-laws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
by-law, a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this by-law.
Section 8. Business Transacted at Special Meetings. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
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<PAGE>
Section 9. Quorum; Adjournment. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting of the time and place to which the
meeting is adjourned, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the original meeting. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 10. Votes Required. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision in the
statutes or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern the vote required to decide
such question.
Section 11. Voting of Shares. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy (which may be
evidenced by original or facsimile signature in accordance with the Delaware
General Corporation Law) for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be valid and voted on after three
years from its date, unless the proxy provides for a longer period.
Section 12. Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors (and may appoint one or more alternates) to act
at the meeting and make a written report thereof. If no inspector or alternate
is able to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of such inspector's ability.
(b) The inspectors shall ascertain the number of shares outstanding and
the voting power of each, determine the shares represented at a meeting and the
validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors, and certify their determination of
the number of shares represented at the meeting, and their count of all votes
and ballots. The inspectors may appoint or retain other persons or entities to
assist in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
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<PAGE>
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with ss.
212(c)(2) of the Delaware General Corporation Law, ballots and the regular books
and records of the corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, the inspectors at the time they make their certification pursuant to
subsection (b) of this section shall specify the precise information considered
by them including the person or persons from whom they obtained the information,
when the information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information is
accurate and reliable.
ARTICLE III
DIRECTORS
Section l. General. The business of the corporation shall be managed by
or under the direction of its board of directors (sometimes hereinafter referred
to as the "board") which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
Section 2. Number and Term. The board of directors or the corporation
shall consist of nine members. Each director shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
Section 3. Vacancies. Unless otherwise provided in the certificate of
incorporation or these bylaws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office even if such directors do not
constitute a quorum, or by a sole remaining director, and the directors so
chosen shall hold office until the next annual meeting of the stockholders and
until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then such vacancies or new
directorships shall be filled by a majority of the stockholders entitled to vote
for the election of directors.
Section 4. Nominations of Directors.
(a) Only persons who are nominated in accordance with the procedures
set forth in these by-laws shall be eligible to serve as directors. Nominations
of persons for election to the board of directors of the corporation may be made
at a meeting of stockholders (i) by or at the direction of the board of
directors or (ii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of notice provided for in this by-law, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice procedures set forth in this by-law.
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<PAGE>
(b) Nominations by stockholders shall be made pursuant to timely notice
in writing to the secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation (i) in the case of an annual meeting, not less than
90 days nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is changed by more than 30 days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the l0th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was made, and
(ii) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
was made. Such stockholder's notice shall set forth (i) as to each person whom
the stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
corporation's books, of such stockholder and (B) the class and number of shares
of the corporation which are beneficially owned by such stockholder and also
which are owned of record by such stockholder; and (iii) as to the beneficial
owner, if any, on whose behalf the nomination is made, (A) the name and address
of such person and (B) the class and number or shares or the corporation which
are beneficially owned by such person. At the request of the board of directors,
any person nominated by the board of directors for election as a director shall
furnish to the secretary of the corporation that information required to be set;
forth in a stockholder's notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in this
by-law. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these by-laws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this by-law, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this by-law.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. Place of Meetings. The board of directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
Section 5. Annual Meeting. The first meeting of each newly elected
board of directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting to
the newly elected directors shall be necessary in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time and place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
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<PAGE>
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 7. Special Meetings. Special meetings of the board may be
called by the chairman of the board or the president on one day' s notice to
each director, either personally or by telephone, telecopy, telegram or
recognized overnight courier; and special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of Any two or more directors, unless the board consists of only one director in
which case a special meeting may be called and held by such director.
Section 8. Quorum; Action of the Board. At all meetings of the board, a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of those directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute, the certificate of
incorporation, or these by-laws. If a quorum shall not be present at any meeting
of the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting of the
time and place of the adjourned meeting if the period of any adjournment does
not exceed ten days, until a quorum shall be present.
Section 9. Action of Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the board of directors or of
any committee thereof may be taken without a meeting, if all members of the
board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the board or
committee.
Section 10. Telephone Conference Call. Unless otherwise restricted by
the certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMMITTEE OF DIRECTORS
Section 11. Authorization. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee; provided, however, that any such alternate member shall possess the
qualifications required for service on such committee.
Section 12. Powers. Any such committee, to the extent provided in the
resolution of the board of directors or in these by-laws, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
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such committee shall have such power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
electing any director, removing any officer or director, submitting to the
stockholders any action that requires the stockholders approval, amending or
repealing any resolution theretofore adopted by the board which by its terms is
amendable or repealable only by the board, amending, altering or repealing any
by-law of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors or as set forth in
these by-laws.
Section 13. Minutes of Meetings and Reports to the Board. Board. Each
committee shall keep regular minutes of its meetings and report the same to the
board of directors when required.
COMPENSATION
Section 14. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these by-laws, the board of directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and may be compensated for attendance at such meeting of the board of
directors or a stated salary as a director, as determined by the board, payable
in cash or securities on other obligations of the corporation. Members of
special or standing committees may be allowed like compensation for attending
committee meetings. Directors who are full-time employees of the corporation and
are compensated as such shall receive no additional compensation for serving as
directors.
REMOVAL
Section 15. Removal of Director. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any director or the entire board
of directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote for the election of directors.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever, under the provisions of applicable
statutes or of the certificate of incorporation or of these by-laws notice is
required to be given to any director or stockholder, such notice shall not be
construed to mean personal notice, and may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation. with postage thereon prepaid, and such notice by
mail shall be deemed to be given at the time when the same shall be deposited in
the United States mail. Notice to directors may also be given by telephone,
telecopy, telegram or recognized overnight courier.
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<PAGE>
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of applicable statutes or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. The attendance in person or
by proxy of any stockholder at a meeting, and the attendance of any director at
a meeting, shall constitute a waiver of notice by such stockholder or, as the
case may be, director, unless such stockholder or director attends the meeting
for the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE V
OFFICERS
Section 1. Designation of Officers. The officers of the corporation
shall be elected by the board of directors and shall be a president, a vice
president, a secretary and a treasurer. The board of directors may also elect a
chairman of the board, a vice chairman of the board, additional vice presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. Election of Officers. The board of directors at its first
meeting after each annual meeting of the stockholders shall elect a president, a
vice-president, a secretary and a treasurer.
Section 3. Other Officers. The board of directors may elect such other
officers and appoint such agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board.
Section 4. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. Term of Office. Each officer of the corporation shall hold
office until his successor is chosen and qualifies or until his earlier
resignation or removal. Any officer elected by the board of directors may be
removed at any time by affirmative vote of a majority of the board of directors.
Any vacancy occurring in any office of the corporation shall be filled by the
board of directors.
Section 6. The Chairman of the Board. The chairman of the board, if
there be one, shall be a member of the board and shall preside at all meetings
of the board of directors and the stockholders
Section 7. The Vice Chairman. The vice chairman of the board, if there
be one, shall be a member of the board and shall perform the duties of the
chairman of the board in the latter's absence or disability and such other
duties as shall be prescribed by the chairman or the board.
Section 8. The President.
(a) The president shall be a member of the board and shall be the chief
executive officer of the corporation . The president shall have the general and
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<PAGE>
active management of the business of the corporation, shall see that all orders
and resolutions of the board of directors are carried into effect and shall, in
the absence or disability of the chairman of the board and the vice chairman of
the board, preside at all meetings of the stockholders and the board of
directors.
(b) The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
Section 9. The Vice Presidents. In the absence of the president or in
the event of his inability or refusal to act, the vice president (or in the
event there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice presidents shall perform such other duties and have such
other powers as the board of directors or the president may from time to time
prescribe.
Section 10. The Secretary. The Secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be prescribed by
the board of directors, the chairman of the board or president, under whose
supervision he shall be. The secretary shall have custody of the corporate seal
of the corporation and the secretary, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 11. The Assistant Secretary. The assistant secretary, if there
be one, shall, in the absence of the secretary or in the event of his inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 12. The Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chairman of the board and the president
and the board of directors, at its regular meetings, or when the board of
directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation.
Section 13. The Assistant Treasurer. The assistant treasurer, if there
be one, shall, in the absence of the treasurer or in the event of his inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
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<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Signatures; Payment of Consideration; Classes and Series of Stock.
(a) Every holder of stock in the corporation shall be entitled to have
a certificate, signed by, or in the name of the corporation by, the chairman or
vice chairman of the board of directors, or the president or a vice president
and the treasurer or an assistant treasurer or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation.
(b) Except as may otherwise be permitted by statute, no certificate
shall be issued for any share until such share is fully paid.
(c) If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the designations, preferences,
relative rights and limitations of each class or series authorized to be issued,
and of the authority of the board to divide the shares into classes or series
and to determine and change the relative rights, preferences and liquidations of
any class or series, shall be set forth in full on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock; provided that, except as otherwise provided by Section 202 of the
Delaware General Corporation Law, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the corporation
shall issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests a
full statement of such designations, preferences, and relative rights and
limitations.
Section 2. Facsimile Signatures. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Contents. Each certificate shall state on its face that the
corporation is organized under the laws of the State of Delaware, the name of
the person to whom issued and the number and class, and the designation of the
series, if any, of the shares which such certificate represents.
Section 4. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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<PAGE>
Section 5. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Fixing Record Date. In order that the corporation may
determine the stockholders (i) entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, or (ii) entitled to consent to
corporate action in writing without a meeting, the board of directors may fix,
in advance, a record date, which, with respect to the actions described in
clause (i) above, shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action described therein, and with respect to the actions described in clause
(ii) above, shall not be more than ten days after the date upon which the board
of directors fixes the record date. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders and a new record
date for the adjourned meeting shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix.
Section 7. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions, if any, of the
certificate of incorporation, dividends upon any class or series of the capital
stock of the corporation may be declared by the board of directors at any
regular or special meeting, pursuant to law. To the extent permitted by law, and
subject to the provisions of the certificate of incorporation, if any, dividends
may be paid in cash, in property, or in shares of capital stock.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
December 3lst of each year unless otherwise fixed by resolution of the board of
directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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<PAGE>
Section 5. Indemnification. (a) The corporation shall, to the fullest
extent permitted by Section 145 of the General Corporation Law of Delaware, as
that Section may be amended and supplemented from time to time, indemnify and
advance expenses to any director, officer or trustee which it shall have power
to indemnify under that Section against any expenses, liabilities or other
matters referred to in or covered by that Section. The indemnification and
advancement of expenses provided for in this Section (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
the certificate of incorporation or any by-law, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) shall continue as to a person who has ceased to be a director,
officer or trustee and (iii) shall inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification and advancement of expenses under this Section shall be offset
to the extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the corporation or any other
person.
(b) To assure indemnification under this Section of all such persons
who are determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Section, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including, without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a person
with respect to an employee benefit plan in the performance of such persons
duties for a purpose reasonably believed by such person to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the corporation.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. These by-laws may be altered, amended or
repealed or new by-laws may be adopted by the stockholders or by the board of
directors at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such meeting; provided that no amendment
of these by-laws may be adopted which contravenes a provision of the certificate
of incorporation of the corporation.
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AMENDMENT NO. 5 TO MANAGEMENT AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
FERTILITY CENTERS OF ILLINOIS, S.C.
THIS AMENDMENT NO. 5 TO MANAGEMENT AGREEMENT, dated as of March 5,
1998 by and between IntegraMed America, Inc., a Delaware corporation, with its
principal place of business at One Manhattanville Road, Purchase, New York 10577
("INMD") and Fertility Centers of Illinois, S.C., an Illinois medical
corporation, with its principal place of business at 3000 North Halsted Street,
Suite 509, Chicago, Illinois 69657 ("FCI").
RECITALS:
INMD and FCI entered into a Management Agreement dated February 28,
1997 (the "Management Agreement"), as amended, with an effective date of August
19, 1997 ("Effective Date");
INMD is willing to grant to each of Brian Kaplan, M.D., Aaron S.
Lifchez, M.D., Jacob Moise, M.D. and Jorge Valle, M.D. , the stockholders of FCI
("Stockholders"), warrants to acquire 15,000 shares, respectively, of INMD
Common Stock (the "Warrants") at a price equal to the closing price of INMD
Common Stock on March 5, 1998 and with an expiration date of the Warrants that
is five (5) years from March 5, 1998.; provided, the Stockholders cause FCI
agree to amend the Management Agreement so as to extend the term from 20 years
to 25 years; and
FCI, based on approval of Stockholders, is willing to extend the
Management Agreement for five (5) years so as to expire twenty-five (25) years
from the Effective Date.
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 first sentence of Section 7.2 of The Management Agreement is
hereby deleted and the following sentence is hereby substituted therefor:
"The term of this Agreement shall begin on the Closing date
and shall expire twenty-five (25) years after such date unless
earlier terminated pursuant to Article 8, below."
2. All other provisions of the Management Agreement, as amended, not in
conflict with this Amendment No. 5 remain in full force and effect.
<PAGE>
3. This Amendment No. 5 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.
IN WITNESS WHEREOF, the parties have signed this Amendment No. 5 the
date first above written.
INTEGRAMED AMERICA, INC.
By:/s/ Dwight P. Ryan
-------------------------------
Dwight P. Ryan, Vice President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:/s/ Aaron S. Lifchez
-------------------------------
Aaron S. Lifchez, President
TERMINATION AGREEMENT
AGREEMENT, dated as of January 1, 1998 ("Agreement") by and among
Women's Medical & Diagnostic Center, Inc., a Florida corporation, with its
principal place of business at Office Park West, 222 S.W. 36th Terrace,
Gainesville, Florida 32607 ("WMDC"), W. Banks Hinshaw, Jr., Ph.D., M.D., a
Florida resident, residing at 5146 S.W. 9th Lane, Gainesville, Florida 32607
("Hinshaw") and Robin E. Markle, M.D., a Florida resident, residing at 5146 S.W.
9th Lane, Gainesville, Florida 32607 ("Markle"). Hinshaw and Markle are jointly
referred to as Physicians. Hinshaw, Markle and WMDC are collectively referred to
as "Parties."
RECITALS
Physicians are each parties to separate employment agreements with WMDC
dated December 30, 1996 ("Physician Employment Agreements");
W. Banks Hinshaw, Jr., M.D., P.A., a Florida professional association
("Hinshaw P.A."), entered into an Asset Purchase Agreement with WMDC dated
December 30, 1996 pursuant to which WMDC acquired certain fixed assets from the
Hinshaw P.A. utilized in the operation of the Hinshaw P.A.'s office in Lake
City, Florida ("Lake City Office");
Pursuant to the Physician Employment Agreements, Physicians were
entitled to certain Sign- On Bonuses and Non-Compete payments on the anniversary
date of the Physician Employment Agreements for a four-year period commencing
December 30, 1997; and
The Parties desire terminate the Physician Employment Agreements and
provide for Physicians to obtain certain assets utilized by WMDC at the Lake
City Office.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Parties agree as follows:
<PAGE>
1. SIGN-ON BONUS AND NON-COMPETE PAYMENTS.
Upon execution of this Agreement WMDC will pay Physicians
$18,461.54 each, in full and complete satisfaction of the Non-Compete and
Sign-On Bonus payments that were due to be paid on December 30, 1997 under the
Physician Employment Agreements. No further Sign-On Bonus or Non-Compete
payments will be paid to Physicians under the Physician Employment Agreements
and Physicians hereby release and discharge WMDC from any further obligations to
make the Sign-On Bonus and Non-Compete payments on December 30, 1998, 1999 and
2000.
2. EMPLOYMENT TERMINATION.
Physicians' Employment Agreements will terminate February 28,
1998 at which time the Parties shall have no further obligations to each other
except for obligations accruing prior to February 28, 1998 and obligations,
promises or covenants, if any, which are expressly made herein to extend beyond
February 28, 1998.
3. TERM.
Between January 1, 1998 and February 28, 1998 (the "Term"),
Physicians will continue to provide Medical Services as defined in the Physician
Employment Agreements. In connection therewith, Physicians will exert their best
professional and personal efforts to improve the working environment,
professional quality and profitability of WMDC and will, in addition to the
Medical Services, continue to provide research support with respect to clinical
trials undertaken by WMDC on behalf of various pharmaceutical companies
("Clinical Research").
4. COMPENSATION.
(a) During the Term, Physicians will be an annualized salary
of $100,000, paid bi-weekly, less federal, state and local withholdings and
other deductions for benefits currently in effect or adjusted, based on changes
in WMDC's benefit plans.
<PAGE>
(b) Physicians' compensation will be reduced by 10% if WMDC's
average clinic patient volume or average surgical patient volume falls below 90%
of the actual patient visits and surgical procedures between January 1 and June
30, 1997 ("Current Level"). Conversely, if WMDC increases patient scheduling
above the Current Level not due to specific requests by Physicians, Physicians'
salaries will be increased by 10% if Physicians' average clinic patient volume
or average surgical patient volume increases 110% above the Current Level. Any
salary adjustment will be made on or about April 1, 1998 and the average clinic
patient volume and average surgical patient volume for January 1, 1998 through
February 28, 1998 will be used to determine any salary adjustment for the Term.
Professional and ethical standards will govern the individual patients seen
should a conflict arise concerning the mix of patients in the daily schedule.
Scheduling times and number of patients seen at WMDC will be at the discretion
of Physicians provided Physicians maintain weekly WMDC office hours available
for patient encounters comparable to hours maintained in 1997.
5. EMPLOYMENT AGREEMENTS.
Except as modified by this Agreement, the Physician Employment
Agreements remain in full force and effect during the Term hereof; upon
expiration of the Term, the Physician Employment Agreements will terminate.
6. COVENANTS NOT TO COMPETE.
Notwithstanding the restrictions imposed upon Physicians
pursuant to Section 13(b) of the Physician Employment Agreements ("Covenants Not
to Compete"), effective March 1, 1998 Physicians will be permitted to maintain a
medical practice in Lake City and Gainesville, Florida and not be deemed to be
in violation of the Covenants Not to Compete. All other aspects of the Covenants
Not To Compete with respect to Ocala, Florida will remain in full force and
effect.
<PAGE>
7. MEDICAL RECORDS
All medical records of patients to whom Physicians have
provided or will provide Medical Services on behalf of WMDC either in accordance
with the Physician Employment Agreements or through the Term of this Agreement
will remain the property of WMDC. At the request of Physicians, WMDC will notify
said patients that Physicians will be leaving the employ of WMDC and that WMDC
will forward duplicate copies of their medical records, in terms of arrangement
and legibility, at Physician's or Patient's costs, to Physicians in Lake City,
Florida, if authorized in writing by such patient to do so. [This Section is
subject to modification based on a review of Florida law.]
8. CONTINUITY OF PATIENT CARE.
The Parties agree that continuity of patient care is
paramount, notwithstanding any provisions in this Agreement to the contrary.
Accordingly, in the event that as of February 28, 1998 WMDC has not made
satisfactory arrangements for one or more physicians to provide Medical Services
to WMDC's patients, Physicians agree to provide such Medical Services on an
independent contractor basis or to extend the Term of this Agreement, as
mutually determined by the Parties.
9. CONTINUING MEDICAL EDUCATION.
In consideration of Physicians' contributions to the Clinical
Research efforts at WMDC, WMDC will authorize up to one day's attendance by each
Physician at a continuing medical education ("CME") seminar with hands-on
patient care for each Physician in the techniques of saline-infusion
hysterosonography prior to January 29, 1998. Out-of-pocket expenses including
travel and course registration fees are the responsibility of Physicians for
attendance at such CME seminar.
<PAGE>
10. PRIOR BUSINESS-RELATED EXPENSES.
WMDC shall cause Physicians to be reimburse for all reasonable
business-related expenses occurring prior to December 1, 1997 for which
Physicians have not been reimbursed in accordance with WMDC's business-related
expenses reimbursement policy. All other outstanding unreimbursed expenses
submitted by Physicians to WMDC for which Physicians have not been reimbursed
will be reimbursed.
11. LAKE CITY OFFICE.
(a) In consideration of Physicians' faithful performance of
the terms and conditions of this Agreement during the Term, at the expiration of
the Term, WMDC will sell to Physicians, at the net book value, in accordance
with generally accepted accounting principles, the fixed assets located at the
Lake City Office. A Bill of Sale for such assets will be delivered to Physicians
on or about February 28, 1998.
(b) In addition to purchasing the fixed assets associated with
the Lake City Office, Physicians will assume liability for the office lease and
any and all equipment leases for equipment located at the Lake City Office. An
Assignment and Assumption Agreement will be executed by the Parties on or about
February 28, 1998.
12. ARBITRATION.
Any and all claims, disputes or controversies arising under,
out of or in connection with this Agreement or the Physician Employment
Agreements, or any breach thereof, shall be determined by binding arbitration in
the State of Florida, City of Gainesville (hereinafter "Arbitration"). The party
seeking determination shall subject any such dispute, claim or controversy
<PAGE>
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. Each party
shall bear its own expenses, the expenses of its selected arbitrator and
one-half the expenses of the third arbitrator. 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 Florida.
13. COOPERATION.
In the event of any claims, suits or governmental
investigations, arising out of or relating to WMDC, in which Physicians, WMDC or
IntegraMed America, Inc.("INMD"), the parent company to WMDC, shall be named or
involved, whether pending during the Term of this Agreement or the Physician
Employment Agreements, Physicians, WMDC and INMD agree to cooperate fully with
each other in the defense of such suit, claim or investigation. Such cooperation
shall include, by way of example but not limitation, meeting with defense
counsel, the production of any documents in their possession for review,
participation in discovery, response to subpoenae and the coordination of any
individual defense with counsel for INMD, WMDC or Physicians. Physicians, WMDC
or INMD shall, as soon as practicable, deliver to each other copies of any
summonses, complaints, suit letters, subpoenae or legal papers of any kind,
served upon said party or the attorney for said party. This obligation to
cooperate in the defense of any such claims or suits shall survive the
termination, for whatever reason of this Agreement and nothing in this paragraph
shall obligate any party to pay any legal fees incurred by the other.
<PAGE>
14. NOTICES.
All notices, requests, demands, and other communications
provided for in this Agreement or required among the Parties in connection with
this Agreement shall be in writing and shall be deemed to have been given at the
time when personally delivered, mailed at any United States Post Office via
certified mail, postage prepaid, return receipt requested, or sent by overnight
delivery service against receipt, addressed to the party at the address set
forth below or such other address as such party may designate by notice:
If to Physicians:
W. Banks Hinshaw, Jr., Ph.D., M.D.
Robin E. Markle, M.D.
5146 S.W. 9th Lane
Gainesville, FL 32607
If to WMDC:
Executive Director
Women's Medical & Diagnostic Center, Inc.
Office Park West
222 S.W. 36th Terrace
Gainesville, FL 32607
With a copy to:
Mr. Jay Higham, Vice President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
15. AMENDMENTS.
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 or the party to be charged. 16. ASSIGNMENT. No
assignment or delegation of this Agreement or the rights and obligations
hereunder shall be valid without the specific written consent of the Parties.
<PAGE>
17. SEVERABILITY.
Each provision of 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 shall be
severed from this Agreement and shall not affect the validity of the remainder
of this Agreement. 18. WAIVER; CONSENT. No consent or waiver, expressed or
implied, by any party hereto, of any breach or default by a party in the
performance by the other of is 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 or 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 Physicians or WMDC shall not be construed to waive or limit
the need for such consent in any other or subsequent instance. 19. CONFLICT. If
there is a conflict between this Agreement and the Physician Employment
Agreements, the provisions of this Agreement shall control. Any portion of the
Physician Employment Agreements not specifically superseded by the terms of this
Agreement remains in full force and effect, unless terminated pursuant to this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as the
date first above written.
W. BANKS HINSHAW, JR., PH.D., M.D.
/s/ W. Banks Hinshaw, Jr., Ph.D., M.D.
- --------------------------------------
W. Banks Hinshaw, Jr., Ph.D., M.D.
ROBIN E. MARKLE, M.D.
/s/ Robin E. Markle, M.D.
- ------------------------------------
Robin E. Markle, M.D.
WOMEN'S MEDICAL & DIAGNOSTIC CENTER, INC.
By:/s/ Jay Higham
----------------------------
Jay Higham, Vice President
LOAN AGREEMENT
November 13, 1997
First Union National Bank
50 Main Street
White Plains, NY 10606
(Hereinafter referred to as the "Bank")
IntegraMed America of Illinois, Inc.
One Manhattanville Road
Purchase, NY 10577
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into November 13, 1997, by and
between Bank and Borrower, a corporation organized under the laws of the State
of Illinois.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Line of Credit - in the maximum principal amount of $4,000,000.00 (the "Maximum
Principal Amount") which is evidenced by the Promissory Note dated November 13,
1997 ("Line of Credit Note"), under which Borrower may borrow, from time to time
so long as (a) the total indebtedness at any one time does not exceed the lesser
of (i) the Maximum Principal Amount or (ii) the Borrowing Base, hereinafter
defined, minus the unpaid balance of the Guarantor's Loan, and (b) the sum of
the outstanding principal amount of the Loan and the Guarantor's Loan referred
to below does not at any time exceed the Borrowing Base (the limitations
specified in (a) and (b) are hereafter collectively called the A Limit and B
Limit respectively). The Loan proceeds are to be used by Borrower solely to
finance leasehold improvements and equipment purchases and working capital needs
relating to the acquisition of the assets and management rights of additional
medical practices. Bank's obligation to advance or readvance under the Line of
Credit Note terminates if Borrower is in default under the Line of Credit Note
or INTEGRAMED AMERICA, INC. (the "Guarantor") is in default under its
$1,500,000.00 loan from the Bank (the "Guarantor's Loan"). This is a
non-restoring Line of Credit so that prepayments of the Loan may not be
reborrowed.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. ss. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower and Guarantor each represent that from the date of
this Agreement and until final payment in full of the Obligations: Accurate
Information. All information now and hereafter furnished to Bank is and will be
true, correct and complete. Any such written factual financial statements of
Borrower or Guarantor will fairly present in all material aspects its financial
condition as of the date(s) thereof and for the periods then ended, (including
all contingent liabilities required by generally accepted accounting principles
to be reflected in financial statements or the notes thereto), and it further
represents that, since the date of the latest such financial statements
delivered to the Bank, there has been no material adverse change in its
financial condition from that set forth in such financial statements.
Authorization; Non-Contravention. The execution, delivery and performance by
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Borrower and the Guarantor, as applicable, of this Agreement and other Loan
Documents to which it is a party are within its power, have been duly authorized
by all necessary action taken by the duly authorized officers of Borrower and
the Guarantor and, if necessary, by making appropriate filings with any
governmental agency or unit and are the legal, binding, valid obligations of
Borrower and the Guarantor enforceable against them in accordance with their
terms, subject, as to enforceability, to applicable bankruptcy, insolvency,
moratorium, reorganization and other laws applicable to the enforcement of
creditors' rights generally and to equitable principles of general application,
regardless of whether such enforcement is sought in an action at law or a
proceeding in equity; and do not (i) contravene, or constitute (with or without
the giving of notice or lapse of time or both) a violation of any provision of
applicable law, a violation of the organizational documents of Borrower or the
Guarantor, or a default under any agreement, judgment, injunction, order, decree
or other instrument binding upon or affecting Borrower or the Guarantor, (ii)
result in the creation or imposition of any lien (other than the lien(s) created
by the Loan Documents) on any of Borrower's or Guarantor's assets, or (iii) give
cause for the acceleration of any obligations of Borrower or the Guarantor to
any other creditor. Asset Ownership. Each of Borrower and Guarantor has good and
marketable title to all of the properties and assets reflected as owned by it on
the balance sheets and financial statements supplied to Bank, and all such
properties and assets are free and clear of mortgages, security deeds, pledges,
liens, charges, and all other encumbrances, except those described in the
negative covenants below and as otherwise disclosed to Bank by it in writing
(collectively "Permitted Liens"). To Borrower's and Guarantor's knowledge, no
default has occurred under any obligations secured by Permitted Liens and no
claims or interests adverse to the present rights of Borrower or Guarantor in
its properties and assets have arisen. Discharge of Liens and Taxes. It has duly
filed, paid and/or discharged all taxes or other claims which may become a lien
on any of its property or assets, except to the extent that such items are being
appropriately contested in good faith and an adequate reserve in accordance with
generally accepted accounting principles for the payment thereof is being
maintained. Sufficiency of Capital. Neither the Borrower nor Guarantor is, and
after consummation of this Agreement and after giving effect to all indebtedness
incurred and liens created by it in connection with the Loan, neither will be,
insolvent within the meaning of 11 U.S.C. ss. 101(32). Compliance with Laws.
Each of Borrower and Guarantor is in compliance in all material respects with
all federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. ss. 3617, et
seq.) or narcotics (including 21 U.S.C.ss. 801, et seq.) and/or any commercial
crimes; all applicable federal, state and local laws and regulations intended to
protect the environment; and the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), if applicable. Organization and Authority. Each of
Borrower and the Guarantor is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Each of Borrower and the Guarantor is
duly qualified, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, could have a material
adverse effect on the business, financial position, results of operations,
properties or prospects of Borrower or the Guarantor. No Litigation. There are
no pending or, to the knowledge of Borrower or Guarantor, threatened suits,
claims or demands against Borrower or the Guarantor that have not been disclosed
to Bank by Borrower in writing.
AFFIRMATIVE COVENANTS. Each of Borrower and Guarantor agrees that from the date
of this Agreement and until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing, it will: Business Continuity. Conduct
its business in substantially the same manner and locations as such business is
now and has previously been conducted. Maintain Properties. Maintain, preserve
and keep its property in good repair, working order and condition, ordinary wear
and tear excepted, making all needed replacements, additions and improvements
thereto, to the extent allowed by this Agreement. Access to Books & Records.
Allow Bank, or its agents, during normal business hours and on reasonable prior
notice, access to its books, records and such other documents as Bank shall
reasonably require, and allow Bank to make copies thereof at Bank's expense.
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Insurance. Maintain adequate insurance coverage with respectto its properties
and business against loss or damage of the kinds and in the amounts customarily
insured against by companies of established reputation engaged in the same or
similar businesses and in similar markets, including, without limitation,
commercial general liability insurance, workers' compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. Notice of Default and Other Notices.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which it is taking or proposes to
take with respect thereto. (b) Other Notices. Promptly notify Bank in writing of
(i) any material adverse change in its financial condition or its business; (ii)
any default under any material agreement, contract or other instrument to which
it is a party or by which any of its properties are bound, or any acceleration
of the maturity of any indebtedness owing by it for borrowed money in excess of
$50,000, which acceleration is not rescinded within 30 days; (iii) any material
litigation instituted or, to its knowledge, threatened against or affecting it
or any part of its properties; (iv) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any governmental agency or unit affecting it; and (v) at least 30 days prior
thereto, any change in its name or address as shown above, and/or any change in
Borrower's corporate structure. Compliance with Other Agreements. Comply with
all terms and conditions contained in this Agreement, and any other Loan
Documents, and swap agreements, if applicable, as defined in the Note. Payment
of Debts. Pay and discharge when due, and before subject to penalty or further
charge, and otherwise satisfy before maturity or delinquency, all obligations,
debts, taxes, and liabilities of whatever nature or amount, except those which
it in good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a
copy of all financial statements, reports, notices, and proxy statements, sent
by it to stockholders, and all regular or periodic reports required to be filed
by it with any governmental agency or authority. Other Financial Information.
Deliver promptly such other information regarding its operation, business
affairs, and financial condition which Bank may reasonably request. Non-Default
Certificate From Borrower. Deliver to Bank, with the Financial Statements
required herein, a certificate signed by a principal financial officer of
Borrower warranting that no "Default" as specified in the Loan Documents nor any
event which, upon the giving of notice or lapse of time or both, would
constitute such a Default, has occurred. Estoppel Certificate. Furnish, within
15 days after request by Bank, a written statement duly acknowledged of the
amount due under the Loan and whether offsets or defenses exist against the
Obligations. Deposit Relationship. Maintain its primary depository and cash
management account with Bank.
NEGATIVE COVENANTS. Borrower and Guarantor agree that from the date of this
Agreement and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower and Guarantor will not: Nonpayment;
Nonperformance. Fail to pay or perform the Obligations under any of the Loan
Documents. Cross Default. Default in payment or performance of any obligation
under any other loans, contracts or agreements of Borrower or Guarantor with
Bank or its affiliates; Material Capital Structure or Business Alteration.
Materially alter the type or kind of the Guarantor's business or that of its
Subsidiaries, if any; or suffer or permit the acquisition of substantially all
of Borrower's or Guarantor's business or assets, or a material portion (10% or
more) of such business or assets if such a sale is outside Borrower's or
Guarantor's ordinary course of business, or more than 50% of the outstanding
stock or voting power of Borrower in a single transaction or a series of
transactions; or enter into any merger or consolidation without prior written
consent of Bank. Default on Other Contracts or Obligations. Default on any
material contract with or obligation when due to a third party or default in the
performance of any obligation to a third party incurred for money borrowed in an
amount in excess of $500,000. Judgment Entered. Permit the entry of any monetary
judgment or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Borrower or Guarantor and that is not discharged or execution is not
stayed within Thirty (30) days of entry. Government Intervention. Permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or Guarantor is
displaced of its authority in the conduct of its respective business or such
business is curtailed or materially impaired.
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Prepayment of Other Debt. Retire any long-term debt entered into prior to the
date of this Agreement at a date in advance of its legal obligation to do so,
except Obligations due to Bank, without prior consent of Bank. Retire or
Repurchase Capital Stock. Retire or otherwise acquire any of its capital stock,
excluding 165,644 shares of preferred stock of Guarantor. Change in Fiscal Year.
Neither Borrower nor Guarantor shall change its fiscal year without the consent
of Bank. Guarantees. Guarantee or otherwise become responsible for obligations
of any other person or entity without prior written consent of the Bank, except
(i) the guarantee of the Guarantor contemplated by this Agreement and (ii) as to
those guarantees assumed in an acquisition agreement and/or management agreement
up to $500,000 in the aggregate (for the Borrower and Guarantor) per fiscal
year. Encumbrances. Create, assume, or permit to exist any mortgage, security
deed, deed of trust, pledge, lien, charge or other encumbrance on any of its
assets, whether now owned or hereafter acquired, other than (i) security
interests required by the Loan Documents; (ii) liens for taxes, assessments or
other governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books; (iii) liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business for sums
not overdue or being contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its books; (iv) liens
(other than liens arising under ERISA or Section 412(n) of the Code) incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other forms of governmental insurance or benefits, or
to secure performance of tenders, statutory obligations, leases and contracts
(other than for borrowed money) entered into in the ordinary course of business
or to secure obligations on surety or appeal bonds; (v) judgment liens in
existence less than 30 days after the entry thereof or with respect to which
execution has been stayed; (vi) ground leases in respect of real property on
which facilities owned or leased by the Borrower, the Guarantor or any of their
respective Subsidiaries are located; (vii) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Borrower or Guarantor taken as a whole; (viii) any interest or title of a lessor
secured by a lessor's interest under any lease; (ix) leases or subleases granted
to others not interfering in any material respect with the business of the
Borrower or Guarantor ; or (x) Permitted Liens. Investments. Purchase any
capital stock, securities, or evidence of indebtedness of any other person or
entity, except (i) mutual funds offered by the Bank or an Affiliate, (ii)
investments in direct obligations of the United States of America or any agency
thereof, (iii) certificates of deposit of United States commercial banks having
a tier 1 capital ratio of not less than 6% but in any event not greater than 10%
of the issuing bank's unimpaired capital and surplus, (iv) investments in
securities which have, and continue to have, a rating of "A-1" (by Moody's) or
"P-1" (by Standard and Poor's) or better, (v) equity securities of an entity for
which the publicly traded debt for such entity has, and continues to have, a
rating of not less than "Baa3" (By Moody's) or "BBB-" (by Standard and Poor's),
all of which may be reasonably acceptable to the Bank, exclusive of Management
agreements or (vi) investments by the Guarantor in subsidiaries organized to
acquire the assets of medical practices.
FINANCIAL COVENANTS. Borrower and Guarantor, on a consolidated basis, agree to
the following provisions from the date of this Agreement and until final payment
in full of the Obligations, unless Bank shall otherwise consent in writing:
Current Ratio. Guarantor shall maintain a current Ratio of not less than 1.50 to
1.00, tested quarterly at the end of each fiscal quarter. "Current Ratio" shall
mean the ratio of current assets divided by current liabilities. Working
Capital. Guarantor shall maintain Working Capital of at least $3,000,000.00,
tested annually at the end of each fiscal year. "Working Capital" shall mean the
excess of the current assets over the current liabilities. Tangible Net Worth.
Guarantor shall, from closing until fiscal year-end 1997, maintain Tangible Net
Worth of at least $6,500,000.00. At the end of each fiscal year thereafter,
Guarantor shall maintain Tangible Net Worth of not less than the sum (A)
$6,500,000 plus (B) 80% of its consolidated net income (but only if positive)
arising for the period from the first day of its 1998 fiscal year to the fiscal
year end in question, computed on a cumulative basis. "Tangible Net Worth" shall
mean the total assets minus total liabilities; provided that for purposes of
this computation, the aggregate amount of any intangible assets of Guarantor,
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including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall exclude fully
subordinated debt. Total Liabilities to Tangible Net Worth Ratio. Guarantor
shall maintain a ratio of Total Liabilities, excluding fully subordinated debt,
divided by Tangible Net Worth of not more than 2.00 to 1.00, tested quarterly at
the end of each fiscal quarter. For purposes of this computation, "Total
Liabilities" shall mean all liabilities of Borrower, including capitalized
leases and all reserves for deferred taxes and other deferred sums appearing on
the liabilities side of a balance sheet of Guarantor, in accordance with
generally accepted accounting principles applied on a consistent basis. Capital
Expenditures. Guarantor shall not expend more than $6,000,000.00 on gross assets
(including gross leases to be capitalized under generally accepted accounting
principles and leasehold improvements) in any fiscal year excluding acquisitions
of businesses, tested annually for each fiscal year. Fixed Charge Coverage
Ratio. Guarantor shall, at all times, maintain a Fixed Charge Coverage Ratio of
not less than 2.00 to 1.00, tested quarterly at the end of each fiscal quarter.
"Fixed Charge Coverage" shall mean the sum of earnings before tax, lease
expense, depreciation, amortization and other non-cash charges and interest
expense divided by the sum of lease expense and interest expense
BORROWER'S ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within
120 days after the close of each fiscal year, reviewed financial statements
reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules; all in reasonable detail, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year. All such statements shall be
examined by an independent certified public accountant acceptable to Bank. The
opinion of such independent certified public accountant shall not be acceptable
to Bank if qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval. The Borrower's obligations under this Section may be fulfilled by
delivery to the Bank by the Guarantor of the items required by the Section
headed "Guarantor's Annual Financial Statements", together with the
consolidating statements, for so long as Borrower's financial statements may be
consolidated with those of the Guarantor.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
45 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower.
The Borrower's obligations under this Section may be fulfilled by delivery to
the Bank by the Guarantor of the items required by the Section headed "Periodic
Financial Statements" relating to Guarantor, together with the consolidating
statements, for so long as Borrower's financial statements may be consolidated
with those of the Guarantor.
GUARANTOR'S ANNUAL FINANCIAL STATEMENTS. Guarantor shall deliver to Bank, within
120 days after the close of each fiscal year, audited financial statements and
Form 10K and reflecting its operations during such fiscal year, including,
without limitation, a balance sheet, profit and loss statement and statement of
cash flow, with supporting schedules; all on a consolidated and consolidating
basis and in reasonable detail, prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding
year. All such statements shall be examined by an independent certified public
accountant acceptable to Bank. The opinion of such independent certified public
accountant shall not be acceptable to bank if qualified due to any limitations
in scope imposed by Guarantor or its Subsidiaries, if any. Any other
qualification of the opinion by the accountant shall render the acceptability of
the financial statements subject to Bank's approval.
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PERIODIC FINANCIAL STATEMENTS. Guarantor shall deliver to Bank unaudited
management-prepared quarterly financial statements, and Form 10-Q, including,
without limitation, a balance sheet, profit and loss statement and statement of
cash flows, with supporting schedules, as soon as available and in any event
within 45 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. Such statements shall be
certified as to their correctness by a principal financial officer of guarantor.
TAX RETURNS. Guarantor shall deliver to Bank, within 30 days of filing, complete
copies of federal and state tax returns, as applicable, together with all
schedules thereto, including, without limitation, K-1 statements for all
Partnerships and subchapter S corporations, each of which shall be signed and
certified by Guarantor to be true, correct and complete copies of such returns.
In the event an extension is filed, Guarantor shall also deliver a copy of such
extension to Bank within 30 days of filing.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information, to the extent factual in nature, shall be true,
complete, and accurate.
BORROWING BASE. As used herein, the term "Borrowing Base" means an amount equal
to 50% of the net amount of Eligible Accounts plus 75% of the purchase price of
new medical equipment and 75% of the appraisal value of existing medical
equipment, less the amount of any Reserve required by Bank.
"Eligible Account" refers to an account receivable not more than 90 days from
the date of the original invoice that arises in the ordinary course of
Borrower's or Guarantor's business and meets the following eligibility
requirements: (a) the sale of goods or services reflected in such account is
final and such goods and services have been delivered or provided and accepted
by the account debtor and payment for such is owing; (b) the account is not
subject to any claim, defense or dispute which has been asserted by the account
debtor; (c) the account debtor is not insolvent; (d) the account debtor resides
in or has its principal place of business in the United States; (e) the account
debtor is an individual or an insurance company under a policy of health
insurance covering an individual; (f) not more than thirty percent of the
original invoices owing Borrower or Guarantor by the account debtor are more
than 90 days from the date of the original invoice; (g) Bank has a first
priority perfected security interest in such accounts receivable; (h) such
account is subject to a fully perfected first priority security interest in
favor of the Bank to secure the Obligations and is not subject to a security
interest in favor of any other person or entity; and (i) with respect to such
account, no account debtor is (A) controlled by, in control of or under common
control with the Borrower or Guarantor, as applicable, (B) unless the United
States Assignment of Claims Act of 1940, as amended, or similar state law has
been complied with, the United States or any state (having such a similar law),
as the case may be, government or any agency, bureau or department thereof, (C)
located in, or has its principal place of business in, any jurisdiction in which
the Borrower or Guarantor, as applicable, is neither incorporated nor was
qualified as a foreign corporation to do business on the date on which such
account was created if the effect of such non-qualification or non-incorporation
by the Borrower or Guarantor, as applicable, is to prevent the Borrower or
Guarantor, as applicable, from utilizing the courts of such jurisdiction (or
another jurisdiction in which such account debtor has a substantial amount of
its assets) to enforce the obligations of such account debtor with respect to
such account; (D) an account debtor as to which the Borrower or Guarantor, as
applicable, is in default with respect to any amounts owing to such account
debtor for any goods provided or services rendered by such account debtor.
"Reserves" may be required at any time and from time to time by Bank without
prior notice to Borrower or Guarantor in amounts deemed by Bank to be adequate
to reserve against outstanding letters of credit, outstanding bankers
acceptances, Borrower's and Guarantor's obligations to Bank or its affiliates or
any guaranties or other contingent debt of Borrower and Guarantor.
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Required Reports. Guarantor shall certify to Bank by the fifteenth day of each
month, the amount of Eligible Accounts as of the first day of each month as well
as the purchase price of new equipment and the value of existing equipment of
the Borrower and Guarantor, on forms required by Bank together with all detail
and supporting documents reasonably requested by Bank. Bank may at any time and
from time to time, during Bank's normal business hours, upon reasonable prior
notice, enter upon any business premises of Borrower and Guarantor and audit
Borrower's and Guarantor's accounts. Bank's determination of the amount of
Eligible Accounts shall at all times be rebutable presumptive evidence of the
amount thereof. The Borrower and Guarantor, at all times, shall cooperate with
Bank by providing Bank information and access to Borrower's and Guarantor's
premises and business records.
CONTINUING REPRESENTATIONS. Borrower and Guarantor warrant and represent as a
continuing warranty, that so long as principal is outstanding under the Line of
Credit Note, the outstanding principal balance thereunder shall not exceed the A
Limit and the outstanding principal balance of the Line of Credit Note and of
the Borrower's Loan shall not exceed the B Limit. Borrower and Guarantor agree
to pay any advances in excess of the applicable Limit immediately upon receipt
by Borrower or Guarantor of written notice that the applicable Limit has been
exceeded.
REPORTS AND PROXIES. Guarantor shall promptly deliver to Bank, a copy of all
financial statements, reports, notices and proxy statements sent by Guarantor to
stockholders, and all regular or periodic reports required to be filed by
Guarantor with any governmental agency or authority.
NON-DEFAULT CERTIFICATE. Borrower and Guarantor shall each deliver to Bank, with
the financial statements required by this Agreement, a certificate signed by a
principal financial officer of Borrower and Guarantor warranting that no
Default, as defined in the Loan Documents, nor any event which, upon giving of
notice or lapse of time or both, would constitute such a Default, has occurred.
CONTROLLING LAW. This Agreement, the Note and the other Loan Documents executed
and delivered in connection herewith shall be governed by and construed in
accordance with the laws of the State of New York.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. Opinion of Counsel. On or prior to
the date of the initial borrowing hereunder, Bank shall have received a written
opinion of counsel of Borrower acceptable to Bank that includes; subject to
customary limitations and exclusions, confirmation of the following: (a) The
accuracy of the representations set forth in this Agreement in the
Representations Subparagraphs entitled "Authorization; Non-Contravention";
"Compliance with Laws", and "Organization and Authority". (b) This Agreement and
other Loan Documents have been duly executed and delivered by Borrower and
constitute the legal, valid and binding obligations of Borrower, enforceable in
accordance with their terms. (c) No registration with, consent of, approval of,
or other action by, any federal, state or other governmental authority or
regulatory body to the execution and delivery of this Agreement, the borrowing
under this Agreement or other Loan Documents, is required by law, or, if so
required, such registration has been made, and consent or approval given or such
other appropriate action taken. (d) The Loan is not usurious. (e) The Loan
Documents create a lien on or security interest in the Collateral (as defined in
the Loan Documents) that is contemplated by the Loan Documents.
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IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
INTEGRAMED AMERICA OF ILLINOIS, INC.,
an Illinois corporation
By:/s/Dwight P. Ryan
--------------------------------------------
DWIGHT P. RYAN
Vice President and Chief Financial Officer
TAXPAYER ID# 13-3961879
FIRST UNION NATIONAL BANK
By:/s/James J. Dunn
------------------------
JAMES J. DUNN
Vice President
BY EXECUTING THIS AGREEMENT BELOW,
THE GUARANTOR HAS AGREED TO BE BOUND
BY THOSE PROVISIONS THEREIN APPLICABLE
TO GUARANTOR
INTEGRAMED AMERICA, INC.,
a Delaware corporation
By:/s/Dwight P. Ryan
--------------------------------------------
Vice President and Chief Financial Officer
Page 8
MANAGEMENT AGREEMENT
Between
INTEGRAMED AMERICA, INC.
AND
MPD MEDICAL ASSOCIATES (MA), P.C.
MANAGEMENT AGREEMENT dated as of October 1, 1997, by and between
IntegraMed America, a Delaware corporation, with its principal place of business
at One Manhattanville Road, Purchase, New York 10577 ("INMD") and MPD Medical
Associates (MA), P.C., a professional corporation with its principal place of
business at Deaconess-Waltham Hospital, Hope Ave., Waltham, Massachusetts 02254
("PC"), and Patricia McShane, MD ("Physician /Officer")
Recitals
PC is a medical practice specializing in the practice of gynecology and
the treatment of infertility, the utilization of in vitro fertilization and
assisted reproductive technology services (including but not limited to the
treatment of human infertility, gamete intra-fallopian tube transfer and zygote
intra-fallopian transfers) and related andrology services [all of the foregoing
are referred to collectively herein as "Infertility Services"].
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 in
order to assist such medical practices in the business aspects of the practice
of their discipline.
PC entered into a management agreement with IVF America now known as
IntegraMed America, Inc. ("INMD") dated January 1, 1996 (the "Management
Agreement") pursuant to which IVFA, (now known as INMD), agreed to provide,
among other things, certain management and administrative services to PC, an
office site and a license to use certain Trade Names as defined in the
Management Agreement.
PC wishes to continue to engage INMD to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the nonmedical aspects of PC's medical practice,
and INMD desires to provide such services upon all terms and conditions herein
set forth. PC and INMD have determined the fair market value for the full
complement of services rendered by INMD and have determined and agreed to a
management fee that will allow PC and INMD to establish a relationship
permitting each party to this agreement to devote its skills and expertise to
the appropriate responsibilities and functions.
<PAGE>
PC and INMD desire to amend and restate the terms and conditions of the
Management Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the PC hereby agrees
to purchase from INMD the management and administrative services herein
described and INMD agrees to provide such services on the terms and conditions
provided herein.
ARTICLE 1
DEFINITIONS
1.0 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
1.1 "Adjustments" shall mean adjustments for uncollectible accounts,
discounts, contractual adjustments, professional courtesies and other activities
that do not generate a collectible fee as reasonably determined by INMD's
independent certified public accountant.
1.2 "Base Management Fee" shall mean an annual fee paid by PC to INMD
in an amount equal to 6% (six percent) of PC's annual Physician and Other
Professional Revenues. The Base Management Fee shall include the cost of
management services provided by INMD corporate staff to the PC, as more
specifically described in Section 2.3.
1.3 "Costs of Services" shall mean all ordinary and necessary expenses
of PC and all direct ordinary and necessary operating expenses of INMD without
mark-up, incurred in connection with the management of PC's medical practice, as
more specifically described in Section 2.1.
1.4 "Facilities" shall mean the medical office and clinical space of
PC, including any satellite locations, related businesses and all medical group
business operations of INMD, which are utilized by PC in its medical practice.
1.5 "Fiscal Year" and "Calendar Year" shall mean the 12-month period
beginning January 1 and ending December 31 of each year, and the term "bi-weekly
draws" shall mean 26 annual pay periods.
1.6 "Infertility Services" shall mean medical care in gynecology and
the treatment of infertility, the utilization of in vitro fertilization and
assisted reproductive technology services (including but not limited to the
treatment of human infertility, gamete intra-fallopian tube transfer and zygote
intra-fallopian transfers) and related andrology services provided by PC or any
Physician Employee and Other Professional Employee.
1.7 "Other Professional Employees" shall mean professional employees of
PC who can not be employed by INMD due to any Massachusetts law or regulation.
1.8 "Physician Employees" shall mean those individuals who are
employees or shareholders of PC or are otherwise under contract with PC to
provide professional services to PC patients and are duly licensed as physicians
in the Commonwealth of Massachusetts.
1.9 "Physician and Other Professional Revenues" shall mean all fees,
whether received or accrued, and actually recorded each month (net of
Adjustments) by or on behalf of PC as a result of professional medical services
personally furnished to patients by Physician Employees and Other Professional
Employees and other fees or income earned in their capacity as professionals,
whether rendered in an inpatient or outpatient setting, including but not
limited to, medical director fees or technical fees from medical ancillary
services, consulting fees and speaking fees.
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1.10 "Physician Stockholders" shall mean the physician or physicians
who are stockholders of P.C.
1.11 "Predistribution Earnings" ("PDE") shall mean Physician and Other
Professional Revenue, less Cost of Services and Base Management Fee. "Base Year
PDE" shall be the PDE earned during the Fiscal Year 1997. "Excess PDE" shall
mean such portion of PDE allocated to the PC, which exceeds the Aggregate
Physician Draws as delineated in Section 7.3 (C).
1.12 "Revenues" shall mean the sum of all Physician and Other
Professional Revenues.
1.13 "Technical Employees" shall mean technicians who provide services
to the P. C. All Technical Employees shall be INMD Employees.
ARTICLE 2
COSTS OF SERVICES AND BASE MANAGEMENT FEE
2.1 "Costs of Services" (as defined in Section 1.3 above) includes
without limitation, the following costs and expenses, whether incurred by INMD
or PC:
2.1.1 Salaries and fringe benefits of all employees of INMD
working directly in the management, operation or administration
(including, without limitation, Technical Employees) providing services
at PC, along with payroll taxes or all other taxes and charges now or
hereafter applicable to such personnel;
2.1.2 Expenses incurred in the recruitment of additional
Physicians for PC, including, but not limited to employment agency
fees, relocation and interviewing expenses and any actual out-of-pocket
expenses of INMD personnel in connection with such recruitment effort;
2.1.3 Direct marketing expenses of PC, such as direct costs of
printing marketing materials prepared by INMD;
2.1.4 Any sales and use taxes assessed against PC related to
the operation of PC's medical practice;
2.1.5 Lease payments, depreciation expense (determined
according to GAAP), taxes and interest directly relating to the
Facilities and equipment, and other expenses of the Facilities
described in Section 3.2, below;
2.1.6 Legal fees paid by INMD or PC to outside counsel in
connection with matters specific to the operation of the PC such as
regulatory approvals required as a result of the parties entering into
this Agreement;
2.1.7 Fringe benefits provided to Physician Employees;
2.1.8 All insurance necessary to operate PC, including fire,
theft, general liability and malpractice insurance for Physician
Employees and the PC;
2.1.9 Professional licensure fees and board certification fees
of Physician Employees and Other Professional Employees rendering
Infertility Services on behalf of PC;
2.1.10 Membership in professional associations and continuing
professional education for Physician Employees and Other Professional
Employees;
2.1.11 The direct costs in maintaining a Quality Assurance
Program described in Section 3.7 herein;
2.1.12 Cost of filing of fictitious name permits pursuant to
this Agreement; and
2.1.13 The cost of medical supplies, including but not limited
to drugs, pharmaceuticals, products, substances, items, laboratory
supplies, office supplies, inventory and utilities; and
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2.2 Notwithstanding anything to the contrary contained herein, Cost of
Services shall not include costs of the following:
2.2.1 PDE of the PC paid to Physician Employees or
Stockholders or draws against PDE paid to such persons;
2.2.2 Costs or expenses not included in the annual budget
prepared by INMD and approved by the Joint Practice Management Board
pursuant to Section 3.4 herein, unless approved by such entities;
2.2.3 the Base Management Fee;
2.2.4 Any proportion of INMD's costs attributable to its
operation of its corporate offices or payment of its officers or
employees who work out of its corporate offices;
2.2.5 Any federal or state income taxes of INMD other than as
provided above.
2.3 "Base Management Fee" shall include all indirect costs of INMD and
shall cover and include all legal, accounting, financial, marketing, management
and administrative assistance provided by INMD corporate and regional staff
which are not provided for in Section 2.1.
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF INMD
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 PC hereby appoints INMD as its sole and exclusive
manager and administrator of all of its day-to-day business functions
and grants INMD all the necessary authority to carry out its duties and
responsibilities pursuant to the terms of this Agreement. PC and only
PC will perform the medical functions of its practice. INMD will have
no authority, directly or indirectly, to perform, and will not perform,
any medical function. INMD may, however, advise PC as to the
relationship between its performance of medical functions and the
overall administrative and business functioning of its practice. To the
extent that they assist PC in performing medical functions, all
Technical Employees provided by INMD shall be subject to the
professional supervision of the PC.
3.1.2 INMD shall, on behalf of PC, bill patients and collect
professional fees for Infertility Services rendered by PC at the
Facility, outside the Facility for PC's hospitalized patients, and for
all other Infertility Services rendered by any Physician Employee or
Other Professional Employee. PC hereby appoints INMD for the term
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<PAGE>
hereof to be its true and lawful attorney-in-fact, for the following
purposes: (i) to bill patients in PC's name and on its behalf; (ii) to
collect accounts receivable resulting from such billing in PC's name
and on its behalf; (iii) to receive payments from insurance companies,
prepayments received from health care plans, and all other third party
payors; (iv) to take possession of and endorse in the name of PC
(and/or in the name of any Physician Employee or Other Professional
Employee rendering Infertility Services to patients of PC) any notes,
checks, money orders, and other instruments received in payment of
accounts receivable; and (v) to initiate the institution of legal
proceedings in the name of PC to collect any accounts and monies owed
to PC to enforce the rights of PC as creditor under any contract or in
connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors.
3.1.3 INMD shall supervise and maintain (on behalf of PC) all
files and records relating to the operations of the Facilities,
including but not limited to accounting and billing records, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of PC and shall be located at
the Facilities and be readily accessible for patient care. INMD's
management of all files and records shall comply with all applicable
state and federal laws and regulations, including without limitation,
those pertaining to confidentiality of patient records. The medical
records of each patient shall be expressly deemed confidential and
shall not be made available to any third party except in compliance
with all applicable laws, rules and regulations. INMD shall have access
to such records in order to provide the services hereunder, to perform
billing functions, and to prepare for the defense of any lawsuit in
which those records may be relevant. The obligation to maintain the
confidentiality of such records shall survive termination of this
Agreement. PC shall have unrestricted access to all of its records at
all times.
3.1.4 INMD shall supply to PC all reasonably necessary
clerical, accounting, bookkeeping and computer services, printing,
postage and duplication services, medical transcribing services, and
any other necessary or appropriate administrative services reasonably
necessary for the efficient operation of PC's medical practice at the
Facilities.
3.1.5 Subject to PC's prior approval, INMD shall design and
implement an appropriate marketing and public relations program on
behalf of PC, with appropriate emphasis on public awareness of the
availability of Infertility Services from PC. The public relations
program shall be conducted in compliance with applicable laws and
regulations governing advertising by the medical profession. PC shall
approve all advertising and marketing materials prior to use.
3.1.6 INMD shall assist PC in recruiting additional
physicians, including such administrative functions as advertising for
and identifying potential candidates, checking credentials, and
arranging interviews; provided, however, PC shall interview and make
the ultimate decision as to the suitability of any physician to become
associated with PC All physicians recruited by INMD and accepted by PC
shall be employees of or independent contractors to PC
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<PAGE>
3.1.7 INMD shall negotiate, but shall not enter into, and
shall administer all managed care contracts on behalf of PC and shall
consult with PC on all administrative matters relating thereto.
3.1.8 INMD shall arrange for legal and accounting services as
may be reasonably required in the ordinary course of PC's operation,
including the cost of enforcing any physician contract containing
restrictive covenants. Nothing contained herein is intended to
authorize INMD to settle any claim made by or against PC.
3.1.9 INMD shall negotiate for and cause premiums to be paid
with respect to the insurance provided for in Article 11.
3.1.10 INMD shall take such other reasonable actions to
collect fees and pay expenses of the Facilities in a timely manner as
are deemed reasonably necessary to facilitate the operation of PC's
medical practice at the Facilities.
3.2 FACILITIES. INMD shall provide the office space, facilities and
services necessary for the operation of PC'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 shall provide for the cleanliness of the Facilities, and timely
maintenance and cleanliness of the equipment, furniture and furnishings located
therein. INMD shall consult with PC regarding the condition, use and needs for
the Facilities, equipment, services and improvements thereto.
3.3 INMD REPRESENTATIVE AND OTHER PERSONNEL.
3.3.1 INMD REPRESENTATIVE. Subject to the approval of PC (not
to be unreasonably withheld), INMD shall (1) hire and appoint a
representative ["INMD Representative"], to be resident at the offices
of the PC and subject to the direction of the INMD Corporate staff, to
manage and administer all of the day-to-day business functions of the
Facilities; and (2) determine the salary and fringe benefits paid to
the INMD Representative. Under the direction, supervision and control
of INMD, the INMD Representative, subject to the terms of this
Agreement, shall implement the policies agreed upon by INMD and PC and
shall generally perform the administrative duties assigned to the INMD
Representative by INMD.
3.3.2 PERSONNEL. INMD shall provide non-professional support
personnel and administrative personnel, clerical, secretarial,
bookkeeping and collection personnel reasonably necessary for the
efficient operation of PC at the Facilities. Such personnel shall be
under the direction, supervision and control of INMD, with Technical
Employees subject to the professional supervision of PC If PC is
dissatisfied with the services of any person delivering
non-professional services, PC shall consult with INMD. INMD shall in
good faith determine whether the performance of that employee warrants
termination. INMD's obligations to utilize non-professional personnel
shall be governed by the overriding principle and goal of facilitating
PC's provision of high quality medical care and laboratory services.
INMD shall make every effort consistent with sound business practices
to honor the specific requests of PC with regard to the assignment of
INMD's employees.
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3.4 FINANCIAL PLANNING AND GOALS. INMD shall prepare for the approval
of PC annual capital and operating budgets reflecting the anticipated revenues
and expenses, sources and uses of capital for growth of PC's practice and for
the provision of Infertility Services at the Facilities. INMD shall present the
budgets to PC for its approval at least thirty (30) days prior to the
commencement of each Fiscal Year. INMD shall specify the targeted profit margin
for PC's practice at the Facilities which shall be reflected in the overall
budget.
3.5 FINANCIAL STATEMENTS. INMD shall prepare annual financial
statements for operations of PC at the Facilities within ninety (90) days of the
close of the Fiscal Year. INMD shall prepare monthly financial statements
containing a balance sheet and statement of operations, which shall be delivered
to the PC within thirty (30) days after the close of each calendar month.
3.6 INVENTORY AND SUPPLIES. INMD shall order and purchase inventory and
supplies, and such other materials which are requested by PC to enable the
providers to deliver Infertility Services in a cost-effective manner.
3.7 QUALITY ASSURANCE. INMD shall assist PC in fulfilling its
obligations to maintain a Quality Assurance Program and in meeting the goals and
standards of such program.
3.8 RISK MANAGEMENT. INMD shall assist PC in the development of a Risk
Management Program and in meeting the standards of such program.
3.9 PERSONNEL POLICIES AND PROCEDURES INMD shall develop personnel
policies, procedures and guidelines, to govern office behavior, protocol and
procedure, designed to insure that the work site(s) of the PC observe all laws
and guidelines related to employment and human resources.
3.10 LICENSES AND PERMITS INMD shall, on behalf of and in the name of
the PC, coordinate and assist the PC in its application for and efforts to
obtain and maintain all federal state and local licenses, certifications and
regulatory permits required for or in connection with the operation of the PC
and equipment located at the Facilities, other than those relating to the
practice of medicine or the administration of drugs by Physician Employees. INMD
has previously and shall grant PC a license to use the name "Reproductive
Science Center" on any licenses.
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<PAGE>
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PC
4.1 PROFESSIONAL SERVICES. PC shall provide Infertility Services to
patients in compliance at all times with applicable ethical standards, laws and
regulations applying to the practice of medicine in the Commonwealth of
Massachusetts. PC shall ensure that each Physician Employee, Other Professional
Employee and any other professional provider associated with PC is duly licensed
to provide the services being rendered within the scope of such provider's
practice. In addition, PC shall require each Physician Employee to maintain a
DEA number and appropriate medical staff privileges as determined by PC during
the term of this Agreement and to obtain board certification in Reproductive
Endocrinology within five (5) years of a Physician Employee's completion of an
accredited training program. In the event that any disciplinary actions or
medical malpractice actions are initiated against any such physician or other
professional provider, PC shall promptly inform the INMD Representative of the
underlying facts and circumstances of such action.
4.2 MEDICAL PRACTICE. PC shall use and occupy the Facilities
exclusively for the purpose of providing Infertility Services and shall comply
with all applicable laws and regulations and all applicable standards of medical
care. The medical practice conducted at the Facilities shall be conducted solely
by physicians employed by or serving as independent contractors to PC. PC shall
require that Physician Employees work the number of professional days referenced
in each Physician's Employment Agreements (upon which INMD has relied) and shall
assign equitable shares of weekend "on call" hours to each Physician Employee so
as to provide weekend coverage to patients of the PC. 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 DIRECTION OF PRACTICE
4.3.1 PC, as a continuing condition of INMD's obligations
under this Management Agreement, shall at all time during the Term be
and remain legally organized and operated to provide Infertility
Services in a manner consistent with state and federal laws.
4.3.2 PC shall operate and maintain at the Facilities a full
time practice of medicine specializing in the provision of Infertility
Services and shall maintain and use diligent efforts to enforce
Physician Employment Agreements substantially in the form attached
hereto as Exhibit 4.3 ["Employment Agreement"] or in such other form as
is mutually agreed to by the PC and INMD in writing. PC covenants that
it shall not employ any physician, or have any physician as a
shareholder, unless said physician shall sign such Employment Agreement
prior to assuming the status as employee and/or shareholder. PC
covenants that should a physician become a shareholder of the PC, that
a condition precedent to the issuance of the shares shall be the
ratification of this Management Agreement.
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4.3.3 PC shall not (except for cause) terminate the Employment
Agreement(s) of any Physician or Shareholder, without two months
written notice to INMD. PC shall not amend or modify the Employment
Agreements in any material manner, nor waive any material rights of the
PC thereunder without the prior written approval of INMD. PC covenants
to use diligent efforts to enforce the terms of each Physician
Employment Agreement, including but not limited to any covenants not to
compete and other terms confirming a Physician-Employee's commitment to
practice medicine solely through the PC for a specified number of
years. In addition, in the exercise of INMD's sole discretion, if the
PC fails to diligently pursue the enforcement of its rights against a
Physician-Employee, INMD shall have the right, but not the obligation,
to direct, initiate or join in a lawsuit to enforce the provisions of
any Employment Agreement and PC shall assign its rights and remedies
against such Physician-Employee upon the request of INMD.
4.3.4 Recognizing that INMD would not have entered into this
Management Agreement but for the PC's covenant to maintain and enforce
Employment Agreements with Physicians now employed or Physicians who
may hereafter become employees of the PC, and in reliance upon such
physicians' observance and performance of all of the obligations under
the Employment Agreements, any damages, liquidated damages,
compensation, payment or settlement ["Damages"] received by the PC from
a Physician whose employment is terminated, shall be paid to INMD.
4.3.5 PC shall retain that number of Physician Employees as
are reasonably necessary and appropriate for the provision of
Infertility Services. However, PC shall hire Physicians ["Incoming
Physician"] only (1) with the consent, not to be unreasonably withheld,
of INMD, and (2) after the PC and INMD have mutually determined the
compensation of such Incoming Physician. Each Incoming Physician shall
be licensed to practice medicine in Massachusetts, and shall be
competent in the practice of obstetrics and gynecology, including the
subspecialty of infertility and assisted reproductive medicine. PC
shall be responsible for paying the compensation and benefits, as
applicable, for all Physician Employees, and for withholding, as
required by law, any sums for income tax, unemployment insurance,
social security, or any other withholding required by applicable law.
INMD may, on behalf of the PC, establish and administer the
compensation with respect to such Physician Employees in accordance
with the written agreement between the PC and each Physician Employee.
INMD shall neither control nor direct any Physician in the performance
of Infertility Services for patients.
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4.3.6 PC shall insure that Physician Employees and
Professional Employees provide patient care and clinical backup as
required to insure the proper provision of services to patients of the
PC at the Facilities, and/or such other locations as shall be mutually
agreed to by PC and INMD. PC shall insure that its Physician Employees
and Professional Employees devote appropriate professional time, effort
and ability to PC's practice, including the provision of Infertility
Services and the development of such practice.
4.3.7 PC covenants to use diligent efforts to cooperate with
INMD in order to obtain necessary licenses. INMD shall be primarily
responsible for pursuing, in behalf of, and in the name of, the PC, any
and all necessary licenses to operate the laboratory and tissue bank
services existing on the date hereof at the Facilities.
4.3.8 PC acknowledges that it bears all medical obligations to
patients treated at the facilities and covenants that it is responsible
for all tissue, specimens, embryos or biological material ["Biological
Materials"] kept at the Facilities on behalf of the patients (or former
patients) of the PC. In the event of a termination or dissolution of
the PC, or the termination of this Management Agreement for any reason,
the PC and its members shall have the obligation to account to patients
and to arrange for the storage or disposal of such Biological Materials
in accordance with patient consent and the ethical guidelines of the
American Society of Reproductive Medicine ["Relocation Program"]. INMD,
in such event, shall, at the request of the PC, assist in the
administrative details of such a Relocation Program for so long as the
PC shall request and the Management Fee shall be paid during that time.
These obligations shall survive the termination of this Agreement.
4.3.9 PC covenants not to liquidate or dissolve as a
Professional Corporation except on six months prior written notice to
INMD. In the event that any liquidation or dissolution of the PC
occurs, for a reason other than the death or disability of all of the
shareholders, the PC, and its individual shareholders, shall indemnify
INMD for: (a) the actual costs of maintaining the facilities and any
reasonably necessary Professional Employees during a Relocation Program
(Section 4.3.8); (b) legal costs for relicensing; (c) recruitment of
other physicians to assume the Practice; and (d) any damages, costs,
liabilities, including reasonable attorneys fees, arising out of the
result of claims, suits, causes of action or proceedings, brought by a
patient of the PC having an interest in any Biological Materials kept
at the Facilities. These obligations shall survive the termination of
this Management Agreement.
4.3.10 PC shall undertake and use its best efforts to locate
physicians who, in PC's judgment, possess the credentials and expertise
necessary to enable such physician candidates to become affiliated with
PC for the purpose of providing Infertility Services.
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4.4 CONTINUING MEDICAL EDUCATION . PC shall require its Physician
Employees and Other Professional Employees to participate in such continuing
medical education as PC deems to be reasonably necessary for such Physicians or
Other Professional Employees to remain current in the provision of Infertility
Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. PC shall require its Physician
Employees and Professional Employees to participate in such risk management
program as PC deems to be reasonably necessary in order to cooperate with its
insurers and minimize risk.
4.6 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT.
PC agrees that during the term of this Agreement PC covenants for itself and
will use its diligent efforts to cause its Physician Employees and Professional
Employees to:
4.6.1 Execute such documents and take such steps reasonably
necessary to assist billing and collecting for patient services
rendered by PC and its Physician Employees and Professional Employees;
4.6.2 Promote PC's medical practice and participate in
marketing efforts developed by INMD; and
4.6.3 Participate in reasonable INMD network activities and
programs.
4.7 PERSONNEL POLICIES. PC covenants for itself and will use diligent
efforts to cause its Physician Employees and other Professional Employees to
comply with reasonable personnel policies and guidelines developed for the
practice of the PC by INMD, which shall include administrative protocols and
policies designed to insure that the work sites complies with all applicable
laws and regulations, federal and state.
ARTICLE 5
LICENSE OF INMD NAME
5.1 GRANT OF LICENSE. INMD hereby grants to PC a revocable and
non-assignable license for the term of this Agreement to use the name
REPRODUCTIVE SCIENCE CENTER and any other service names, trademark names and
logos of INMD (the "Trade Names") in conjunction with the provision of
Infertility Services by PC at the Facilities. PC agrees to practice medicine, at
all locations, under the name Reproductive Science Associates, or Reproductive
Science Center. Notwithstanding the License granted to PC hereunder, INMD
retains the absolute right to use and license the Trade Names to others.
5.2 FICTITIOUS NAME PERMIT. If necessary, PC shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious name permit which allows PC to practice at the
Facilities under the Trade Names and shall take any other actions reasonably
necessary to procure protection of or protect INMD's rights to the Trade Names.
INMD shall cooperate and assist PC in obtaining any such original, amended or
renewal fictitious name permit.
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5.3 RIGHTS OF INMD. PC acknowledges INMD's exclusive right, ownership,
title and interest in and to the Trade Names and will not at any time do or
cause to be done any act or thing contesting or in any way impairing or tending
to impair any part of such right, title and interest. In connection with the use
of the Trade Names, PC shall not in any manner represent that it has any
ownership interest in the Trade Names, and PC's use shall not create in PC's
favor any right, title, or interest in or to the Trade Names other than the
right of use granted hereunder, and all such uses by PC shall inure to the
benefit of INMD. PC shall notify INMD immediately upon becoming aware of any
claim, suit or other action brought against it for use of the Trade Names or the
unauthorized use of the Trade Names by a third party. PC shall not take any
other action to protect the Trade Names without the prior written consent of
INMD. INMD, if it so desires, may commence or prosecute any claim or suit in its
own name or in the name of PC or join PC as a party thereto. PC shall not have
any rights against INMD for damages or other remedy by reason of any
determination of INMD not to act or by reason of any settlement to which INMD
may agree with respect to any alleged infringements, imitations or unauthorized
use by others of the Trade Names, nor shall any such determination of INMD or
such settlement by INMD affect the validity or enforceability of this Agreement.
5.4 RIGHTS IN TRADE NAME UPON TERMINATION.
5.4.1 Upon termination or expiration of this Agreement, PC
shall: (i) within 30 days of the termination or expiration, cease using
the Trade Names in all respects and refrain from making any reference
on its letterhead or other publicly-disseminated information or
material to its former relationship with INMD; and (ii) take any and
all actions required to make the Trade Names available for use by any
other person or entity designated by INMD.
5.4.2 PC's failure (except as otherwise provided herein) to
cease using the Trade Names at the termination or expiration of this
Agreement will result in immediate and irreparable damage to INMD and
to the rights of any licensee of INMD. There is no adequate remedy at
law for such failure. In the event of such failure, INMD shall be
entitled to equitable relief by way of injunctive relief and such other
relief as any court with jurisdiction may deem just and proper.
Additionally, pending such a hearing and the decision on the
application for such permanent injunction, INMD shall be entitled to a
temporary restraining order, without prejudice to any other remedy
available to INMD. The remedies hereunder shall be at the expense of PC
and shall be a Cost of Services.
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ARTICLE 6
FINANCIAL ARRANGEMENTS
6.1 COMPENSATION. 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:
6.1.1 an amount reflecting all Costs of Services (whether
incurred by INMD or PC) paid or recorded by INMD pursuant to the terms
of this Agreement;
6.1.2 during each year of this Agreement, a Base Management
Fee of an amount equal to six percent (6%) of the Revenues;
6.1.3 an additional service fee ["Service Fee"] which shall be
calculated in accordance with the PDE allocation formula set forth in
Article 7 hereof (items 6.1.1, 6.1.2 and 6.1.3 are hereafter referred
to as "Compensation").
6.2 ACCOUNTS RECEIVABLE.
6.2.1 On or before the 15th business day of each month, INMD
shall reconcile the accounts receivable of PC arising during the
previous month. Subject to the terms and conditions of this Agreement,
PC hereby sells and assigns to INMD as absolute owner, and INMD hereby
purchases from PC all accounts receivables hereafter owned by or
arising in favor of PC. All accounts receivables are sold on a full
recourse basis. Accounts receivable are defined as all rights to
payment for services rendered or goods sold, accounts, receivables,
contract rights, chattel paper, documents, instruments and other
evidence of patient indebtedness to PC, policies and certificates of
insurance relating to any of the foregoing, and all rights to payment,
reimbursement or settlement or insurance or other medical benefit
payments assigned to PC by patients or pursuant to any preferred
provider, HMO, capitated payment agreements or other agreements between
PC and a payer, recorded each month (net of adjustments) on the books
of PC (collectively "Receivables"). INMD shall transfer or pay such
amount of funds to PC equal to the Receivables less the Compensation
due to INMD pursuant to Section 6.1 and its subparts. In addition, INMD
shall transfer any amounts for Costs of Services paid or to be paid
directly by PC. PC shall cooperate with INMD in connection with the
sale of such Receivables, not take any action or do anything to impair
INMD's rights to the Receivables and execute all necessary documents in
connection with the purchase and assignment of such Receivables to INMD
or, at INMD's option, its lenders.
6.2.2 All collections with respect to the Receivables shall be
deposited in a bank account at a bank designated by INMD. To the extent
that PC or any of its physicians comes into possession of any payments
relative to the Receivables, PC shall direct and cause its physicians
to direct such payments to INMD.
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6.3 ADVANCES. Subject to the provisions of Article 7 hereof, INMD
shall, in its sole discretion, advance funds to PC, with the consent of PC, to
provide new services, utilize new technologies, provide working capital or fund
mergers with other physicians or physician groups into PC (collectively referred
to as an "Advance"). The acceptance of any Advances shall constitute consent by
the PC.
6.3.1 Subject to the provisions of Article 7, any Advance
shall be a debt owed to INMD by PC and shall have payment priority over
PDE distribution to PC. Allocations of PDE shall be made pursuant to
Article 7, and any Advance repayable to INMD shall within 60 days after
the advance, be repaid, and accordingly deducted, from the PC's share
of PDE either as a lump sum payment, or installments as agreed to by
INMD.
6.3.2 Except as provided by the provisions of Article 7,
interest expense will be charged for funds advanced and will be
computed at the Prime Rate used by INMD's primary bank in effect at the
time of the Advance.
6.3.3 Commencing with the Effective Date of this Agreement,
the Advances made to the PC by INMD under the prior INMD-PC Management
Agreement dated January 11, 1996 ["Prior Agreement"] in the amount of
$106,372.00 (one hundred and six thousand, three hundred and seventy
two dollars) shall first be repaid to INMD from eighty percent (80%) of
the PC's share(s) of Excess PDE, as that term is used in Article 7,
during the term of this Agreement, until the Advance is completely
repaid. The remaining twenty percent (20%) of the PC's share(s) of
Excess PDE shall be utilized for payment to Thomas Toth, M.D., unless
he shall not be employed by the PC, in which case it shall be used in
the precise same manner as the eighty percent.
ARTICLE 7
PDE ALLOCATION FORMULA
7.1 PDE, as defined in Article 1, section 1.11, shall be allocated
pursuant to the provisions (and subdivisions) of this Article 7.
7.2 PDE shall be allocated, between INMD and PC, as follows:
1. PDE between $0.00 (zero dollars) and $2,000,000 (two
million dollars), shall be allocated forty percent
(40%) to the PC and sixty percent (60%) to INMD.
2. Thereafter, the incremental PDE between $2,000,000
(two million dollars) and $2,500,000 (two million
five hundred thousand dollars), shall be allocated
fifty percent (50%) to the PC and fifty percent (50%)
to INMD.
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3. Thereafter, the incremental PDE between $2,500,000
(two million five hundred thousand dollars) and
$3,000,000 (three million dollars), shall be
allocated sixty percent (60%) to the PC and forty
percent (40%) to INMD.
4. Thereafter, the incremental PDE between $3,000,000
(three million dollars) and $3,500,000 (three million
five hundred thousand dollars), shall be allocated
seventy percent (70%) to the PC and thirty percent
(30%) to INMD.
5. Thereafter, the incremental PDE greater than
$3,500,000 (three million five hundred thousand
dollars), shall be allocated seventy-five percent
(75%) to the PC and twenty-five percent (25%) to
INMD.
7.3 INMD shall provide certain funding to the PC, for the purpose of
physician draws as against PDE, under the following terms and conditions:
A. During the term of this Management Agreement, INMD shall make
Advances, as necessary, pursuant to Section 6.3 of this
Agreement, to enable PC to fund bi-weekly draws against PDE,
for Dr. Thomas Toth ["Toth"] and Dr. Patricia McShane
[McShane"] so long as Toth and/or McShane shall be employed by
the PC as follows:
1. Dr. Toth shall receive bi-weekly draws based on an
aggregate annualized salary of $250,000 (two hundred
and fifty thousand dollars) for the period between
the Effective Date of the Employment Agreement
between the PC and Toth and December 31, 1999;
thereafter, from January 1, 2000 and in subsequent
years, bi-weekly draws shall be based on an aggregate
annualized salary of $200,000 (two hundred thousand
dollars) ["Toth Draw(s)"]. The Toth Draws represent
compensation based upon a five (5) day work week and
an equitable portion of "weekend call" hours.
2. Dr. Patricia McShane shall receive bi-weekly draws
based on an aggregate annualized salary of $205,000
(two hundred and five thousand dollars) for the
period between the Effective Date of this Agreement
and December 31, 1998; thereafter, commencing January
1, 1999, in subsequent years bi-weekly draws shall be
based on an aggregate annualized salary of $175,000
(one hundred and seventy five thousand dollars)
["McShane Draw(s)"]. The McShane Draws represent
compensation based upon a four (4) day work week and
an equitable portion of "weekend call" hours.
3. In the event that, at the end of any Fiscal Year, the
PC's portion of PDE is insufficient to repay INMD the
Advances made for the Toth Draw(s) and/or the McShane
Draw(s), such Advances shall be forgiven and neither
the PC, Toth nor McShane shall owe INMD any monies
thereon.
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B. During the term of this Management Agreement (subject to
section D below), INMD shall make Advances, as necessary,
pursuant to Section 6.3 of this Agreement, to fund bi-weekly
draws against PDE, for the following Physician Employee(s) as
are actually employed by the PC as follows:
1. A part time (two days a week) physician, to be paid
an aggregate annualized salary (or any portion
thereof) of $100,000 (one hundred thousand dollars)
for the period between the Effective Date of this
Agreement and December 31, 1998. Thereafter,
commencing January 1, 1999, in subsequent years
bi-weekly draws shall be based upon an aggregate
annualized salary of $70,000 (seventy thousand
dollars). It is understood that, as of the Effective
Date of this Agreement, such physician will be Peter
M. Martin, M.D.
2. A full time (5 day a week) physician, to be paid an
aggregate annualized salary (or any portion thereof)
of $180,000 (one hundred and eighty thousand dollars)
for the period between the Effective Date of this
Agreement and December 31, 1998. Thereafter,
commencing January 1, 1999, in subsequent years
bi-weekly draws shall be based upon an aggregate
annualized salary of $175,000 (one hundred and
seventy-five thousand dollars). It is understood
that, as of the Effective Date of this Agreement,
such physician will be Isaac Z. Glatstein, M.D.
3. A full time (5 day a week) physician, to be paid an
aggregate annualized salary (or any portion thereof)
of $210,000 (two hundred and ten thousand dollars)
for the period between the Effective Date of this
Agreement and December 31, 1998. Thereafter,
commencing January 1, 1999, in subsequent years
bi-weekly draws shall be based upon an aggregate
annualized salary of $175,000 (one hundred and
seventy-five thousand dollars). It is understood
that, as of the Effective Date of this Agreement,
such physician will be Samuel Pang, M.D.
4. An aggregate annualized salary (or any portion
thereof) of $150,000 (one hundred and fifty thousand
dollars) only for the period between the Effective
Date of this Agreement and February 28, 1998 the
expiration of the current Employment Agreement
between Daniel Tulchinsky, M.D., Dr. Tulchinsky to
perform Infertility Services on behalf of the PC
pursuant to the terms of such Employment Agreement.
5. In the event that a physician, as described in any of
the subsections (1-4) above is not employed by the
PC, INMD shall not have the obligation to make
advances for the draw described for such physician.
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6. In the event that any of the Physicians described in
Sections 7.3 (A) and (B)(1) - (4) shall work less
than the amount described (which shall include an
equitable share of "weekend call" hours), then the
stated draws shall be proportionately reduced, and
INMD's obligation to fund such draws shall be
similarly proportionately reduced.
C. The draws against PDE enumerated above in subsections A and B
shall hereinafter be known, in the collective, as "Aggregate
Physician Draw(s)".
D. In the event that the Aggregate Physician Draws actually paid
to Physician Shareholders and/or Physician Employees shall,
for two successive quarters, represent a sum of money in
excess of forty percent (40%) of the actual PDE earned by the
Practice in such quarters ["Successive Quarters"], then the
obligations of INMD, under paragraphs A and B shall be amended
upon the following terms and conditions:
1. INMD shall, at the conclusion of any such Successive
Quarters provide written notice to the PC, in the
form and by the method of delivery detailed in
Section 13.11, that commencing six months thereafter
["Amendment Date"], it shall no longer fund Aggregate
Physician Draws beyond forty percent (40%) of actual
PDE earned during any Quarter.
2. Commencing with the Amendment Date, INMD shall fund
Aggregate Physician Draws only to the extent that
such Aggregate Physician Draws represent forty
percent (40%) of actual PDE earned during any
Quarter. Advances for Aggregate Physician Draw(s)
made during the Successive Quarters and Prior to the
Amendment Date, shall be forgiven and neither the PC
nor the Individual Physician Employee shall owe INMD
any monies thereon. Notwithstanding anything
contained in subsection D, INMD's obligations with
respect to the Toth Draw and the McShane Draw, as
delineated in 7.3(A)(1)-(3) above, shall not be
altered in any manner.
ARTICLE 8
TERM AND RENEWAL
8.1 The term of this Agreement shall begin October 1, 1997 ["Effective
Date"] and shall expire ten (10) years after such date unless earlier terminated
pursuant to Article 9 below. This Agreement may be renewed by either party, if
within the period of 180 days prior to the date of expiration one party gives
notice to the other of its intention to continue this Agreement under the same
terms and conditions as set forth herein or under such different terms and
conditions as particularly set forth in the written notice and further providing
that the other party has 30 days from the date of notice to accept, reject or
modify the offer. If within 30 days the other party does not respond or by
written notice accepts, this Agreement shall continue for an additional 10 years
under the terms and conditions as provided in the notice. In the event the offer
is not accepted, the parties agree to negotiate, in good faith, a renewal of
this Agreement under terms and conditions acceptable to each party.
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ARTICLE 9
TERMINATION OF THE AGREEMENT
9.1 TERMINATION .
This Agreement shall be terminated by either party in the event of the
following:
9.1.1 INSOLVENCY. If a receiver, liquidator or trustee of
either party shall be appointed by court order, or a petition to
reorganize shall be filed against either party under any bankruptcy,
reorganization or insolvency law, and shall not be dismissed within 90
days, or either party shall file a voluntary petition in bankruptcy or
make assignment for the benefit of creditors, then the other party may
terminate this Agreement upon 10 days prior written notice to the other
party.
9.1.2 MATERIAL BREACH. If either party shall materially breach
its obligations hereunder, then the other party 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.
9.1.3 ILLEGALITY. (a) Subject to the provisions of Section
9.1.3(b) hereof, either party may terminate this Agreement (as amended,
if necessary) immediately upon receipt of final 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
either party contests such notification in good faith and the conduct
contemplated by this Agreement is allowed to continue during such
contest.
(b) The PC and INMD agree to make such amendments to
this Agreement as necessary to conform with any regulatory ruling or
advisory opinion, provided that any such amendments are not materially
to the PC's financial detriment.
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(c) If any governing regulatory agency asserts that
the services provided by INMD under this Agreement (as amended pursuant
to subsection (b) hereof) are unlawful or that the practice of medicine
by PC as contemplated by this Agreement requires a certificate of need,
and any such assertion is not contested (or if contested, the agency's
assertion is found to be correct by a court of competent jurisdiction
and no appeal is taken, or if any appeals are taken and the same are
unsuccessful), this Agreement shall thereupon terminate with the same
force as if such termination date was the date originally specified in
this Agreement as the date of final expiration of the terms of this
Agreement.
9.1.4 ECONOMIC INFEASIBILITY. (a) Either party may terminate
this Agreement upon 90 days prior written notice to the other party in
the event that the provision of Infertility Services as contemplated by
this Agreement is no longer economically feasible for any reason,
including, without limitation, due to technological obsolescence of the
Infertility Services, adverse modification of the reimbursement system
materially affecting payment for such services, or adverse change in
the applicable laws or regulations materially affecting the delivery of
Infertility Services.
(b) INMD may terminate this Agreement, upon six
months written notice, should the INMD portion of PDE diminish, from
the Base Year PDE as defined in Section 1.11, by thirty-five percent
(35%) in any one (1) Fiscal Year.
9.2 TERMINATION BY INMD FOR PROFESSIONAL DISCIPLINARY ACTIONS. INMD may
terminate this Agreement upon 10 days prior written notice to PC if either of
the medical license(s) of Patricia McShane (President of PC) or Thomas L. Toth
(Medical Director) is suspended, revoked, materially limited, or not renewed.
ARTICLE 10
RIGHTS UPON TERMINATION
10.1 If this Agreement is terminated for any reason, then INMD and the
PC agree as follows:
(1) PC shall purchase, and INMD shall sell, any fixed
assets including, the equipment, furniture, supplies
and fixtures, at the net book value determined in
accordance with generally accepted accounting
principles consistently applied as to the date of
termination.
(2) PC shall assume all leases for offices and equipment
used directly for the management and operation of the
PC's business, or if assumption is not permitted,
make all payments called for by such leases, to INMD.
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(3) PC shall notify, within 30 days of the date of
termination, all patients with Biological Materials
in storage at the Facility, that INMD will no longer
provide management services and that the care and
custody of such Biological Materials rests solely
with the PC. The form of such notification shall be
with the consent of INMD (such consent not to be
unreasonably withheld).
(4) Repay any indebtedness, owned to INMD as the result
of Advances or Service Fees.
ARTICLE 11
INSURANCE
11.1 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, PC shall be named as an additional insured on INMD's public liability
and property damage insurance policies. A certificate of insurance evidencing
such policies shall be presented to PC within thirty (30) days after the
execution of this Agreement.
11.2 PC shall carry professional liability insurance covering PC and
PC's employees in the amount of , at least, $1 million per incident, $3 million
in the aggregate. Certificates of insurance evidencing such policies shall be
presented to INMD within thirty (30) days after the execution of this Agreement.
Failure to provide such certificates within such period shall constitute a
material breach by PC hereunder.
11.3 PC and INMD shall provide written notice to the other at least ten
(10) days in advance of the effective date of any reduction, cancellation or
termination of the insurance required to be carried by each hereunder.
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ARTICLE 12
NON-SOLICITATION AND NON-COMPETITION
12.1 The PC recognizes and acknowledges that INMD will incur
substantial costs in providing the equipment, support services, personnel,
management, administration and other services that are the subject of this
Agreement. The parties also recognize that the services to be provided by INMD
will be feasible only if the PC operates an active practice to which the
Physician Employees devote their full professional time and attention. PC agrees
that the non-competition and non-solicitation covenants described hereunder are
necessary for the protection of INMD, and that INMD would not enter this
Agreement without the following covenants:
(a) During the term of this Agreement, PC and any
business entity of which Physician/Owner is a principal or employee
["Covenanting Parties"] shall not establish, operate or provide
Infertility Services at a medical office, clinic or other health care
facility other than as provided for in this Agreement.
(b) During the Term of this Agreement, and for a
period of two years from the date it is terminated, Covenanting Parties
shall not directly or indirectly own, manage, operate, control,
contract with, be associated with or lend its or its shareholders'
names to, the provision or marketing of Infertility Services, within a
20 mile radius of the Facilities ["Service Area"], if an entity using
the name "Reproductive Science Center", or any INMD Trade Name,
continues to operate in the Service Area.
(c) During the term of this Agreement, and for two
years from the date of termination, PC shall not hire, attempt to hire,
contract or solicit for hiring or consultancy, any employee of INMD, or
form a corporation, partnership or joint venture or other entity with
any such employee, who is currently employed by INMD or had been
employed by INMD within one (1) year prior to the termination of this
Agreement.
ARTICLE 13
JOINT DUTIES AND RESPONSIBILITIES
13.1 FORMATION AND OPERATION OF JOINT PRACTICE MANAGEMENT BOARD. INMD
and PC will establish a Joint Practice Management Board which will be
responsible for developing management and administrative policies for the
overall operation of PC. The Joint Practice Management Board will consist of (1)
designated management representative(s) from INMD, (2) the PC President and
Medical Director and (3) such other practice physicians as appointed by the PC
President and Medical Director [(2) and (3) collectively the PC Representative].
In the case of any matter requiring a formal vote, the PC Representatives shall
collectively have one (1) vote and the INMD Representatives shall likewise have,
collectively, one (1) vote, and action shall require unanimous consent.
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13.2 DUTIES AND RESPONSIBILITIES OF THE JOINT POLICY BOARD. The Joint
Practice Management Board shall have the following duties and responsibilities:
13.2.1 ANNUAL BUDGETS. All annual capital and operation
budgets prepared by INMD shall be subject to the review, amendment,
approval and/or disapproval of the Joint Practice Management Board.
13.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any renovation and expansion plans, and capital
equipment expenditures with respect to PC shall be reviewed and
approved by the Joint Practice Management Board and shall be based upon
the best interests of PC, and shall take into account capital
priorities, economic feasibility, physician support, productivity and
then current market and regulatory conditions.
13.2.3 ADVERTISING BUDGET. All annual advertising and other
marketing budgets prepared by INMD shall be subject to the review,
amendment, approval and disapproval of the Joint Practice Management
Board.
13.2.4 PATIENT FEES. The Joint Practice Management Board shall
review and approve the fee schedule for all physician and ancillary
services rendered by PC.
13.2.5 ANCILLARY SERVICES. The Joint Practice Management
Board shall approve ancillary services rendered by PC.
13.2.6 PROVIDER AND PAYER RELATIONSHIPS. Decisions regarding
the establishment or maintenance of relationship with institutional
health care providers and payers shall be made by the Joint Practice
Management Board in consultation with PC; provided, however, that
unanimous consent of PC designated members of the Joint Practice
Management Board shall be necessary to discontinue any existing PC
institutional relationship.
13.2.7 STRATEGIC PLANNING. The Joint Practice Management Board
shall develop long-term strategic plans, from time to time.
13.2.8 PHYSICIAN HIRING. The Joint Practice Management Board
shall determine, except as otherwise provided for herein, the number
and type of physicians required for the efficient operation of PC. The
approval of the Joint Practice Management Board shall be required for
any modifications to the restrictive covenants contained in any
physician agreement.
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13.2.9 PROVIDER CONTRACTS. The Joint Practice Management Board
shall approve, disapprove, or amend all managed care, PPO, HMO,
Medicare risk and other provider contracts negotiated by INMD.
13.2.10 INMD REPRESENTATIVE. The selection and retention of
the INMD Representative pursuant to Section 3.3.1 by INMD shall be
subject to the reasonable approval of the Joint Practice Management
Board. If PC is dissatisfied with the services provided by the INMD
Representative, PC shall consult with INMD who shall, in good faith,
determine whether the performance of the INMD Representative could be
brought to acceptable levels through counsel and assistance, or whether
the INMD Representative should be terminated. PC acknowledges that the
removal of an INMD Representative is likely to involve financial and
other commitments on the part of INMD that were undertaken after that
individual's approval by PC. Therefore, the decision to remove an INMD
Representative shall rest with INMD.
ARTICLE 14
MISCELLANEOUS
14.1 INDEPENDENT CONTRACTOR. INMD and PC are independent contracting
parties. In this regard, the parties agree that the relationship between INMD
and PC is that of an independent supplier of non-medical services and a medical
practice, respectively, and, unless otherwise provided herein, nothing in this
Agreement shall be construed to create a principal-agent, employer-employee, or
master-servant relationship between INMD and PC.
14.1.1 Notwithstanding the authority granted to INMD herein,
INMD and PC agree that PC shall retain the full authority to direct all
of the medical, professional, and ethical aspects of its medical
practice;
14.1.2 Any powers of PC not specifically vested in INMD by the
terms of this Agreement shall remain with PC;
14.1.3 PC shall, at all times, be the sole employer of the
Physician Employees, the Other Professional Employees and all other
professional personnel engaged by PC in connection with the operation
of its medical practice at the Facilities, and shall be solely
responsible for the payment of all applicable federal, state or local
withholding or similar taxes and provision of workers' compensation and
disability insurance for such professional personnel;
14.1.4 Neither party shall have the right to participate in
any benefits, employment programs or plans sponsored by the other party
on behalf of its employees, including, but not limited to, workers'
compensation, unemployment insurance, tax withholding, health
insurance, life insurance, pension plans or any profit sharing
arrangement;
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14.1.5 In no event shall either party be liable for the debts
or obligations of the other except as otherwise specifically provided
in this Agreement; and
14.1.6 Matters involving the internal agreements and finances
of PC, including but not limited to the distribution of professional
fee income among Physician Employees and Other Professional Employees
who are providing professional services to patients of PC, and other
employees of PC, disposition of PC property and stock, accounting, tax
preparation, tax planning, and pension and investment planning (and
expenses relating solely to these internal business matters), hiring
and firing of physicians, decisions and contents of reports to
regulatory authorities governing PC and licensing, shall remain the
sole responsibility of PC and the individual Physician Stockholder(s).
14.2 FORCE MAJEURE. Neither party shall be liable to the other for
failure to perform any of the services required under this Agreement in the
event of a strike, lockout, calamity, act of God, unavailability of supplies, or
other event over which such party has 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.
14.3 USE OF NAME OF PC The name or any statement that may implicitly
refer directly or indirectly to PC or impute any affiliation directly or
indirectly between INMD and PC shall not be used in any manner or on behalf of
INMD in any advertising or promotional materials or otherwise without PC's prior
written consent. However, INMD may use P.C's name or address in advertising to
the public solely for the purpose of providing directions to the office of PC
14.4 EQUITABLE RELIEF. Without limiting other possible remedies
available to a non- breaching party for the breach of the covenants contained
herein, injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
14.5 PRIOR AGREEMENTS; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of 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.
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14.6 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
both 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 PC The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties'
respective heirs, legal representatives, successors and permitted assigns.
14.7 WAIVER OF BREACH. The failure to insist upon strict compliance
with any of the terms, covenants or conditions herein shall not be deemed a
waiver of such terms, covenants or conditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver of
relinquishment of such right at any other time or times.
14.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts 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, except for equitable
relief or enforcement sought pursuant to Articles 5, 12 and 14 shall be
determined by binding arbitration in the Commonwealth of Massachusetts, City of
Boston (hereinafter "Arbitration"). The party seeking determination shall
subject any such dispute, claim or controversy to the American Arbitration
Association or JAMS/Endispute, 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, enforce any rights under Articles 5, 12 and 14 (where
modifications only pursuant to the specific terms of this Agreement shall be
permissible) or otherwise enforce this Paragraph shall be brought in the Courts
of the Commonwealth of Massachusetts.
14.9 SEPARABILITY. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement take as a whole.
14.10 HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.
14.11 NOTICES. Any notice hereunder shall have been deemed to have been
given only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
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<PAGE>
14.11.1 If for INMD at:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attention: Gerardo Canet, Chief Executive Officer
With a copy to:
IVF America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
Attention: Claude White, General Counsel
14.11.2 If for PC at:
MPD Medical Associates (MA), PC
c/o Deaconess-Waltham Hospital
Hope Avenue
Waltham, Massachusetts 02154-9116
Attention: Dr. Patricia McShane
Either party hereto, by like notice to the other party, may designate such other
address or addresses to which notice must be sent.
14.12 ENTIRE AGREEMENT. This Agreement and all attachments hereto
represent the entire understanding of the parties hereto with respect to the
subject matter hereof and thereof, and cancel and supersede all prior agreements
and understandings among the parties hereto, whether oral or written, with
respect to such subject matter.
14.13 NO MEDICAL PRACTICE BY INMD. INMD will not engage in any activity
that constitutes the practice of medicine, and nothing contained in this
Agreement is intended to authorize INMD to engage in the practice of medicine or
any other licensed profession.
14.14 CONFIDENTIAL INFORMATION. During the initial term and any renewal
term(s) of this Agreement, the parties may have access to or become acquainted
with each others' trade secrets and other confidential or proprietary knowledge
or information concerning the conduct and details of each party's business
("Confidential Information"). At all times during and after the termination of
this Agreement, neither 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
the 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. Neither party shall photocopy or
otherwise duplicate any Confidential
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<PAGE>
Information of the 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. Publicly available items shall not be considered
proprietary except as protected by applicable state or federal law independent
of this Agreement.
14.15 INDEMNIFICATION.
14.15.1 INMD agrees to indemnify and hold harmless PC, its
directors, officers, employees and servants from any suits, claims,
actions, losses, liabilities or expenses (including reasonable
attorney's fees) arising out of or in connection with any act or
failure to act by INMD related to the performance of its duties and
responsibilities under this Agreement. The obligations contained in
this Section shall survive termination of this Agreement.
14.15.2 PC agrees to indemnify and hold harmless INMD, its
shareholders, directors, officers, employees and servants from any
suits, claims, actions, losses, liabilities or expenses (including
reasonable attorney's fees) arising out of or in connection with any
act or failure to act by PC related to the performance of its duties
and responsibilities under this Agreement. The obligations contained in
this Section shall survive termination of this Agreement.
14.15.3 In the event of any claims or suits in which INMD
and/or PC and/or their directors, officers, employees and servants are
named, each of INMD and PC for their respective directors, officers,
employees agree to cooperate in the defense of such suit or claim; such
cooperation shall include, by way of example but not limitation,
meeting with defense counsel (to be selected by the respective party
hereto), the production of any documents in his/her possession for
review, response to subpoenas and the coordination of any individual
defense with counsel for the respective parties hereto. The respective
party shall, as soon as practicable, deliver to the other copies of any
summonses, complaints, suit letters, subpoenas or legal papers of any
kind, served upon such party, for which such party seeks
indemnification hereunder. This obligation to cooperate in the defense
of any such claims or suits shall survive the termination, for whatever
reason, of this Agreement.
14.15.4 Promptly after the receipt by the PC of notice of any
claim or commencement of any action or proceeding subject to
indemnification delineated in Section 14.15.1 ("asserted liability"),
the PC will demand such indemnification from INMD and proffer the
defense to INMD. INMD may thereafter, at its option, assume such
defense at its own expense and by its own counsel. INMD shall provide
written notice to the PC, within twenty days, of its assumption or
declination of such defense. If INMD shall undertake to compromise any
asserted liability, it shall promptly notify the PC of its intention to
do so and the PC agrees to cooperate fully and promptly with
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INMD and its counsel in the compromise and defense of any asserted
liability. INMD shall not enter into any non-monetary settlement
hereunder without the prior written consent of the PC. Notwithstanding
the foregoing, PC shall have the right to participate in the compromise
or defense of any asserted liability with its own counsel and at its
own expense.
14.15.5 Promptly after the receipt by INMD of notice of any claim or
commencement of any action or proceeding subject to indemnification
delineated in Section 14.15.2 ("asserted liability"), INMD will demand
such indemnification from the PC and proffer the defense to the PC. The
PC may thereafter, at its option, assume such defense at its own
expense and by its own counsel. The PC shall provide written notice to
INMD, within twenty days, of its assumption or declination of such
defense. If the PC shall undertake to compromise any asserted
liability, it shall promptly notify INMD of its intention to do so and
INMD agrees to cooperate fully and promptly with the PC and its counsel
in the compromise and defense of any asserted liability. The PC shall
not enter into any non-monetary settlement hereunder without the prior
written consent of INMD. Notwithstanding the foregoing, INMD shall have
the right to participate in the compromise or defense of any asserted
liability with its own counsel and at its own expense.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
October 1, 1997.
INTEGRAMED AMERICA, INC.
By: /S/Dwight Ryan
---------------------------
Dwight Ryan, Vice President
MPD MEDICAL ASSOCIATES (MA), PC
By:/s/Patricia Mcshane
----------------------------
Patricia McShane, MD
By:/s/Patricia Mcshane
----------------------------
Patricia McShane, MD
Individually
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<PAGE>
EXHIBIT 3.2
DESCRIPTION OF OFFICE AND FACILITIES
TO BE PROVIDED BY INMD TO PC
Office space and amenities at Deaconess-Waltham Hospital, Hope Avenue, Waltham,
Massachusetts or an equivalent location.
<PAGE>
EXHIBIT 6.2
SECURITY AGREEMENT (ACCOUNTS RECEIVABLE)
See attached
<PAGE>
EXHIBIT 4.3
PHYSICIAN EMPLOYMENT AGREEMENT
See attached
PHYSICIAN-SHAREHOLDER
EMPLOYMENT AGREEMENT
AGREEMENT entered into October 1, 1997, by and between MPD
Medical Associates (MA), P.C., a Massachusetts professional service corporation,
having a principal place of business at Deaconess-Waltham Hospital, Hope Avenue,
Waltham, Massachusetts 02254 [the "P.C."] and Patricia McShane, M.D., 124
Washington Street, Wellesley, Massachusetts, 02181 ["Physician"].
R E C I T A L S:
PC specializes in the practice of gynecology and the treatment
of infertility, the utilization of in vitro fertilization and assisted
reproductive technology services (including but not limited to the treatment of
human infertility, gamete intra-fallopian tube transfer and zygote intra-
fallopian transfers) and related andrology services [all of the foregoing are
referred to collectively herein as "Infertility Services"].
Physician is duly licensed to practice medicine in the
Commonwealth of Massachusetts, specializes in the provision of Infertility
Services and has experience in infertility treatment including surgical skills
required in the course of providing Infertility Services.
PC has entered into an agreement with IntegraMed America,
Inc., ["INMD"], pursuant to which INMD will provide certain management and
administrative services, and funding options, as are more fully described in the
agreement between PC and INMD dated October 1, 1997 ["INMD-PC Agreement"].
In order to further facilitate the provision of Infertility
Services, PC desires to employ Physician and Physician desires to accept such
employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other
good and valuable consideration set forth herein, the parties agree as follows:
1. ENGAGEMENT. PC hereby employs Physician and Physician hereby accepts
such employment to devote all of Physician's professional time (including an
equitable share of weekend "on call" hours), 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, President of the PC, shall provide patient care
and clinical backup as required to ensure the proper provision of services to
patients of PC, including an equitable share of weekend "on call" hours, at PC's
office at the address set forth in Schedule A [the "Offices"], and/or such other
location as shall be mutually agreed to by PC and Physician. It is understood
that Physician shall devote four (4) professional days per week to the PC's
practice. Physician agrees to perform such services as are required to fulfill
the PC's obligations under the INMD-PC Agreement. Physician agrees to devote
substantially all of Physician's professional time, effort and ability to PC's
practice development and the provision of Infertility Services under the terms
and conditions contained herein and as the parties may agree from time to time.
In connection therewith, Physician's duties shall include, but not be limited
to, the following:
(i) Provision of patient counseling and medical
examinations, performance of egg retrievals, embryo transfers,
surgeries, including, but not limited to, microsurgeries and
laparoscopies, and patient follow-up;
(ii) Reviewing and evaluating clinical data on a
routine basis and making specific recommendations for
improving implantation rates and treatment outcomes;
(iii) Maintenance of a thorough understanding of and
proficiency in the application of the most current
technologies (including both surgical and nonsurgical
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.
(v) Cooperate in the PC's efforts to either obtain,
or continue, necessary licenses for, and maintain the quality
of care in, the operation of the PC's laboratory and tissue
bank services in accordance with all applicable laws and
regulations. Physician shall be the Medical Director of any
laboratory or tissue bank operated by the PC, if the Medical
Director of the PC cannot, or will not, so serve.
(b) Except as permitted by Section 3(b) hereof, Physician
shall not, during the term of this Agreement, otherwise engage in the practice
of medicine outside of PC without the express written consent of PC and INMD.
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3. COMPENSATION AND BENEFITS.
(a) In consideration of the Infertility Services to be
provided and duties assumed by Physician hereunder, Physician shall be
compensated as provided on Schedule B attached hereto and made a part hereof.
(b) All remuneration received by Physician in payment for the
delivery of any patient care services shall be accounted for and be the sole
property of PC. Such remuneration, for purposes of this Agreement, shall not
include board attendance fees and other compensation in connection with board
memberships; provided, the compensation does not exceed $5,000 in the aggregate
annually for Physician. Physician's engagement in outside professional medical
activities shall require the express written consent of PC and shall not
interfere in any way with the fulfillment of Physician's duties hereunder or
diminish the quality of the Infertility Services rendered.
(c) Physician shall receive the benefits provided for on
Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PC hereunder shall be billed and collected by PC; provided, however,
that pursuant to the terms of the INMD-PC Agreement, INMD shall carry out
billing and collection functions on behalf of PC. In consideration for the
payment to Physician of the compensation described herein, all receivables and
collections attributable to Infertility Services provided by Physician to PC
patients shall become the property of PC, and Physician agrees immediately to
turn over to PC any such fees received by Physician during the term hereof.
Physician hereby authorizes PC, and/or INMD on PC's behalf, to bill for
Infertility Services provided hereunder and agrees to execute any and all
assignments or other documents that may be necessary or appropriate to permit
PC, or INMD as its designee, to carry out all billing and collection functions.
Physician agrees that Physician shall not submit bills for, seek remuneration
for, or otherwise collect fees for Infertility Services provided hereunder.
Physician shall look solely to PC for compensation for the professional medical
services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in
order to provide Infertility Services to PC as herein required, Physician must
at all times during the term of this Agreement be a member in good standing and
have admitting privileges at least one hospital accredited by the JCAHO [the
"Hospital"] within the geographic area of PC's office ["Privileges"]. PC shall
use reasonable efforts to assist Physician in maintaining such privileges. The
failure of the Physician to maintain Privileges shall be deemed a cause for
termination of this Agreement. Physician shall promptly notify both the PC and
INMD of any determination, ruling or decision which suspends, limits, terminates
or in any manner impairs his/her Privileges.
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6. INMD-PC AGREEMENT. Physician acknowledges receipt of a copy of the
INMD-PC Agreement and acknowledges that PC has substantial responsibilities,
rights and obligations under said Agreement. Physician agrees to at all times
act in such manner as to cause the PC to be in compliance with the INMD-PC
Agreement, and Physician further agrees that to the extent applicable to PC and
to the responsibilities of the Physician hereunder, she shall assist PC in
carrying out its obligations under the INMD-PC Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PC shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as PC shall determine from time to time.
8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND
POLICIES. Physician agrees at all times to comply with the bylaws, rules and
regulations of the Hospital and of its medical staff and the reasonable
policies, directives, bylaws, rules and regulations of PC. Physician
acknowledges that PC shall have final authority over: (a) the acceptance or
refusal to treat any patient; and (b) the amount of the fee to be charged for
all Infertility Services rendered by Physician to patients of PC, so long as
such fees are lawful and reasonable. Notwithstanding the foregoing, Physician
may refuse to treat any patient whom she reasonably believes should not be
treated based upon reasonable medical or legal concerns.
9. MEDICAL RECORDS AND COOPERATION.
(a) All medical records of patients to whom Physician provides
Infertility Services or other medical treatment on behalf of PC during the term
hereof shall be the property of PC. A copy of any medical records of such
patients will be made available to Physician upon request.
(b) In the event of any claims, suits or governmental
investigations, arising out of or relating to the provision of Infertility
Services by PC or Physician in which PC, INMD and/or Physician shall be named or
involved, whether pending during or after the term of this Agreement, the
parties hereto agree to cooperate fully with each other and INMD in the defense
of such suit, claim or investigation. Such cooperation shall include, by way of
example but not limitation, meeting with defense counsel, the production of any
documents in their possession for review, participation in discovery, response
to subpoenas and the coordination of any individual defense with counsel for PC,
Physician and/or INMD. The parties will soon as possible deliver to each other
and INMD copies of summonses, complaints, suit letters, subpoenas or legal
papers of any kind, served upon each other or their attorneys. This obligation
to cooperate in the defense of any such claims or suits shall survive the
termination, for whatever reason, of this Agreement, and nothing in this Section
shall obligate the parties to pay any legal fees incurred by the other.
(c) Physicians shall promptly notify PC and INMD of any and
all claims, suits or disciplinary charges or proceedings initiated against him.
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10. TERM. The initial term of this Agreement shall commence on the date
that both Physician and the PC execute this Agreement ["Effective Date"] and
shall terminate ten (10) years thereafter unless earlier terminated pursuant to
the provisions of Section 11. After the expiration of the initial term
hereunder, this Agreement shall be extended automatically, for periods of one
(1) year 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 shall terminate upon the occurrence of any
of the following:
(i) Termination of the INMD-PC Agreement for any
reason if such agreement terminates without a successor
agreement, or upon the termination of any successor agreement
which terminates without a successor agreement, provided that
Physician receives six months prior written notice or six
months compensation (at the option of the PC).
(ii) Conviction of Physician of a felony or
suspension, revocation, non-renewal or material limitation of
Physician's license to practice medicine, in which case the
effective date of termination shall be the date of the event.
(iii) Upon the mutual agreement of the parties at any
time;
(iv) Upon the loss by Physician of Privileges, as
described in Section 5, in which case the effective date of
termination shall be the date of the event.
(v) By either party upon a material breach by the
other party; provided that the non-breaching party first gives
the breaching party written notice of the breach, and the
breaching party fails to cure the breach within thirty (30)
days after such notice; or
(vi) Upon death or "permanent disability" (as such
term is hereinafter defined) of Physician. For purposes of
this Agreement, the term "permanent disability" shall have the
meaning set forth in the long-term disability insurance policy
or policies then maintained by Physician or PC, or if no such
policy shall then be in effect, or if more than one such
policy shall then be in effect in which the term "permanent
disability" shall be assigned different definitions, then the
term "permanent disability" shall be defined for purposes
hereof to mean any physical or mental disability or incapacity
which renders Physician incapable of fully performing the
services required in accordance with Physician's obligations
hereunder for a period of 120 consecutive days or for shorter
periods aggregating 120 days during any twelve-month period.
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<PAGE>
(vii) By either party, without cause, upon six (6)
months prior written notice.
(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 Commonwealth of Massachusetts;
(b) Physician is authorized by the United States Drug
Enforcement Agency to prescribe all pharmaceuticals required in connection with
the provision of Infertility Services;
(c) Except as set forth on Schedule D hereto there are no
professional disciplinary proceedings or malpractice actions threatened or
pending against Physician, and Physician has notified and will promptly notify
PC and INMD of any such professional disciplinary proceedings and the
dispositions thereof; and
(d) Physician shall at all times act in compliance with all
applicable policies and procedures of PC as communicated to Physician, as well
as all applicable federal, state, and local laws, rules and regulations.
13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or
disclose to others (except in connection with the fulfillment of Physician's
duties hereunder) any Infertility Information, as defined herein, during the
term of this Agreement or during any extension or renewal thereof, and for a
period of one (1) year thereafter, except as expressly consented to in writing
by PC and INMD. For purposes of this Agreement, the term "Infertility
Information" shall mean such technical, scientific, and business information
provided to Physician by PC or INMD which is designated by PC or INMD to be
confidential or proprietary. Infertility Information shall not include
information which: (i) is or becomes known in the scientific community through
no fault of Physician; (ii) is learned by Physician from a third party legally
entitled to disclose such information; or (iii) was already known to Physician
at the time of disclosure by the disclosing party. Physician further agrees that
should her contractual relationship hereunder terminate, she will neither take
nor retain, without prior written authorization from PC and INMD, any papers,
patient lists, fee books, patient record files, or
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other documents or copies thereof or other Infertility Information of any kind
belonging to PC or INMD, as the case may be.
(b) Without limiting other possible remedies available to PC
for the breach of this covenant, Physician agrees that injunctive or other
equitable relief shall be available to enforce this covenant, such relief to be
without the necessity of posting bond, cash or otherwise. Physician further
agrees that if any restriction contained in this section is held by any court to
be unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and remaining restrictions herein shall be enforced independently of each
other. The parties further agree that INMD shall have an independent right to
enforce this covenant in its own right.
(c) It is further understood and agreed that in order to
minimize any misunderstanding regarding what information is considered to be
confidential or proprietary Infertility Information, the PC or INMD will
designate the specific information which PC or INMD considers to be proprietary
or confidential under this Agreement.
14. LIMITS ON CONFIDENTIALITY AGREEMENT. Nothing in Paragraph 13 shall
operate to restrict Physician from performing research, speaking or publishing
the results of such research, subject to the provisions of Section 16.
15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO
EMPLOYEES.
(a) No Solicitation. Recognizing (1) the special nature of the
relationship which will exist between the PC and the personnel which it employs
or retains, including personnel employed or retained by INMD in connection with
the services to be rendered pursuant to the terms of the INMD-PC Agreement
["Protected Personnel"], and (2) that the recruiting and training of the
personnel by the PC and INMD is a costly and time consuming endeavor, Physician
agrees that he will not, while employed by the PC and for a period of 12 months
following termination of this Agreement, solicit or offer, directly or
indirectly, employment to Protected Personnel.
(b) Covenant Not to Compete. Physician agrees not to compete
with the business of PC, any successor PC, or any entity entitled to use an INMD
Trade Name, including but not limited to "Reproductive Science Center," in
accordance with the terms outlined below:
(i) The term of the covenant not to compete [the
"Non-Competition Period"] shall be the same term as this
Employment Agreement and should this Employment Agreement
terminate, the Non-Competition Period shall also
terminate.
(ii) For purposes of this Section, the term "Medical
Practice" shall include any form of organization in which
Infertility Services are provided to
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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.
(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.
(iv) Clarification of Scope of Non-Competition
Covenant. This Agreement is not intended to prohibit the
personal performance of medical care by Physician on behalf of
PC, provided those services are for patients of PC, nor
prohibit Physician from fulfilling his contract with PC, nor
prohibit the Physician from holding any position on the
medical staff of any acute care hospital or the teaching staff
of any university.
(v) Acknowledgments. PC and Physician each
acknowledges that: (i) the terms set forth in this Section are
necessary for the reasonable and proper protection of the
interests of PC and INMD; (ii) each and every covenant and
restriction is reasonable; (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 INMD-PC
Agreement; and (iv) the PC has been induced to enter into this
Agreement and the PC and INMD have been induced to enter the
PC-INMD Agreement and their other respective agreements with
Physician, in part, due to the representation by Physician
that he will abide by and be bound by the aforesaid covenants
and restraints.
(c) Physician recognizes and acknowledges that INMD will incur
substantial costs in providing the equipment, support services, personnel,
management, administration and other services that are the subject of this
Agreement, and will invest substantial capital, by way of incentive and
continuing support, to Physician in establishing his position as Medical
Director of the PC. Physician recognizes that the non-competition covenant set
forth in this Section is necessary for the protection of INMD, that it is
reasonable in all respects, does not operate to restrict his right to practice
medcine in any manner, and that INMD would not enter this Agreement without the
following covenant. During the term of this Agreement, and for a period of two
years from the date of its termination, Physician shall not, directly or
indirectly, own,
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manage, operate, control, contract with, be associated with, lend his name to,
or maintain any interest in any enterprise (1) which provides, distributes,
promotes or advertises any type of management or administrative services in
competition with INMD; or (2) which offers any type of service or product to
third parties substantially similiar to those services offered by INMD
["Subsequent Covenant Not to Compete"]. The geographical scope of this
Subsequent Covenant Not to Compete ["Service Area"] shall be twenty (20) radial
miles from any offices of an INMD Network Facility, which means any medical
practice managed by INMD.
16. PUBLICATIONS. Physician agrees that any and all abstracts,
articles, reviews, or other publications that Physician proposes to submit for
publication within the scientific or medical community, or otherwise, which
publication is the result of direct or indirect support from INMD, in the form
of, including, but not limited to, materials, patients, personnel, data or
Facility or PC resources, Physician will submit to INMD's Chief Operating
Officer, Reproductive Science Division, not less than 45 days prior to the
proposed submission date, a copy of the proposed article or publication, for
INMD's proprietary review. INMD shall have thirty (30) days to approve and/or
object to such publication, Physician 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. INMD
shall have the right to object to such publication on the ground that it reveals
Confidential Information, or trade secrets ["INMD Objection"]. Upon receipt of
an INMD Objection, Physician shall defer publication until the INMD Objection is
withdrawn or unless an arbitration proceeding determines that the proposed
publication does not contain Confidential Information or INMD trade secrets.
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:
Patricia McShane
124 Washington Street
Wellesley, Massachusetts 02181
If to PC, at:
MPD Medical Associates (MA), P.C.
Deaconess-Waltham Hospital
Hope Avenue
Waltham, Massachusetts, 01776
Attn.: Executive Director
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With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Donald S. Wood, Ph.D., Chief Operating Officer
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
Commonwealth of Massachusetts. 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 or enforcement sought pursuant to Section
15, shall be determined by binding arbitration in the Commonwealth of
Massachusetts, City of Boston [hereinafter "Arbitration"]. The party seeking
determination shall subject any such dispute, claim or controversy to the
American Arbitration Association or JAMS/Endispute, and the rules of commercial
arbitration of the selected entity shall govern. The Arbitration shall be
conducted and decided by one (1) Arbitrator, 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 the
losing party shall pay the expenses and costs of the Arbitrator. Any application
to compel Arbitration, confirm or vacate an arbitral award, enforce any rights
under Section 15, or otherwise enforce this Paragraph shall be brought in the
Courts of the Commonwealth of Massachusetts.
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
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performance by such other party of the same or any other obligation of such
party hereunder. Failure on the part of either party to complain of any act or
failure to act of the other party or to declare the other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder. The granting of any consent or approval
in any other instance by or on behalf of Physician and/or PC shall not be
construed to waive or limit the need for such consent in any other or subsequent
instance.
24. FURTHER ACTION. Each party hereto agrees that it will execute and
deliver such further instruments and will take such further action as may be
necessary to discharge, perform or carry out any of its respective obligations
and agreements hereunder.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals as of the date first above written.
MPD Medical Associates (MA), P.C.
By: /s/Patricia McShane, M.D.
-----------------------------------
Patricia McShane, M.D., President
Physician:
/s/Patricia McShane, M.D.
-----------------------------------
Patricia McShane, M.D.
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SCHEDULE A
THE OFFICE OF THE PC IS LOCATED AT:
DEACONESS-WALTHAM HOSPITAL
HOPE AVENUE
WALTHAM, MASSACHUSETTS 01766
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
A. During the first full Fiscal Year of this Agreement [Fiscal Year 1998]
McSHANE'S annual aggregate base compensation, as a draw against PDE (as
such term is defined and utilized in the INMD-PC Agreement) ["PDE"]
which, if due, shall be payable in bi-weekly installments, with
deductions for all applicable withholding and other taxes, and shall be
inclusive of any funds contributed to a retirement plan shall be as
follows:
(1) An annual salary of (1) $140,000 (One hundred and forty
thousand dollars) based upon a four-day work week (and an
equitable share of weekend "on call" hours), or, should she
for any reason not regularly work a four-day work week, then
(2) such portion thereof as represents a fraction, the
numerator of which is the average number of days per week
(excluding vacations) worked and the denominator of which is
four (4).
(2) An annual fee for performing the duties of President of the PC
of $35,000 (Thirty- five thousand dollars); and
(3) An incentive bonus of $30,000 (Thirty thousand dollars).
[Hereinafter, items 1,2 and 3 collectively referred to as
"Pre-1999 Aggregate Base Compensation"].
Subject to Section 6.3.3 of the INMD-PC Agreement, in addition thereto,
should the actual PDE allocated to the PC be in excess of the Aggregate
Physician Draws, as such is defined in Section 7.3(C) of the INMD-PC Agreement
of the PC for that Fiscal Year ["Excess PDE"], then McSHANE shall also receive a
minimum of 20% of all such Excess PDE, and such other portion of Excess PDE as
the President of the PC, the Medical Director and INMD shall decide in their
joint discretion.
B. During the period between (1) the Effective Date of this Agreement and
(2) December 31, 1997, McSHANE shall receive an amount which represents
Pre-1999 Aggregate Base Compensation multiplied by a fraction, the
numerator of which is the amount of weeks between the Effective Date
and December 31, 1997, and the denominator of which is 52 (fifty-two),
and a minimum of 20% of Excess PDE.
C. During subsequent Fiscal Years of this Agreement (post-December 31,
1999), McSHANE's annual aggregate base compensation, as a draw against
PDE which, if due, shall be payable in bi-weekly installments, with
deductions for all applicable withholding and other taxes, and shall be
inclusive of any funds contributed to a retirement plan shall be as
follows:
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(1) An annual salary of (a) $140,000 (One hundred and forty
thousand dollars) based upon a four-day work week (and an
equitable share of weekend "on call" hours), or, should she
for any reason not regularly work a four-day work week, then
(b) such portion thereof as represents a fraction, the
numerator of which is the average number of days per week
(excluding vacations) worked and the denominator of which is
four (4), whichever is less.
(2) An annual fee for performing the duties of President of the PC
of $35,000 (thirty-five thousand dollars). [Items 1 and 2
shall be collectively referred to as "Post- 1999 Aggregate
Base Compensation"].
Subject to Section 6.3.3 of the INMD-PC Agreement, in addition thereto,
McSHANE shall receive a minimum of twenty percent (20%) of any Excess PDE for
such Fiscal Year, and such other portion of Excess PDE as the President of the
PC, the Medical Director and INMD shall decide in their joint discretion.
D. In the event, in any Fiscal Year, PDE is insufficient to pay McSHANE
the Pre-1999 or Post-1998 Aggregate Base Annual Compensation(s) as
detailed in Subsections (A), (B) and/or (C) above, McSHANE shall, for
any period for which she continues to be employed by the PC,
nonetheless receive such Aggregate Base Compensation(s) and incur no
liability to the PC, or any other party, for the amounts paid to her,
such Aggregate Base Compensations being the subject of funding pursuant
to Section 7.3(A) of the INMD-PC Agreement.
E. Physician shall receive such benefits, including insurances, as INMD
extends to its employees, subject to any changes made Company-wide, and
such benefits shall be part of Cost of Services, as such term is used
in the INMD-PC agreement.
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SCHEDULE C
PROFESSIONAL DISCIPLINARY OR MALPRACTICE ACTIONS
THREATENED OR PENDING
15
ASSET PURCHASE AND SALE AGREEMENT
AGREEMENT made this 9th day of January, 1998, by and among IntegraMed
America, Inc., a Delaware corporation, having its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("INMD"), Fertility Centers of
Illinois, S.C., an Illinois medical corporation, with its principal place of
business at 3000 N. Halsted Street, Chicago, Illinois 60657 ("FCI"), Advocate
Medical Group, S.C., an Illinois medical corporation, with its principal place
of business at 1775 Dempster, 4 South, Park Ridge, Illinois 60068-1174 ( "AMG"),
and Advocate MSO, Inc., an Illinois corporation, with its principal place of
business at 2025 Windsor Drive, Oak Brook, Illinois 60523 ("MSO"). (INMD and FCI
are sometimes collectively referred to herein as "Buyers" and AMG and MSO are
sometimes collectively referred to as "Sellers." INMD, FCI, AMG and MSO are
sometimes collectively referred to as "Parties" and individually as a "Party.")
RECITALS
INMD is engaged in the business of owning certain assets and providing
management and administrative services ("Management 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");
FCI is engaged in providing Infertility Services and has entered into
an agreement with INMD pursuant to which INMD provides Management Services to
FCI;
AMG is a multi-specialty medical group engaged in, among other things,
providing Infertility Services through the services of Laurence A. Jacobs, M.D.
and John J. Rapisarda, M.D. ("Physicians")who have entered into employment
agreements with AMG containing covenants, including covenants not to compete.
The Infertility Services rendered by AMG through the Physicians are referred to
herein as the "Practice";
MSO is engaged in providing Management Services to AMG, including the
Practice;
Physicians desire to be employed by FCI, terminate their employment
with AMG and engage in the practice of medicine within 5 miles of their primary
site(s), as defined in their employment agreements with AMG. Effective with the
consummation of this Agreement, AMG will permit Physicians to terminate their
employment with AMG and affiliate with FCI in exchange for the consideration set
forth herein;
AMG desires to sell and FCI desires to purchase certain intangible
assets associated with the Practice, and MSO desires to sell and INMD desires to
purchase certain tangible assets from MSO utilized in conjunction with the
Practice.
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Now therefore, 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), MSO shall sell, assign, convey and
transfer to INMD and INMD shall acquire from MSO the tangible assets and
property of the Practice, free and clear of all liens and encumbrances, as set
forth in Exhibit 1.01(a) ("Tangible Practice Assets").
(b) 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), AMG shall sell, assign, convey and
transfer to FCI and FCI shall acquire from AMG the intangible assets and
property of the Practice, free and clear of all liens and encumbrances, as set
forth in Exhibit 1.01(b) ("Intangible Practice Assets"). (The terms Tangible
Practice Assets and Intangible Practice Assets are sometimes hereinafter
referred to as Practice Assets.)
1.02 Excluded Assets
The term Tangible Practice Assets does not include, and MSO
reserves and does not sell or transfer to INMD any right, title to or interest
in, the assets listed in Exhibit 1.02 ( collectively, "Excluded Assets"), all of
which shall be removed from the Buffalo Grove, Illinois office of the Practice
on or before the Closing Date.
ARTICLE II
PURCHASE PRICE
2.01 Purchase Price.
(a) Upon and subject to the terms and conditions set forth
herein and in consideration for the sale of the Tangible Practice Assets, INMD
shall pay MSO on the Closing Date the net book value, determined in accordance
with GAAP, of such Tangible Practice Assets identified on Exhibit 1.01(a)(the
"Tangible Assets Price").
(b) Upon and subject to the terms and conditions set forth
herein and in consideration for the sale of the Intangible Practice Assets, FCI
shall pay AMG on the Closing Date $325,000 for the Intangible Practice Assets
(the "Intangible Assets Price").
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2.02 Manner of Payment
INMD and FCI shall pay the Tangible and Intangible Assets
Prices on the Closing Date in certified funds.
2.03 Closing Statement.
MSO shall deliver to INMD 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
Tangible Practice Assets provided for in paragraph 2 of Exhibit 1.01(a).
2.04 Assumption of Liabilities
Subject to the conditions herein set forth, from and after the
Closing Date, INMD shall assume and shall pay, perform and discharge only those
liabilities set forth in Exhibit 2.04(collectively referred to as "Assumed
Liabilities"). INMD and FCI shall not assume, acquire or otherwise become
responsible or liable for any liabilities other than those specifically set
forth herein and enumerated in Exhibit 2.04.
ARTICLE III
CLOSING
The closing ( the "Closing") of the transactions contemplated by this
Agreement shall be held at 3:00 p.m. on January 9, 1998 ("Closing Date") at the
offices of Advocate Medical Group c/o Lutheran General Hospital, 1775 Dempster,
4-South, Park Ridge , Illinois 60068-1174 or such other date or at such other
time or location as to which the Parties 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 AMG
AMG represents and warrants to FCI, for the purpose of inducing FCI to
enter into and consummate this Agreement, that:
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4.01 Organization and Power
(a) AMG is a duly formed and validly existing Illinois medical
corporation.
(b) AMG has full right, power and authority to enter into this
Agreement and to consummate the transactions herein contemplated and that all
action necessary to authorize the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein by AMG has been taken
or will be taken prior to the Closing Date.
(c) This Agreement constitutes the valid and binding
obligation of AMG fully enforceable against AMG in accordance with its terms.
4.02 Authority; No Conflicting Instruments
(a) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not, and with notice
or the lapse of time or both would not, except for contracts, liens or
encumbrances disclosed in Exhibits 1.01 (a) and 2.04, (i) result in the breach
of any of the terms or conditions of, or constitute any default under, the
Articles of Incorporation or By-Laws of AMG or under any mortgage, bond,
indenture, agreement, lease or other instrument or obligation to which AMG is a
party or by which any of its properties or assets may be bound, except for any
such breach which does not materially adversely affect AMG or its business; (ii)
violate any law or regulation relating to AMG; and (iii) violate any judgment,
award, order, writ, injunction or decree relating to AMG.
(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 AMG or the performance by AMG of the
transactions contemplated by this Agreement.
4.03 Intangible Practice Assets
AMG has employment agreements with Physicians ("Employment
Agreements") pursuant to which Physicians are restricted during the initial term
of the Employment Agreements and any succeeding term, and for a period of
twenty-four (24) months following the expiration or termination of the
Employment Agreements for any reason, from engaging in the practice of medicine
within five (5) miles of the primary site(s) to which Physicians were assigned
by AMG without the prior written consent of AMG. In consideration of the
Intangible Assets Price, AMG will not enforce its rights to enforce the covenant
not to compete provision in the Physicians' respective Employment Agreements.
Attached hereto as Exhibit 4.03 are copies of the Employment Agreements.
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4.04 Insurance
AMG is insured under a medical malpractice policy and AMG will
remain responsible for any malpractice claim which relates to activities of the
Practice prior to the Closing Date, whenever they may arise.
4.05 Litigation
(a) To the best of AMG'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 AMG which
would affect the ability of AMG to consummate the transactions contemplated by
this Agreement. AMG 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 the Intangible Practice Assets. INMD and FCI
shall have no liability or obligation with respect to any matter which arose out
of AMG's operation of the Practice prior to the Closing Date.
(b) To the best of AMG's knowledge and belief, AMG has
received no notice of any violation of applicable law, order, regulation or
requirement that would adversely affect the Practice or the Intangible Practice
Assets. To the best of AMG's knowledge, the Practice located at 135 North
Arlington Heights Road, Suite 195, Buffalo Grove, Illinois 60089 is not in
violation of any OSHA regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MSO
MSO represents and warrants to INMD, for the purpose of inducing INMD
to enter into and consummate this Agreement, that:
5.01 Organization and Power
(a) MSO is a duly formed and validly existing Illinois
corporation.
(b) MSO has full right, power and authority to enter into this
Agreement and to consummate the transactions herein contemplated and all action
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein by MSO has been taken or
will be taken prior to the Closing Date.
(c) This Agreement constitutes the valid and binding
obligation of MSO fully enforceable against MSO in accordance with its terms.
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5.02 Authority; No Conflicting Instruments
(a) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not, and with notice
or the lapse of time or both would not, except for contracts, liens or
encumbrances disclosed in Exhibits 1.01 (a) and 2.04, (i) result in the breach
of any of the terms or conditions of, or constitute any default under, the
Articles of Incorporation or By-Laws of MSO or under any mortgage, bond,
indenture, agreement, lease or other instrument or obligation to which MSO is a
party or by which any of its properties or assets may be bound, except for any
such breach which does not materially adversely affect MSO or its business; (ii)
violate any law or regulation relating to MSO; and (iii) violate any judgment,
award, order, writ, injunction or decree relating to MSO.
(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 MSO or the performance by MSO of the
transactions contemplated by this Agreement.
5.03 Tangible Practice Assets
MSO has good and marketable title to the Tangible Practice Assets which
are owned exclusively by MSO, free and clear of all liens, mortgages and
encumbrances of any kind or nature, except as set forth on Exhibit 1.01(a).
5.04 Financial Statements
With respect to the Practice whose financial results are
reflected as a cost center, attached hereto as Exhibit 4.04 are the Income
Statements for the year ended December 31, 1996 and the 11-month period ended
November 30, 1997 (collectively, the "Financial Statements"). MSO represents
that this is the information its management team utilizes to manage the
Practice. Notwithstanding Section 5.06(b) to the contrary, MSO makes no
representation with respect to this cost center information.
5.05 Litigation
(a) To the best of MSO's knowledge and belief, there are no
actions, suits, claims or legal, administrative or arbitration proceedings or
investigations pending or, threatened against, MSO which would affect MSO's
ability to consummate the transactions contemplated by this Agreement. MSO 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 the Practice or the Tangible Practice Assets. INMD and FCI shall have
no liability or obligation with respect to any matter which arose out of MSO's
operation of the Practice prior to the Closing Date.
(b) To the best of MSO's knowledge and belief, MSO has
received no notice of any violation of applicable law, order, regulation or
requirement related to the Practice or the Tangible Practice Assets. To the best
of MSO's knowledge, the Practice located at 135 North Arlington Heights Road,
Suite 195, Buffalo Grove, Illinois 60089 is not in violation of any OSHA
regulation.
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5.06 Contracts and Agreements
(a) With respect to the Practice, Exhibit 5.06(a) is a list as
of the date hereof of all the material contracts or agreements which will be
assigned to INMD and/or FCI, all of which are valid and existing, in full force
and effect, and binding upon the parties thereto in accordance with their terms.
Each Seller has paid in full or accrued all amounts due thereunder which are
currently due and as separately identified on Exhibit 5.06(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 INMD and FCI from and after the Closing Date.
(b) All Exhibits, by or on behalf of AMG or MSO, in connection
with this Agreement and the transactions as contemplated hereby, are true and
complete. There is no fact which either AMG or MSO has not disclosed to either
FCI or INMD which adversely affects, or insofar as either AMG or MSO can
foresee, will adversely affect the Tangible or Intangible Practice Assets or the
ability of either AMG or MSO to perform their respective obligations under this
Agreement or any other agreement entered into in connection with this
transaction.
5.07 Insurance
MSO has maintained at all relevant times, with responsible and
financially solvent insurance companies, adequate insurance covering risks of
such types and in such amounts as are customary for other corporations of
similar size engaged in MSO's business.
5.08 Personnel
Exhibit 5.08 lists each current employee of MSO and AMG, both
full-time and part-time, who will be terminated by AMG or MSO, as appropriate,
and hired by FCI or INMD, as appropriate, on the Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYERS
INMD and FCI, for the purpose of inducing Sellers to enter into and
consummate this Agreement, hereby represent and warrant to Sellers that:
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6.01 Organization, Power and Authority
(a) INMD 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 INMD and to consummate the
transactions contemplated hereby. FCI is an Illinois medical corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois 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
FCI and to consummate the transactions contemplated hereby.
(b) The execution, delivery and performance of this Agreement
by Buyers 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 each Buyer, and this Agreement
constitutes the valid and binding obligation of each Buyer, enforceable against
each 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 each Buyer, or any order, judgment or decree of any court or other
agency of government binding on each 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 each Buyer, result in or require the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of each Buyer's properties or assets , require any approval of or any consent of
any person under any contractual obligation of each 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 each
Buyer is a party or by which it or its properties may be bound or affected.
ARTICLE VII
INDEMNIFICATION
7.01 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 for a period of
one (1) year after the Closing Date; provided, however, that the expiration of
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the applicable period would not preclude either Party from indemnification by
the other relating to any third-party Claim ( as defined herein) occurring
within three (3) years of the Closing Date. 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.
7.02 Indemnification
(a) After the Closing Date, AMG shall indemnify FCI against,
and defend and hold FCI 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
AMG contained in this Agreement or any agreement or instrument delivered by AMG
pursuant to this Agreement; and (ii) its intentional or negligent conduct
arising from the operations of the Practice prior to the Closing Date except as
expressly assumed by FCI pursuant hereto. Upon the assertion of any Claim
against FCI that may give rise to a liability of AMG hereunder, FCI shall notify
AMG of the existence of such Claim (which notice shall include a description
thereof) and FCI shall give AMG reasonable opportunity to defend and/or settle
such Claim at AMG's own expense and with counsel of its own selection, which
counsel shall be reasonably satisfactory to FCI; provided, however, that in the
case of any Claim, FCI 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 AMG shall, after fifteen (15)- days notice thereof by
FCI, fail to take adequate action to defend any Claim, FCI 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 AMG. If the Claim is one that cannot by
its nature be solely defended by FCI, then AMG shall, at its expense, make
available all information and assistance as may reasonably be requested by FCI.
(b) After the Closing Date, MSO shall indemnify INMD against,
and defend and hold INMD harmless from any Claim arising out of or in connection
with (i) any breach of the Representations and Warranties, covenants or
agreements of MSO contained in this Agreement or any agreement or instrument
delivered by MSO pursuant to this Agreement; and (ii) its intentional or
negligent conduct arising from the operations of the Practice prior to the
Closing Date except as expressly assumed by INMD pursuant hereto. Upon the
assertion of any Claim against INMD that may give rise to a liability of MSO
hereunder, INMD shall notify MSO of the existence of such Claim (which notice
shall include a description thereof) and FCI shall give MSO reasonable
opportunity to defend and/or settle such Claim at MSO's own expense and with
counsel of its own selection, which counsel shall be reasonably satisfactory to
INMD; provided, however, that in the case of any Claim, INMD 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 MSO shall,
after fifteen (15)- days notice thereof by INMD, fail to take adequate action to
defend any Claim, INMD shall have the right to undertake the defense, compromise
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or settlement of such Claim onbehalf of, for the account of, and at the risk of
MSO. If the Claim is one that cannot by its nature be solely defended by INMD,
then MSO shall, at its expense, make available all information and assistance as
may reasonably be requested by
INMD.
(c) After the Closing Date, FCI shall indemnify AMG against, and defend
and hold AMG harmless from any Claim arising out of or in connection with (i)
any breach of the Representations and Warranties, any covenant or agreement of
FCI contained in this Agreement or any agreement or instrument delivered by FCI
pursuant to this Agreement; and (ii) its intentional or negligent conduct
arising from the operations of the Practice after the Closing Date. Upon the
assertion of any Claim that may give rise to a liability of FCI hereunder, AMG
shall notify FCI of the existence of such claim (which notice shall include a
description thereof) and AMG shall give FCI reasonable opportunity to defend
and/or settle such Claim at FCI's own expense and with counsel of its own
selection, which counsel shall be satisfactory to AMG; provided, however, that
in the case of any Claim, AMG 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 FCI shall, after fifteen (15) days-
notice thereof by AMG, fail to defend any Claim, AMG 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 FCI. If the Claim is one that can not by its
nature be solely defended by AMG, then FCI shall, at its sole expense, make
available all information and assistance as may be requested by AMG.
(d) After the Closing Date, INMD shall indemnify MSO against, and
defend and hold MSO harmless from any Claim arising out of or in connection with
(i) any breach of the Representations and Warranties, any covenant or agreement
of INMD contained in this Agreement or any agreement or instrument delivered by
INMD pursuant to this Agreement; and (ii) its intentional or negligent conduct
arising from the operations of the Practice after the Closing Date. Upon the
assertion of any Claim that may give rise to a liability of INMD hereunder, MSO
shall notify INMD of the existence of such claim (which notice shall include a
description thereof) and MSO shall give INMD reasonable opportunity to defend
and/or settle such Claim at INMD's own expense and with counsel of its own
selection, which counsel shall be satisfactory to MSO; provided, however, that
in the case of any Claim, MSO 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 INMD shall, after fifteen (15) days-
notice thereof by MSO, fail to defend any Claim, MSO 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 INMD. If the Claim is one that can not by its
nature be solely defended by MSO, then INMD shall, at its sole expense, make
available all information and assistance as may be requested by MSO.
(e) 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.
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ARTICLE VIII
CERTAIN COVENANTS
8.01 Conduct Prior to Closing Date
During the period from the date of this Agreement through the
Closing Date, AMG and MSO agree to conduct the Practice in as prudent a manner
as possible. In connection therewith, AMG and MSO shall use their best efforts
to (i) preserve, protect and maintain the Tangible Practice Assets (ii) use its
efforts to keep available the services of the Physicians and agents and to
preserve the goodwill of patients and others having business relationships with
the Practice; (iii) not sell, lease, or otherwise dispose of any of the Tangible
Practice Assets, except in the ordinary course of business, without INMD's
and/or FCI's written consent.
8.02 Conduct After Closing Date
(a) Sellers assume any and all liabilities for taxes and
deficiencies incurred by the Practice prior to the Closing Date. Buyers assume
any and all liabilities for taxes and deficiencies incurred by the Practice
located at 135 North Arlington Heights Road, Suite 195, Buffalo, Grove Illinois
60089 after the Closing Date.
(b) AMG patient records and charts ("Patient Records")
relative to the Practice will be maintained at the Buffalo Grove, Illinois
office for 90 days following the Closing Date and FCI and INMD agree to maintain
the Patient Records in a secure manner and protect the privacy of such records.
After the expiration of the 90-day period, AMG will remove the Patient Records
at its sole costs and expense. After removal of the Patient Records by AMG, FCI
will be given access to the original Patient Records on an as-needed-basis, upon
reasonable notice to AMG.
[See attached page 11A for continuation of Section 8.02]
ARTICLE IX
CONDITION TO OBLIGATIONS
9.01 Conditions to Sellers' Obligations The obligations of Sellers
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 a Seller by
proceeding with the Closing:
(a) The Representations and Warranties of Buyers 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. Buyers shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by Buyers prior to or on the Closing Date and Buyers shall have
delivered to Sellers a certificate, dated as of the Closing Date, to all such
effects;
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Section 8.2 Conduct After Closing Date
(c) FCI will arrange, at its cost, for the medical records relative to
the Practice at the Buffalo Grove, Illinois office to be photocopied within 90
days following the Closing Date and will serve as custodian of such records
during the 90-day period. FCI may use for its benefit copies of such medical
records upon receiving a valid signed patient authorization to use the same.
(d) AMG will arrange, at FCI's cost, for medical records located at the
Practice at Parkside or at other AMG sites before or after the initial 90-day
period to be photocopied and sent to FCI upon receipt of a valid signed patient
authorization.
(e) INMD and FCI agree that all patients and others who inquire about
Doug Rabin, M.D. by telephone shall be informed that he is practicing medicine
in Park Ridge, Illinois and provided the telephone number of 847.723.8217. In
addition, INMD and FCI shall refer all telephone calls, correspondence,
reimbursements and all other matters concerning AMG to its corporate offices
which are currently located at 1775 Dempster, Park Ridge, Illinois 60068 and,
when appropriate, telephone number 847.723.8655.
(f) AMG and MSO agree that all patients and others who inquire about
Laurence A. Jacobs, M.D. and John J. Rapisarda, M.D. by telephone shall be
informed that they are practicing medicine in Buffalo Grove, Illinois and
provided the telephone number of 847.215.8899. In addition, AMG and MSO shall
refer all telephone calls, correspondence, reimbursements and other matters
concerning Laurence A. Jacobs, M.D. and John J. Rapisarda, M.D. to their offices
at 135 North Arlington Heights Road, Suite 195, Buffalo Grove, Illinois 60089
and, when appropriate, telephone number 847.723.8655.
[THIS AREA INTENTIONALLY LEFT BLANK]
11A
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(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 either 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) Buyers shall have delivered in form satisfactory to
Sellers and which is consistent with this Agreement the documents identified
below:
1. The consideration required pursuant to Section 2.01 hereof.
2. An agreement of INMD assuming the liabilities, including
without limitation office and equipment leases, of MSO set forth on Exhibit 2.04
and taking assets subject to liens and encumbrances set forth on Exhibit
1.01(a).
9.02 Conditions to Buyers' Obligation The obligations of Buyers 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 Buyers by proceeding
with the Closing:
(a) The Representations and Warranties of Sellers 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. Sellers shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by Sellers prior to or on the Closing Date and Sellers shall have
delivered to Buyers, 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 either 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;
(c) Sellers shall have delivered in form reasonably
satisfactory to Buyers and consistent with this Agreement the documents
identified below:
1. A Certificate of Good Standing of each Seller, dated not
earlier than thirty (30) days prior to the Closing Date, from the Secretary of
State of Illinois.
2. An assignment to INMD transferring to INMD all of the
right, title and interest of MSO and/or AMG in and to all telephone numbers
utilized by MSO and/or AMG in the operation of the Practice at Buffalo Grove,
Illinois.
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3. An assignment of all office and equipment leases listed on
Exhibits 5.06(a). INMD will provide to MSO 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
Buyers as shall convey to Buyers, respectively, the Tangible and Intangible
Practice Assets , free and clear of all liens.
5. An assignment to INMD and/or FCI of all executory
agreements of AMG and/or MSO set forth on or referred to in Exhibit 5.06(a)
including separate assignments of each agreement listed in Paragraph 5 of
Exhibits 1.01.
6. Good standing certificates for AMG and MSO dated not more
than 15 days prior to the Closing Date.
ARTICLE X
MISCELLANEOUS
10.01 Sellers represent and warrant to Buyers that Sellers
have 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. Buyers represent and warrant to Sellers
that they have 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.
10.02 If at any time after the Closing Date any further
assignment, transfers or assurances in law are reasonably necessary or desirable
to carry out the provisions of this Agreement, the Parties to this Agreement
shall execute and deliver any and all assignments, transfers, and assurances in
law, and do all things, reasonably necessary or proper to such end and otherwise
to carry out the provisions and intent of this Agreement.
10.03 Any notice or other communication required by, or which
may be given pursuant to this Agreement shall be in writing and mailed,
certified 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:
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If to INMD:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
With a copy to:
Claude E. White, General Counsel
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
And if to FCI:
Aaron S. Lifchez, M.D., President
Fertility Centers of Illinois, S.C.
3000 North Halsted Street, Suite 509
Chicago, Illinois 60657
If to AMG:
Gerald M. Eisenberg, M.D., President
Advocate Medical Group, S.C.
1775 Dempster Street, 4-South
Park Ridge, Illinois 60068
With a copy to:
Stephen M. Fatum, Esq., General Counsel
Advocate Medical Group, S.C.
1775 Dempster Street, 4-South
Park Ridge, Illinois 60068
If to MSO:
Chief Executive
Advocate MSO, Inc.
2025 Windsor Drive
Oak Brook, Illinois 60523
With a copy to:
Michael Holzhueter, Esq., General Counsel
Advocate MSO, Inc.
2025 Windsor Drive
Oak Brook, Illinois 60523
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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.
10.04 The headings contained in this Agreement are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
10.05 All Exhibits referred to in this Agreement are deemed
annexed hereto and made a part of this Agreement.
10.06 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 Tangible and Intangible
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.
10.07 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.
10.08 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.
10.09 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.
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10.10 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 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 the Parties irrevocably consent and submit.
IN WITNESS WHEREOF, the Parties have executed this Agreement
the date first above written by their respective duly authorized officers.
INTEGRAMED AMERICA, INC.
By:/s/Dwight Ryan
------------------------------
Dwight P. Ryan, Vice President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:/s/Aaron Lifchez
------------------------------
Aaron Lifchez, M.D., President
ADVOCATE MEDICAL GROUP, S.C.
By:/s/Gerald Eisenberg
------------------------------------
Gerald M. Eisenberg, M.D., President
ADVOCATE MSO, INC.
By:
- 16 -
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EXHIBITS
1.01(a) Tangible Practice Assets
1.01(b) Intangible Practice Assets
1.02 Excluded Assets
2.04 Assumed Liabilities
4.03 Physician Employment Agreements
5.04 AMG Financial Statements
5.06(a) Contracts
5.08 Personnel
9.02(c)6 Good Standing Certificates for AMG and MSO
17
PHYSICIAN
EMPLOYMENT AGREEMENT
AGREEMENT entered into January 9, 1998 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 Laurence A. Jacobs, M.D., an Illinois resident,
residing at 4019 Brittany Court, Northbrook, Illinois 60062 ("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, as
amended, 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
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Physician. Physician's engagement in outside professional 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
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FCI shall have final authority over: (a) the acceptance orrefusal 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 date
first above written 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 accrued but
unpaid compensation earned by Physician hereunder through the date of such
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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 FCI and INMD. For purposes of this Agreement, the term "Infertility
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Information" shall mean suchtechnical, 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
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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.
(c) In the event Physician makes the payments during the
Non-Competition Period required pursuant to a Personal Responsibility Agreement
entered into of even date among Physician, FCI and INMD, the restrictions of
Section 15(b) will not be applicable to Physician.
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:
Laurence A. Jacobs, M.D.
4019 Brittany Court
Northbrook, Illinois 60062
If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: President
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Gerardo Canet, President
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18. AMENDMENT. No modification, amendment, or addition to this
Agreement, nor waiver of any of its provisions, shall be valid or enforceable
unless in writing and signed by all parties.
19. ASSIGNMENT. No assignment of this Agreement or the rights and
obligations hereunder shall be valid without the specific written consent of
both parties.
20. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
understanding between the parties and no alteration or modification hereof shall
be effective unless contained in a subsequent written instrument executed by
both parties hereto.
21. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of 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 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:/s/Aaron Lifchez, M.D.
------------------------------
Aaron Lifchez, M.D., President
Physician:
/s/Laurence Jacobs, M.D.
---------------------------
Laurence A. Jacobs, 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
135 North Arlington Heights Road, Suite 195, Buffalo Grove, Illinois 60089
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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.
11
PHYSICIAN
EMPLOYMENT AGREEMENT
AGREEMENT entered into January 9, 1998 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 John J. Rapisarda, M.D., an Illinois resident,
residing at 2714 Sheridan Road, Evanston, Illinois 60201 ("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, as
amended, 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
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Physician. Physician's engagement in outside professional 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
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FCI shall have final authority over: (a) the acceptance orrefusal 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 date
first above written 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 accrued but
unpaid compensation earned by Physician hereunder through the date of such
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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 FCI and INMD. For purposes of this Agreement, the term "Infertility
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Information" shall mean suchtechnical, 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
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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.
(c) In the event Physician makes the payments during the
Non-Competition Period required pursuant to a Personal Responsibility Agreement
entered into of even date among Physician, FCI and INMD, the restrictions of
Section 15(b) will not be applicable to Physician.
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:
John J. Rapisarda, M.D.
2714 Sheridan Road
Evanston, Illinois 60201
If to FCI, at:
Fertility Centers of Illinois, S.C.
3000 Halsted Street, Suite 509
Chicago, Illinois 60657
Attn.: President
With a copy to:
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Attention: Gerardo Canet, President
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18. AMENDMENT. No modification, amendment, or addition to this
Agreement, nor waiver of any of its provisions, shall be valid or enforceable
unless in writing and signed by all parties.
19. ASSIGNMENT. No assignment of this Agreement or the rights and
obligations hereunder shall be valid without the specific written consent of
both parties.
20. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
understanding between the parties and no alteration or modification hereof shall
be effective unless contained in a subsequent written instrument executed by
both parties hereto.
21. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of 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 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:/s/Aaron Lifchez, M.D.
------------------------------
Aaron Lifchez, M.D., President
Physician:
/s/John J. Rapisarda, M.D.
---------------------------
John J. Rapisarda, 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
135 North Arlington Heights Road, Suite 195, Buffalo Grove, Illinois 60089
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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.
11
PERSONAL RESPONSIBILITY AGREEMENT
JOHN J. RAPISARDA, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated
January 9, 1998, 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 John J. Rapisarda, an Illinois resident, residing at 2714 Sheridan Road,
Evanston, Illinois 60201("Rapisarda").
RECITALS:
This Agreement is made with reference to a Management Agreement dated
February 28, 1997 (the "Management Agreement") between INMD and FCI, which has
been amended by agreements dated May 2, 1997, June 18, 1997, August 19, 1997 and
January 9, 1998.
A. Brian Kaplan, M.D., Aaron S. 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. By agreement dated January 9, 1998, Rapisarda has become affiliated
with FCI (the "Employment Agreement").
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. Pursuant to the January 9, 1998 amendment to the Management
Agreement ("January 1998 Amendment"),INMD has transferred to Rapisarda through
FCI cash in the amount of $293,750.25 and INMD Common Stock valued at
$97,916.75.
C. The services Rapisarda intends to offer 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 Rapisarda's reputation,
and involve medical, professional and technical services. Through INMD's
resources, the parties intend to maintain and enhance the technology which
Physicians and Rapisarda offer through FCI.
D. Rapisarda intends that FCI be the entity through which Rapisarda
conducts his practice of medicine, and has entered into the Employment
Agreement. This Agreement is also made with reference to the Employment
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Agreement, which defines Rapisarda's rights and responsibilities with respect to
FCI and his practice of medicine, 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 of each of Rapisarda 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 physicians.
F. Rapisarda 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
Rapisarda 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 Rapisarda 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 Rapisarda to
exerting his best efforts to support the operation of FCI under its Management
Agreement with INMD. Rapisarda acknowledges that each of the Physicians has
executed a similar agreement with INMD.
Therefore, INMD, FCI, and Rapisarda agree as follow:
1. Term and Termination. This Agreement shall commence on the date
first above written and expire five (5) years thereafter (the "Term").
2. FCI as Representative of Rapisarda's Interests. Rapisarda
acknowledges that INMD is entering into the January 1998 Amendment with FCI upon
Rapisarda's stipulation that FCI will represent his entire medical practice. It
is agreed, therefore, that for purposes of assuring continuity of the
commitments under the Management Agreement, as amended, that FCI is deemed the
alter ego of Rapisarda, with specific rights and responsibilities existing
between Rapisarda and INMD, as set forth herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to the January 1998 Amendment, INMD has paid FCI, for the
benefit of Rapisarda, a Right to Manage Fee in the sum of $500,000. If, during
the Term of this Agreement, Rapisarda should cease to practice medicine through
FCI, except as a result of death or "permanent disability", as defined in the
Employment Agreement, Rapisarda shall be obligated to forthwith pay to INMD a
prorata portion of $500,000, determined by multiplying the number of quarters
this Agreement has been in effect rounded off to the nearest quarter by $25,000
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("Vested Amount"). The Vested Amount is then deducted from the $500,000
resulting in the amount Rapisarda is obligated to pay INMD. Rapisarda may pay up
to 25% of the sum due INMD under this paragraph in the form of INMD Common
Stock, at the same price per share Rapisarda received the INMD Common Stock from
INMD. Payments to INMD under this paragraph shall not entitle Rapisarda 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
Rapisarda'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. Rapisarda may request INMD to
waive or reduce his repayment obligation by submitting a written transition plan
to INMD for its consideration. Rapisarda 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 Rapisarda,
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 Rapisarda'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 Rapisarda by FCI and FCI's shareholders. Approval of the request shall be
discretionary for INMD, but shall not be unreasonably withheld.
3.3 Rapisarda may assign all or a portion of his payment
obligations under this Section to a new or an existing employee-physician 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 employee-physician of FCI and in an amendment to
this Agreement.
4. FCI's Compliance with the Management Agreement. Rapisarda 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 Rapisarda 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 Rapisarda agrees to exert his best efforts to cause FCI to comply
with each of the aforementioned obligations.
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5.2 FCI and Rapisarda further agree that INMD is a third-party
beneficiary of theExclusive Practice Covenants with respect to Rapisarda 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 Rapisarda
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. Rapisarda and FCI agree that the
scope and term of Rapisarda'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, Rapisarda 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 Rapisarda's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Rapisarda 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.
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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
Rapisarda 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 Rapisarda 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 Rapisarda 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 Rapisarda, in part,
due to the representation by Rapisarda that he will abide by and be bound by the
aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Rapisarda has agreed in the
Employment Agreement not to compete with FCI during the initial 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 Rapisarda's unique services. Rapisarda therefore agrees
that during the initial term of his Employment Agreement with FCI, and during
the Non- Competition Period after the initial term of his employment, 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:
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7.1 One-seventh 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 Rapisarda was engaging in such competitive
acts so as to materially adversely affect FCI's operations (the "Pre-
Competition Period").
7.2 One-seventh of the Base Management Fee which INMD earned
during the Pre-Competition Period.
7.3 One-seventh of any other fees earned by INMD under the
Management Agreement during the Pre-Competition Period.
7.4 One-seventh of any advances or other payments owed by FCI
to INMD at the end of the Pre-Competition Period.
It is understood and agreed that the payment of the foregoing fees would be made
as an alternative to the restrictions against Rapisarda during the
Non-Competition Period. These fees shall be payable notwithstanding the
dissolution, insolvency, receivership or bankruptcy of FCI and any breach of
FCI's contracts with Rapisarda 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. Rapisarda 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
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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 Rapisarda. 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 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
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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 Rapisarda at:
John J. Rapisarda, M.D.
2714 Sheridan Road
Evanston, Illinois 60201
If for FCI at:
Fertility Centers of Illinois, S.C.
3000 North Halsted Street
Suite 509
Chicago, Illinois 60657
Attention: President
8
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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.
John J. Rapisarda:
/s/ John J. Rapisarda, M.D.
- ---------------------------------------
John J. Rapisarda, M.D.
INTEGRAMED AMERICA, INC.,
By: /s/ Dwight P. Ryan
-----------------------------------
Dwight P. Ryan, Vice President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:/s/Aaron Lifchez, M.D.
---------------------------------
Aaron Lifchez, M.D., President
9
PERSONAL RESPONSIBILITY AGREEMENT
LAURENCE A. JACOBS, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated
January 9, 1998, 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 Laurence A. Jacobs, an Illinois resident, residing at 4019 Brittany Court,
Northbrook, Illinois 60062 ("Jacobs").
RECITALS:
This Agreement is made with reference to a Management Agreement dated
February 28, 1997 (the "Management Agreement") between INMD and FCI, which has
been amended by agreements dated May 2, 1997, June 18, 1997, August 19, 1997 and
January 9, 1998.
A. Brian Kaplan, M.D., Aaron S. 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. By agreement dated January 9, 1998, Jacobs has become affiliated with
FCI (the "Employment Agreement").
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. Pursuant to the January 9, 1998 amendment to the Management
Agreement ("January 1998 Amendment"),INMD has transferred to Jacobs through FCI
cash in the amount of $587,499.75 and INMD Common Stock valued at $195,833.25.
C. The services Jacobs intends to offer 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 Jacobs's reputation, and involve
medical, professional and technical services. Through INMD's resources, the
parties intend to maintain and enhance the technology which Physicians and
Jacobs offer through FCI.
D. Jacobs intends that FCI be the entity through which Jacobs conducts
his practice of medicine, and has entered into the Employment Agreement. This
Agreement is also made with reference to the Employment Agreement, which defines
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Jacobs's rights and responsibilities with respect to FCI and his practice of
medicine, 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 of each of Jacobs 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 physicians.
F. Jacobs 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 Jacobs 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 Jacobs 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 Jacobs to exerting
his best efforts to support the operation of FCI under its Management Agreement
with INMD. Jacobs acknowledges that each of the Physicians has executed a
similar agreement with INMD.
Therefore, INMD, FCI, and Jacobs agree as follow:
1. Term and Termination. This Agreement shall commence on the date
first above written and expire five (5) years thereafter (the "Term").
2. FCI as Representative of Jacobs's Interests. Jacobs acknowledges
that INMD is entering into the January 1998 Amendment with FCI upon Jacobs's
stipulation that FCI will represent his entire medical practice. It is agreed,
therefore, that for purposes of assuring continuity of the commitments under the
Management Agreement, as amended, that FCI is deemed the alter ego of Jacobs,
with specific rights and responsibilities existing between Jacobs and INMD, as
set forth herein.
3. Repayment of Rateable Portion of Right to Manage Fee.
3.1 Pursuant to the January 1998 Amendment, INMD has paid FCI, for the
benefit of Jacobs, a Right to Manage Fee in the sum of $1.0 million. If, during
the Term of this Agreement, Jacobs should cease to practice medicine through
FCI, except as a result of death or "permanent disability", as defined in the
Employment Agreement, Jacobs shall be obligated to forthwith pay to INMD a
prorata portion of $1.0 million, determined by multiplying the number of
quarters this Agreement has been in effect rounded off to the nearest quarter by
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$50,000 ("Vested Amount"). The Vested Amount is then deducted from the $1.0
million resulting in the amount Jacobs is obligated to pay INMD. Jacobs may pay
up to 25% of the sum due INMD under this paragraph in the form of INMD Common
Stock, at the same price per share Jacobs received the INMD Common Stock from
INMD. Payments to INMD under this paragraph shall not entitle Jacobs 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 Jacobs'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. Jacobs may request INMD to waive or
reduce his repayment obligation by submitting a written transition plan to INMD
for its consideration. Jacobs 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 Jacobs, 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 Jacobs'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 Jacobs by FCI and FCI's shareholders. Approval of the request shall be
discretionary for INMD, but shall not be unreasonably withheld.
3.3 Jacobs may assign all or a portion of his payment
obligations under this Section to a new or an existing employee-physician 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 employee-physician of FCI and in an amendment to
this Agreement.
4. FCI's Compliance with the Management Agreement. Jacobs 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 Jacobs 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 Jacobs agrees to exert his best efforts to cause FCI to comply
with each of the aforementioned obligations.
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5.2 FCI and Jacobs further agree that INMD is a third-party
beneficiary of the Exclusive Practice Covenants with respect to Jacobs 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 Jacobs
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. Jacobs and FCI agree that the
scope and term of Jacobs'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, Jacobs 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 Jacobs's employment by FCI (the "Current Medical Offices").
6.3 During the Non-Competition Period, Jacobs 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.
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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
Jacobs 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 Jacobs 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 Jacobs 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 Jacobs, in part, due
to the representation by Jacobs that he will abide by and be bound by the
aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Jacobs has agreed in the
Employment Agreement not to compete with FCI during the initial 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 Jacobs's unique services. Jacobs therefore agrees that
during the initial term of his Employment Agreement with FCI, and during the
Non-Competition Period after the initial term of his employment, 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:
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7.1 One-seventh 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 Jacobs was engaging in such competitive acts
so as to materially adversely affect FCI's operations (the "Pre-
Competition Period").
7.2 One-seventh of the Base Management Fee which INMD earned
during the Pre-Competition Period.
7.3 One-seventh of any other fees earned by INMD under the
Management Agreement during the Pre-Competition Period.
7.4 One-seventh of any advances or other payments owed by FCI
to INMD at the end of the Pre-Competition Period.
It is understood and agreed that the payment of the foregoing fees would be made
as an alternative to the restrictions against Jacobs during the Non-Competion
Period. These fees shall be payable notwithstanding the dissolution, insolvency,
receivership or bankruptcy of FCI and any breach of FCI's contracts with Jacobs
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. Jacobs 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
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terminated orally. No amendment, alteration, change orattempted 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 Jacobs. 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 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.
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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 Jacobs at:
Laurence A. Jacobs, M.D.
4019 Brittany Court
Northbrook, Illinois 60062
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
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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.
Laurence A. Jacobs:
/s/Laurence A. Jacobs, M.D.
- ---------------------------------------
Laurence A. Jacobs, M.D.
INTEGRAMED AMERICA, INC.,
By: /s/Dwight P. Ryan
-----------------------------------
Dwight P. Ryan, Vice President
FERTILITY CENTERS OF ILLINOIS, S.C.
By:/s/Aaron Lifchez, M.D.
------------------------------------
Aaron Lifchez, M.D., President
9
MANAGEMENT AGREEMENT
between
SHADY GROVE FERTILITY CENTERS, P.C.
and
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
THIS MANAGEMENT AGREEMENT, dated March 11, 1998, by and between Shady
Grove Fertility Centers, P.C., a Maryland corporation, with a place of business
at 16220 Frederick Road, Suite 502, Gaithersburg, Maryland 20877 ("Shady Grove"
or "Management Company") and Levy, Sagoskin and Stillman, M.D., P.C., a Maryland
professional services corporation, with its principal place of business at 9707
Medical Center Drive, Suite 230, Rockville, Maryland 20850 ("PC").
RECITALS:
PC specializes in gynecological services, treatment of human
infertility encompassing the provision of in vitro fertilization and other
assisted reproductive services ("Infertility Services"). PC provides Infertility
Services through Michael J. Levy, M.D., Arthur W. Sagoskin, M.D. and Robert J.
Stillman, M.D. (collectively referred to as "Physicians") as well as other
physician employees. Physicians have entered into employment agreements with PC.
Management Company is in the business of owning certain assets and
providing management and administrative services to medical practices
specializing in the provision of Infertility Services, and furnishing such
medical practices with the necessary facilities, equipment, personnel, supplies
and support staff.
PC desires to utilize the services of Management Company to perform
management and administrative functions, on its behalf, to permit PC to devote
its efforts on a concentrated and continuous basis to the rendering of
Infertility Services to its patients .
In addition, PC desires access to capital to fund its growth and
development and Management Company desires to provide such capital or access to
capital as provided herein.
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NOW THEREFORE, in consideration of the above recitals which the parties
incorporate into this Agreement, the mutual covenants and agreements herein
contained and other good and valuable consideration , PC hereby agrees to
purchase from Management Company the management and administrative services
("Management Services") herein described and Management Company agrees to
provide the Management 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 PC'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 Management Company and PC.
1.1.3 "Base Management Fee" shall mean a monthly fee paid by
PC to Management Company in an amount equal to a percentage of PC's
monthly Physician and Other Professional Revenues. The Base Management
Fee shall cover the cost of management services provided by Management
Company corporate staff to PC, as more specifically described in
Section 2.3.
1.1.4 "Facilities" shall mean the medical offices and clinical
spaces of PC, including any satellite locations, related businesses and
all medical group business operations of PC, which are utilized by PC
in its medical practice.
1.1.5 "Fiscal Year" shall mean the 12-month period beginning
January 1 and ending December 31 of each year.
1.1.6 "Infertility Services" shall mean gynecological
services, treatment of human infertility encompassing the provision of
in vitro fertilization and other assisted reproductive services
provided by PC or any Physician Employee and Other Professional
Employee.
1.1.7 "Other Professional Employee" shall mean a non-physician
individual who provides services, including nurse anesthetists,
physician assistants, nurse practitioners, psychologists, and other
such professional employees who generate professional charges, but
shall not include Technical Employees.
1.1.8 "Physician-Employee" shall mean an individual, including
a Physician- Stockholder, who is an employee of PC or is otherwise
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under contract with PC to provide professional services to PC patients
and is duly licensed as a physician in the applicable jurisdiction of
Maryland, Virginia and/or the District of Columbia where such
Physician- Employee treats PC's patients.
1.1.9 "Physician and Other Professional Revenues" shall mean
all fees, whether received or accrued, and actually recorded each month
(net of Adjustments) by or on behalf of PC as a result of professional
medical services personally furnished to patients by
Physician-Employees and Other Professional Employees and other fees or
income earned in their capacity as professionals, whether rendered in
an inpatient or outpatient setting, including but not limited to,
medical director fees or technical fees from medical ancillary
services, consulting fees and ultrasound fees from businesses owned or
operated by Physician- Stockholders. Physician and Other Professional
Revenues shall not include (i) board attendance fees and other
compensation in connection with board memberships; provided, the
compensation for board related activities does not exceed $5,000 in the
aggregate, annually, per Physician-Stockholder and (ii) other services
where Physician does not provide professional medical services such as
testimony and consultation for litigation-related proceedings,
lectures, passive investments, fundraising, or writing ("Permitted
Services"), the compensation from which Permitted Services Physician
may retain without limit. Physician and other Professional Revenues
with respect to PC's Shared Risk Program shall be treated in accordance
with Exhibit 1.1.9 attached hereto
1.1.10 "Physician-Stockholder" shall mean any physician, duly
licensed to practice medicine in a jurisdiction where PC provides
Infertility Services, who is or becomes a stockholder of PC.
1.1.11 "Predistribution Earnings" ("PDE") shall mean (i)
Physician and Other Professional Revenues, less (ii) Cost of Services
and the Base Management Fee.
1.1.12 "Receivables" shall mean and include all rights to
payment for services rendered or goods sold, accounts, receivables,
contract rights, chattel paper, documents, instruments and other
evidence of patient indebtedness to PC, policies and certificates of
insurance relating to any of the foregoing, and all rights to payment,
reimbursement or settlement or insurance or other medical benefit
payments assigned to PC by patients or pursuant to any Preferred
Provider, HMO, capitated payment agreements or other agreements between
PC and a payer, recorded each month (net of Adjustments).
1.1.13 "Revenues" shall mean the sum of all Physician and
Other Professional Revenues.
1.1.14 "Technical Employees" shall mean technicians such as
embryologists and other laboratory personnel, ultrasonographers and
phlebotomist who provide services to PC.
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ARTICLE 2
COST OF SERVICES AND BASE MANAGEMENT FEE
2.1 "Cost of Services" shall mean all ordinary and necessary expenses
of PC and all direct ordinary and necessary operating expenses of Management
Company, without mark-up, incurred in connection with the management of PC,
including, without limitation, the following costs and expenses, whether
incurred by Management Company or PC:
2.1.1 Salaries and fringe benefits of all employees of
Management Company working directly in the
management, operation or administration (including,
without limitation, Other Professional Employees and
Technical Employees) providing services at PC
Facilities, along with payroll taxes or all other
taxes and charges now or hereafter applicable to such
personnel, and services of independent contractors;
2.1.2 Expenses incurred in the recruitment of additional
physicians for PC, including, but not limited to
employment agency fees, relocation and interviewing
expenses and any actual out-of-pocket expenses of
Management Company personnel in connection with such
recruitment effort;
2.1.3 Direct marketing expenses of PC, such as direct costs
of printing marketing materials prepared by
Management Company;
2.1.4 Any sales and use taxes assessed against PC related
to the operation of PC's medical practice;
2.1.5 Lease payments, depreciation expense (determined
according to GAAP), taxes and interest directly
relating to the Facilities and equipment, and other
expenses of the Facilities described in Section 3.2
below;
2.1.6 Legal fees paid by Management Company or PC to
outside counsel in connection with matters specific
to the operation of PC such as regulatory approvals
required as a result of the parties entering into
this Agreement; provided, however, legal fees
incurred by the parties relative to completion of
this Agreement or as a result of a dispute between
the parties under this Agreement shall not be
considered a Cost of Services;
2.1.7 Fringe benefits provided to Physician-Employees,
including long-term disability;
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2.1.8 All insurance necessary to operate PC including fire,
theft, general liability and malpractice insurance
for Physician-Employees of the PC;
2.1.9 Professional licensure fees and board certification
fees of Physician- Employees, and Other Professional
Employees rendering Infertility Services on behalf of
PC;
2.1.10 Membership in professional associations and
continuing professional education for
Physician-Employees and Other Professional Employees;
2.1.11 Quality Improvement Program described in Section 3.8
herein;
2.1.12 Cost of filing fictitious name permits pursuant to
this Agreement;
2.1.13 Cost of supplies, medical and administrative, and all
direct general and administrative expenses, including
but not limited to travel and entertainment expenses,
car allowances (including car leases), dues and
subscriptions, car and other business related
expenses, such as cellular telephone, relative to PC;
and
2.1.14 Such other costs and expenses directly incurred by
Management Company necessary for the management or
operation of PC.
2.2 Notwithstanding anything to the contrary contained herein, Cost of Services
shall not include costs of the following:
2.2.1 Costs or expenses not in the ordinary course of
business unless approved by PC;
2.2.2 Any federal or state income taxes of PC or Management
Company other than as provided above;
2.2.3 The Base Management Fee and the Additional Management
Fee; or
2.2.4 Any amount paid to any Physician-Employee, including
salary or draw (all of which come out of PDE).
2.3 The "Base Management Fee" and the "Additional Management Fee"
described in Article 7 of this Agreement shall constitute Management Company's
sole compensation for all indirect costs of Management Company including all
legal, accounting, financial, marketing, management and administrative
assistance provided by Management Company corporate and regional staff which are
not provided for in Section 2.1.
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ARTICLE 3
DUTIES AND RESPONSIBILITIES OF MANAGEMENT COMPANY
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 PC hereby appoints Management Company as PC's sole and
exclusive manager and administrator of all of its day-to-day business
functions and grants Management Company all the necessary authority to
carry out, with PC's advice and consent, its duties and
responsibilities pursuant to the terms of this Agreement to provide the
Management Services. Physician-Employees of PC and only
Physician-Employees of PC will perform the medical functions of its
practice. Management Company will have no authority, directly or
indirectly, to perform, and will not perform, any medical function.
3.1.2 Management Company will, on behalf of PC, bill patients
and collect professional fees for Infertility Services rendered by PC
at the Facilities, outside the Facilities for PC's hospitalized
patients, and for all other Infertility Services rendered by any
Physician- Employee or Other Professional Employee. PC hereby appoints
Management Company for the term hereof to be its true and lawful
attorney-in-fact, for the following purposes: (i) to bill patients in
PC's name and on its behalf; (ii) to collect Receivables resulting from
such billing in PC's name and on its behalf; (iii) to receive payments
from insurance companies, prepayments received from health care plans,
and all other third-party payors; (iv) to take possession of and
endorse in the name of PC (and/or in the name of any Physician Employee
or Other Professional Employee rendering Infertility Services to
patients of PC) any notes, checks, money orders, and other instruments
received in payment of Receivables; and (v) to initiate the institution
of legal proceedings in the name of PC, with PC's advice and consent,
to collect any accounts and monies owed to PC, to enforce the rights of
PC as creditor under any contract or in connection with the rendering
of any service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors.
3.1.3 Management Company represents that it will provide all
billing services in compliance with applicable laws and third-party
payor requirements, and will ensure all necessary documentation
supports all claims made for payment.
3.1.4 Management Company will provide the administrative
services function of supervising and maintaining (on behalf of PC) all
files and records relating to the operations of the Facilities,
including but not limited to accounting and billing records, including
for billing purposes, patient medical records, and collection records.
Patient medical records shall at all times be and remain the property
of PC and shall be located at the Facilities and be readily accessible
for patient care. Management Company'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
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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. Management Company 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. PC shall have unrestricted access to all
of its records at all times.
3.1.5 Management Company will supply to PC all reasonably
necessary clerical, accounting, bookkeeping and computer services,
printing, postage and duplication services, medical transcribing
services, and any other necessary or appropriate administrative
services reasonably necessary for the efficient operation of PC's
medical practice at the Facilities.
3.1.6 Subject to PC's prior approval, Management Company shall
design and implement an appropriate marketing and public relations
program on behalf of PC, with appropriate emphasis on public awareness
of the availability of Infertility Services from PC. The public
relations program shall be conducted in compliance with applicable laws
and regulations governing advertising by the medical profession. PC
shall approve all advertising and marketing materials prior to use.
3.1.7 Management Company, upon request of PC, will assist PC
in recruiting additional physicians, including such administrative
functions as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, PC
shall interview and make the ultimate decision as to the suitability of
any physician to become associated with PC. All physicians recruited by
Management Company and accepted by PC shall be employees of or
independent contractors to PC.
3.1.8 Management Company will assist PC in negotiating any
managed care contracts to which PC desires to become a party.
Management Company will provide administrative assistance to PC in
fulfilling its obligations under any such contract.
3.1.9 Management Company will arrange for legal and accounting
services as may be reasonably required in the ordinary course of PC's
operation, including the cost of enforcing any physician contract
containing restrictive covenants. Nothing contained herein is intended
to authorize Management Company to settle any claim made by or against
PC.
3.1.10 Management Company will negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Article 11.
3.1.11 Management Company 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 PC's medical practice at the Facilities.
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3.2 FACILITIES. Management Company will provide the Facilities
necessary for the operation of PC's medical practice, as set forth in Exhibit
3.2 hereto, including but not limited to, the use of the Facilities, all
furniture, equipment and furnishings necessary for 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.
Management Company will provide for the cleanliness of the Facilities, and
timely maintenance and cleanliness of the equipment, furniture and furnishings
located therein. Management Company will consult with PC regarding the
condition, use and needs for the Facilities, equipment, services and
improvements thereto. PC shall have the right to review all proposed leases for
office space and Management Company shall consult with PC with respect to the
terms of such leases and use its best efforts to ensure that the leases provide
for reasonable assignment. Additionally, Management Company shall use its best
efforts to ensure that equipment leases provide for reasonable assignment.
Management Company shall have no right to close any Facility without the advice
and consent of PC.
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Subject to the agreement and
approval of PC, which approval shall not be unreasonably withheld,
Management Company will hire and appoint an Executive Director to
manage and administer all of the day-to-day business functions of the
Facilities. Salary and fringe benefits paid to the Executive Director
shall be determined by Management Company. At the direction,
supervision and control of Management Company, the Executive Director,
subject to the terms of this Agreement, will implement the policies
agreed upon by Management Company and PC and will generally perform the
administrative duties assigned to the Executive Director by Management
Company.
3.3.2 PERSONNEL. Management Company will provide Other
Professional Employees, Technical Employees, support and administrative
personnel, clerical, secretarial, bookkeeping and collection personnel
reasonably necessary for the efficient operation of PC at the
Facilities. Such personnel will be under the direction, supervision and
control of Management Company, with Technical Employees and Other
Professional Employees subject to the professional supervision of PC.
If PC is dissatisfied with the services of any person delivering
non-professional services, PC will consult with Management Company.
Management Company shall in good faith determine whether the employment
of that employee warrants termination. Management Company's obligations
to utilize nonprofessional personnel will be governed by the overriding
principle and goal of facilitating the PC's provision of high quality
medical care and laboratory services. Management Company will make
every effort to honor the specific requests of PC with regard to the
assignment of Management Company's employees, including the Executive
Director and Management Company will follow the provisions of Section
5.2.10 with respect to the hiring or firing of certain key personnel.
3.4 FINANCIAL PLANNING AND GOALS. Management Company will prepare, for
the approval of the Joint Practice Management Board (as defined in Section 5.1),
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an annual capital and operating budget (the "Budget") reflecting the anticipated
Revenues and Cost of Services, sources and uses of capital for growth of PC's
practice and for the provision of Infertility Services at the Facilities.
Management Company will present the Budget to PC for its approval at least
thirty (30) days prior to the commencement of the Fiscal Year. Management
Company will indicate the targeted profit margin for PC's practice at the
Facilities which will be reflected in the Budget. If the parties can not agree
on the Budget for PC for any Fiscal Year during the term of this Agreement, 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. Management Company will prepare annual
financial statements for operations of PC at the Facilities within ninety (90)
days of the close of the Fiscal Year. Management Company shall prepare monthly
financial statements containing a balance sheet and statement of operations,
which shall be delivered to PC within thirty (30) days after the close of each
calendar month.
3.6 TAX PLANNING AND TAX RETURNS. Management Company will not be
responsible for any tax planning or tax return preparation for PC, but will
provide support documentation in connection with the same. Such support
documentation will not be destroyed without PC's consent.
3.7 INVENTORY AND SUPPLIES. Management Company shall order and purchase
inventory and supplies, and such other materials which are requested by PC to
enable PC to deliver Infertility Services in a cost-effective quality manner.
3.8 QUALITY IMPROVEMENT. Management Company shall assist PC in
fulfilling its obligations to maintain a Quality Improvement Program and in
meeting the goals and standards of such program.
3.9 RISK MANAGEMENT. Management Company shall assist PC in the
development of a Risk Management Program and in meeting the standards of such
Program.
3.10 PERSONAL POLICIES AND PROCEDURES. Management Company shall develop
personnel policies, procedures and guidelines, to govern office behavior,
protocol and procedures, designed to insure that PC's Facilities observe all
laws and guidelines related to employment and human resources management.
3.11 LICENSES AND PERMITS. Management Company shall, on behalf of PC,
coordinate and assist PC in its application for and efforts to obtain and
maintain all federal, state and local licenses, certifications and regulatory
permits required for or in connection with the operations of PC and equipment
located at the Facilities, other than those relating to the practice of medicine
or the administration of drugs by Physician-Employees.
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ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PC
4.1 PROFESSIONAL SERVICES. PC shall cause its Physician-Employees to
provide Infertility Services to PC's patients in compliance at all times with
ethical standards, laws and regulations applying to the practice of medicine in
the applicable jurisdiction which such Physician- Employee provides Infertility
Services on behalf of PC. PC shall ensure that each Physician- Employee, any
Other Professional Employee employed by PC, and any other professional provider
associated with PC is duly licensed to provide the Infertility Services being
rendered within the scope of such provider's practice. In addition, PC shall
require each Physician-Employee to maintain a DEA number and appropriate medical
staff privileges as determined by PC 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, PC shall promptly inform the Executive Director and provide the
underlying facts and circumstances of such action, and the proposed course of
action to resolve the matter. Periodic updates, but not less than monthly, shall
be provided to Management Company.
4.2 MEDICAL PRACTICE. PC shall use and occupy the Facilities
exclusively for the purpose of providing Gynecology, Infertility Services, and
related 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 PC, and
Other Professional Employees employed by PC. No other physician or medical
practitioner shall be permitted to use or occupy the Facilities without the
prior written consent of Management Company, except in the case of a medical
emergency, in which event, notification shall be provided to Management Company
as soon after such use or occupancy as possible.
4.3 EMPLOYMENT OF PHYSICIAN AND OTHER PROFESSIONAL EMPLOYEES. In the
event PC shall determine that additional physicians are necessary, PC shall
undertake and use its best efforts to locate physicians who, in PC's judgment,
possess the credentials and expertise necessary to enable such physician
candidates to become affiliated with PC for the purpose of providing Infertility
Services. PC shall cause each Physician-Employee to enter into an employment
agreement with PC in the form attached hereto as Exhibit 4.3(A)
("Physician-Stockholder Employment Agreement") if the Physician-Employee is a
shareholder or in the form of Exhibit 4.3(B) ("Physician-Employee Employment
Agreement") if the Physician-Employee is not a shareholder, or such other form
as is mutually acceptable to PC and Management Company. Except as otherwise
provided in Sections 4.6.4 and 5.2.8 of this Agreement, PC shall have complete
control of and responsibility for the hiring, compensation, supervision,
evaluation and termination of its Physician-Employees, although at the request
of PC, Management Company shall consult with PC respecting such matters.
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4.4 CONTINUING MEDICAL EDUCATION . PC shall require its
Physician-Employees to participate in such continuing medical education as PC
deems to be reasonably necessary for such physicians to remain current in the
provision of Infertility Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. PC shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician-Employees and Other Professional Employees, if applicable, are
insurable and participating in an on-going Risk Management Program, under
Management Company's directions.
4.6 DIRECTION OF PRACTICE PC, as a continuing condition of Management
Company's obligations under this Agreement, shall at all time during the Term be
and remain legally organized and operated to provide Infertility Services in a
manner consistent with state and federal laws. In furtherance of which:
4.6.1 PC shall operate and maintain at the Facilities a
full-time practice of medicine specializing in the provision of
Infertility Services and shall maintain and enforce the
Physician-Stockholder Employment Agreements and the Physician-Employee
Employment Agreements (collectively referred to as "Physician
Employment Agreements") or in such other form as is mutually agreed to
by the PC and Management Company in writing. PC covenants that it shall
not employ any physician, or have any physician as a shareholder,
unless said physician shall sign the applicable Physician Employment
Agreement prior to assuming the status as employee and/or shareholder.
PC covenants that should a physician become a shareholder of the PC,
that a condition precedent to the issuance of the shares shall be the
ratification of this Management Agreement.
4.6.2 PC shall not terminate the Employment Agreement(s) of
any Physician or Shareholder, except in accordance with the Employment
Agreement(s), or amend or modify the Employment Agreements in any
material manner, nor waive any material rights of the PC thereunder
without the prior written approval of Management Company, which
approval will not be unreasonably withheld; provided that PC may amend
or modify the Employment Agreements without Management Company's
consent in order to comply with applicable law. PC covenants to enforce
the terms of each Physician Employment Agreement, including but not
limited to any covenants not to compete and other terms confirming a
Physician- Employee's commitment to practice medicine solely through
the PC for a specified number of years. In addition, in the exercise of
Management Company's sole discretion, if the PC fails to pursue the
enforcement of its rights against a Physician-Employee, Management
Company shall have the right, but not the obligation, to direct,
initiate or join in a lawsuit to enforce the provisions of any
Physician Employment Agreement and PC shall assign its rights and
remedies against such Physician-Employee upon the request of Management
Company.
4.6.3 Recognizing that Management Company would not have
entered into this Agreement but for the PC's covenant to maintain and
enforce the Physician-Employment Agreements with any physician now
employed or physicians who may hereafter become employees of the PC,
and in reliance upon such Physician-Employee's observance and
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performance of all of the obligations under the Physician Employment
Agreements, any damages, liquidated damages, compensation, payment or
settlement received by the PC from a physician whose employment is
terminated, shall be paid to Management Company in proportion to
Management Company's loss or damages.
4.6.4 PC shall retain that number of Physician-Employees as
are reasonably necessary and appropriate for the provision of
Infertility Services. However, PC agrees that it will not hire more
physicians than consented to by the Joint Practice Management Board
which shall not be unreasonable in giving its consent. Each
Physician-Employee shall hold and maintain a valid and unrestricted
license to practice medicine in the applicable jurisdiction where such
Physician-Employee provides Infertility Services on behalf of PC, and
shall be board eligible in the practice of gynecology, with training in
the subspecialty of infertility and assisted reproductive medicine. PC
shall be responsible for paying the compensation and benefits, as
applicable, for all Physician-Employees, and for withholding, as
required by law, any sums for income tax, unemployment insurance,
social security, or any other withholding required by applicable law.
Management Company may, on behalf of the PC, establish and administer
the compensation with respect to such Physician-Employees in accordance
with the written agreement between the PC and each Physician Employee.
Management Company shall neither control nor direct any Physician in
the performance of Infertility Services for patients, and Management
Company will not unreasonably interfere with the employer-employee
relationship between PC and its Physician-Employees.
4.6.5 PC shall insure that Physician-Employees provide patient
care and clinical backup as required to insure the proper provision of
Infertility Services to patients of the PC at PC's Facilities set forth
in Exhibit 3.2, and/or such other location as shall be mutually agreed
to by PC and Management Company. PC shall insure that its
Physician-Employees devote substantially all of their professional
time, effort and ability to PC's practice, including the provision of
Infertility Services and the development of such practice.
4.6.6 PC covenants to obtain necessary licenses and operate
clinical laboratory and tissue bank services in accordance with all
applicable laws and regulations. PC agrees that the Medical Director(s)
or Tissue Bank Director(s) shall be Physician-Employees or Other
Professional Employees, if applicable, of the PC who meet the
qualifications required by applicable State law or regulation, and that
should there be a vacancy in any such position, PC will cause another
Physician-Employee or Other Professional Employee, if applicable, to
fill such vacancy in accordance with applicable State law.
4.6.7 PC acknowledges that it bears all medical obligations to
patients treated at the Facilities and covenants that it is responsible
for all tissue, specimens, embryos or biological material ("Biological
Materials") kept at the Facilities on behalf of the patients (or former
patients) of PC. In the event of a termination or dissolution of PC, or
the termination of this Agreement for any reason, PC and its
Physician-Stockholders will have the obligation to account to patients
and to arrange for the storage or disposal of such Biological Materials
in accordance with patient consent and the ethical guidelines of the
American Society of
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Reproductive Medicine ("Relocation Program"). Management Company, in
such event, will, at the request of the PC, assist in the
administrative details of such a Relocation Program for so long as the
PC shall request and the Management Fee shall be paid during that time.
These obligations shall survive the termination of this Agreement.
4.6.8 Except for circumstances outside the control of PC or
Physician-Stockholders, PC covenants not to terminate or dissolve as a
professional services corporation except on six months prior written
notice to Management Company. PC covenants that such a restriction will
be contained either in PC's by-laws or shareholder agreement among PC's
shareholders. In the event that such termination or dissolution occurs,
for a reason other than the death or disability of all of the
shareholders, or any successor entity fails to continue the medical
practice of PC substantially in the form contemplated by this
Agreement, PC and its individual shareholders, shall indemnify
Management Company for: (a) the actual costs of maintaining the
Facilities and any reasonably necessary Other Professional Employees
during a Relocation Program (Section 4.6.7); (b) legal costs for
relicensing; (c) recruitment of other physicians to assume the
Practice; and (d) any damages, costs, liabilities, including reasonable
attorneys fees, arising from claims, suits, causes of action or
proceedings, brought by a patient of the PC having an interest in any
Biological Materials kept at the Facilities. These obligations shall
survive the termination of this Agreement.
4.7 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT.
PC agrees that during the term of this Agreement, PC covenants for itself and
will use its best efforts to cause its Physician-Employees to:
4.7.1 Execute such documents and take such steps reasonably
necessary to assist billing and collecting for patient services
rendered by PC and its Physician-Employees;
4.7.2 Promote PC's medical practice and participate in
marketing efforts developed by Management Company; and
4.7.3 Participate in Management Company network activities and
programs.
4.8 PERSONNEL POLICIES PC covenants for itself and will cause its
Physician-Employees and any other employees to comply with reasonable personnel
policies and guidelines developed for the PC by Management Company and/or the
Joint Practice Management Board, which shall include administrative protocols
and policies designed to insure that the Facilities comply with all applicable
laws and regulations, federal, state and local.
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ARTICLE 5
JOINT DUTIES AND RESPONSIBILITIES
5.1 FORMATION AND OPERATION OF JOINT PRACTICE MANAGEMENT BOARD.
Management Company and PC will establish a joint practice management board
("Joint Practice Management Board") which will be responsible for developing
management and administrative policies for the overall operation of PC. The
Joint Practice Management Board will consist of designated management
representatives from Management Company, one or more PC owners, as determined by
PC, such other PC physicians, as appropriate and determined by PC, and the
Executive Director. It is the intent and objective of Management Company and PC
that they agree on the overall operations of PC. In the case of any matter
requiring a formal vote, PC shall have one (1) vote and Management Company shall
have one (1) vote. The desire is that Management Company and PC agree on matters
of operations and that, if they disagree, they will have to work cooperatively
to resolve any disagreement.
5.2 DUTIES AND RESPONSIBILITIES OF THE JOINT PRACTICE MANAGEMENT Board.
The Joint Practice Management Board shall have, among others, the following
duties and responsibilities:
5.2.1 ANNUAL BUDGETS AND PROFITABILITY. All annual capital and
operation budgets prepared by Management Company shall be subject to
the review, amendment, approval and disapproval of the Joint Practice
Management Board. PC covenants and agrees to use its best efforts to
assist the Joint Management Board in achieving the projected budgets,
in place from time to time. PC and Management Company agree that,
recognizing changes in circumstances, annual budgets and forecast are
subject to revisions and, accordingly, they will cause the Joint
Practice Management Board to modify the annual budgets, as needed,
including without limitation, staff reductions, to ensure that PC
operates in a profitable mode which means that PDE is positive on a
monthly basis. Further, PC agrees that in the event PC incurs
operational losses at any point during the term of this Agreement,
nothing herein shall obligate Management Company to incur losses under
this Agreement in order to sustain PC's operations.
5.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any renovation and expansion plans, and capital
equipment expenditures with respect to PC shall be reviewed and
approved by the Joint Practice Management Board and shall be based upon
the best interests of PC, and shall take into account capital
priorities, economic feasibility, physician support, productivity and
then current market and regulatory conditions.
5.2.3 ADVERTISING BUDGET. All annual advertising and other
marketing budgets prepared by Management Company shall be subject to
the review, amendment, approval and disapproval of the Joint Practice
Management Board.
5.2.4 PATIENT FEES. The Joint Practice Management Board shall
review and approve the fee schedule for all physician and ancillary
services rendered by PC.
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5.2.5 ANCILLARY SERVICES. The Joint Practice Management Board
shall approve ancillary services rendered by PC.
5.2.6 PROVIDER AND PAYER RELATIONSHIPS. Decisions regarding
the establishment or maintenance of relationship with institutional
health care providers and payers shall be made by the Joint Practice
Management Board in consultation with PC; provided, however, that
unanimous consent of PC designated members of the Joint Practice
Management Board shall be necessary to discontinue any existing PC
institutional relationship.
5.2.7 STRATEGIC PLANNING. The Joint Practice Management Board
shall develop long-term strategic plans, from time to time.
5.2.8 PHYSICIAN HIRING. The Joint Practice Management Board
shall, in conjunction with PC, determine, the number and type of
physicians required for the efficient operation of PC. In addition to
any other approvals required under this Agreement or the
Physician-Stockholder Agreements, the approval of the Joint Practice
Management Board shall be required for any modifications to the
restrictive covenants contained in any physician employment agreement.
5.2.9 PROVIDER CONTRACTS. The Joint Practice Management Board
shall approve, disapprove, or amend all managed care, PPO, HMO,
Medicare risk and other provider contracts negotiated by Management
Company.
5.2.10 EXECUTIVE DIRECTOR AND KEY PERSONNEL.
(a) The selection and retention of the Executive Director
pursuant to Section 3.3.1 by Management Company shall be subject to the
recommendation of the Joint Practice Management Board. If PC is
dissatisfied with the services provided by the Executive Director, PC
shall consult with Management Company who shall, in good faith,
determine whether the performance of the Executive Director could be
brought to acceptable levels through counsel and assistance, or whether
the Executive Director should be terminated.
(b) Management Company shall follow the recommendations of the
Joint Practice Management Board with respect to the hiring, terminating
or relocating of key personnel at PC Facilities, including the
Executive Director, Operations Director and Marketing Director, in such
positions as of the Effective Date of this Agreement; provided, such
recommendations do not cause Management Company to violate any federal,
state or local laws or regulations. Management Company agrees not to
reassign responsibilities, except for line management reporting, of any
key personnel engaged by PC listed on Exhibit 5.2.10 (b) during the
first five years of this Agreement without the consent of PC.
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ARTICLE 6
LICENSE OF MANAGEMENT COMPANY NAME
6.1 GRANT OF LICENSE. Management Company hereby grants to PC an
irrevocable, exclusive and non-assignable license for the term of this Agreement
to use the name SHADY GROVE FERTILITY CENTERS and a revocable, non-exclusive and
non-assignable license with respect to any other service names, trademark names
and logos of Management Company (the "Trade Names") in conjunction with the
provision of Infertility Services by PC at the Facilities. Notwithstanding the
License granted to PC hereunder, Management Company retains the absolute right
to use and license the Trade Names, except for SHADY GROVE FERTILITY CENTERS, to
others during the term of this Agreement.
6.2 FICTITIOUS NAME PERMIT. If necessary, PC shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious name permit which allows PC to practice at the
Facilities under the Trade Names and shall take any other actions reasonably
necessary to procure protection of or protect Management Company's rights to the
Trade Names. Management Company shall cooperate and assist PC in obtaining any
such original, amended or renewal fictitious name permit.
6.3 RIGHTS OF MANAGEMENT COMPANY. PC acknowledges Management Company's
exclusive right, ownership, title and interest in and to the Trade Names and
will not at any time do or cause to be done any act or thing contesting or in
any way impairing or tending to impair any part of such right, title and
interest. In connection with the use of the Trade Names, PC shall not in any
manner represent that it has any ownership interest in the Trade Names, and PC's
use shall not create in PC's favor any right, title, or interest in or to the
Trade Names other than the right of use granted hereunder, and all such uses by
PC shall inure to the benefit of Management Company. PC shall notify Management
Company immediately upon becoming aware of any claim, suit or other action
brought against it for use of the Trade Names or the unauthorized use of the
Trade Names by a third party. PC shall not take any other action to protect the
Trade Names without the prior written consent of Management Company. Management
Company, if it so desires, may commence or prosecute any claim or suit in its
own name or in the name of PC or join PC as a party thereto. PC shall not have
any rights against Management Company for damages or other remedy by reason of
any determination of Management Company not to act or by reason of any
settlement to which Management Company may agree with respect to any alleged
infringements, imitations or unauthorized use by others of the Trade Names, nor
shall any such determination of Management Company or such settlement by
Management Company affect the validity or enforceability of this Agreement.
6.4 RIGHTS UPON TERMINATION.
6.4.1 Upon termination of this Agreement, PC shall: (i) within
30 days of the termination, cease using the Trade Names in all respects
and refrain from making any reference on its letterhead or other
publicly-disseminated information or material to its former
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relationship with Management Company; and (ii) take any and all actions
required to make the Trade Names available for use by any other person
or entity designated by Management Company.
6.4.2 PC's failure (except as otherwise provided herein) to
cease using the Trade Names at the termination or expiration of this
Agreement will result in immediate and irreparable damage to Management
Company and to the rights of any licensee of Management Company. There
is no adequate remedy at law for such failure. In the event of such
failure, Management Company 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, Management Company shall be entitled to a temporary
restraining order, without prejudice to any other remedy available to
Management Company. All such remedies hereunder shall be at the expense
of PC and shall not be a Cost of Services.
ARTICLE 7
FINANCIAL ARRANGEMENTS
7.1 COMPENSATION. The compensation set forth in this Article 7 is being
paid to Management Company in consideration of the substantial commitment made
and services to be rendered by Management Company hereunder and is fair and
reasonable. Management Company shall be paid the following amounts (collectively
"Compensation"):
7.1.1 an amount reflecting all Cost of Services (whether
incurred by Management Company or PC) paid or accrued by Management
Company pursuant to the terms of this Agreement;
7.1.3. during each year of this Agreement, a Base Management
Fee, paid monthly but reconciled to annual Revenues, of an amount equal
to six percent (6%) of Revenues; and
7.1.4 an Additional Management Fee, paid monthly but
reconciled to annual Revenues, in accordance with the following table:
Years 1 through 5 of this Agreement
Costs of Services plus the Base Additional Management Fee
Management Fee as a % of Revenues
50% and Below 11 1/2% of Revenues
51% to 60% 9 1/2% of Revenues
61% to 70% 7 1/2% of Revenues
71% to 80% 4% of Revenues
81% or More 0% of Revenues
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The Additional Management Fee for years 1 through 5 shall not exceed 20% of PDE
each year.
Years 6 through 20 of this Agreement
50% and Below 13 1/2% of Revenues
51% to 60% 11 1/2% of Revenues
61% to 70% 8 1/2% of Revenues
71% to 80% 5% of Revenues
81% or More 0% of Revenues
The Additional Management Fee for years 6 through 20 shall not exceed 25% of PDE
each year.
7.1.5 Management Company will reconcile the Additional
Management Fee within 90 days after each Fiscal Year end during the
term of this Agreement for purposes of determining whether the
Additional Management Fee for the Fiscal Year end exceeded the
applicable 20% or 25% of PDE. Any adjustment shall be made within 5
days of the reconciliation by Management Company remitting the
overpayment to PC.
7.1.6 In the event that Section 7.1.3 and/or Section 7.1.4 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 7.1.3 and 7.1.4 and the Base Management Fee and Additional
Service Fee shall be replaced, effective immediately and retroactive to
the date of this 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 Management Company and PC, 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 provided in the Alternate Management
Fee. Any overpayment to Management Company resulting from the prior
application of Sections 7.1.3 and 7.1.4 shall be applied so as to
satisfy 50% of each future monthly Alternate Management Fee until the
aggregate of such overpayment is fully paid by Management Company. Any
underpayment to Management Company resulting from the prior application
of Sections 7.1.3 and 7.1.4 shall be paid to Management Company
commencing on the first day of the next full month following the date
of the Finding, in eighteen (18) equally monthly installments.
7.1.7 The right of termination provided for in Section 9.1.3
of this Agreement, if based on the fact that Section 7.1.3 and Section
7.1.4 of this Agreement have been found to be illegal, unenforceable,
void, against public policy or forbidden by law, shall only be
exercisable in the event that both (i) Sections 7.1.3 and 7.1.4 and
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(ii) the Alternate Management Fee have been so found by a local, state
or federal agency or department, or any court of competent
jurisdiction."
7.2 ACCOUNTS RECEIVABLE.
7.2.1 On or before the 15th business day of each month,
Management Company shall reconcile the Receivables of PC arising during
the previous calendar month. Subject to the terms and conditions of
this Agreement, PC hereby sells and assigns to Management Company as
absolute owner, and Management Company hereby purchases from PC all
Receivables hereafter owned by or arising in favor of PC on or before
the 15th business day of each month. All Receivables are sold on a full
recourse basis. Management Company shall transfer or pay such amount of
funds to PC equal to the Receivable less Compensation due Management
Company pursuant to Section 7.1. PC shall cooperate with Management
Company and execute all necessary documents in connection with the
purchase and assignment of such Receivables to Management Company or at
Management Company's option, to its lenders. All collections in respect
of such Receivables shall be deposited in a bank account at a bank
designated by Management Company. To the extent PC comes into
possession of any payments in respect of such Receivables, PC shall
direct such payments to Management Company for deposit in bank accounts
designated by Management Company.
7.2.2 Any Medicare or Medicaid Receivables due to PC shall be
excluded from the operation of Section 7.2.1 hereof. Any such
Receivables shall be subject to agreement of PC and Management Company
with respect to the collection thereof.
7.3 ADVANCES. Management Company agrees to advance funds to PC to meet
Cost of Services, provide working capital, relocate Facilities, acquire new
equipment or fund mergers with other physicians or physician groups into PC
("Advance"). Upon the request of PC, Management Company, in its sole discretion,
will determine whether to advance the requested funds.
7.3.1 Any Advance hereunder shall be a debt owed to Management
Company by PC and shall be repaid within 60 days after the Advance.
Upon request of PC, Shady Grove will consider repayment in
installments. To the extent PDE is available for distribution to
Physician-Stockholders for a particular month, Management Company is
authorized to deduct any outstanding Advance from the PDE prior to
distribution to the Physician-Stockholders. In the event there is
insufficient PDE to satisfy repayment of any Advance within the 60-day
period, the Physician-Stockholders shall be jointly and severally
liable to repay the Advance within the 60-day period and Management
Company shall be entitled to make demand for repayment. Failure to
repay any Advance within the specified time will be deemed a material
breach of this Agreement.
7.3.2 Interest expense will be charged on an Advance and will
be computed at the Prime Rate used by Management Company's primary bank
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in effect at the time of the Advance. Advances shall be evidenced by a
security agreement in the form of Exhibit 7.3.2, giving Management
Company a collateral interest in all Receivables of PC and
distributions to PC Shareholders.
7.3.3 Notwithstanding Section 7.3.2, Management Company agrees
not to charge interest expense on Advances under certain limited
circumstances where Management Company, in its sole discretion,
determines an Advance relates to (i) funding a merger with other
physicians or physician groups which provides significant accretive
benefits to PC and Management Company or (ii) leasehold improvements
and permanent fixtures relative to a Facility build-out which provide
significant accretive benefits to PC and Management Company.
7.4 FACILITY RELOCATION.
7.4.1 In connection with the relocation and combining of PC's
locations at 9707 Medical Center Drive, Suite 230, Rockville, Maryland and 16220
Frederick Road, Suite 502, Gaithersburg, Maryland 20877 (the "Relocation"),
Management Company agrees to provide up to $1.5 million in financing to assist
with the build-out and equipping of the new Facility with necessary leasehold
improvements and permanent fixtures; 50% of the amount provided will bear
interest at the Prime Rate of First Union National Bank and 50% will be interest
free. Any amounts provided in excess of $1.5 million will bear interest at the
Prime Rate of First Union National Bank. In connection with the amount of the
financing which will be provided on an interest-bearing basis, Management
Company will deduct from such obligation, the build-out allowance provided
directly or by credit by the landlord of the new Facility. For example, if the
costs for the leasehold improvements and equipment costs $1.4 million and the
landlord allowance is $375,000, Management Company will provide PC with $700,000
on an interest-free basis and $325,000 on an interest-bearing basis. PC will
receive the full benefit of the landlord allowance.
7.4.2 All Cost of Services involving leasehold improvements &
equipment write offs relative to the Relocation shall be excluded Cost of
Services under Section 7.1.4 in determining the Additional Management Fee to
which Management Company is entitled.
ARTICLE 8
EXCLUSIVE MANAGEMENT RIGHT AND TERM
8.1 In consideration of the considerable investment of time and
resources in PC expected by Management Company, PC grants to Management Company
the exclusive right to manage PC during the term of this Agreement (the
"Exclusive Management Right").
8.2. The term of this Agreement shall begin on March 11, 1998 (the
"Effective Date") and shall expire twenty (20) years after such date unless
earlier terminated pursuant to Article 9, below.
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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.
ARTICLE 9
TERMINATION OF THE AGREEMENT
9.1 TERMINATION
This Agreement may be terminated by either party in the event
of the following:
9.1.1 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.
9.1.2 MATERIAL BREACH. If either party shall materially breach
its obligations hereunder, then the other party may terminate this Agreement by
providing 30 days prior written notice to the breaching party detailing the
nature of the breach and providing the breaching party with the opportunity to
cure the breach. If the breach is not cured within such 30-day period, this
Agreement shall terminate, provided that if the breach is not curable within
such 30-day period and the breaching party is making diligent efforts to cure
the breach during such 30-day period, this Agreement shall not terminate. If
after the exercise of diligent efforts, the breaching party shall be unable to
cure the breach within 60 days from the notice of breach from the non-breaching
party, the non-breaching party in its sole discretion may extend the time in
which to cure the breach, upon request of the breaching party. In the event the
non-breaching party does not extend the time in which to cue the breach, this
Agreement will terminate at the expiration of 60 days from the original notice
of breach from the non-breaching party.
9.1.3 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 Management Company under this Agreement are unlawful or
that the practice of medicine by PC as contemplated by this Agreement requires a
certificate of need, and any such assertion is not contested (or if contested,
the agency's assertion is found to be correct by a court of competent
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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.
9.2 TERMINATION BY MANAGEMENT COMPANY FOR PROFESSIONAL DISCIPLINARY
ACTIONS. PC shall be obligated to suspend a physician whose authorization to
practice medicine is suspended, revoked or not renewed. Management Company may
terminate this Agreement upon 10 days prior written notice to PC if a
Physician's authorization to practice medicine is suspended, revoked or not
renewed and PC has failed to suspend such physician; provided, however, such
action may not be taken until PC has been given 30 days to resolve such
physician's authorization to practice medicine. PC shall notify Management
Company 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 10
PURCHASE OF ASSETS - OBLIGATIONS AND OPTIONS
10.1 TERMINATION BY MANAGEMENT COMPANY. If Management Company
terminates this Agreement due to the insolvency of PC (Section 9.1.1), for a
material breach by PC (Section 9.1.2), or PC fails to suspend a physician whose
license is suspended, revoked or not renewed (Section 9.2), PC agrees, within 90
days of the date of termination of this Agreement, at Management Company's
option, to purchase from Management Company the Management Company's assets
utilized directly by PC in the operation of PC business (the "Assets") as set
forth in Sections 10.1.1 and 10.1.3 below.
10.1.1 The purchase price of the Assets will be the net book
value determined in accordance with GAAP, consistently applied, as at
the date of the termination.
10.1.2 In addition to purchasing the Assets, PC shall pay
Management Company (i) 100% of the preceding 12- months' revenues over
$8.73 Million and any and all outstanding unpaid Advances.
10.1.3 If a purchase is completed under Section 10.1, PC shall
assume all leases for offices and equipment used directly for the
management and operation of PC's business and may hire such employees
from Management Company as it determines are necessary to operate the
medical practice and business. In such event, PC shall be obligated to
indemnify Management Company for any and all severance or termination
obligations to Management Company employees utilized directly in
providing Management Services.
10.2 TERMINATION BY PC In the event this Agreement is terminated by PC
as a result of the insolvency of Management Company (9.1.1) or material breach
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by Management Company(9.1.2), Management Company agrees, within 90 days of the
date of termination, at PC's option, to sell to PC the Assets as set forth in
Sections 10.1.1 together with leasehold improvements.
10.2.1 If a termination occurs under this Section 10.2, PC
shall assume all leases for offices and equipment used directly for the
management and operation of PC's business and may hire such employees
from Management Company as it determines are necessary to operate the
medical practice and business.
10.2.2 In the event PC exercise the option set forth in this
Section 10.2, closing shall occur within 90 days of the date the option
is exercised. In the event PC does not exercise the option within 90
days of termination, PC shall have relinquished its right and interest
to the Assets and Management Company shall be free to use or dispose of
the Assets as it determines with neither party having any further
obligations to the other.
10.3 TRANSFER OF OWNERSHIP
Upon receipt of payment of the purchase price and other payments due,
Management Company shall transfer ownership and possession of the Assets, and
assign all right, title and interest in and to and obligations under the
Lease(s) to PC and return to PC all security deposits. PC shall have the option
of receiving full credit on the purchase price for all liens, encumbrances or
security interest, or of having Management Company transfer ownership of the
Assets free and clear of all liens, encumbrances or security interests thereon.
ARTICLE 11
INSURANCE
11.1 PC shall carry professional liability insurance, covering itself
and its employees providing Infertility Services under this Agreement in the
minimum amount of $1 million per incident, $3 million in the aggregate, at its
own expense. If possible under the terms of the insurance coverage, PC shall use
its best efforts to cause Management Company to be named an additional insured
on such policies. Evidence of such policies shall be presented to Management
Company upon execution of this Agreement.
11.2 Management Company shall use its best efforts to cause PC to be
made an additional insured under Management Company's professional liability
coverage; provided, however, conditions for being made an additional insured
shall be (i) PC utilizing patient informed consent forms supplied by Management
Company, provided such forms are consistent with law and any guidelines issued
by the American Society of Reproductive Medicine and (ii) PC complying with
requirements of Management Company's insurance company. Management Company shall
also carry a policy of public liability and property damage insurance with
respect to the Facilities under which the insurer agrees to indemnify Management
Company and PC against all cost, expense and/or liability arising out of or
based upon any and all claims, accidents, injuries and damages customarily
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included within the coverage of such policies of insurance available for
Management Company. The minimum limits of liability of such insurance shall be
$1 million combined single limit covering bodily injury and property damage.
Certificates of Insurance evidencing such policies and additional insured status
shall be presented to PC within thirty (30) days after such coverage is
effected.
11.3 PC and Management Company shall provide written notice to the
other at least thirty (30) days in advance of the effective date of any
reduction, cancellation or termination of the insurance required to be carried
by each hereunder.
ARTICLE 12
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. Management Company and PC are independent
contracting parties. In this regard, the parties agree that:
12.1.1 The relationship between Management Company and PC is
that of an independent supplier of non-medical services and a medical
practice, respectively, and, unless otherwise provided herein, nothing
in this Agreement shall be construed to create a principal-agent,
employer-employee, or master-servant relationship between Management
Company and PC;
12.1.2 Notwithstanding the authority granted to Management
Company herein, Management Company and PC agree that PC shall retain
the full authority to direct all of the medical, professional, and
ethical aspects of its medical practices;
12.1.3 Any powers of PC not specifically vested in Management
Company by the terms of this Agreement shall remain with PC;
12.1.4 PC shall, at all times, be the sole employer of the
Physician-Employees, the Other Professional Employees required by law
to be employees of PC and all other professional personnel engaged by
PC in connection with the operation of its medical practice at the
Facilities, and shall be solely responsible for the payment of all
applicable federal, state or local withholding or similar taxes and
provision of workers' compensation and disability insurance for such
professional personnel that are employees of PC;
12.1.5 No party shall have the right to participate in any
benefits, employment programs or plans sponsored by the other party on
behalf of the other party's employees, including, but not limited to,
workers' compensation, unemployment insurance, tax withholding, health
insurance, life insurance, pension plans or any profit sharing
arrangement;
12.1.6 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
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12.1.7 Matters involving the internal agreements and finances
of PC, including but not limited to the distribution of professional
fee income among Physician Employees and, if applicable, Other
Professional Employees who are providing professional services to
patients of PC, and other employees of PC, disposition of PC property
and stock, accounting, tax preparation, tax planning, and pension and
investment planning (and expenses relating solely to these internal
business matters), hiring and firing of physicians, decisions and
contents of reports to regulatory authorities governing PC and
licensing, shall remain the sole responsibility of PC and the
individual Physician-Stockholder(s), except with respect to the number
of physicians the PC hires which will be based upon recommendations of
the Joint Practice Management Board.
12.2 FORCE MAJEURE. No party shall be liable to the other parties for
failure to perform any of the services required under this Agreement in the
event of a strike, lockout, calamity, act of God, unavailability of supplies, or
other event over which such party has no control, for so long as such event
continues and for a reasonable period of time thereafter, and in no event shall
such party be liable for consequential, indirect, incidental or like damages
caused thereby.
12.3 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 Management Company to cause PC to enforce any and
all provisions of the Physician 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.
12.4 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.
12.5 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 Management Company may assign this
Agreement to any affiliate, which for purposes of this Agreement, shall include
any parent or subsidiary of Management Company, without the consent of PC. The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns.
12.6 WAIVER OF BREACH. The failure to insist upon strict compliance
with any of the terms, covenants or conditions herein shall not be deemed a
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waiver of such terms, covenants orconditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver or
relinquishment of such right at any other time or times.
12.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland, 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 6.4
or Section 12.3 hereof, shall be determined by binding arbitration in the State
of Maryland, County of Baltimore (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 Maryland or the United States District Court for the
District of Maryland, to whose jurisdiction for such purposes PC and Management
Company hereby irrevocably consent and submit.
12.8 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 taken as a whole.
12.9 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.
12.10 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:
12.10.1 If for Management Company:
Shady Grove Fertility Centers, P.C.
Attention: President
16220 Frederick Road
Suite 502
Gaithersburg, Maryland 20877
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12.10.2 If for PC:
Michael J. Levy, M.D., President
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, MD 20850
With a copy to:
Ann Leopold Kaplan, Esq.
Epstein, Becker & Green, P.C.
1227 25th Street, N.W., Suite 700
Washington, DC 20037-1158
Any party hereto, by like notice to the other parties, may designate
such other address or addresses to which notice must be sent.
12.11 ENTIRE AGREEMENT. This Agreement and all attachments hereto and
the Stock Purchase and Sale 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.
12.12 NO MEDICAL PRACTICE BY MANAGEMENT COMPANY. Management Company
will not engage in any activity that constitutes the practice of medicine, and
nothing contained in this Agreement is intended to authorize Management Company
to engage in the practice of medicine or any other licensed profession.
12.13 CONFIDENTIAL INFORMATION.
12.13.1 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, except in connection with the performance or
enforcement of this Agreement, 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
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Agreement. All such ConfidentialInformation shall remain the exclusive
property of the proprietor and shall be returned to the proprietor
immediately upon any termination of this Agreement.
12.13.2 Confidential Information shall not include information
which (i) is or becomes known through no fault of a party hereto; (ii)
is learned by a party from a third-party legally entitled to disclose
such information; or (iii) was already known to a party at the time of
disclosure by the disclosing party.
12.13.3 In order to minimize any misunderstanding regarding
what information is considered to be Confidential Information,
Management Company or PC will designate at each others request the
specific information which Management Company or PC considers to be
Confidential Information.
12.14 INDEMNIFICATION.
12.14.1 Management Company agrees to indemnify and hold
harmless PC, its directors, officers, employees and servants from any
suits, claims, actions, losses, liabilities or expenses (including
reasonable attorney's fees) arising out of or in connection with any
act or failure to act by Management Company related to the performance
of its duties and responsibilities under this Agreement. The
obligations contained in this Section 12.14.1 shall survive termination
of this Agreement.
12.14.2 PC agrees to indemnify and hold harmless Management
Company, its shareholders, directors, officers, employees and servants
from any suits, claims, actions, losses, liabilities or expenses
(including reasonable attorney's fees) arising out of or in connection
with any act or failure to act by PC related to the performance of its
duties and responsibilities under this Agreement. The obligations
contained in this Section 12.14.2 shall survive termination of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
SHADY GROVE FERTILITY CENTERS, P.C.
By:/s/Michael J. Levy
---------------------------------------
MICHAEL J. LEVY, PRESIDENT
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
BY:/s/Michael J. Levy
---------------------------------------
MICHAEL J. LEVY, M.D., PRESIDENT
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EXHIBIT 1.1.9
SHARED RISK PROGRAM REVENUE ACCOUNTING
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EXHIBIT 3.2
DESCRIPTION OF OFFICE AND FACILITIES
TO BE PROVIDED BY MANAGEMENT COMPANY TO PC
9707 Medical Center Drive, Suite 230, Rockville, Maryland 20850
3299 Woodburn Road, Suite 480, Annadale, Virginia 22003
2112 F Street, NW, Suite 703, Washington, DC 20037
600 Ridgely Avenue, Suite 221, Annapolis, Maryland 21401
16220 Frederick Road, Suite 502, Gaithersburg, Maryland 20877
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EXHIBIT 4.3 (A)
PHYSICIAN-STOCKHOLDER EMPLOYMENT AGREEMENT
(See Attached)
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EXHIBIT 4.3 (B)
PHYSICIAN-EMPLOYEE EMPLOYMENT AGREEMENT
(See Attached)
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EXHIBIT 5.2.10 (B)
Key Personnel Subject to Reassignment Restrictions
Carol Levy
Mark Segal
Pattie Stull
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EXHIBIT 7.3.2
SECURITY AGREEMENT
[See attached]
35
SUBMANAGEMENT AGREEMENT
THIS SUBMANAGEMENT AGREEMENT ("Agreement") is dated as of March 12,
1998, by and between SHADY GROVE FERTILITY CENTERS, INC., a Maryland corporation
with a principal place of business at 16220 Frederick Road, Suite 502,
Gaithersburg, Maryland 20877 ("Manager") and INTEGRAMED AMERICA, INC., a
Delaware corporation with a principal place of business at One Manhattanville
Road, Purchase, New York 10577 ("Submanager").
WITNESSETH THAT:
WHEREAS, Manager and Levy, Sagoskin & Stillman, M.D., P.C., a Maryland
professional corporation ("PC") have entered into a certain Management Agreement
(the "Management Agreement") dated as of the date hereof and attached hereto as
Exhibit A, whereby PC has retained the services of Manager to perform management
and administrative functions, on its behalf, relating to its medical practice
and the provision of Infertility Services, as such term is defined in the
Management Agreement; and
WHEREAS, pursuant to the Management Agreement, the Manager will be
responsible for provision of all management obligations as set forth in the
Management Agreement, and
WHEREAS, Submanager is engaged in the business of furnishing management
services to medical practices specializing in the provision of Infertility
Services; and
WHEREAS, Manager desires to obtain the services of Submanager to
perform certain of its duties as contained in the Management Agreement (the
"Submanagement Services"); and
WHEREAS, Submanager has offered to provide the Submanagement Services
to Manager on the basis, terms and conditions set forth in this Agreement.
Capitalized terms used herein and not otherwise defined shall have the meaning
given to them in the Management Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the full and
faithful performance of all the terms, conditions, and obligations herein
contained, and intending to be legally bound hereby, Manager and Submanager
agree as follows:
1. TERM. Unless otherwise terminated as provided herein, the term of
this Agreement shall be for five (5) years (hereinafter called the "Term")
commencing on March __, 1998 (the "Commencement Date") and ending on March __,
2003.
2. MANAGEMENT FEES. Manager shall pay Submanager a monthly management
fee during the Term (hereinafter called the "Management Fee") equal to the
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sum of (a) the Cost of Services (as defined in the Management Agreement)
thatSubmanager incurs on Manager's behalf, (b) the Base Management Fee (as
defined in the Management Agreement) paid by PC to Manager under the Management
Agreement, plus (c) ninety percent (90%) of the Additional Management Fee (as
defined in the Management Agreement) paid by PC to Manager under the Management
Agreement. Such Management Fee shall be paid without set-off or deduction within
three (3) business days after Manager receives its Compensation from PC under
the terms of the Management Agreement.
3. SERVICES TO BE PROVIDED. The Submanager shall provide such services
to be provided by the Manager under the Management Agreement as requested by the
Manager. In providing its services under this Agreement, Submanager shall be
subject to all the terms covenants and conditions in the Management Agreement.
The termination of the Management Agreement for any reason whatsoever shall
cause an automatic and contemporaneous termination of this Submanagement
Agreement. Manager represents and warrants that as of the Commencement Date it
is not in default of any provisions of the Management Agreement.
In case of any breach or default of this Submanagement Agreement by
Submanager, Manager shall have the same rights against Submanager as would be
available to PC against Manager under the Management Agreement if such breach
were by Manager thereunder. Submanager will duly and faithfully observe all the
terms and restrictions and perform all the obligations imposed upon Manager
under the Management Agreement.
Submanager shall not do or permit anything to be done which would cause
the Management Agreement to be terminated or forfeited by reason of any right of
termination or forfeiture reserved or vested in PC under the Management
Agreement.
Submanager shall keep and maintain all insurance required of Manager
pursuant to the Management Agreement, on the terms and as provided in the
Management Agreement, naming Manager and PC as additional insureds.
4. INDEMNIFICATION.
4.1. Manager does hereby indemnify and hold harmless
Submanager from and against any loss, cost, claim, damage, liability or expense,
including reasonable attorneys' fees which Submanager may suffer, incur, or
expend arising out of any failure on the part of Manager to perform fully any of
its obligations hereunder.
4.2. Submanager does hereby indemnify and hold harmless
Manager from and against any loss, cost, claim, damage, liability or expense,
including reasonable attorneys' fees, which Manager may suffer, incur, or expend
arising out of any failure on the part of Submanager to perform fully any of its
obligations hereunder.
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5. NOTICES. In every instance in which notice is required or permitted
to be given hereunder, such notice shall be in writing and personally delivered
or sent by overnight courier service for next day delivery, or by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Manager: Shady Grove Fertility Centers, Inc.
16220 Frederick Road
Suite 502
Gaithersburg, Maryland 20877
Attention: President
If to Submanager: INTEGRAMED AMERICA, INC.
One Manhattanville Road
Purchase, New York 10577
Attention: Gerardo Canet, President
All notices sent by mail, as described above, shall be deemed given the
second regular business day after the same are posted. Notices personally
delivered or sent by overnight mail courier service shall be deemed given on the
day received. Either party may change the address to which notices to it are to
be sent by providing written notice of such new address to the other party, as
described above.
6. MISCELLANEOUS.
6.1. This Agreement may not amended except by a written
instrument signed and delivered by the parties hereto.
6.2. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and all
other agreements relating to the subject matter hereof are hereby superseded.
6.3. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
6.4. Nothing contained in this Agreement shall be construed to
create a joint venture, partnership, association, employer-employee or other
affiliation or like relationship between the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Submanagement
Agreement to be properly executed, under seal, as of the day and year first
above written.
WITNESS: Manager:
SHADY GROVE FERTILITY CENTERS, INC.
_________________________ By:/s/Gerardo Canet (SEAL)
-------------------------------------------------
Name: Gerardo Canet
Title: President
WITNESS: SUBMANAGER:
INTEGRAMED AMERICA, INC.
_________________________ By:/s/Gerardo Canet (SEAL)
-------------------------------------------------
Name: Gerardo Canet
Title: President
CONSENT OF PC
PC, in its capacity as the provider of the Infertility Services and in
accordance with its interests in the Management Agreement, executes this
Submanagement Agreement to evidence its consent to the provisions herein set
forth.
WITNESS: PC:
LEVY, SAGOSKIN & STILLMAN, M.D., P.C.
_________________________ By:/s/Michael J. Levy (SEAL)
----------------------------------------------
Name: Michael J. Levy, M.D.
Title: President
<PAGE>
CONSENT OF MINORITY STOCKHOLDER
Robert J. Stillman, M.D., in his capacity as a minority stockholder of
Manager, executes this Submanagement Agreement to evidence his consent to the
provisions herein set forth and the engagement of the services of Submanager and
the payment of all fees to Submanager in connection herewith. By consenting to
this Submanagement Agreement, Robert J. Stillman, M.D. does hereby waive any
right to object, under any applicable law, corporate or otherwise, to the
engagement of Submanager as provided herewith and the payment to Submanager of
the Management Fee.
WITNESS:
_________________________ /s/Robert J. Stillman (SEAL)
-------------------------------------------
Robert J. Stillman, M.D.
STOCK PURCHASE AND SALE AGREEMENT
Among
INTEGRAMED AMERICA, INC.,
And
MICHAEL J. LEVY, M.D.,
ROBERT J. STILLMAN, M.D.,
And
ARTHUR W. SAGOSKIN, M.D.,
AGREEMENT made this 12th day of March, 1998 by and between IntegraMed
America, Inc., a Delaware corporation, having its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("IntegraMed") and Michael J.
Levy, M.D., residing at 10115 Lakewood Drive, Rockville, MD 20850 ("Levy"),
Robert J. Stillman, M.D., residing at 10810 Nantucket Terrace, Potomac, MD 20854
("Stillman"), and Arthur W. Sagoskin, M.D., residing at 13659 Spinning Wheel
Drive, Germantown, MD 20874 ("Sagoskin"). Levy, Stillman and Sagoskin are
collectively referred to as "Shareholders."
RECITALS
IntegraMed is engaged in the business of owning certain assets and
providing management and administrative services to medical practices
specializing in the provision of gynecological services, treatment of human
infertility, encompassing the provision of in vitro fertilization and other
assisted reproductive services ("Infertility Services").
Shareholders own all the issued and outstanding shares (the "Shares")
of capital stock of Shady Grove Fertility Centers, Inc., currently a Maryland
business corporation and formerly a Maryland professional corporation ("Shady
Grove"), which was engaged in the practice of providing Infertility Services in
the jurisdictions of the District of Columbia, Maryland and Virginia (the
"Practice").
In anticipation of the execution of this Agreement, Shady Grove (a)
formed a new Maryland professional corporation known as Levy, Sagoskin and
Stillman, M.D., P.C. ("New P.C."),
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(b) transferred to New P.C. all of Shady Grove's medical assets, including
patient charts and records, payor contracts, employment agreements and certain
other assets and liabilities related to the Practice (the "Medical Assets"), but
specifically excluding Shady Grove's non-medical fixed assets, accounts
receivable and equipment and office leases, (the activities in clauses (a) and
(b) being hereinafter collectively referred to as the "Restructuring"), (c)
entered into and executed a Management Agreement dated March 11, 1998 (the
"Management Agreement"), a copy of which is attached hereto as Exhibit A, (d)
filed Articles of Amendment to the Articles of Incorporation of Shady Grove (the
"Articles of Amendment") amending the Articles of Incorporation of Shady Grove
to convert it from a professional corporation to a business corporation, and (e)
distributed the stock of New P.C. to the Shareholders.
Shareholders wish to sell and IntegraMed wishes to purchase the Shares,
and IntegraMed desires to acquire the exclusive right to provide management and
related administrative services to Shareholders in connection with the continued
operation of the Practice through New P.C. pursuant to the terms of the
Management Agreement.
In consideration of the mutual promises and covenants herein contained,
the receipt and adequacy of which are acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURCHASE OF THE SHARES
Subject to the terms and conditions set forth in this Agreement and
based upon the representations, warranties and covenants made herein, at the
Closings (as herein defined), Shareholders shall sell, assign, convey and
transfer to IntegraMed and IntegraMed shall acquire from Shareholders the
Shares.
ARTICLE II
PURCHASE PRICE
2.01 Purchase Price and Manner of Payment.
Upon and subject to the terms and conditions set forth herein
and in consideration for the sale of the Shares, IntegraMed shall pay
Shareholders Five Million Seven Hundred Thousand Dollars ($5,700,000) in the
aggregate (the "Purchase Price"), payable to each Shareholder at the Closings in
the amounts set forth on Schedule 2.01 as follows:
(a) One Million Four Hundred Thousand Dollars ($1,400,000) in
the aggregate in shares of unregistered IntegraMed Common Stock ("IntegraMed
Stock"). The number of shares of IntegraMed Stock to be issued will be
determined based upon the average closing price of IntegraMed Stock for the
10-day trading period prior to the third business day before each Closing;
provided, however, that in no event will the price per share exceed $2.00 or be
less than $1.70 for
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purposes of calculating the amount of IntegraMed Stock to be issued to
Shareholders at each Closing. For a period of two years following the First
Closing, each Shareholder will give Gerardo Canet, President and Chief Executive
Officer of IntegraMed or his designee ("Canet"), voting proxy as to the
IntegraMed Stock issued to such Stockholder in the form of Exhibit B attached
hereto (the "Proxy") with respect to (i) the election of Directors or any
amendment to IntegraMed's Certificate of Incorporation affecting directors and
(ii) any change in stock options for management and directors; the proxy will
not attach to any Rule 144 sales of the IntegraMed Stock by a Shareholder;
(b) Two Million Eight Hundred Thousand Dollars ($2,800,000) in
the aggregate in certified funds at the First or Second Closing, as the case may
be; and
(c) One Million Five Hundred Thousand Dollars ($1,500,000) in
the aggregate by delivery of one or more Promissory Notes (the "Notes") bearing
interest equal to the prime rate of First Union National Bank on the date of the
First or Second Closing, as the case may be, with Seven Hundred Fifty Dollars
($750,000) of the aggregate principal amount of the Notes, together with accrued
interest from the date of delivery of each Note, payable on April 1, 1999 and
Seven Hundred Fifty Thousand Dollars ($750,000) of the aggregate principal
amount of the Notes, together with accrued interest from the date of delivery of
each Note, payable on April 1, 2000. The Notes shall be in the form of Exhibit C
attached hereto.
2.02 Closing Statement.
Shareholders shall deliver to IntegraMed a pro forma balance
sheet with the projected assets and liabilities of Shady Grove as of the day
before the First Closing (the "Closing Statement") for purposes of the
reconciliation described in Schedule 6.03. The parties acknowledge that the
Closing Statement includes projections, and the amounts set forth therein shall
not be binding on the parties.
ARTICLE III
CLOSING
3.01 Closing Dates.
The closing (the "First Closing") of the transaction
contemplated by this Agreement with respect to the Shares to be purchased from
Levy and Sagoskin shall be held at 6:00 p.m. on March 12, 1998 (the "First
Closing Date") at the offices of Ober, Kaler, Grimes & Shriver, 1401 H Street,
N.W., Fifth Floor, Washington, DC 20005-3324 or such other date or at such other
time or location as to which Shareholders and IntegraMed may agree to in
writing. The effective time of the First Closing shall be 11:59 p.m. on the
First Closing Date. The closing (the "Second Closing") of the transaction
contemplated by this Agreement with respect to the Shares to be purchased from
Stillman (the "Stillman Shares") shall be held on or about November 1, 1998 (the
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<PAGE>
"Second Closing Date") as determined in accordance with the terms of Section
3.02 below. The First Closing and the Second Closing are hereinafter referred to
"each Closing" or collectively as the "Closings."
3.02 Second Closing.
(a) Stillman shall not be required to deliver the Stillman
Shares to IntegraMed, and IntegraMed shall not be required to pay any portion of
the Purchase Price relating to the Stillman Shares, on or before November 1,
1998, subject to the following conditions, all of which conditions shall be
reflected in the terms of a Voting Trust Agreement (the "Voting Trust
Agreement") by and among Stillman and Canet as Voting Trustee, in the form
attached hereto as Exhibit D.
(b) At the First Closing hereunder, Stillman shall:
(i) deliver the stock certificates evidencing
ownership of the Stillman Shares together with a stock power, endorsed in blank
and guaranteed as counsel for IntegraMed shall reasonably require, to the Voting
Trustee; and
(ii) execute and enter into the Voting Trust
Agreement naming Canet as
Voting Trustee with respect to the Stillman Shares for all purposes.
(c) After November 1, 1998, IntegraMed shall have the right,
in its sole and absolute discretion, to (i) fix the Second Closing Date (which
shall be no later than November 15, 1998), and (ii) upon payment and delivery to
Stillman of the portion of the Purchase Price attributable to the Stillman
Shares, cause the Voting Trustee to transfer and deliver the Stillman Shares to
IntegraMed. The Voting Trust Agreement shall automatically expire and be deemed
revoked when the Stillman Shares are transferred to IntegraMed. At the Second
Closing, Stillman and IntegraMed shall execute and enter into a Personal
Responsibility Agreement in the form of Exhibit H attached hereto.
(d) At any time after the First Closing Date, IntegraMed shall
have the right, in its sole and absolute discretion, to take all of the actions
described in Section 3.02(c) above if Stillman's Employment Agreement is
terminated for any reason whatsoever (including, without limitation, his death
or disability) or if Stillman is or becomes a party to any personal bankruptcy
or insolvency proceeding.
(e) The Note to be issued to Stillman as of the Second Closing
Date shall be subject to offset in accordance with Section 6.02(c) below,
whether or not the claims giving rise to the right to offset arise before or
after the Second Closing Date.
(f) Each of IntegraMed and Stillman shall be entitled to all
available legal and equitable remedies, including, without limitation, the right
to seek specific performance, to enforce the other party's obligations with
respect to the purchase of the Stillman Shares and shall also be entitled to
require the other party to pay to the enforcing party all reasonable costs and
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expenses(including professional fees and expenses) of the other party incurred
in connection with the enforcement of such party's obligation to purchase or
sell the Stillman Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders, for the purpose of inducing IntegraMed to enter into and
consummate this Agreement, hereby, jointly and severally, represent and warrant
to IntegraMed that:
4.01 Organization and Power.
(a) Shady Grove and New P.C. are each a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and each has full power and authority, corporate and otherwise, to
carry on its business as now conducted and to own, lease and operate its
properties and assets now owned, leased and operated by it, and with respect to
New P.C., to conduct the business of the Practice. Shady Grove and New P.C. are
each duly qualified as a foreign corporation and in good standing in each
jurisdiction where the Practice does business. Complete and correct copies of
the charter and by-laws, as amended to date, of both Shady Grove and New P.C.
have heretofore been delivered to IntegraMed, and such instruments, as so
amended, are in full force and effect at the date hereof.
(b) The authorized, issued and outstanding capital stock of
Shady Grove and New P.C. are as set forth on Schedule 4.01. Except as disclosed
on Schedule 4.01, all of the issued and outstanding shares of Shady Grove and
New P.C. are owned of record by the Shareholders free and clear of all liens,
security interests, claims and encumbrances or other restrictions of any kind,
and no shares are held in treasury. Except as set forth on Schedule 4.01, there
are no voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights or proxies
relating to any stock of Shady Grove. Shady Grove has no outstanding stock or
securities convertible or exchangeable for any shares of its capital stock, nor
does it have outstanding any rights or options to subscribe for or to purchase
any capital stock or securities convertible into or exchangeable for any capital
stock. Except as disclosed on Schedule 4.01, Shady Grove is not subject to any
obligation (contingent or otherwise) to issue, redeem, repurchase or otherwise
acquire or retire any shares of its capital stock. All of the Shares were
validly issued and are fully paid and nonassessable. There are no agreements
(oral or written) to which any of the Shareholders is a party involving the
voting or sale of any of the Shares.
4.02 Authority; No Conflicting Instruments; Consent
(a) Each of the Shareholders has the power, capacity and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated on his part hereby. No corporate proceedings on the
part of Shady Grove and New P.C. are necessary to authorize the execution and
delivery of this Agreement by the Shareholders or the consummation by the
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Shareholders of the transactions contemplated hereby. This Agreement, when
executed, will constitute the valid and binding obligation of Shareholders
enforceable against Shareholders in accordance with its terms.
(b) New P.C. has the power, capacity and authority to enter
into and perform its obligations under the terms of the Physician--Stockholder
Employment Agreements and the Management Agreement as required pursuant to the
terms of this Agreement. The execution and delivery of such agreements by New
P.C. has been duly authorized by all necessary corporate proceedings. Such
agreements, when executed, will constitute the valid and binding obligations of
New P.C., enforceable against New P.C. in accordance with their terms.
(c) Shady Grove has the power, capacity and authority to enter
into and perform its obligations under the terms of the Management Agreement as
required pursuant to the terms of this Agreement. The execution and delivery of
such agreements by Shady Grove has been duly authorized by all necessary
corporate proceedings. Such agreements, when executed, will constitute the valid
and binding obligations of Shady Grove, enforceable against Shady Grove, in
accordance with their terms.
(d) The execution and delivery of this Agreement and the
consummation of the transactions as herein contemplated will not (i) violate any
provisions of any applicable law or of the charter or By-Laws of Shady Grove or
New P.C. or any order, judgment or decree of any court or other agency of
government binding on Shareholders, Shady Grove or New P.C., (ii) except as set
forth in Schedule 4.02(d), 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 Shareholders, Shady Grove or New P.C., (iii) result in or require
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of Shareholders, Shady Grove or New P.C.,
(iv) require any approval of or any consent of any person under any contractual
obligation of Shareholders, Shady Grove or New P.C. other than as set forth on
Schedule 4.02(d), or (v) except as set forth in Schedule 4.02(d), 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 Shady Grove, New P.C. or any Shareholder is a party or by which Shady
Grove, New P.C. or any Shareholder or any of their assets or properties may be
bound or affected.
(e) Except as set forth in Schedule 4.02(e), 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
Shareholders or the performance by Shareholders, Shady Grove or New P.C. of the
transactions contemplated by this Agreement, except for any state licensing
board approvals.
4.03 Fixed Assets.
Except as set forth in Schedule 4.03, Shady Grove has good and
marketable title to the fixed assets which are owned solely and exclusively by
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Shady Grove, free and clear of all liens, mortgages and encumbrances of any kind
or nature. Except as set forth on Schedule 4.03, the fixed assets are not and
will not be subject to any pledge, option, escrow, hypothecation, lien, security
interest, financing statement, lease, license, easement, right of way,
encumbrance or other restriction of any kind. The Fixed Assets are in good
operating condition and repair (reasonable wear and tear excepted) and are
suitable for the purposes for which they are presently being used.
4.04 Financial Statements; Undisclosed Liabilities; Taxes.
Attached hereto as Schedule 4.04 are the unaudited compiled
financial statements of Shady Grove, consisting of Statements of Assets,
Liabilities and Capital, and Income Statement for the fiscal years ended
December 31, 1996 and 1995, and draft financial statements prepared by Shady
Grove management for the fiscal year ended December 31, 1997, together with a
Statement of Assets, Liabilities and Capital, and Income Statement for the one
(1) month ended January 31, 1998 (collectively, the "Financial Statements").
(a) Neither Shady Grove nor New P.C. has any liabilities,
debts or obligations, whether accrued, absolute or contingent, and whether due
or to become due, which are not reflected or reserved against in the Financial
Statements or are not listed on Schedule 4.04(a). Except as set forth in
Schedule 4.04(a), as of the date hereof, neither Shareholders nor Shady Grove
has any 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 IntegraMed under any such plan.
(b) All appropriate federal, state and local tax returns
required by law, regulation or otherwise to be filed by Shady Grove, New P.C. or
Shareholders with respect to the Practice, including all withholding or other
payroll related taxes, have been filed with such authorities (or appropriate
extensions of the time to file have been obtained) for all taxable periods
ending on or prior to the date hereof for which tax returns have become due.
Shady Grove or Shareholders have paid or made adequate provisions for the
payment of all taxes, penalties and interest which have or may become due for or
during all taxable periods of the Practice ending on or prior to the date
hereof. There are no claims or investigation pending or, to the knowledge of
Shareholders, threatened against Shady Grove or New P.C. and neither
Shareholders, Shady Grove or New P.C. has received any notice of any threatened
claims or investigation by any governmental authority against Shady Grove and
there has been no waiver of any applicable statute of limitations or extension
of the time for the assessment of any tax against Shady Grove. Shady Grove has
timely withheld proper and correct amounts of taxes in compliance with the tax
withholding provisions of all applicable laws for all compensation paid to their
employees. The income tax returns of Shady Grove have not been audited by the
Internal Revenue Service and all taxes due or claimed to be due with respect to
such tax returns have been fully paid and satisfied by Shady Grove. Shady Grove
and Shareholders will cooperate with IntegraMed to file any tax returns to be
filed for the calendar year in which the Closings occurs. Whenever used herein
or elsewhere in this Agreement, the phrase "to the knowledge of Shareholders"
shall be deemed to include the knowledge of Shady Grove and its officers and
directors.
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4.05 Financial Position.
Since December 31, 1997:
(a) Except as set forth in Schedule 4.05(a) and except for the
transactions contemplated by this Agreement, there has not been (i) any change
in the financial condition, assets, properties, liabilities, business or results
of operations of Shady Grove or the Practice 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 Shady Grove, New P.C. or the
Practice, (ii) any strike, labor trouble, employee dispute, property dispute,
lease or contract dispute, loss or destruction or property, actual or
threatened, claim or other event, adversely effecting, or which would adversely
effect, the financial position or business of Shady Grove, New P.C. or the
Practice.
(b) Except for the bonuses set forth in Schedule 4.05(b),
neither Shareholders, Shady Grove nor New P.C. has granted any wage or salary
increase or bonus or any fringe benefits, or created or amended any Employee
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 policies and practices of Shady
Grove.
(c) Except in connection with the Restructuring, Shady Grove
has conducted the Practice in the ordinary and normal course of business and
used 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 Fixed Assets and (iii)
preserve the good standing of Shady Grove and New P.C. and keep available the
services of present employees and agents and to preserve the goodwill of
suppliers, patients and others having business relationships with Shady Grove
and New P.C.
(d) Neither Shareholders, Shady Grove nor New P.C. has,
without IntegraMed's prior written consent, (i) waived or committed to waive any
right of substantial value of Shady Grove or New P.C.; (ii) sold, transferred,
disposed of or encumbered or committed to sell, transfer, dispose of or encumber
the Fixed Assets; (iii) except as set forth on Schedule 4.05(d), incurred any
indebtedness for borrowed money; (iv) except as set forth on Schedule 4.05(d),
made capital expenditures in excess of $25,000 in the aggregate; (v) other than
in connection with the Restructuring, terminated any key employee or, to the
knowledge of Shareholders, taken any action that impaired the existing
relationships between Shady Grove or New P.C. and their employees and other
persons and entities having business relations with Shady Grove or New P.C.; or
(vi) taken any action in the conduct of its business which is contrary to, or in
breach of, any term or representation or warranty contained in this Agreement.
4.06 Licenses; Compliance.
(a) Shady Grove has held all such licenses, orders, approvals
and permits ("Licenses") of every kind or nature which are material to the
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operation and business of the Practice and such Licenses were in full force and
effect while it was conducting its Practice. Shady Grove has transferred all
such Licenses to New P.C. in conjunction with the Restructuring 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 Schedule 4.06. To the knowledge of Shareholders, Shady Grove and New P.C. are
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 knowledge of Shareholders, Shady Grove and New
P.C., Shady Grove and New P.C. are 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 knowledge of Shareholders, Shady Grove and New
P.C., there are no actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or threatened against,
involving or affecting Shareholders, Shady Grove, New P.C. or the Practice or
any of their properties or assets, except as set forth on Schedule 4.07(a).
Neither Shady Grove, New P.C. or Shareholders has notice or knowledge of any
outstanding orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against, involving or affecting Shareholders,
Shady Grove, New P.C., the Practice or any of their properties or assets, except
as set forth on Schedule 4.07(a).
(b) Except as set forth on Schedule 4.07(b), neither Shady
Grove, New P.C. nor Shareholders has received any notice of any violation of
applicable law, order, regulation or requirement related to any of Shareholders,
Shady Grove, New P.C., the Practice or the Fixed Assets, and none of them is
aware of any condition or state of facts that could result in any such notice.
To the knowledge of Shareholders, there is no existing law, rule, regulation or
order, whether federal, state or local, which would prohibit or restrict New
P.C. from operating the Practice.
4.08 Third-Party Billings.
(a) To the knowledge of Shareholders, all claims and bills to
patients and third party payors by Shady Grove have been prepared and filed in
accordance with applicable laws, rules and regulations and Shady Grove has not
retained any unrefunded monies to which it is not entitled under applicable law.
(b) To the knowledge of Shareholders, neither Shady Grove nor
any of its respective officers, directors or Shareholders have engaged in any
activities which are prohibited under 42 U.S.C. ss.ss. 1320a-7, 1320a-7a or
1320a-7b, the regulations promulgated pursuant to such statutes or related state
or local statutes or regulations governing billing and payment for health care
services.
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4.09 Contracts and Agreements.
(a) Schedule 4.09(a) is a list as of the date hereof of all
the material contracts or agreements (oral or written) related to the Practice
to which Shady Grove, New P.C. or any Shareholder is a party (the "Contracts"),
all of which are valid and existing, in full force and effect, and binding upon
the parties thereto in accordance with their terms. Either Shady Grove or New
P.C. has paid in full or accrued all amounts due thereunder which are currently
due. Except as otherwise disclosed on Schedule 4.09(a), no approval or consent
of any person or entity is needed in order that the Contracts continue in full
force and effect with respect to IntegraMed from and after the Closing Date.
(b) To the knowledge of Shareholders and except as set forth
on Schedule 4.09(a), Shady Grove, New P.C. and Shareholders are in material
compliance with all terms and provisions of all Contracts material to the
operation of Shady Grove or by which Shady Grove, the New P.C. or the
Shareholders 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) Except as set forth on Schedule 4.09(c), neither Shady
Grove, New P.C. nor any Shareholder is a party to any:
(i) agreement or indenture relating to the borrowing of
money on behalf of or related to the Practice or to the mortgaging, pledging or
otherwise placing a lien on any material asset or material group of assets of
Shady Grove, New P.C. or the Practice;
(ii) oral or written direct or indirect guarantee of any
obligation relating to the Practice;
(iii) lease or agreement under which it is lessee of or
holds or operates any property, real or personal, owned by any other party
relating to the Practice;
(iv) lease or agreement under which it is lessor of or
permits any third party to hold or operate any property, real or personal, owned
or controlled by it relating to the Practice;
or
(v) oral or written contract or agreement for the
purchase or sale by or to Shady Grove, New P.C. or the Practice of goods or
services, excluding such contracts or agreements which contemplate the payment
of less than $5,000.00.
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4.10 Insurance.
Shady Grove has maintained at all times since its date of
incorporation, 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
business of the Practice. New P.C. will maintain all such insurance after the
First Closing identified on Schedule 4.10. Schedule 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 or occurrences reported under such policies and the
amount paid out under any such policy for the past three (3) years. Shareholders
have maintained and will continue to maintain after the First Closing without
any gap in coverage professional liability insurance coverage in the amount of
$1,000,000 individual and $3,000,000 in the aggregate.
4.11 Personnel.
(a) Schedule 4.11(a) lists each current employee, both
full-time and part-time, of Shady Grove and New P.C. and all current independent
contractors and consultants of Shady Grove and New P.C. and discloses their
duties, the date of hire or contract, the annual compensation, bonuses and
incentive arrangements with each. With respect to the Practice, each of
Shareholders, Shady Grove and New P.C., to the knowledge of Shareholders, has
complied in all material respects with all applicable laws, rules and
regulations, whether federal, state or local, relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Neither Shady Grove, New P.C. nor any of the Shareholders is aware that any
executive of Shady Grove or New P.C. or any group of employees of either Shady
Grove or New P.C. has any plans to terminate his, her or its employment and
neither Shady Grove, New P.C. nor any of the Shareholders is aware of any
material labor relations problems of the Practice and neither Shady Grove nor
New P.C. is a party to any collective bargaining agreement.
(b) Schedule 4.11(b) describes all of the benefit plans
generally available to employees of Shady Grove ("Employee Benefit Plans").
Shady Grove has complied with the terms and conditions of such Employee Benefit
Plans and 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. IntegraMed shall have no obligations relating
to the Employee Benefit Plans or the employees covered thereunder and IntegraMed
shall have no obligations for employees of Shady Grove arising out of federal or
state law or case decisions as to employment matters arising prior to the First
Closing Date.
(c) With respect to Shady Grove regarding the Practice:
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(i) the Employee Benefit Plans which are intended to
qualify under Section 401 of the Internal Revenue Code, as amended (the "Code")
are so qualified and the trusts maintained pursuant thereto are exempt from
federal income taxation under Section 501 of the Code, and nothing has occurred
with respect to the operation of such plans which could cause the loss of such
qualification or exemption or the imposition of any material liability, lien,
penalty, or tax under ERISA or the Code, and all such plans are fully funded;
(ii) there are no material pending claims or lawsuits
which have been asserted or instituted by or against the Employee Benefit Plans,
against the assets of any of the trusts under such plans or by or against the
plan sponsor, plan administrator, or any fiduciary of the Employee Benefit Plans
(other than routine benefit claims) nor does Shareholders, Shady Grove or New
P.C. have knowledge of facts which could form the basis for any such claim or
lawsuit;
(iii) the Employee Benefit Plans have been maintained in
all material respects in accordance with their plan documents and with all
provisions of the Code and ERISA (including rules and regulations thereunder and
including the reporting and disclosure requirements thereof) and other
applicable law, and neither Shareholders, Shady Grove, New P.C. nor any "party
in interest" or "disqualified person" with respect to the Employee Benefits
Plans has engaged in a "prohibited transaction" within the meaning of Section
4975 of the Code or Title I, Part 4 of ERISA nor breached any fiduciary duty
owed to any participant, former participant or beneficiary;
(iv) none of the Employee Benefit Plans contains any
provisions which would prohibit the transactions contemplated by this Agreement
or which would give rise to any severance, termination or other payments or
liabilities as a result of the transactions contemplated by this Agreement, and
there are no restrictions on Shady Grove or New P.C.'s right to terminate or
decrease the level of benefits under any such plan after the First Closing Date
without further liability to any present or former employee or beneficiary,
except for the payment of non-forfeitable benefits under a pension or
profit-sharing plan listed on Schedule 4.11(b), and neither Shady Grove nor New
P.C. have any unfunded obligations or liabilities under the terms of any
non-qualified deferred compensation plan;
(v) no Employee Benefit Plan which constitutes an
Employee Welfare Benefit Plan (as defined in Section 3(1) of ERISA) provides
benefits to former employees or their beneficiaries other than in order to avoid
excise taxes under Section 4980B of the Code and Title I, Part 6 of ERISA;
(vi) Each of Shareholders, Shady Grove and New P.C. has
at all times complied in all material respects with the notification and
coverage continuation requirements under Code Section 4980B and Title 1, Part 6
of ERISA;
(viii) Neither Shareholders, Shady Grove nor New P.C. has
any liability (whether actual, contingent, with respect to any of its assets or
otherwise) with respect to any Employee Benefit Plan maintained by any trade or
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business, whether or not incorporated, under common control of Shareholders,
Shady Grove or New P.C. within the meaning of Section 414(b), (c), (m) or (o) of
the Code.
(d) Except as set forth on Schedule 4.11(d), neither Shady
Grove, New P.C., nor the Shareholders is a party to any:
(i) pension, profit sharing, stock option, employee
stock purchase or other plan providing for deferred compensation or other
employee benefit plan, or any contract with any
labor union; or
(ii) oral or written contract for the employment of any
officer, individual employee, or other person or entity on a full-time,
part-time, consulting or other basis, or agreement relating to loans to
officers, directors or affiliates, other than advances in the ordinary course of
business.
4.12 Absence of Certain Developments. Except for transactions required
by this Agreement and the transfer of the Medical Assets to New P.C. and except
as set forth on Schedule 4.12, since the date of the Financial Statements, Shady
Grove has not:
(a) redeemed or repurchased, directly or indirectly, any
shares of its capital stock or declared or paid any dividends or distributions
with respect to any shares of its capital stock;
(b) issued any equity securities, securities convertible into
equity securities, or warrants, options or other rights to acquire equity
securities, or bonds or other securities;
(c) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary course
of business and liabilities under contracts entered into in the ordinary course
of business;
(d) discharged or satisfied any material lien or encumbrance
or paid any material obligation or liability other than current liabilities paid
in the ordinary course of business;
(e) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, the Property or any assets of Shady Grove or New P.C., except
liens for current property taxes not yet due and payable;
(f) sold, assigned, transferred or otherwise disposed of or
committed to sell, assign, transfer or otherwise dispose of any of its tangible
assets (including books and records of the Practice), except in the ordinary
course of business, or canceled any material debts or claims;
(g) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or consistent
with past practice;
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(h) made capital expenditures in excess of $25,000.00 or made
any binding commitments therefor which would cause the aggregate amount of all
actual capital expenditures for the period subsequent to the Financial
Statements to exceed $25,000.00;
(i) paid or committed to any bonuses or similar payments,
except in the ordinary course of business;
(j) made any loans or advances to, guarantees for the benefit
of, or any investments in, any person or entity;
(k) made or committed to any charitable or political
contributions or pledges; or
(l) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance.
4.13 Transactions With Certain Persons. Except as set forth on Schedule
4.13, (a) neither Shady Grove nor New P.C. has, directly or indirectly,
purchased, leased or otherwise acquired any goods, services or property from any
Shareholder or from any person, firm, corporation or other entity directly or
indirectly controlled by (or under common control with) any Shareholder, and (b)
neither Shady Grove, New P.C. nor any Shareholder owes any amount to Shady
Grove, New P.C. or Shareholder or any person, firm, corporation or other entity
directly or indirectly controlled by (or under common control with) Shady Grove,
New P.C. or any Shareholder.
4.14 Environmental Matters. To the knowledge of Shareholders, each of
Shareholders, Shady Grove and New P.C. has, with respect to the Practice,
complied with all environmental laws and regulations applicable to the Practice,
and neither Shareholders, Shady Grove nor New P.C. has received any notice,
demand, suit or information request pursuant to any environmental laws or
regulations applicable to the Practice.
4.15 Medical Waste. Neither Shareholders, Shady Grove nor New P.C.,
with respect to the Practice, is in violation of, or to the knowledge of
Shareholders, the subject of any investigation, inquiry or enforcement action by
any governmental authority under, the Medical Waste Tracking Act, 42 U.S.C.
ss.6992 et seq., or any applicable state or local government statute, ordinance,
or regulation dealing with the disposal of medical wastes (collectively, the
"Medical Waste Laws"). Shady Grove and New P.C. have obtained and are in
compliance with any permits required by the Medical Waste Laws relating to
medical waste disposal, and all disposal of medical waste generated by the
Practice and has been in compliance with the Medical Waste Laws.
4.16 Effective Date of Warranties, Representations and Covenants. Each
warranty, representation, and covenant set forth in this Article IV shall be
deemed to be made on and as of the date hereof and as of the First Closing
(except as otherwise specifically provided herein).
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4.17 Disclosure. All documents, schedules, exhibits and other materials
delivered or made available, by or on behalf of Shady Grove, New P.C. and
Shareholders to IntegraMed in connection with this Agreement and the
transactions contemplated hereby, are true and complete. No representation or
warranty made by Shareholders in this Agreement and no information furnished by
or on behalf of Shady Grove, New P.C. and Shareholders to IntegraMed in
connection with this Agreement and the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein not false or misleading.
There is no material fact which Shareholders have not disclosed to IntegraMed
which adversely affects, or insofar as Shareholders can foresee, will adversely
affect Shady Grove, New P.C., the Practice or the ability of Shareholders to
perform their obligations under this Agreement or any other agreement entered
into in connection with this transaction.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INTEGRAMED
IntegraMed, for the purpose of inducing Shareholders to enter into and
consummate this Agreement, hereby represents and warrants to Shareholders that:
5.01 Organization, Power and Authority.
(a) IntegraMed 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 IntegraMed and to
consummate the transactions contemplated hereby.
(b) The execution, delivery and performance of this Agreement
by IntegraMed 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 IntegraMed, and this Agreement
constitutes the valid and binding obligation of IntegraMed, enforceable against
IntegraMed 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 IntegraMed, or any order, judgment or decree of any court or other
agency of government binding on IntegraMed, 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 IntegraMed, result in or require the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of IntegraMed's properties or assets, require any approval of or any consent of
any person under any contractual obligation of IntegraMed or conflict with or
result in any breach or default under any of the terms, conditions or provisions
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of any indenture, mortgage, deed of trust or other instrument to which
IntegraMed is a party or by which it or its properties may be bound or affected.
5.02 Litigation.
(a) To the best of IntegraMed's knowledge, there are no
material actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, threatened against, involving or
affecting IntegraMed or IntegraMed's properties or assets which are not covered
by insurance or disclosed in the SEC Documents described in Section 5.05.
IntegraMed 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 IntegraMed or IntegraMed's properties or assets.
(b) IntegraMed has received no notice of any violation of
applicable law, order, regulation or requirement related to IntegraMed's
business and is not aware of any condition or state of facts that could result
in any such notice.
5.03 Status of Shady Grove.
It is IntegraMed's present intention to maintain the existence
of Shady Grove as a wholly-owned subsidiary of IntegraMed.
5.04 IntegraMed Stock.
The IntegraMed Stock has been duly authorized by all necessary
corporate action of IntegraMed and when delivered hereunder will be validly
issued, fully paid and non-assessable. Delivery of the IntegraMed Stock shall
convey to Shareholders lawful, valid and marketable title to the IntegraMed
Stock, free and clear of any and all claims or encumbrances.
5.05 SEC Documents.
IntegraMed has filed and will file with the Securities and
Exchange Commission (the "SEC") all forms, reports, schedules, statements,
exhibits and other documents required to be filed on or before the date of this
Agreement, respectively, by it under the Securities Act of 1933, as amended, and
the regulations and rulings issued thereunder or the Securities Exchange Act of
1934, as amended, and the regulations and rulings issued thereunder. IntegraMed
has furnished to the Shareholders (i) the annual report on Form 10-K for its
fiscal year ended December 31, 1996, (ii) its quarterly report on Form 10-Q for
its fiscal quarters ended March 31, June 30, and September 30, 1997, and (iii)
all of its other reports, statements, schedules and registration statements
filed with the SEC since January 1, 1997.
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ARTICLE VI
INDEMNIFICATION AND RECONCILIATION
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 and any Schedules or Exhibits attached hereto ("Representations
and Warranties"), shall survive the consummation of the transactions
contemplated by this Agreement for (i) a period of twenty-one (21) years after
the First Closing Date with respect to any claims relating to the professional
negligence of any Shareholder, Shady Grove or any of its employees, (ii) the
appropriate statute of limitations provided under law with respect to Section
4.04(b) relating to taxes, and (iii) a period of three (3) years after the First
Closing Date for all other Representations and Warranties; provided, however,
that the expiration of the applicable period shall not preclude either party
from indemnification by the other relating to any third-party Claim (as defined
herein) asserted prior to the expiration of the applicable period. 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 First Closing Date, Shareholders (including each
Shareholder's personal representatives, executors, legatees, heirs and assigns)
jointly and severally shall indemnify IntegraMed (including its officers,
directors, shareholders, employees and agents) against, and defend and hold
IntegraMed 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,
but excluding indirect, punitive and consequential damages) (hereinafter
collectively called a "Claim") arising out of or in connection with (i) any
breach of the Representations and Warranties or non-fulfillment of any covenants
or agreements of Shareholders, Shady Grove or New P.C. contained in this
Agreement or any agreement or instrument delivered by Shareholders, Shady Grove
or New P.C. pursuant to this Agreement; (ii) subject to the reconciliation
process set forth in Section 6.03, the payment of all liabilities and
obligations of Shady Grove arising out of or relating to the operations of Shady
Grove on or prior to the First Closing Date, including, without limitation, (A)
all tax liabilities relating to the period ending on the First Closing Date, (B)
all trade payables, loan obligations to the third parties and bonus obligations
of Shady Grove which exceed the aggregate amount of the accounts receivable
collected by Shady Grove after the First Closing Date plus the value of those
fixed assets set forth on Schedule 6.03, and (C) any liabilities or obligations
(whether or not disclosed in the Schedules or Exhibits to this Agreement)
relating to or arising out of the operation of Shady Grove prior to the First
Closing Date or the provision of services (professional or otherwise) or actions
by any employee, officer, director or agent of Shady Grove or the use of
trademarks, service marks, logos or other proprietary symbols on or prior to the
First Closing Date; (iii) the operations of New P.C. or the Practice (including,
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but not limited to the provision of services (professional or otherwise) or,
actions by any employee, officer, director or agent of New P.C. or the Practice
or the use of trade marks, service marks, logos or other proprietary symbols)
and (iv) any liabilities assumed by New P.C. as part of the Restructuring or
pursuant to the Assumption Agreement described in Section 8.02(c)14. Upon the
assertion of any Claim against IntegraMed that may give rise to a liability of
Shareholders hereunder, IntegraMed shall notify Shareholders of the existence of
such Claim (which notice shall include a description thereof). IntegraMed shall
give Shareholders reasonable opportunity to defend and/or settle such Claim at
Shareholders' own expense and with counsel of their own selection, which counsel
shall be reasonably satisfactory to IntegraMed; provided, however, that in the
case of any Claim, IntegraMed 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 Shareholders shall, after ten (10)
days notice thereof by IntegraMed, fail, in IntegraMed's judgment, to take
adequate action to defend any Claim, IntegraMed 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 the Shareholders. If the Claim is one that
cannot by its nature be solely defended by Shareholders, then IntegraMed shall,
at its sole expense, make available all information and assistance as may
reasonably be requested by Shareholders.
(b) IntegraMed hereby agrees to indemnify Shareholders
against, and to defend and hold Shareholders harmless from Claims arising out of
in connection with (i) any breach of any Representations and Warranties or
non-fulfillment of any or covenant or agreement of IntegraMed contained in this
Agreement or any agreement or instrument delivered by IntegraMed pursuant to
this Agreement; and (ii) the management services provided by IntegraMed directly
or indirectly to New P.C. after the First Closing Date. Upon the assertion of
any Claim that may give rise to a liability of IntegraMed hereunder,
Shareholders shall notify IntegraMed of the existence of such Claim (which
notice shall include a description thereof). Shareholders shall give IntegraMed
reasonable opportunity to defend and/or settle such Claim at its own expense and
with counsel of its own selection, which counsel shall be satisfactory to
Shareholders; provided however, that in the case of any Claim, Shareholders
shall have the right to participate in any administrative or judicial
proceedings with respect to such Claim, at their expense and with counsel of
their choice. If IntegraMed shall, after ten (10) days notice thereof by
Shareholders, fail to defend any Claim, Shareholders 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 IntegraMed. If the Claim is one that can not
by its nature be solely defended by IntegraMed, then Shareholders shall, at
their sole expense, make available all information and assistance as may be
requested by IntegraMed.
(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. IntegraMed shall have the right to offset any amount owed to
it from Shareholders, Shady Grove or New P.C. under this Article VI against any
amounts due and payable by IntegraMed to Shareholders under the Notes.
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6.03 Reconciliation.
Schedule 6.03 sets forth certain assets and liabilities of Shady Grove
which shall be subject to a reconciliation process subsequent to the First
Closing. Those assets listed include the value of the fixed assets of Shady
Grove valued at book value in accordance with GAAP as of March 12, 1998, which
value shall be set forth on Schedule 6.03, and the accounts receivable of Shady
Grove as of the First Closing for services rendered by the Practice prior to the
First Closing. The liabilities include trade payables, certain bonuses set forth
on Schedule 4.05(b), Shareholder and third party debt and all accrued salaries
and wages (including accrued vacation and sick leave) for all employees, all
accrued bonuses for any employees (other than those bonuses set forth on
Schedule 4.05(b)) and any accrued compensatory time for any employees. On March
31, 1999, there shall be a reconciliation of these assets and liabilities based
upon actual accounts receivable collected and liabilities paid or incurred,
which shall be reflected on a reconciliation statement delivered by IntegraMed
to Shareholders. If the collected accounts receivable plus the value of all
other assets reflected on Schedule 6.03 is less than the amount of the
liabilities paid or incurred by IntegraMed for pre-closing liabilities, then the
Notes payable in accordance with Section 2.01(c) shall be reduced on a pro rata
basis among Shareholders by the amount of any such deficit. If the collected
accounts receivable plus the value of all other assets reflected on Schedule
6.03 is greater than the amount of the liabilities paid or incurred by
IntegraMed for pre-closing liabilities, then the Notes payable in accordance
with Section 2.01(c) shall be increased on a pro rata basis among Shareholders
by the amount of any such excess. By way of example, if all accounts receivable
reflected on Schedule 6.03 are fully collected, then the Notes shall be reduced
on a pro rata basis among Shareholders by $493,613. On March 31, 2000, there
shall be a second reconciliation for any accounts receivable collected and
liabilities paid or incurred since the first reconciliation and any deficit or
excess shall be handled in the same fashion as they were handled for the first
reconciliation.
ARTICLE VII
CERTAIN COVENANTS
7.01 Covenants of Shareholders.
Prior to the First Closing, Shareholders shall:
(a) obtain malpractice tail insurance coverage for Shady Grove;
(b) obtain malpractice insurance coverage for New P.C. and
provide evidence of such policy(ies) to IntegraMed;
(c) at their option, freeze or terminate each of the pension
and profit sharing plans of Shady Grove and New P.C. and New P.C. shall be the
sponsor of any frozen plans and the Shareholders shall prepare and file with the
Internal Revenue Service, an application for determination with respect to each
terminated plan immediately following the First Closing; and
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(d) file the Articles of Amendment to be effective on the
First Closing Date .
7.02 Covenant of IntegraMed. With respect to those former employees of
Shady Grove hired by IntegraMed, IntegraMed shall recognize and give credit to
all such employees for their years of service to Shady Grove for purposes of
vacation and sick leave and other benefits provided by IntegraMed.
ARTICLE VIII
CONDITION TO OBLIGATIONS
8.01 Conditions to Shareholders's Obligations.
The obligations of Shareholders under this Agreement are
subject to the satisfaction on or before the First Closing Date of the following
conditions, any of which may be waived by Shareholders by proceeding with the
First Closing:
(a) The representations and warranties of IntegraMed set forth
in this Agreement shall be true on and as of the First Closing Date and
IntegraMed shall have performed all obligations and complied with all covenants
required by this Agreement to be performed or complied with by IntegraMed prior
to or on the First Closing Date and IntegraMed shall have delivered to
Shareholders a certificate, dated as of the First Closing Date, to all such
effects;
(b) No suit, action or other proceeding shall be pending
before any court or other government agency which seeks to restrain or prohibit
performance of this Agreement or the consummation of the transactions
contemplated herein or in connection herewith to subject Shareholders to
liability on the ground that IntegraMed has breached any law or duty or
otherwise acted improperly, nor shall any such suit, action or proceeding be
threatened, to the knowledge of IntegraMed; and
(c) IntegraMed shall have delivered in form satisfactory to
Shareholders the items or documents identified below:
1. The consideration required to be delivered at the First
Closing pursuant to Section 2.01 hereof;
2. Copies of the resolutions of the Board of Directors of
IntegraMed, certified by the Secretary or Assistant Secretary of IntegraMed,
approving and authorizing the execution of this Agreement and the Notes and the
consummation of the transactions contemplated herein; and
3. The opinion of Claude E. White, Esq. legal counsel to
IntegraMed, dated the First Closing Date, in the form of Exhibit E attached
hereto.
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8.02 Conditions to IntegraMed's Obligations.
The obligations of IntegraMed under this Agreement are subject
to the satisfaction on or before the First Closing Date of the following
conditions, any of which may be waived by IntegraMed by proceeding with the
First Closing:
(a) The representations and warranties of Shareholders set
forth in this Agreement shall be true on and as of the First Closing Date and
Shareholders shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by
Shareholders prior to or on the First Closing Date and Shareholders shall have
delivered to IntegraMed a certificate dated as the First Closing Date, to all
such effects;
(b) No suit, action or other proceeding shall be pending
before any court or other government agency which seeks to restrain or prohibit
performance of this Agreement or the consummation of the transactions
contemplated herein or in connection herewith, except as disclosed on Schedule
4.07(a), to subject IntegraMed to liability on the ground that Shareholders have
breached any law or duty or otherwise acted improperly, nor shall any such suit,
action or proceeding be threatened, to the knowledge of IntegraMed; and
(c) Shareholders shall have delivered in form reasonably
satisfactory to IntegraMed the items or documents identified below:
1. Physician-Stockholder Employment Agreements dated March 11,
1998 between each Shareholder and New P.C., copies of which are attached hereto
collectively as Exhibit F;
2. Non-Shareholder Physician Employment Agreements dated on or
about March 11, 1998 between each non-Shareholder physician employee of New P.C.
and New P.C. in the form of Exhibit G;
3. The issued and outstanding stock certificates of Shady
Grove, endorsed in blank;
4. The Proxy in the form of Exhibit B;
5. Personal Responsibility Agreements dated March 12, 1998
between each Shareholder (other than Stillman) and IntegraMed, copies of which
are attached hereto collectively as Exhibit H;
6. The Voting Trust Agreement in the form of Exhibit D;
7. Shareholder Representation Letters in the form of Exhibit
I;
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8. A provider agreement dated March 11, 1998 between Shady
Grove and New P.C. in the form of Exhibit K;
9. Copies of resolutions of the Board of Directors of Shady
Grove, certified by an officer of Shady Grove, approving and authorizing the
execution of the Management Agreement and the Provider Agreement and the
consummation of the transactions contemplated thereby;
10. Copies of resolutions of the Board of Directors of New
P.C., certified by an officer of New P.C., approving and authorizing the
execution of the Management Agreement, the Provider Agreement, the
Physician-Stockholder Employment Agreements and the Non-Shareholder Physician
Employment Agreements and the consummation of the transactions contemplated
thereby;
11. The Closing Statement as set forth on Schedule 6.03;
12. The opinion of Epstein, Becker & Green, P.C., legal
counsel to Shareholders, dated the First Closing Date, in the form annexed
hereto as Exhibit J;
13. The Articles of Amendment, as filed on or before the First
Closing Date, and the Articles of Incorporation of New P.C. and any amendments
thereto; and
14. An Assignment and Assumption Agreement (the "Assumption
Agreement") dated on or before the First Closing Date between Shady Grove and
New P.C. in the form of Exhibit L attached hereto.
ARTICLE IX
MISCELLANEOUS
9.01 Brokers. Shareholders represent and warrant to IntegraMed
that Shareholders have 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. IntegraMed represents and
warrants to Shareholders 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 Further Action. If at any time after either Closing Date
any further assignment, transfers or assurances in law are reasonably necessary
or desirable to carry out the provisions of this Agreement, the parties to this
Agreement shall execute and deliver any and all assignments, transfers, and
assurances in law, and do all things, reasonably necessary or proper to such end
and otherwise to carry out the provisions and intent of this Agreement.
MBA:174958.7:3/12/98: 8:43 PM
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9.03 Notices. Any notice or other communication required, by,
or which may be given pursuant to this Agreement shall be in writing and either
personally delivered or mailed, certified or registered mail, postage prepaid,
return receipt requested, or overnight courier, prepaid, and shall be deemed
given when received. Any such notice or communication shall be sent to the
address set forth below:
If to IntegraMed, 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 Shareholders, at:
Michael J. Levy, M.D.
10115 Lakewood Drive
Rockville, Maryland 20850
Robert J. Stillman, M.D.
10810 Nantucket Terrace
Potomac, Maryland 20854
Arthur W. Sagoskin, M.D.
13659 Spinning Wheel Drive
Germantown, Maryland 20874
With a copy to:
Ann Leopold Kaplan, Esq.
Epstein, Becker & Green, P.C.
1227 25th Street, N.W., Suite 700
Washington, D.C. 20037
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.
23
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9.04 Headings. 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 Entire Agreement. The Recitals and all Schedules and
Exhibits referred to in this Agreement are deemed annexed hereto and made a part
of this Agreement and this Agreement, together with the Schedules and Exhibits:
(a) Constitutes the entire agreement among the parties
with respect to the purchase and sale of the Shares 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 Assignment. 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 No Waiver. 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 Counterpart. 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 Governing Law; Arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of Maryland,
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 shall be determined by binding
arbitration in the State of Maryland, County of Baltimore (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
24
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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 Maryland or the United States District Court for the
District of Maryland, to whose jurisdiction for such purposes Shareholders and
IntegraMed hereby irrevocably consent and submit.
9.11 Expenses. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not either Closing shall have occurred.
9.12 Publicity. Shareholders shall not make any public
announcement regarding the transactions proposed herein without the prior
written approval of IntegraMed. Other than as may be required by law because of
IntegraMed's status as a publicly-held company, IntegraMed will not make any
public announcement regarding the transactions proposed herein without the prior
written approval of Shareholders.
IN WITNESS WHEREOF, the parties have executed this Agreement
the date first above written by their respective duly authorized officers.
INTEGRAMED AMERICA, INC.
By:/s/Gerardo Canet
------------------------------------
Gerardo Canet, President
SHAREHOLDERS:
/s/ Michael J. Levy
- ---------------------------------------
Michael J. Levy, M.D.
/s/ Robert J. Stillman
- ---------------------------------------
Robert J. Stillman, M.D.
/s/Arthur W. Sagoskin
- ---------------------------------------
Arthur W. Sagoskin, M.D.
25
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SCHEDULE 2.01
Payment of Purchase Price
Value of Shares
of IntegraMed Cash
Stock Purchase Price Notes
---------------- -------------- -----
First Closing Date:
Levy $ 655,100 $1,010,200 $ 594,750
(342,268 shares)
Sagoskin 569,000 838,000 502,500
(297,283 shares)
Second Closing Date:
Stillman 175,900 951,800 402,750
---------- ---------- ----------
$1,400,000 $2,800,000 $1,500,000
26
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SCHEDULES AND EXHIBITS
----------------------
Schedules
- ---------
Schedule 2.01 Payment of Purchase Price
Schedule 4.01 Shady Grove/Capital Stock
Schedule 4.02(d) Contractual Consents
Schedule 4.02(e) Governmental Consents
Schedule 4.03 Fixed Assets
Schedule 4.04 Financial Statements
Schedule 4.04(a) Undisclosed Liabilities
Schedule 4.05(a) Changes in Financial Position
Schedule 4.05(b) Employee Bonuses
Schedule 4.05(d) New Indebtedness and Capital Expenditures
Schedule 4.06 Licenses
Schedule 4.07(a) Litigation and Investigations
Schedule 4.07(b) Notice of Violations
Schedule 4.09(a) Contracts
Schedule 4.09(c) Other Agreements
Schedule 4.10 Insurance
Schedule 4.11(a) Employees
Schedule 4.11(b) Employee Benefit Plans
Schedule 4.11(d) Other Employee Agreements
Schedule 4.12 Absence of Certain Developments
Schedule 4.13 Transactions with Certain Persons
Schedule 6.03 Assets and Liabilities Subject to Reconciliation
Exhibits
Exhibit A Management Agreement
Exhibit B Proxy
Exhibit C Notes
Exhibit D Voting Trust Agreement
Exhibit E IntegraMed Opinion
Exhibit F Physician-Stockholder Employment Agreements
Exhibit G Non-Shareholder Physician Employment Agreement
Exhibit H Personal Responsibility Agreements
Exhibit I Shareholder Representation Letters
Exhibit J Shady Grove Opinion
Exhibit K Provider Agreement
Exhibit L Assumption Agreement
27
PERSONAL RESPONSIBILITY AGREEMENT
ARTHUR W. SAGOSKIN, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated
March 12, 1998, 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 ("IntegraMed"), Levy, Sagoskin and
Stillman, M.D., P.C., a Maryland professional services corporation ("PC"), with
a place of business at 9707 Medical Center Drive, Suite 230, Rockville, Maryland
20850 and Arthur W. Sagoskin, M.D. residing at 13659 Spinning Wheel Drive,
Germantown, Maryland 20874 ("Sagoskin").
RECITALS:
This Agreement is made with reference to a Stock Purchase and Sale
Agreement dated March 12, 1998 ("Stock Agreement") between IntegraMed and
Sagoskin, Michael J. Levy, M.D. and Robert J.Stillman, M.D. (collectively,
"Physicians") who owned all the issued and outstanding capital stock (the "Shady
Grove Stock") of Shady Grove Fertility Centers, Inc., a Maryland corporation
("Shady Grove"), prior to the First Closing (as such term is defined in the
Stock Agreement) under the Stock Agreement, and a Management Agreement dated
March 11, 1998 (the "Management Agreement") between Shady Grove and PC.
Physicians are the sole shareholders of PC, the entity through which
Physicians exclusively conduct their practice of medicine.
Pursuant to the Stock Agreement, IntegraMed has paid Sagoskin and
Michael J. Levy, M.D., in the aggregate, $1,848,200 in cash, IntegraMed Common
Stock valued at $1,224,100 and given Levy and Sagoskin promissory notes totaling
$1,097,250 (the "Notes") for the Shady Grove Stock owned by Levy and Sagoskin.
Pursuant to the Stock Agreement, IntegraMed will pay Robert J. Stillman, M.D.
("Stillman") $951,800 in cash, IntegraMed Common Stock valued at $175,900 and
will give Stillman a promissory note for $402,750 on or about November 1, 1998
for the Shady Grove Stock owned by Stillman.
The services Physicians previously offered through Shady Grove and
intend to continue offering through PC are unique in terms of how these services
are rendered and the relative unavailability of similar services from other
physicians, and in terms of Physicians' reputation, and involve medical,
professional and technical services. Through IntegraMed's resources, the parties
intend to maintain and enhance the technology which Physicians offer through PC.
1
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Physicians intend that PC, as successor to Shady Grove's medical
practice, be the entity through which they henceforth conduct their practice of
medicine, and have each entered into a Physician-Stockholder Employment
Agreement with PC on March 11, 1998 (the "Employment Agreement"). This Agreement
is also made with reference to the Employment Agreement, which defines Sagoskin
's and the other Physicians' respective rights and responsibilities with respect
to PC and their medical practices, including but not limited to compensation
terms and a covenant not to compete.
Sagoskin recognizes that the success of PC and of IntegraMed'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 PC. IntegraMed has made substantial payments to
Sagoskin and the other Physicians for the Shady Grove Stock and in reliance on
Sagoskin's and the other Physicians' commitment of their availability and
dedication to PC. Moreover, IntegraMed has made and plans to make a substantial
investment in equipment and other resources for PC in reliance on the ability to
amortize such investments based on such assurances from Sagoskin and each of the
other Physicians.
The purpose of this Agreement is to assure IntegraMed that its payment
for the Shady Grove Stock and other payments and commitment of resources, is
supported by the commitment of Sagoskin to exert his best efforts to support the
operation of PC under its Management Agreement with Shady Grove, a subsidiary of
IntegraMed. Sagoskin acknowledges that each of the Physicians has executed or
will execute a similar agreement with IntegraMed.
Therefore, IntegraMed, PC, and Sagoskin agree as follow:
1. Term and Termination. This Agreement shall commence on the date
first above written and expire five (5) years thereafter (the "Term").
2. PC as Representative of Sagoskin's Interests. Sagoskin acknowledges
that IntegraMed has acquired the Shady Grove Stock, and as such has valued the
Shady Grove Stock based upon Sagoskin's stipulation that PC represents his
entire medical practice and that Sagoskin will devote substantially all of his
professional time, effort and ability to PC.
3. Payment to IntegraMed.
3.1 Pursuant to the Stock Agreement, IntegraMed has paid
Sagoskin aggregate consideration of $1,909,500 comprised of $838,000 in cash,
$569,000 in IntegraMed Common Stock and a promissory note for $502,500
(collectively referred to as "Aggregate Consideration"). If, during the Term of
this Agreement, Sagoskin should cease to practice medicine through PC, except as
a result of death or "permanent disability", as defined in the Employment
Agreement, Sagoskin shall be obligated to forthwith pay to IntegraMed a prorata
portion of the Aggregate Consideration determined by deducting the Vested Amount
(as hereinafter described) from the Aggregate Consideration. The Vested Amount
shall be determined by multiplying the number of quarters this Agreement has
been in effect, rounded to the nearest quarter based on the number of days in
2
<PAGE>
the quarter, times $95,475 (the product of which is the "Vested Amount").
Sagoskin may pay up to 29.8% of the sums due IntegraMed under this paragraph in
the form of IntegraMed Common Stock, at the same price per share Sagoskin
received the IntegraMed Common Stock from IntegraMed which payment will be
further reduced by the balance due under the Note which Note shall be canceled
in the event Sagoskin's payment obligations are triggered under this Section
3.1. Payments to IntegraMed under this paragraph shall not entitle Sagoskin to
any interest in the assets of PC, Shady Grove or IntegraMed. The parties agree
that it is impractical and not in the best interest of IntegraMed for Sagoskin
to repurchase the Shady Grove Stock and this provision requires a repayment of
consideration as a penalty for breach of the representation that Physician would
remain employed by PC for a specified time, which induced IntegraMed to enter
into the Stock Agreement.
3.2 The parties acknowledge that through an effective
transition plan, PC may add another physician to its practice so that Sagoskin's
retirement or other reduction in his availability to PC does not adversely
affect IntegraMed revenues under the Management Agreement, but that there are no
assurances of such a transition's success. Sagoskin may request IntegraMed to
waive or reduce his repayment obligation by submitting a written transition plan
to IntegraMed for its consideration. Sagoskin shall submit such a transition
plan as soon as possible if he plans to reduce his availability to PC, but in no
event less than six months before the reduction in his availability. It is
expected that such a plan shall be modified as the result of discussions among
Sagoskin, PC, and IntegraMed, that IntegraMed's acceptance of the plan shall be
in accordance with the Management Agreement, and that its agreement to waive or
reduce Sagoskin'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 Sagoskin by PC. Approval of the request shall be
discretionary for IntegraMed, but shall not be unreasonably withheld.
3.3 Sagoskin may assign all or a portion of his payment
obligations under this Section to a new or an existing shareholder of PC who has
executed the agreements with PC and IntegraMed contemplated by this Agreement,
subject to IntegraMed's written consent, which shall not be unreasonably
withheld. Such assignment shall be reflected in the Personal Responsibility
Agreement signed by the new shareholder of PC and in an amendment to this
Agreement.
4. PC's Compliance with the Management Agreement. Sagoskin agrees to
exert his best efforts to cause PC to fulfill each of its obligations under the
Management Agreement.
5. Physician-Shareholder Employment Agreement.
5.1 PC agrees to exert its best efforts to: (i) comply with
the terms of the Employment Agreement which, if PC does not comply, would excuse
Sagoskin or any of the other Physicians or other physician employees or
shareholders of PC from complying with his covenant not to compete with PC, his
assignment of all Professional Revenues to PC and other terms confirming that
physician's commitment to practicing medicine solely through PC for a period of
not less than five (5) years ( the "Exclusive Practice Covenants")and thereafter
not to terminate his employment without cause on less than 180 days written
notice and (ii) enforce with respect to each of the Physicians and other
physician employees and shareholders of PC the Exclusive Practice Covenants
3
<PAGE>
and Sagoskin agrees to exert his best efforts to cause PC to comply with each of
the aforementioned obligations.
5.2 PC and Sagoskin further agree that IntegraMed and Shady
Grove are third-party beneficiaries of the Exclusive Practice Covenants with
respect to Sagoskin and the other Physicians and that the Exclusive Practice
Covenants set forth in the Employment Agreement, in the form that is then most
recently approved by IntegraMed, are hereby incorporated in this Agreement by
reference and may be enforced by IntegraMed or Shady Grove as well as by PC. PC
and Sagoskin 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 IntegraMed or Shady Grove, including
without limitation, rights under the Management Agreement, without thirty (30)
days prior written notice to IntegraMed or Shady Grove and the written consent
of IntegraMed or Shady Grove, which consent shall not be unreasonably withheld.
Moreover, Sagoskin acknowledges that Shady Grove and/or IntegraMed are entitled
to damages in the event Sagoskin breaches the Exclusive Practice Covenants.
5.3 Any payments received by IntegraMed under Section 4.6.3 of
the Management Agreement will be used by IntegraMed to offset any payments due
IntegraMed under Section 7 of this Agreement.
6. Scope of Covenant Not to Compete. Sagoskin and PC agree that the
scope and term of Sagoskin's covenant not to compete, insofar as it is for the
benefit of IntegraMed, shall be as follows:
6.1 The term of the covenant not to compete shall be for a
period of one (1) year after the termination of Physician's employment provided
such termination occurs during the initial term of the Employment Agreement (the
"Non-Competition Period"). The Non-Competition Period shall not apply to any
termination that occurs after the first five years of employment.
6.2 The geographic scope of the covenant not to compete is ten
(10) miles from any offices ("Non-Compete Area") maintained by PC for the
rendition of professional or other medical services to patients during the last
12 months of Sagoskin's employment by PC.
6.3 During the Non-Competition Period, Sagoskin 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 the Non-Compete Area.
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,
4
<PAGE>
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 "Infertility Services" shall have the
same meaning as set forth in the Management Agreement, except that
Sagoskin 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 PC, provided those services are for patients of PC,
nor prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. PC, IntegraMed and Sagoskin each
acknowledges that: (i) the terms set forth in this Section are necessary for the
reasonable and proper protection of the interests of PC and IntegraMed; (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 Sagoskin or other disputes under this
Agreement or the Employment Agreement; and (iv) the PC and IntegraMed have been
induced to enter into this Agreement and their other respective agreements with
Sagoskin, in part, due to the representation by Sagoskin that he will abide by
and be bound by the aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Sagoskin has agreed in the
Employment Agreement not to compete with PC during the initial term of his
employment by PC and for at least one (1) year thereafter should employment
terminate at or before the fifth anniversary of employment, and recognizes that
in the event that he should compete with PC, IntegraMed would suffer damages in
addition to the loss of Sagoskin's unique services. Sagoskin therefore agrees
that during the initial term of his Employment Agreement with PC, and during the
Non-Competition Period thereafter, he shall be obligated, with respect to each
month in which he renders services which earn Physician and Other Professional
Revenues, as defined in the Management Agreement, that are not assigned to and
5
<PAGE>
collected by PC, or offers services or assists other persons in offering
services in the Service Area which are similar to any of those offered by PC
while he was still a director, officer or shareholder of PC or active in
providing services on behalf of PC, he shall owe IntegraMed management fees
equal to one-twelfth of:
7.1 33.5% of the Cost of Services as defined in the Management
Agreement, which are incurred in the twelve months preceding the first
month in which IntegraMed, in the reasonable exercise of its
discretion, concludes that Sagoskin was engaging in such competitive
acts so as to materially adversely affect PC's operations (the
"Pre-Competition Period").
7.2 33.5% of the Base Management Fee which IntegraMed earned
during the Pre- Competition Period.
7.3 33.5% of any other fees earned by IntegraMed under the
Management Agreement during the Pre-Competition Period.
7.4 33.5% of any Advances or other payments owed by PC to
IntegraMed at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution,
insolvency, receivership or bankruptcy of PC and any breach of PC's contracts
with Sagoskin 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. Sagoskin acknowledges and agrees to
maintain the confidentiality of IntegraMed and PC Confidential Information as
defined in the Management Agreement and in any agreements he may have with PC,
and that any notice to IntegraMed 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.
6
<PAGE>
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 IntegraMed may assign this Agreement to any
subsidiary or affiliate of IntegraMed without the consent of Sagoskin. 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 Maryland 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 Maryland, County of Baltimore (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 Maryland or the
United States District Court for the District of Maryland, to whose jurisdiction
for such purposes the parties hereby irrevocably consent and submit.
15. Severability. 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.
7
<PAGE>
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 Stock 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 IntegraMed at:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
With a copy to:
Claude E. White, General Counsel
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
If for Sagoskin at:
Arthur W. Sagoskin, M.D.
13659 Spinning Wheel Drive
Germantown, Maryland 20874
If for PC at:
President
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, Maryland 20850
8
<PAGE>
With a copy to:
Ann Leopold Kaplan, Esq.
Epstein, Becker & Green, P.C.
1227 25th Street, N.W.
Washington, DC 20037-1158
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.
ARTHUR W. SAGOSKIN
/s/Arthur W. Sagoskin
- --------------------------------------
Arther W. Sagoskin, M.D.
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
----------------------------------
Gerardo Canet, President & CEO
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
By:/s/Michael J. Levy
--------------------------------------
Michael J. Levy, M.D., President
9
PERSONAL RESPONSIBILITY AGREEMENT
MICHAEL J. LEVY, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated
March 12, 1998, 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 ("IntegraMed"), Levy, Sagoskin and
Stillman, M.D., P.C., a Maryland professional services corporation ("PC"), with
a place of business at 9707 Medical Center Drive, Suite 230, Rockville, Maryland
20850 and Michael J. Levy, M.D., residing at 10115 Lakewood Drive, Rockville,
Maryland 20850 ("Levy").
RECITALS:
This Agreement is made with reference to a Stock Purchase and Sale
Agreement dated March 12, 1998 ("Stock Agreement") between IntegraMed and Levy,
Arthur W. Sagoskin, M.D. and Robert J. Stillman, M.D. (collectively,
"Physicians") who owned all the issued and outstanding capital stock (the "Shady
Grove Stock") of Shady Grove Fertility Centers, Inc., a Maryland corporation
("Shady Grove"), prior to the First Closing (as such term is defined in the
Stock Agreement) under the Stock Agreement, and a Management Agreement dated
March 11, 1998 (the "Management Agreement") between Shady Grove and PC.
Physicians are the sole shareholders of PC, the entity through which
Physicians exclusively conduct their practice of medicine.
Pursuant to the Stock Agreement, IntegraMed has paid Levy and Arthur W.
Sagoskin ("Sagoskin"), in the aggregate, $1,848,200 in cash, IntegraMed Common
Stock valued at $1,224,100 and given Levy and Sagoskin promissory notes totaling
$1,097,250 (the "Notes") for the Shady Grove Stock owned by Levy and Sagoskin.
Pursuant to the Stock Agreement, IntegraMed will pay Robert J. Stillman, M.D.
("Stillman") $951,800 in cash, IntegraMed Common Stock valued at $175,900 and
will give Stillman a promissory note for $402,750 on or about November 1, 1998
for the Shady Grove Stock owned by Stillman.
The services Physicians previously offered through Shady Grove and
intend to continue offering through PC are unique in terms of how these services
are rendered and the relative unavailability of similar services from other
physicians, and in terms of Physicians' reputation, and involve medical,
professional and technical services. Through IntegraMed's resources, the parties
intend to maintain and enhance the technology which Physicians offer through PC.
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Physicians intend that PC, as successor to Shady Grove's medical
practice, be the entity through which they henceforth conduct their practice of
medicine, and have each entered into a Physician-Stockholder Employment
Agreement with PC on March 11, 1998 (the "Employment Agreement"). This Agreement
is also made with reference to the Employment Agreement, which defines Levy 's
and the other Physicians' respective rights and responsibilities with respect to
PC and their medical practices, including but not limited to compensation terms
and a covenant not to compete.
Levy recognizes that the success of PC and of IntegraMed'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 PC. IntegraMed has made substantial payments to Levy and the
other Physicians for the Shady Grove Stock and in reliance on Levy's and the
other Physicians' commitment of their availability and dedication to PC.
Moreover, IntegraMed has made and plans to make a substantial investment in
equipment and other resources for PC in reliance on the ability to amortize such
investments based on such assurances from Levy and each of the other Physicians.
The purpose of this Agreement is to assure IntegraMed that its payment
for the Shady Grove Stock, and other payments and commitment of resources, is
supported by the commitment of Levy to exert his best efforts to support the
operation of PC under its Management Agreement with Shady Grove, a subsidiary of
IntegraMed. Levy acknowledges that each of the Physicians has executed or will
execute a similar agreement with IntegraMed.
Therefore, IntegraMed, PC, and Levy agree as follow:
1. Term and Termination. This Agreement shall commence on the date
first above written and expire five (5) years thereafter (the "Term").
2. PC as Representative of Levy's Interests. Levy acknowledges that
IntegraMed has acquired the Shady Grove Stock, and as such has valued the Shady
Grove Stock based upon Levy's stipulation that PC represents his entire medical
practice and that Levy will devote substantially all of his professional time,
effort and ability to PC.
3. Payment to IntegraMed.
3.1 Pursuant to the Stock Agreement, IntegraMed has paid Levy
aggregate consideration of $2,260,050 comprised of $1,010,200 in cash, $655,100
in IntegraMed Common Stock and a promissory note for $594,750 (collectively
referred to as "Aggregate Consideration"). If, during the Term of this
Agreement, Levy should cease to practice medicine through PC, except as a result
of death or "permanent disability", as defined in the Employment Agreement, Levy
shall be obligated to forthwith pay to IntegraMed a prorata portion of the
Aggregate Consideration determined by deducting the Vested Amount (as
hereinafter described) from the Aggregate Consideration. The Vested Amount shall
be determined by multiplying the number of quarters this Agreement has been in
effect, rounded to the nearest quarter based on the number of days in the
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quarter, times $113,002.50 (the product of which is the "Vested Amount"). Levy
may pay up to 29% of the sums due IntegraMed under this paragraph in the form of
IntegraMed Common Stock, at the same price per share Levy received the
IntegraMed Common Stock from IntegraMed which payment will be further reduced by
the balance due under the Note, which Note shall be canceled in the event Levy's
payment obligations are triggered under this Section 3.1. Payments to IntegraMed
under this paragraph shall not entitle Levy to any interest in the assets of PC,
Shady Grove or IntegraMed. The parties agree that it is impractical and not in
the best interest of IntegraMed for Levy to repurchase the Shady Grove Stock and
this provision requires a repayment of consideration as a penalty for breach of
the representation that Physician would remain employed by PC for a specified
time, which induced IntegraMed to enter into the Stock Agreement.
3.2 The parties acknowledge that through an effective
transition plan, PC may add another physician to its practice so that Levy's
retirement or other reduction in his availability to PC does not adversely
affect IntegraMed revenues under the Management Agreement, but that there are no
assurances of such a transition's success. Levy may request IntegraMed to waive
or reduce his repayment obligation by submitting a written transition plan to
IntegraMed for its consideration. Levy shall submit such a transition plan as
soon as possible if he plans to reduce his availability to PC, but in no event
less than six months before the reduction in his availability. It is expected
that such a plan shall be modified as the result of discussions among Levy, PC,
and IntegraMed, that IntegraMed's acceptance of the plan shall be in accordance
with the Management Agreement, and that its agreement to waive or reduce Levy'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 Levy by PC. Approval of the request shall be discretionary for IntegraMed,
but shall not be unreasonably withheld.
3.3 Levy may assign all or a portion of his payment
obligations under this Section to a new or an existing shareholder of PC who has
executed the agreements with PC and IntegraMed contemplated by this Agreement,
subject to IntegraMed's written consent, which shall not be unreasonably
withheld. Such assignment shall be reflected in the Personal Responsibility
Agreement signed by the new shareholder of PC and in an amendment to this
Agreement.
4. PC's Compliance with the Management Agreement. Levy agrees to exert
his best efforts to cause PC to fulfill each of its obligations under the
Management Agreement.
5. Physician-Shareholder Employment Agreement.
5.1 PC agrees to exert its best efforts to: (i) comply with
the terms of the Employment Agreement which, if PC does not comply, would excuse
Levy or any of the other Physicians or other physician employees or shareholders
of PC from complying with his covenant not to compete with PC, his assignment of
all Professional Revenues to PC and other terms confirming that physician's
commitment to practicing medicine solely through PC for a period of not less
than five (5) years (the "Exclusive Practice Covenants") and thereafter not to
terminate his employment without cause on less than 180 days written notice and
(ii) enforce with respect to each of the Physicians and other physician
employees and shareholders of PC the Exclusive Practice Covenants
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and Levy agrees to exert his best efforts to cause PC to comply with each of the
aforementioned obligations.
5.2 PC and Levy further agree that IntegraMed and Shady Grove
are third-party beneficiaries of the Exclusive Practice Covenants with respect
to Levy and the other Physicians and that the Exclusive Practice Covenants set
forth in the Employment Agreement, in the form that is then most recently
approved by IntegraMed, are hereby incorporated in this Agreement by reference
and may be enforced by IntegraMed or Shady Grove as well as by PC. PC and Levy
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 IntegraMed or Shady Grove, including without limitation,
rights under the Management Agreement, without thirty (30) days prior written
notice to IntegraMed or Shady Grove and the written consent of IntegraMed or
Shady Grove, which consent shall not be unreasonably withheld. Moreover, Levy
acknowledges that Shady Grove and/or IntegraMed are entitled to damages in the
event Levy breaches the Exclusive Practice Covenants.
5.3 Any payments received by IntegraMed under Section 4.6.3 of
the Management Agreement will be used by IntegraMed to offset any payments due
IntegraMed under Section 7 of this Agreement.
6. Scope of Covenant Not to Compete. Levy and PC agree that the scope
and term of Levy's covenant not to compete, insofar as it is for the benefit of
IntegraMed, shall be as follows:
6.1 The term of the covenant not to compete shall be for a
period of one (1) year after the termination of Physician's employment provided
such termination occurs during the initial term of the Employment Agreement (the
"Non-Competition Period") . The Non-Competition Period shall not apply to any
termination that occurs after the first five years of employment.
6.2 The geographic scope of the covenant not to compete is ten
(10) miles from any offices ("Non-Compete Area") maintained by PC for the
rendition of professional or other medical services to patients during the last
12 months of Levy's employment by PC.
6.3 During the Non-Competition Period, Levy 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 the Non-Compete Area.
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
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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 "Infertility Services" shall have the
same meaning as set forth in the Management Agreement, except that Levy
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 PC, provided those services are for patients of PC,
nor prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
6.7 Acknowledgments. PC, IntegraMed and Levy each acknowledges
that: (i) the terms set forth in this Section are necessary for the reasonable
and proper protection of the interests of PC and IntegraMed; (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 Levy or other disputes under this Agreement or the
Employment Agreement; and (iv) the PC and IntegraMed have been induced to enter
into this Agreement and their other respective agreements with Levy, in part,
due to the representation by Levy that he will abide by and be bound by the
aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Levy has agreed in the Employment
Agreement not to compete with PC during the initial term of his employment by PC
and for at least one (1) year thereafter should employment terminate at or
before the fifth anniversary of employment, and recognizes that in the event
that he should compete with PC, IntegraMed would suffer damages in addition to
the loss of Levy's unique services. Levy therefore agrees that during the
initial term of his Employment Agreement with PC, and during the Non-Competition
Period thereafter, he shall be obligated, with respect to each month in which he
renders services which earn Physician and Other Professional Revenues, as
defined in the Management Agreement, that are not assigned to and collected by
PC, or offers services or assists other persons in offering services in the
Service Area which are similar to any of those offered by PC while he was still
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a director, officer or shareholder of PC or active in providing services on
behalf of PC, he shall owe IntegraMed management fees equal to one-twelfth of:
7.1 39.65% of the Cost of Services as defined in the
Management Agreement, which are incurred in the twelve months preceding
the first month in which IntegraMed, in the reasonable exercise of its
discretion, concludes that Levy was engaging in such competitive acts
so as to materially adversely affect PC's operations (the
"Pre-Competition Period").
7.2 39.65% of the Base Management Fee which IntegraMed earned
during the Pre-Competition Period.
7.3 39.65% of any other fees earned by IntegraMed under the
Management Agreement during the Pre-Competition Period.
7.4 39.65% of any Advances or other payments owed by PC to
IntegraMed at the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution,
insolvency, receivership or bankruptcy of PC and any breach of PC's contracts
with Levy 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. Levy acknowledges and agrees to maintain
the confidentiality of IntegraMed and PC Confidential Information as defined in
the Management Agreement and in any agreements he may have with PC, and that any
notice to IntegraMed 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
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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 IntegraMed may assign this Agreement to any
subsidiary or affiliate of IntegraMed without the consent of Levy. 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 Maryland 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 Maryland, County of Baltimore (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 Maryland or the
United States District Court for the District of Maryland, to whose jurisdiction
for such purposes the parties hereby irrevocably consent and submit.
15. Severability. 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
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"Infertility Services" and any other capitalized term which is not defined in
this Agreement shall have the same definition it has in the Stock 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 IntegraMed at:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
With a copy to:
Claude E. White, General Counsel
IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 105277-2100
If for Levy at:
Michael J. Levy, M.D.
10115 Lakewood Drive
Rockville, Maryland 20850
If for PC at:
President
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, Maryland 20850
With a copy to:
Ann Leopold Kaplan, Esq.
Epstein, Becker & Green, P.C.
1227 25th Street, N.W.
Washington, DC 20037-1158
Any party hereto, by like notice to the other party, may designate such
other address or addresses to which notice must be sent.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
MICHAEL J. LEVY
/s/Michael J. Levy
- --------------------------------------
Michael J. Levy, M.D.
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
----------------------------------
Gerardo Canet, President & CEO
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
By: /s/Michael J. Levy
----------------------------------
Michael J. Levy, M.D., President
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PHYSICIAN-STOCKHOLDER
EMPLOYMENT AGREEMENT
Between
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
And
MICHAEL J. LEVY, M.D.
AGREEMENT entered into March 11, 1998 by and between Levy, Sagoskin and
Stillman, M.D., P.C., a Maryland professional services corporation, with its
principal place of business at 9707 Medical Center Drive, Suite 230, Rockville,
Maryland 20850 ("PC") and Michael J. Levy, M.D., residing at 10115 Lakewood
Drive, Rockville, Maryland 20850 ("Physician").
R E C I T A L S:
PC specializes in gynecological services, treatment of human
infertility, encompassing the provision of in vitro fertilization and other
assisted reproductive technology ("Infertility Services").
Physician is duly licensed to practice medicine in the
jurisdictions of the District of Columbia, Maryland and Virginia, specializes in
the provision of Infertility Services and has experience in infertility
treatment including surgical skills required in the course of providing
Infertility Services.
PC has entered into an agreement dated March 11, 1998
("Management Agreement") with Shady Grove Fertility Centers, Inc. ("Management
Company"), pursuant to which Management Company will provide certain management
and administrative services as are more fully described in the Management
Agreement.
In order to further facilitate the provision of Infertility
Services, PC desires to employ Physician and Physician desires to accept such
employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other
good and valuable consideration set forth herein, the parties agree as follows:
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1. ENGAGEMENT. PC hereby employs Physician and Physician hereby accepts
such employment to devote substantially 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.
Nothwithstanding anything in this Agreement to the contrary, Physician shall not
be required, and PC agrees not to require Physician, to engage in any conduct or
perform any services that interfere with Physician's independent professional
judgment.
2. DUTIES.
(a) Physician shall provide patient care and clinical backup
as required to ensure the proper provision of Infertility Services to patients
of PC at PC's office(s) at the addresses set forth in Schedule A (the
"Offices"), and/or such other locations as shall be mutually agreed to by PC and
Physician. Physician agrees to devote substantially all of Physician's
professional time, effort and ability to PC's practice development and the
provision of Infertility Services under the terms and conditions contained
herein and as the parties may agree from time to time. In connection therewith,
Physician's duties shall include, but not be limited to, the following:
(i) Provision of patient counseling and medical
examinations, performance of egg retrievals, embryo transfers, surgeries,
including, but not limited to, microsurgeries and laparoscopies, and patient
follow-up;
(ii) Reviewing and evaluating clinical data on a
routine basis and making specific recommendations for improving implantation
rates and treatment outcomes;
(iii)Maintenance of a thorough understanding of and
proficiency in the application of the most current technologies (including both
surgical and non-surgical techniques) relevant to Infertility Services and
related medical high technology infertility procedures ("ART Technology"); and
(iv) Development and implementation of educational
outreach programs designed to facilitate the development of relationships with
physicians in the obstetric/gynecology community and the dissemination of
information pertaining to the availability of Infertility Services.
(b) Except as permitted by Section 3(b) hereof, Physician
shall not, during the term of this Agreement, otherwise engage in the practice
of medicine outside of PC without the express written consent of PC and
Management Company.
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.
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(b) All remuneration received by Physician in payment for any
outside professional medical activities, other than board attendance fees and
board memberships and Permitted Compensation Arrangements shall be accounted to
and be the sole property of PC. Permitted Compensation Arrangements shall
include any income derived from testimony for litigation-related proceedings,
lectures, passive investments, fundraising, or writing where Physician does not
render professional medical services and Physician may retain all such
compensation without limit. In connection with board memberships and related
board activities, Physician may retain up to $5,000 in the aggregate annually.
Physician's engagement in outside professional medical activities shall require
the express written consent of PC and shall not interfere in any way with the
fulfillment of Physician's duties hereunder or diminish the quality of the
Infertility Services rendered.
(c) Physician shall receive the benefits provided for on
Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PC hereunder shall be billed and collected by PC; provided, however,
that pursuant to the terms of the Management Agreement, Management Company shall
carry out billing and collection functions on behalf of PC. In consideration for
the payment to Physician of the compensation described herein, all receivables
and collections attributable to Infertility Services provided by Physician to PC
patients shall become the property of PC, and Physician agrees immediately to
turn over to PC any such fees received by Physician during the term hereof.
Physician hereby authorizes PC, and/or Management Company on PC's behalf, to
bill for Infertility Services provided hereunder and agrees to execute any and
all assignments or other documents that may be necessary or appropriate to
permit PC, or Management Company as its designee, to carry out all billing and
collection functions. Physician agrees that Physician shall not submit bills
for, seek remuneration for, or otherwise collect fees for Infertility Services
provided hereunder. Physician shall look solely to PC for compensation for the
Infertility Services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in
order to provide Infertility Services to PC as herein required, Physician must
at all times during the term of this Agreement be a member in good standing of
at least one hospital accredited by the JCAHO (the "Hospital") within the
geographic area of PC's offices. PC 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. MANAGEMENT AGREEMENT. Physician acknowledges receipt of a copy of
the Management Agreement and acknowledges that PC has substantial
responsibilities, rights and obligations under said agreement. Physician agrees
to at all times act in such manner as to avoid causing PC to be in breach of the
Management Agreement, and Physician further agrees that to the extent applicable
to PC and to the responsibilities of the Physician hereunder, Physician shall
assist PC in carrying out its obligations under the Management Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PC shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as PC shall determine from time to time.
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8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND
POLICIES. Physician agrees at all times to comply with the bylaws, rules and
regulations of the Hospital and of its medical staff and the reasonable
policies, directives, bylaws, rules and regulations of PC. Physician
acknowledges that PC shall have final authority over: (a) the acceptance or
refusal to treat any patient; and (b) the amount of the fee to be charged for
all Infertility Services rendered by Physician to patients of PC, so long as
such fees are lawful and reasonable. Notwithstanding the foregoing, Physician
may refuse to treat any patient whom Physician 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 Services or other medical services on behalf of PC during
the term hereof shall be the property of PC. A copy of any medical records of
such patients will be made available to Physician upon request, in a timely
manner, at Physician's sole cost and expense.
10. TERM. The initial term of this Agreement shall begin on the
effective date of the Management Agreement and shall terminate five (5) years
thereafter ( the "Initial Term") unless earlier terminated pursuant to the
provisions of Section 11. After the expiration of the Initial Term, this
Agreement shall be extended automatically, unless 180 days prior notice not to
renew is given by either party, 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 any such renewal terms and shall not apply after the
end of the Initial Term.
11. TERMINATION.
(a) This Agreement may terminate upon the occurrence of any of
the following:
(i) Termination of the Management 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, subject to
Management Company's consent, 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 of this Agreement
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;
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(vi) By either party without cause upon giving the other six
months' prior written notice; provided Physician makes the payments
required pursuant to Sections 3 and Section 7 of the Personal
Responsibility Agreement, if applicable; or
(vii) Upon death or "permanent disability" (as such term is
hereinafter defined) of Physician. In either such event, this Agreement
shall terminate immediately; provided, however, Physician (or
Physician's legal representative, as the case may be) will be entitled
to receive any accrued but unpaid compensation earned by Physician
hereunder through the date of such event. For purposes of this
Agreement, the term "permanent disability" shall have the meaning set
forth in the long-term disability insurance policy or policies then
maintained by Physician or PC, or if no such policy shall then be in
effect, or if more than one such policy shall then be in effect in
which the term "permanent disability" shall be assigned different
definitions, then the term "permanent disability" shall be defined for
purposes hereof to mean any physical or mental disability or incapacity
which renders Physician incapable of fully performing the services
required in accordance with Physician's obligations hereunder for a
period of 120 consecutive days or for shorter periods aggregating 120
days during any twelve-month period.
(b) Upon termination of this Agreement, as hereinabove provided,
neither party shall have any further obligation hereunder except for: (i)
obligations occurring prior to the date of termination; and (ii) obligations,
promises or covenants which are expressly made to extend beyond the term of this
Agreement.
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 jurisdictions of the
District of Columbia, Maryland and Virginia;
(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 PC of any such
professional disciplinary proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify PC of all
malpractice actions brought against him and the disposition of any such
action; and
(e) Physician shall at all times act in compliance with all
applicable policies and procedures of PC as reasonably communicated to
Physician, as well as all applicable federal, state, and local laws,
rules and regulations.
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13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or
disclose to others (except in connection with the fulfillment of Physician's
duties hereunder) any Infertility Information, as defined herein, during the
term of this Agreement or during any extension or renewal thereof, and for a
period of one (1) year thereafter, except as expressly consented to in writing
by PC and Management Company. For purposes of this Agreement, the term
"Infertility Information" shall mean such technical, scientific, and business
information provided to Physician by PC or Management Company which is
designated by PC or Management Company 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 PC.
Physician further agrees that should his or her contractual relationship
hereunder terminate, he or she will neither take nor retain, without prior
written authorization from PC and Management Company, any papers, patient lists,
fee books, patient record files, or other documents or copies thereof or other
Infertility Information of any kind belonging to PC or Management Company, as
the case may be.
(b) Without limiting other possible remedies available to PC
for the breach of this covenant, Physician agrees that injunctive or other
equitable relief shall be available to 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 Management Company 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, PC or Management Company
will designate, prior to disclosure to Physician, the specific information which
PC or Management Company 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 Management
Agreement.
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15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO EMPLOYEES.
(a) No Solicitation. For 12 months following termination of this
Agreement and Physician's employment, Physician agrees not to solicit, directly
or indirectly, the business of any person who is or was a patient or client of
PC. For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation. This covenant is acknowledged
by Physician to be based on the fact that the names and addresses of patients
and referral sources and the contact persons, contract needs and rates for
third-party payers and contracting organizations (all of which are deemed
proprietary or confidential Infertility Information hereunder) would not have
been known by Physician except by reason of the knowledge thereof gained as an
employee or shareholder of PC.
(b) Covenant Not to Compete. Physician agrees not to compete with the
business of PC, in accordance with the terms outlined below:
(i) The term of the covenant not to compete shall be one (1)
year after the termination of this Agreement provided such termination occurs
during the Initial Term of this Agreement (the Non-Competition Period").
Physician shall not be subject to any non-compete upon the termination of this
Agreement after the end of the first five year period.
(ii) The geographic scope of the covenant not to compete is
ten (10) miles from any offices ("Non-Compete Area") maintained by PC for the
rendition of professional or other medical services to patients during the last
twelve months of Physician's employment by PC.
(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 (as defined below) providing
Infertility Services within the Non-Compete Area.
(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 company, 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.
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(B) The term "Infertility Services" shall not prohibit
Physician from providing obstetrics and general gynecological services.
(v) Separability. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section is
invalid or unenforceable, each Party agrees that the court making the
determination of invalidity or unenforceability will have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
will be enforceable as so modified after the expiration of time within which the
judgment may be appealed.
(vi) Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical care
by Physician on behalf of PC, provided those services are for patients of PC,
nor prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
(vii) Acknowledgments. PC and Physician each acknowledges
that: (i) the terms set forth in this Section are necessary for the reasonable
and proper protection of the interests of PC and the Managment Company; (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; and (iv) PC has been induced to enter into this Agreement 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 support from Management Company, in the form
of, including, but not limited to, materials, personnel, data or Facility, as
defined in the Management Agreement, or PC resources, Physician will submit to
Management Company's President, Reproductive Science Center Division 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 Management
Company's proprietary review, Physician further agrees that the appropriate
statement, "support provided by [management company name]." or "Supported in
part by [management company name]." will be set forth as a disclosure with
respect to the publication in the event such proposed article or publication was
directly supported by Management Company.
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:
Michael J. Levy, M.D.
10115 Lakewood Drive
Rockville, Maryland 20850
If to PC, at:
Executive Director
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, Maryland 20850
With a copy to:
President
Shady Grove Fertility Centers, Inc.
16220 Frederick Road, Suite 502
Gaithersburg, Maryland 20877
President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
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 Maryland. 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 Sections 13, 14 and 15, shall be determined
by binding arbitration in the State of Maryland, County of Baltimore
(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
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arbitrators shall have no authority tochange 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 Maryland.
22. SEVERABILITY. Each provision in this Agreement is intended to be
severable, and may be modified by any court of competent jurisdiction to the
extent necessary to make such provision valid and enforceable. If any term or
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever in whole or in part, such provision
or portion thereof shall be severed from this Agreement and shall not effect the
validity of the remainder of this Agreement.
23. WAIVER; CONSENT. No consent or waiver, express or implied, by
either party hereto, or of any breach or default by the other party in the
performance by the other of its obligations hereunder, shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default on the performance by
such other party of the same or any other obligation of such party hereunder.
Failure on the part of either party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder. The granting of any consent or approval in any other instance
by or on behalf of Physician and/or PC shall not be construed to waive or limit
the need for such consent in any other or subsequent instance.
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.
Levy, Sagoskin and Stillman, P.C.
By:/s/Michael J. Levy (Seal)
-----------------------------------
Michael J. Levy, M.D., President
Physician:
/s/Michael J. Levy (Seal)
- --------------------------------------
Michael J. Levy, M.D.
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SCHEDULE A
Office Locations
9707 Medical Center Drive, Suite 230, Rockville, Maryland 20850
3299 Woodburn Road, Suite 480, Annandale, Virginia 22003
2112 F Street, N.W., Suite 703, Washington, DC 20037
600 Ridgely Avenue, Suite 221, Annapolis, Maryland 21401
16220 Frederick Road, Suite 502, Gaithersburg, Maryland 20877
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from PC. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under PC's
current income distribution and expense allocation formula. Such draw will be
calculated based on PC's annual budget which shall be prepared with the input
and assistance of Physician and Management Company. Any changes in this
allocation requires a majority vote of PC's shareholders.
PC will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, PC will calculate
the actual amount due Physician based on the quarter in question. Physician will
be entitled to one-hundred percent (100%) of the compensation for the quarter
due under the income distribution formula based on the quarterly reconciliation.
The final reconciliation will be performed on an annual basis and shall be done
by PC no later than ninety (90) days of after the fiscal year end. 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 PC's practice prior to the Management Agreement. The costs of such benefits
shall be consistent with costs typically experienced by Management Company in
connection with other medical practices it manages.
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PHYSICIAN-STOCKHOLDER
EMPLOYMENT AGREEMENT
Between
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
And
ARTHUR W. SAGOSKIN, M.D.
AGREEMENT entered into March 11, 1998 by and between Levy, Sagoskin and
Stillman, M.D., P.C., a Maryland professional services corporation, with its
principal place of business at 9707 Medical Center Drive, Suite 230, Rockville,
Maryland 20850 ("PC") and Arthur W. Sagoskin, M.D., residing at 13659 Spinning
Wheel Drive, Germantown, Maryland 20874 ("Physician").
R E C I T A L S:
PC specializes in gynecological services, treatment of human
infertility, encompassing the provision of in vitro fertilization and other
assisted reproductive technology ("Infertility Services").
Physician is duly licensed to practice medicine in the
jurisdictions of the District of Columbia, Maryland and Virginia, specializes in
the provision of Infertility Services and has experience in infertility
treatment including surgical skills required in the course of providing
Infertility Services.
PC has entered into an agreement dated March 11, 1998
("Management Agreement") with Shady Grove Fertility Centers, Inc. ("Management
Company"), pursuant to which Management Company will provide certain management
and administrative services as are more fully described in the Management
Agreement.
In order to further facilitate the provision of Infertility
Services, PC desires to employ Physician and Physician desires to accept such
employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other
good and valuable consideration set forth herein, the parties agree as follows:
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1. ENGAGEMENT. PC hereby employs Physician and Physician hereby accepts
such employment to devote substantially 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.
Nothwithstanding anything in this Agreement to the contrary, Physician shall not
be required, and PC agrees not to require Physician, to engage in any conduct or
perform any services that interfere with Physician's independent professional
judgment.
2. DUTIES.
(a) Physician shall provide patient care and clinical backup
as required to ensure the proper provision of Infertility Services to patients
of PC at PC's office(s) at the addresses set forth in Schedule A (the
"Offices"), and/or such other locations as shall be mutually agreed to by PC and
Physician. Physician agrees to devote substantially all of Physician's
professional time, effort and ability to PC's practice development and the
provision of Infertility Services under the terms and conditions contained
herein and as the parties may agree from time to time. In connection therewith,
Physician's duties shall include, but not be limited to, the following:
(i) Provision of patient counseling and medical
examinations, performance of egg retrievals, embryo transfers, surgeries,
including, but not limited to, microsurgeries and laparoscopies, and patient
follow-up;
(ii) Reviewing and evaluating clinical data on a
routine basis and making specific recommendations for improving implantation
rates and treatment outcomes;
(iii)Maintenance of a thorough understanding of and
proficiency in the application of the most current technologies (including both
surgical and non-surgical techniques) relevant to Infertility Services and
related medical high technology infertility procedures ("ART Technology"); and
(iv) Development and implementation of educational
outreach programs designed to facilitate the development of relationships with
physicians in the obstetric/gynecology community and the dissemination of
information pertaining to the availability of Infertility Services.
(b) Except as permitted by Section 3(b) hereof, Physician
shall not, during the term of this Agreement, otherwise engage in the practice
of medicine outside of PC without the express written consent of PC and
Management Company.
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.
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(b) All remuneration received by Physician in payment for any
outside professional medical activities, other than board attendance fees and
board memberships and Permitted Compensation Arrangements shall be accounted to
and be the sole property of PC. Permitted Compensation Arrangements shall
include any income derived from testimony for litigation-related proceedings,
lectures, passive investments, fundraising, or writing where Physician does not
render professional medical services and Physician may retain all such
compensation without limit. In connection with board memberships and related
board activities, Physician may retain up to $5,000 in the aggregate annually.
Physician's engagement in outside professional medical activities shall require
the express written consent of PC and shall not interfere in any way with the
fulfillment of Physician's duties hereunder or diminish the quality of the
Infertility Services rendered.
(c) Physician shall receive the benefits provided for on
Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PC hereunder shall be billed and collected by PC; provided, however,
that pursuant to the terms of the Management Agreement, Management Company shall
carry out billing and collection functions on behalf of PC. In consideration for
the payment to Physician of the compensation described herein, all receivables
and collections attributable to Infertility Services provided by Physician to PC
patients shall become the property of PC, and Physician agrees immediately to
turn over to PC any such fees received by Physician during the term hereof.
Physician hereby authorizes PC, and/or Management Company on PC's behalf, to
bill for Infertility Services provided hereunder and agrees to execute any and
all assignments or other documents that may be necessary or appropriate to
permit PC, or Management Company as its designee, to carry out all billing and
collection functions. Physician agrees that Physician shall not submit bills
for, seek remuneration for, or otherwise collect fees for Infertility Services
provided hereunder. Physician shall look solely to PC for compensation for the
Infertility Services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in
order to provide Infertility Services to PC as herein required, Physician must
at all times during the term of this Agreement be a member in good standing of
at least one hospital accredited by the JCAHO (the "Hospital") within the
geographic area of PC's offices. PC 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. MANAGEMENT AGREEMENT. Physician acknowledges receipt of a copy of
the Management Agreement and acknowledges that PC has substantial
responsibilities, rights and obligations under said agreement. Physician agrees
to at all times act in such manner as to avoid causing PC to be in breach of the
Management Agreement, and Physician further agrees that to the extent applicable
to PC and to the responsibilities of the Physician hereunder, Physician shall
assist PC in carrying out its obligations under the Management Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PC shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as PC shall determine from time to time.
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8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND
POLICIES. Physician agrees at all times to comply with the bylaws, rules and
regulations of the Hospital and of its medical staff and the reasonable
policies, directives, bylaws, rules and regulations of PC. Physician
acknowledges that PC shall have final authority over: (a) the acceptance or
refusal to treat any patient; and (b) the amount of the fee to be charged for
all Infertility Services rendered by Physician to patients of PC, so long as
such fees are lawful and reasonable. Notwithstanding the foregoing, Physician
may refuse to treat any patient whom Physician 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 Services or other medical services on behalf of PC during
the term hereof shall be the property of PC. A copy of any medical records of
such patients will be made available to Physician upon request, in a timely
manner, at Physician's sole cost and expense.
10. TERM. The initial term of this Agreement shall begin on the
effective date of the Management Agreement and shall terminate five (5) years
thereafter ( the "Initial Term") unless earlier terminated pursuant to the
provisions of Section 11. After the expiration of the Initial Term, this
Agreement shall be extended automatically, unless 180 days prior notice not to
renew is given by either party, 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 any such renewal terms and shall not apply after the
end of the Initial Term.
11. TERMINATION.
(a) This Agreement may terminate upon the occurrence of any of
the following:
(i) Termination of the Management 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, subject to
Management Company's consent, 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 of this Agreement
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;
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(vi) By either party without cause upon giving the other six
months' prior written notice; provided Physician makes the payments
required pursuant to Sections 3 and Section 7 of the Personal
Responsibility Agreement, if applicable; or
(vii) Upon death or "permanent disability" (as such term is
hereinafter defined) of Physician. In either such event, this Agreement
shall terminate immediately; provided, however, Physician (or
Physician's legal representative, as the case may be) will be entitled
to receive any accrued but unpaid compensation earned by Physician
hereunder through the date of such event. For purposes of this
Agreement, the term "permanent disability" shall have the meaning set
forth in the long-term disability insurance policy or policies then
maintained by Physician or PC, or if no such policy shall then be in
effect, or if more than one such policy shall then be in effect in
which the term "permanent disability" shall be assigned different
definitions, then the term "permanent disability" shall be defined for
purposes hereof to mean any physical or mental disability or incapacity
which renders Physician incapable of fully performing the services
required in accordance with Physician's obligations hereunder for a
period of 120 consecutive days or for shorter periods aggregating 120
days during any twelve-month period.
(b) Upon termination of this Agreement, as hereinabove provided,
neither party shall have any further obligation hereunder except for: (i)
obligations occurring prior to the date of termination; and (ii) obligations,
promises or covenants which are expressly made to extend beyond the term of this
Agreement.
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 jurisdictions of the
District of Columbia, Maryland and Virginia;
(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 PC of any such
professional disciplinary proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify PC of all
malpractice actions brought against him and the disposition of any such
action; and
(e) Physician shall at all times act in compliance with all
applicable policies and procedures of PC as reasonably communicated to
Physician, as well as all applicable federal, state, and local laws,
rules and regulations.
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13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or
disclose to others (except in connection with the fulfillment of Physician's
duties hereunder) any Infertility Information, as defined herein, during the
term of this Agreement or during any extension or renewal thereof, and for a
period of one (1) year thereafter, except as expressly consented to in writing
by PC and Management Company. For purposes of this Agreement, the term
"Infertility Information" shall mean such technical, scientific, and business
information provided to Physician by PC or Management Company which is
designated by PC or Management Company 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 PC.
Physician further agrees that should his or her contractual relationship
hereunder terminate, he or she will neither take nor retain, without prior
written authorization from PC and Management Company, any papers, patient lists,
fee books, patient record files, or other documents or copies thereof or other
Infertility Information of any kind belonging to PC or Management Company, as
the case may be.
(b) Without limiting other possible remedies available to PC
for the breach of this covenant, Physician agrees that injunctive or other
equitable relief shall be available to 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 Management Company 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, PC or Management Company
will designate, prior to disclosure to Physician, the specific information which
PC or Management Company 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 Management
Agreement.
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15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO EMPLOYEES.
(a) No Solicitation. For 12 months following termination of this
Agreement and Physician's employment, Physician agrees not to solicit, directly
or indirectly, the business of any person who is or was a patient or client of
PC. For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation. This covenant is acknowledged
by Physician to be based on the fact that the names and addresses of patients
and referral sources and the contact persons, contract needs and rates for
third-party payers and contracting organizations (all of which are deemed
proprietary or confidential Infertility Information hereunder) would not have
been known by Physician except by reason of the knowledge thereof gained as an
employee or shareholder of PC.
(b) Covenant Not to Compete. Physician agrees not to compete with the
business of PC, in accordance with the terms outlined below:
(i) The term of the covenant not to compete shall be one (1)
year after the termination of this Agreement provided such termination occurs
during the Initial Term of this Agreement (the Non-Competition Period").
Physician shall not be subject to any non-compete upon the termination of this
Agreement after the end of the first five year period.
(ii) The geographic scope of the covenant not to compete is
ten (10) miles from any offices ("Non-Compete Area") maintained by PC for the
rendition of professional or other medical services to patients during the last
twelve months of Physician's employment by PC.
(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 (as defined below) providing
Infertility Services within the Non-Compete Area.
(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 company, 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.
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(B) The term "Infertility Services" shall not prohibit
Physician from providing obstetrics and general gynecological services.
(v) Separability. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section is
invalid or unenforceable, each Party agrees that the court making the
determination of invalidity or unenforceability will have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
will be enforceable as so modified after the expiration of time within which the
judgment may be appealed.
(vi) Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical care
by Physician on behalf of PC, provided those services are for patients of PC,
nor prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
(vii) Acknowledgments. PC and Physician each acknowledges
that: (i) the terms set forth in this Section are necessary for the reasonable
and proper protection of the interests of PC and the Managment Company; (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; and (iv) PC has been induced to enter into this Agreement 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 support from Management Company, in the form
of, including, but not limited to, materials, personnel, data or Facility, as
defined in the Management Agreement, or PC resources, Physician will submit to
Management Company's President, Reproductive Science Center Division 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 Management
Company's proprietary review, Physician further agrees that the appropriate
statement, "support provided by [management company name]." or "Supported in
part by [management company name]." will be set forth as a disclosure with
respect to the publication in the event such proposed article or publication was
directly supported by Management Company.
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:
Arthur W. Sagoskin, M.D.
13659 Spinning Wheel Drive
Germantown, Maryland 20874
If to PC, at:
Executive Director
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, Maryland 20850
With a copy to:
President
Shady Grove Fertility Centers, Inc.
16220 Frederick Road, Suite 502
Gaithersburg, Maryland 20877
President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
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 Maryland. 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 Sections 13, 14 and 15, shall be determined
by binding arbitration in the State of Maryland, County of Baltimore
(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
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arbitrators shall have no authority tochange 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 Maryland.
22. SEVERABILITY. Each provision in this Agreement is intended to be
severable, and may be modified by any court of competent jurisdiction to the
extent necessary to make such provision valid and enforceable. If any term or
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever in whole or in part, such provision
or portion thereof shall be severed from this Agreement and shall not effect the
validity of the remainder of this Agreement.
23. WAIVER; CONSENT. No consent or waiver, express or implied, by
either party hereto, or of any breach or default by the other party in the
performance by the other of its obligations hereunder, shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default on the performance by
such other party of the same or any other obligation of such party hereunder.
Failure on the part of either party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder. The granting of any consent or approval in any other instance
by or on behalf of Physician and/or PC shall not be construed to waive or limit
the need for such consent in any other or subsequent instance.
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.
Levy, Sagoskin and Stillman, P.C.
By:/s/Michael J. Levy (Seal)
-----------------------------------
Michael J. Levy, M.D., President
Physician:
/s/Arthur W. Sagoskin (Seal)
- --------------------------------------
Arthur W. Sagoskin, M.D.
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SCHEDULE A
Office Locations
9707 Medical Center Drive, Suite 230, Rockville, Maryland 20850
3299 Woodburn Road, Suite 480, Annandale, Virginia 22003
2112 F Street, N.W., Suite 703, Washington, DC 20037
600 Ridgely Avenue, Suite 221, Annapolis, Maryland 21401
16220 Frederick Road, Suite 502, Gaithersburg, Maryland 20877
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SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from PC. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under PC's
current income distribution and expense allocation formula. Such draw will be
calculated based on PC's annual budget which shall be prepared with the input
and assistance of Physician and Management Company. Any changes in this
allocation requires a majority vote of PC's shareholders.
PC will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, PC will calculate
the actual amount due Physician based on the quarter in question. Physician will
be entitled to one-hundred percent (100%) of the compensation for the quarter
due under the income distribution formula based on the quarterly reconciliation.
The final reconciliation will be performed on an annual basis and shall be done
by PC no later than ninety (90) days of after the fiscal year end. 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 PC's practice prior to the Management Agreement. The costs of such benefits
shall be consistent with costs typically experienced by Management Company in
connection with other medical practices it manages.
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PHYSICIAN-STOCKHOLDER
EMPLOYMENT AGREEMENT
Between
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
And
Robert J. Stillman, M.D.
AGREEMENT entered into March 11, 1998 by and between Levy, Sagoskin and
Stillman, M.D., P.C., a Maryland professional services corporation, with its
principal place of business at 9707 Medical Center Drive, Suite 230, Rockville,
Maryland 20850 ("PC") and Robert J. Stillman, M.D., residing at 10810 Nantucket
Terrace, Potomac, Maryland 20854 ("Physician").
R E C I T A L S:
PC specializes in gynecological services, treatment of human
infertility, encompassing the provision of in vitro fertilization and other
assisted reproductive technology ("Infertility Services").
Physician is duly licensed to practice medicine in the
jurisdictions of the District of Columbia, Maryland and Virginia, specializes in
the provision of Infertility Services and has experience in infertility
treatment including surgical skills required in the course of providing
Infertility Services.
PC has entered into an agreement dated March 11, 1998
("Management Agreement") with Shady Grove Fertility Centers, Inc. ("Management
Company"), pursuant to which Management Company will provide certain management
and administrative services as are more fully described in the Management
Agreement.
In order to further facilitate the provision of Infertility
Services, PC desires to employ Physician and Physician desires to accept such
employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and other
good and valuable consideration set forth herein, the parties agree as follows:
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1. ENGAGEMENT. PC hereby employs Physician and Physician hereby accepts
such employment to devote substantially 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.
Nothwithstanding anything in this Agreement to the contrary, Physician shall not
be required, and PC agrees not to require Physician, to engage in any conduct or
perform any services that interfere with Physician's independent professional
judgment.
2. DUTIES.
(a) Physician shall provide patient care and clinical backup
as required to ensure the proper provision of Infertility Services to patients
of PC at PC's office(s) at the addresses set forth in Schedule A (the
"Offices"), and/or such other locations as shall be mutually agreed to by PC and
Physician. Physician agrees to devote substantially all of Physician's
professional time, effort and ability to PC's practice development and the
provision of Infertility Services under the terms and conditions contained
herein and as the parties may agree from time to time. In connection therewith,
Physician's duties shall include, but not be limited to, the following:
(i) Provision of patient counseling and medical
examinations, performance of egg retrievals, embryo transfers, surgeries,
including, but not limited to, microsurgeries and laparoscopies, and patient
follow-up;
(ii) Reviewing and evaluating clinical data on a
routine basis and making specific recommendations for improving implantation
rates and treatment outcomes;
(iii)Maintenance of a thorough understanding of and
proficiency in the application of the most current technologies (including both
surgical and non-surgical techniques) relevant to Infertility Services and
related medical high technology infertility procedures ("ART Technology"); and
(iv) Development and implementation of educational
outreach programs designed to facilitate the development of relationships with
physicians in the obstetric/gynecology community and the dissemination of
information pertaining to the availability of Infertility Services.
(b) Except as permitted by Section 3(b) hereof, Physician
shall not, during the term of this Agreement, otherwise engage in the practice
of medicine outside of PC without the express written consent of PC and
Management Company.
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.
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(b) All remuneration received by Physician in payment for any
outside professional medical activities, other than board attendance fees and
board memberships and Permitted Compensation Arrangements shall be accounted to
and be the sole property of PC. Permitted Compensation Arrangements shall
include any income derived from testimony for litigation-related proceedings,
lectures, passive investments, fundraising, or writing where Physician does not
render professional medical services and Physician may retain all such
compensation without limit. In connection with board memberships and related
board activities, Physician may retain up to $5,000 in the aggregate annually.
Physician's engagement in outside professional medical activities shall require
the express written consent of PC and shall not interfere in any way with the
fulfillment of Physician's duties hereunder or diminish the quality of the
Infertility Services rendered.
(c) Physician shall receive the benefits provided for on
Schedule B.
4. BILLING. All fees for Infertility Services rendered by Physician on
behalf of PC hereunder shall be billed and collected by PC; provided, however,
that pursuant to the terms of the Management Agreement, Management Company shall
carry out billing and collection functions on behalf of PC. In consideration for
the payment to Physician of the compensation described herein, all receivables
and collections attributable to Infertility Services provided by Physician to PC
patients shall become the property of PC, and Physician agrees immediately to
turn over to PC any such fees received by Physician during the term hereof.
Physician hereby authorizes PC, and/or Management Company on PC's behalf, to
bill for Infertility Services provided hereunder and agrees to execute any and
all assignments or other documents that may be necessary or appropriate to
permit PC, or Management Company as its designee, to carry out all billing and
collection functions. Physician agrees that Physician shall not submit bills
for, seek remuneration for, or otherwise collect fees for Infertility Services
provided hereunder. Physician shall look solely to PC for compensation for the
Infertility Services provided hereunder.
5. MEDICAL STAFF PRIVILEGES. Physician hereby acknowledges that in
order to provide Infertility Services to PC as herein required, Physician must
at all times during the term of this Agreement be a member in good standing of
at least one hospital accredited by the JCAHO (the "Hospital") within the
geographic area of PC's offices. PC 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. MANAGEMENT AGREEMENT. Physician acknowledges receipt of a copy of
the Management Agreement and acknowledges that PC has substantial
responsibilities, rights and obligations under said agreement. Physician agrees
to at all times act in such manner as to avoid causing PC to be in breach of the
Management Agreement, and Physician further agrees that to the extent applicable
to PC and to the responsibilities of the Physician hereunder, Physician shall
assist PC in carrying out its obligations under the Management Agreement.
7. PROFESSIONAL LIABILITY INSURANCE. PC shall obtain and maintain on
behalf of Physician, professional liability insurance through a carrier and with
such limits as PC shall determine from time to time.
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8. COMPLIANCE WITH BYLAWS, RULES AND REGULATIONS AND
POLICIES. Physician agrees at all times to comply with the bylaws, rules and
regulations of the Hospital and of its medical staff and the reasonable
policies, directives, bylaws, rules and regulations of PC. Physician
acknowledges that PC shall have final authority over: (a) the acceptance or
refusal to treat any patient; and (b) the amount of the fee to be charged for
all Infertility Services rendered by Physician to patients of PC, so long as
such fees are lawful and reasonable. Notwithstanding the foregoing, Physician
may refuse to treat any patient whom Physician 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 Services or other medical services on behalf of PC during
the term hereof shall be the property of PC. A copy of any medical records of
such patients will be made available to Physician upon request, in a timely
manner, at Physician's sole cost and expense.
10. TERM. The initial term of this Agreement shall begin on the
effective date of the Management Agreement and shall terminate five (5) years
thereafter ( the "Initial Term") unless earlier terminated pursuant to the
provisions of Section 11. After the expiration of the Initial Term, this
Agreement shall be extended automatically, unless 180 days prior notice not to
renew is given by either party, 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 any such renewal terms and shall not apply after the
end of the Initial Term.
11. TERMINATION.
(a) This Agreement may terminate upon the occurrence of any of
the following:
(i) Termination of the Management 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, subject to
Management Company's consent, 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 of this Agreement
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;
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(vi) By either party without cause upon giving the other six
months' prior written notice; provided Physician makes the payments
required pursuant to Sections 3 and Section 7 of the Personal
Responsibility Agreement, if applicable; or
(vii) Upon death or "permanent disability" (as such term is
hereinafter defined) of Physician. In either such event, this Agreement
shall terminate immediately; provided, however, Physician (or
Physician's legal representative, as the case may be) will be entitled
to receive any accrued but unpaid compensation earned by Physician
hereunder through the date of such event. For purposes of this
Agreement, the term "permanent disability" shall have the meaning set
forth in the long-term disability insurance policy or policies then
maintained by Physician or PC, or if no such policy shall then be in
effect, or if more than one such policy shall then be in effect in
which the term "permanent disability" shall be assigned different
definitions, then the term "permanent disability" shall be defined for
purposes hereof to mean any physical or mental disability or incapacity
which renders Physician incapable of fully performing the services
required in accordance with Physician's obligations hereunder for a
period of 120 consecutive days or for shorter periods aggregating 120
days during any twelve-month period.
(b) Upon termination of this Agreement, as hereinabove provided,
neither party shall have any further obligation hereunder except for: (i)
obligations occurring prior to the date of termination; and (ii) obligations,
promises or covenants which are expressly made to extend beyond the term of this
Agreement.
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 jurisdictions of the
District of Columbia, Maryland and Virginia;
(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 PC of any such
professional disciplinary proceedings and the dispositions thereof;
(d) Physician has notified and will promptly notify PC of all
malpractice actions brought against him and the disposition of any such
action; and
(e) Physician shall at all times act in compliance with all
applicable policies and procedures of PC as reasonably communicated to
Physician, as well as all applicable federal, state, and local laws,
rules and regulations.
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13. CONFIDENTIALITY OF INFORMATION.
(a) Physician agrees to keep confidential and not to use or
disclose to others (except in connection with the fulfillment of Physician's
duties hereunder) any Infertility Information, as defined herein, during the
term of this Agreement or during any extension or renewal thereof, and for a
period of one (1) year thereafter, except as expressly consented to in writing
by PC and Management Company. For purposes of this Agreement, the term
"Infertility Information" shall mean such technical, scientific, and business
information provided to Physician by PC or Management Company which is
designated by PC or Management Company 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 PC.
Physician further agrees that should his or her contractual relationship
hereunder terminate, he or she will neither take nor retain, without prior
written authorization from PC and Management Company, any papers, patient lists,
fee books, patient record files, or other documents or copies thereof or other
Infertility Information of any kind belonging to PC or Management Company, as
the case may be.
(b) Without limiting other possible remedies available to PC
for the breach of this covenant, Physician agrees that injunctive or other
equitable relief shall be available to 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 Management Company 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, PC or Management Company
will designate, prior to disclosure to Physician, the specific information which
PC or Management Company 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 Management
Agreement.
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15. RESTRICTIVE COVENANTS, NON-COMPETITION AND OFFERS TO EMPLOYEES.
(a) No Solicitation. For 12 months following termination of this
Agreement and Physician's employment, Physician agrees not to solicit, directly
or indirectly, the business of any person who is or was a patient or client of
PC. For purposes of this Section, solicitation shall not include any general
advertising in a newspaper of general circulation. This covenant is acknowledged
by Physician to be based on the fact that the names and addresses of patients
and referral sources and the contact persons, contract needs and rates for
third-party payers and contracting organizations (all of which are deemed
proprietary or confidential Infertility Information hereunder) would not have
been known by Physician except by reason of the knowledge thereof gained as an
employee or shareholder of PC.
(b) Covenant Not to Compete. Physician agrees not to compete with the
business of PC, in accordance with the terms outlined below:
(i) The term of the covenant not to compete shall be one (1)
year after the termination of this Agreement provided such termination occurs
during the Initial Term of this Agreement (the Non-Competition Period").
Physician shall not be subject to any non-compete upon the termination of this
Agreement after the end of the first five year period.
(ii) The geographic scope of the covenant not to compete is
ten (10) miles from any offices ("Non-Compete Area") maintained by PC for the
rendition of professional or other medical services to patients during the last
twelve months of Physician's employment by PC.
(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 (as defined below) providing
Infertility Services within the Non-Compete Area.
(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 company, 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.
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(B) The term "Infertility Services" shall not prohibit
Physician from providing obstetrics and general gynecological services.
(v) Separability. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section is
invalid or unenforceable, each Party agrees that the court making the
determination of invalidity or unenforceability will have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
will be enforceable as so modified after the expiration of time within which the
judgment may be appealed.
(vi) Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical care
by Physician on behalf of PC, provided those services are for patients of PC,
nor prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
(vii) Acknowledgments. PC and Physician each acknowledges
that: (i) the terms set forth in this Section are necessary for the reasonable
and proper protection of the interests of PC and the Managment Company; (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; and (iv) PC has been induced to enter into this Agreement 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 support from Management Company, in the form
of, including, but not limited to, materials, personnel, data or Facility, as
defined in the Management Agreement, or PC resources, Physician will submit to
Management Company's President, Reproductive Science Center Division 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 Management
Company's proprietary review, Physician further agrees that the appropriate
statement, "support provided by [management company name]." or "Supported in
part by [management company name]." will be set forth as a disclosure with
respect to the publication in the event such proposed article or publication was
directly supported by Management Company.
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:
Robert J. Stillman, M.D.
10810 Nantucket Terrace
Potomac, Maryland 20854
If to PC, at:
Executive Director
Levy, Sagoskin and Stillman, M.D., P.C.
9707 Medical Center Drive, Suite 230
Rockville, Maryland 20850
With a copy to:
President
Shady Grove Fertility Centers, Inc.
16220 Frederick Road, Suite 502
Gaithersburg, Maryland 20877
President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
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 Maryland. 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 Sections 13, 14 and 15, shall be determined
by binding arbitration in the State of Maryland, County of Baltimore
(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
9
<PAGE>
arbitrators shall have no authority tochange 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 Maryland.
22. SEVERABILITY. Each provision in this Agreement is intended to be
severable, and may be modified by any court of competent jurisdiction to the
extent necessary to make such provision valid and enforceable. If any term or
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever in whole or in part, such provision
or portion thereof shall be severed from this Agreement and shall not effect the
validity of the remainder of this Agreement.
23. WAIVER; CONSENT. No consent or waiver, express or implied, by
either party hereto, or of any breach or default by the other party in the
performance by the other of its obligations hereunder, shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default on the performance by
such other party of the same or any other obligation of such party hereunder.
Failure on the part of either party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder. The granting of any consent or approval in any other instance
by or on behalf of Physician and/or PC shall not be construed to waive or limit
the need for such consent in any other or subsequent instance.
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.
Levy, Sagoskin and Stillman, P.C.
By:/s/Michael J. Levy (Seal)
-----------------------------------
Michael J. Levy, M.D., President
Physician:
/s/Robert J. Stillman (Seal)
- --------------------------------------
Robert J. Stillman, M.D.
10
<PAGE>
SCHEDULE A
Office Locations
9707 Medical Center Drive, Suite 230, Rockville, Maryland 20850
3299 Woodburn Road, Suite 480, Annandale, Virginia 22003
2112 F Street, N.W., Suite 703, Washington, DC 20037
600 Ridgely Avenue, Suite 221, Annapolis, Maryland 21401
16220 Frederick Road, Suite 502, Gaithersburg, Maryland 20877
11
<PAGE>
SCHEDULE B
COMPENSATION and BENEFITS
COMPENSATION
Physician will be entitled to a monthly draw from PC. The draw will be
equal to ninety (90%) of the anticipated monthly income due Physician under PC's
current income distribution and expense allocation formula. Such draw will be
calculated based on PC's annual budget which shall be prepared with the input
and assistance of Physician and Management Company. Any changes in this
allocation requires a majority vote of PC's shareholders.
PC will reconcile the draw with actual financial results on a quarterly
basis. Within thirty (30) days from the close of each quarter, PC will calculate
the actual amount due Physician based on the quarter in question. Physician will
be entitled to one-hundred percent (100%) of the compensation for the quarter
due under the income distribution formula based on the quarterly reconciliation.
The final reconciliation will be performed on an annual basis and shall be done
by PC no later than ninety (90) days of after the fiscal year end. 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 PC's practice prior to the Management Agreement. The costs of such benefits
shall be consistent with costs typically experienced by Management Company in
connection with other medical practices it manages.
12
Exhibit 21
List of Subsidiaries
IntegraMed America of Illinois, Inc., an Illinois corporation
Women's Medical & Diagnostic Center, Inc., a Florida corporation
National Menopause Foundation, Inc.(51% ownership), a Florida corporation
IVF America (MA), Inc., a Delaware corporation
IVF America (MI), Inc., a Delaware corporation
IVF America (NJ), Inc., a Delaware corporation
IVF America (NY), Inc., a Delaware corporation
IVF America (PA), Inc., a Delaware corporation
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-77312) of IntegraMed America, Inc. of our report
dated February 16, 1998 appearing on page F-2 of this Form 10-K.
/s/Price Waterhouse
- -------------------
PRICE WATERHOUSE
Stamford, Connecticut
March 20, 1998
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,930
<SECURITIES> 0
<RECEIVABLES> 9,055
<ALLOWANCES> 394
<INVENTORY> 0
<CURRENT-ASSETS> 12,348
<PP&E> 4,742 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,101
<CURRENT-LIABILITIES> 8,266
<BONDS> 0
0
166
<COMMON> 172
<OTHER-SE> 25,655
<TOTAL-LIABILITY-AND-EQUITY> 36,101
<SALES> 24,169
<TOTAL-REVENUES> 24,169
<CGS> 18,782
<TOTAL-COSTS> 18,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 478
<INCOME-TAX> 104
<INCOME-CONTINUING> 374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> 0.02 <F2>
<EPS-DILUTED> 0.02
<FN>
<F1>
PP&E is net of accumulated depreciation.
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