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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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)
One Manhattanville Road
Purchase, New York
(Address of principal executive offices)
06-1150326
(I.R.S. employer identification no.)
10577
(Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
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 [ ]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on November 1, 1998 was 20,648,369.
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<PAGE>
INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1998 (unaudited)
and December 31, 1997.....................................3
Consolidated Statement of Operations for the three and
nine-month periods ended September 30, 1998
and 1997 (unaudited)......................................4
Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 1998 and 1997 (unaudited).....5
Notes to Consolidated Financial Statements (unaudited)....6-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................16-23
Item 3. Quantitative and Qualitative Disclosures About Market Risk......23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................24
Item 2. Changes in Securities...........................................24
Item 3. Defaults upon Senior Securities.................................24
Item 4. Submission of Matters to a Vote of Security Holders.............24
Item 5. Other Information...............................................24
Item 6. Exhibits and Reports on Form 8-K................................24
SIGNATURES ......................................................25
INDEX TO EXHIBITS.............................................................26
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all dollars in thousands)
ASSETS
<CAPTION>
September 30, December 31,
------------ -----------
1998 1997
------------ -----------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents .......................................................... $ 5,037 $ 1,930
Patient accounts receivable, less allowance for doubtful accounts of $499 and $180
in 1998 and 1997, respectively.................................................... 10,874 7,061
Management fees receivable, less allowance for doubtful accounts of $114 and $214
in 1998 and 1997, respectively.................................................... 1,785 1,600
Other current assets ............................................................... 1,450 1,757
------- -------
Total current assets............................................................ 19,146 12,348
------- -------
Fixed assets, net .................................................................. 5,077 4,742
Intangible assets, net.............................................................. 19,478 18,445
Other assets........................................................................ 677 566
------- -------
Total assets.................................................................... $44,378 $36,101
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 553 $ 1,475
Accrued liabilities................................................................. 3,400 2,260
Due to Medical Practices (see Note 2)............................................... 2,097 1,745
Dividends accrued on Preferred Stock................................................ 563 464
Notes payable and current portion of long-term debt................................. 2,097 614
Current portion of exclusive management rights obligation........................... 76 472
Patient deposits ................................................................... 2,326 1,236
------- -------
Total current liabilities....................................................... 11,112 8,266
------- -------
Long-term debt ....................................................................... 4,852 451
Exclusive management rights obligation................................................ 454 1,391
Shareholders' equity
Preferred Stock, $1.00 par value -
3,165,644 shares authorized in 1998 and 1997, respectively - 2,500,000
undesignated; 665,644 shares designated as Series A Cumulative Convertible
of which 165,644 shares were issued and outstanding in 1998 and
1997, respectively................................................................ 166 166
Common Stock, $.01 par value - 50,000,000 and 25,000,000 shares authorized;
21,372,369 and 17,198,616 shares issued and outstanding in 1998 and 1997,
respectively...................................................................... 213 172
Capital in excess of par ........................................................... 53,563 46,471
Accumulated deficit ................................................................ (25,982) (20,816)
------- -------
Total shareholders' equity ..................................................... 27,960 25,993
------- -------
Total liabilities and shareholders' equity...................................... $44,378 $36,101
======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
-------------------- -------------------
1998 1997 1998 1997
------- ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net (see Note 2)...................................... $9,756 $4,956 $27,927 $13,369
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses................... 3,734 1,884 11,050 4,943
Direct materials............................................. 1,153 302 3,359 929
Occupancy costs.............................................. 725 464 2,120 1,198
Depreciation................................................. 343 195 976 556
Other expenses............................................... 1,564 633 3,960 1,926
------ ------ ------- ------
Total costs of services...................................... 7,519 3,478 21,465 9,552
Network Sites' contribution..................................... 2,237 1,478 6,462 3,817
------ ------ ------- ------
General and administrative expenses............................. 1,385 1,005 3,856 3,028
Amortization of intangible assets............................... 234 161 681 349
Interest income................................................. (24) (30) (45) (98)
Interest expense................................................ 126 14 306 48
------ ------ ------- ------
Total other expenses......................................... 1,721 1,150 4,798 3,327
------ ------ ------- ------
Restructuring and other charges (see Note 8).................... -- -- 2,084 --
Income (loss) from continuing operations before income taxes.... 516 328 (420) 490
Provision for income taxes...................................... 94 20 245 84
------ ------ ------- ------
Income (loss) from continuing operations........................ 422 308 (665) 406
Discontinued operations (see Note 7):
Loss from operations of discontinued AWM Division (less
applicable income taxes of $0)............................ -- 200 923 249
(Recapture) loss from disposal of AWM Division............... (350) -- 3,578 --
------ ------ ------- ------
Net income (loss)............................................... 772 108 (5,166) 157
Less: Dividends accrued on Preferred Stock...................... 33 33 99 99
------ ------ ------- ------
Net income (loss) applicable to Common Stock.................... $ 739 $ 75 $(5,265) $ 58
====== ====== ======= ======
Basic and diluted earnings (loss) per share of Common Stock:
Continuing operations........................................ $ 0.02 $ 0.02 $ (0.04) $ 0.03
Discontinued operations...................................... 0.01 (0.01) (0.21) (0.02)
------ ------ ------- ------
Net earnings (loss).......................................... $ 0.03 $ 0.01 $ (0.25) $ 0.01
====== ====== ======= ======
Weighted average shares - basic................................. 21,372 13,243 20,904 10,790
====== ====== ======= ======
Weighted average shares - diluted............................... 21,619 13,473 20,904 11,020
====== ====== ======= ======
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the
nine-month period
ended September 30,
-------------------
1998 1997
------- ------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income .............................................................. $(5,166) $ 157
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization.................................................. 1,938 1,228
Writeoff of tangible and intangible assets .................................... 5,541 95
Changes in assets and liabilities-- (Increase) decrease in assets:
Patient accounts receivable............................................... (2,733) (2,237)
Management fees receivable................................................ (1,075) (261)
Other current assets...................................................... 199 (108)
Other assets.............................................................. (111) (151)
Increase (decrease) in liabilities:
Accounts payable......................................................... (1,222) (835)
Accrued liabilities...................................................... (343) 285
Due to Medical Practices................................................. 352 (164)
Patient deposits......................................................... 878 434
------ -------
Net cash used in operating activities.......................................... (1,742) (1,557)
------ -------
Cash flows (used in) provided by investing activities:
Proceeds from short term investments......................................... -- 2,000
Purchase of net liabilities (assets) of acquired businesses.................. 487 (661)
Payments for exclusive management rights and related acquisition costs....... (3,165) (9,447)
Purchase of fixed assets and leasehold improvements.......................... (1,216) (834)
Proceeds from sale of fixed assets........................................... 135 139
------ -------
Net cash used in investing activities........................................... (3,759) (8,803)
------ -------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock....................................... 5,500 9,601
Used for stock issue costs................................................... (74) (1,193)
Proceeds from bank under Credit Facility..................................... 6,000 250
Principal repayments on debt................................................. (2,833) (193)
Principal repayments under capital lease obligations......................... (84) (97)
Proceeds from exercise of Common Stock options............................... 99 19
------ -------
Net cash provided by financing activities......................................... 8,608 8,387
------ -------
Net increase (decrease) in cash and cash equivalents.............................. 3,107 (1,973)
Cash and cash equivalents at beginning of period.................................. 1,930 3,952
------ -------
Cash and cash equivalents at end of period........................................ $5,037 $ 1,979
====== =======
See accompanying notes to the consolidated financial statements.
</TABLE>
5
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at September 30, 1998, and the results of
operations and cash flows for the interim period presented. Operating results
for the interim period are not necessarily indicative of results that may be
expected for the year ending December 31, 1998. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
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., IntegraMed America of Illinois, Inc., Shady Grove Fertility Centers,
Inc. (see Note 6) and the Adult Women's Medical Center, Inc. ("AWMC"). All
significant intercompany transactions have been eliminated. The Company derives
its revenues from management agreements and, with respect to one managed Network
Site and AWMC, from patient service revenues. The Company does not consolidate
the results of its managed Network Sites. Effective August 6, 1998, IVF America
(NY), Inc., IVF America (MA), Inc., IVF America (PA), Inc. and IVF America (MI),
Inc. were merged into IntegraMed America, Inc. Effective September 1, 1998, the
Company disposed of AWMC via a sale of its operations.
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 "display method") if the
terms of the management agreement provided the PPM with a "net profits or
equivalent interest" in the medical services furnished by the respective medical
practices. It is the Company's understanding that the EITF did not and would not
object to the use of the 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 does not have a material impact
on the Company's financial position, cash flows or results of operations. As
discussed below, the Company has discontinued 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 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 historically 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 its consolidated statement of operations (the "display
method"). Due to changes in the terms of the management agreements related to
the Long Island and Boston Network Sites, effective in October 1997 and January
1998, respectively, the Company no longer displays the patient services revenue
of the Long Island and Boston Medical Practices. As a result, the Company no
longer displays the patient services revenue and Medical Practice retainage
related to these Network Sites in the accompanying consolidated statement of
operations for the periods prior to January 1, 1998. The revised management
agreements provide for the Company to receive a specific management fee which
the Company has reported in "Revenues, net" in the accompanying Consolidated
Statement of Operations.
6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 -
Reproductive Science Center(R) Division ("RSC Division")
The Company currently provides comprehensive management services under nine
management agreements.
Under six of the agreements, including the revised management agreement for
the Boston Network Site, 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 Medical Practice and any costs paid on behalf of the
Medical Practice) and (iii) a fixed or variable percentage of earnings after
management fees which is currently generally equal to up to 20%, or an
additional variable percentage of net revenues generally ranging from 7% to
9.5%. Under the revised management agreement for the Long Island Network Site,
as compensation for its management services, the Company receives a fixed fee
(currently equal to $480,000 per annum), plus reimbursed costs of services.
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.
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 Practices are recorded in operating expenses
incurred on behalf of Network Sites. The physicians receive as compensation all
remaining earnings after payment of the Company's management fee.
Prior to January 1, 1998, under another form of management agreement which
had been in use at the Long Island and Boston Network Sites, 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. Under these
agreements, the Company guaranteed a minimum physician compensation based on an
annual budget jointly determined by the Company and the physicians. The
Company's management fee was payable only out of remaining revenues, if any,
after the payment of physician compensation and all direct administrative
expenses of the Medical Practice which were recorded as costs of service. 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. Due to changes in the management agreements related to
the Long Island and Boston Network Sites, effective in October 1997 and January
1998, respectively, the Company no longer displays patient service revenues of
the Long Island and Boston Medical Practices which had 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 receives a fixed fee (currently equal to $480,000 per annum), plus
reimbursed costs of services. Under the revised management agreement for the
Boston Network Site, as compensation for its management services, the Company
receives a three-part management fee consistent with 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.
7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AWM Division
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division. On September 1, 1998 the Company disposed of the AWM Division
operations via a sale of certain of its fixed assets to a third party and the
third party's assumption of the employees, building lease, research contracts,
and medical records. The operating results of the AWM Division for the three and
nine-month periods ended September 30, 1998 and the charges recorded by the
Company related to its disposal are reflected under "Discontinued Operations" in
the accompanying Consolidated Statement of Operations (See Note 7).
The AWM Division's operations had been comprised of one Network Site with
two locations which were directly owned by the Company and a 51% interest in the
National Menopause Foundation ("NMF"), a company which had developed
multifaceted educational programs regarding women's healthcare. The Network Site
had also been involved in clinical trials with major pharmaceutical companies.
The Company had billed and recorded all patient service revenues of the
Network Site and had recorded all direct costs incurred as costs of services.
The medical providers had received a fixed monthly draw which had been adjusted
quarterly by the Company based on the respective Network Site's actual operating
results.
Revenues in the AWM Division had also included amounts earned under
contracts relating to clinical trials between the Network Site and various
pharmaceutical companies. The Network Site had contracted with major
pharmaceutical companies (sponsors) to perform women's medical care research
mainly to determine the safety and efficacy of a medication. Research revenues
had been recognized pursuant to each respective contract in the period which the
medical services (as stipulated by the research study protocol) had been
performed and collection of such fees had been considered probable. Net
realization had been 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 had been included in costs of
services rendered.
The Company's 51% interest in NMF had been included in the Company's
consolidated financial statements. The Company had recorded 100% of the patient
service revenues and costs of NMF and had reported 49% of any profits of NMF as
minority interest on the Company's consolidated balance sheet. Minority interest
at September 30, 1998 and December 31, 1997 was $0.
Patient accounts receivable--
Patient accounts receivable represent receivables from patients for medical
services provided by the Medical Practices. Such amounts are recorded net of
contractual allowances and estimated bad debts. As of September 30, 1998 and
December 31, 1997, of total patient accounts receivable of $10,874,000 and
$7,061,000, respectively, approximately $10,527,000 and $4,477,000 of patient
accounts receivable were a function of Network Site revenue (i.e., the Company
purchased the accounts receivable, net of contractual allowances, from the
Medical Practice (the "Purchased Receivables")) and the remaining balances of
$347,000 and $2,584,000, respectively, were a function of net revenues of the
Company (see -- "Revenue and cost recognition" above). Risk of loss in
connection with non-collectiblity of Purchased Receivables is partially borne by
the Company in an amount equal to the Company's proportionate share of revenues
and/or earnings which are paid to the Company from the Medical Practice as its
management fee. Risk of loss in connection with non-collectibility of patient
accounts receivable which are a function of net revenues of the Company is borne
by the Company.
Management fees receivable --
Management fees receivable represent fees owed to the Company primarily for
repayment of advances by the Company to certain of the Medical Practices
pursuant to the respective management agreements with these Medical Practices
(see -- "Revenue and cost recognition" above).
8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets --
Intangible assets at September 30, 1998 and December 31, 1997 consisted of
the following (000's omitted):
September 30, December 31,
------------ -----------
1998 1997
------------ -----------
Exclusive management rights.............. $20,367 $15,539
Goodwill................................. -- 3,890
Trademarks............................... 398 395
------- -------
Total............................... 20,765 19,824
Less-- accumulated amortization......... (1,287) (1,379)
------- -------
Total............................... $19,478 $18,445
======= =======
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. During the
nine-month period ended September 30, 1998, the Company recorded a charge to
earnings for the writeoff of the entire unamortized portion of goodwill
associated with the AWM Division which was disposed of effective September 1,
1998 and recorded an aggregate exclusive management right impairment charge of
$1.4 million related to certain of the managed single-physician practices (see
Notes 7 and 8).
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. The fully depreciated
asset balances related to the AWM Division and to certain of the managed
single-physician practices were removed from the Company's records as of
September 30, 1998 (see Notes 7 and 8). As of September 30, 1998, accumulated
amortization of exclusive management rights and trademarks was $961,000 and
$326,000, respectively. As of December 31, 1997, accumulated amortization of
exclusive management rights, goodwill and trademarks was $802,000, $283,000 and
$294,000, respectively.
Due to Medical Practices --
Due to Medical Practices primarily represents amounts owed by the Company
to the Medical Practices for the medical providers' share of the respective
Medical Practice earnings net of the Company's advances to the Medical Practice,
if any. Due to Medical Practices excludes amounts owed by the Company to Medical
Practices for exclusive management rights.
9
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 3 -- SIGNIFICANT MANAGEMENT CONTRACTS:
For the three and nine-month periods ended September 30, 1998 and 1997, the
Boston, New Jersey, FCI (acquired in mid-August 1997), and Shady Grove (acquired
in mid-March 1998) Network Sites provided greater than 10% of the Company's
Revenues, net and Network Sites' contribution as follows:
<TABLE>
<CAPTION>
Percent of Company Percent of Network Percent of Company Percent of Network
Revenues, net Sites' contribution Revenues, net Sites' contribution
for the three-month for the three-month for the nine-month for the nine-month
period ended Sept. 30, period ended Sept. 30, period ended Sept. 30, period ended Sept. 30,
---------------------- ----------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston.......... 15.54 28.23 20.80 29.30 16.12 31.74 21.97 36.54
New Jersey...... 12.35 19.19 28.28 40.49 12.44 20.78 28.22 43.54
FCI............. 25.81 12.22 22.75 13.98 26.73 4.72 26.69 6.08
Shady Grove..... 18.43 -- 11.89 -- 13.37 -- 8.83 --
</TABLE>
NOTE 4 -- NOTES PAYABLE:
In September 1998, the Company obtained from Fleet Bank, N.A. ("Fleet") a
$13.0 million credit facility (the "New Credit Facility"). The New Credit
Facility is comprised of a $4.0 million three-year working capital revolver, a
$5.0 million three-year acquisition revolver and a $4.0 million 5.5 year term
loan. Each component of the New Credit Facility bears interest by reference to
Fleet's prime rate or LIBOR, at the option of the Company, plus a margin ranging
from 0.00% to 0.25% in the case of prime-based loans or 2.75% to 3.00% in the
case of LIBOR-based loans, which margins vary based on a leverage test. Interest
on the prime-based loans is payable monthly and interest on LIBOR-based loans is
payable on the last day of each interest period applicable thereto provided
that, in the case of interest periods in excess of three months, interest is
payable at three-month intervals during such periods. Borrowings under the term
loan will require only interest payments for the first twenty months. Upon
closing of the New Credit Facility, the Company drew the entire $4.0 million
available under the term loan to repay in full its balance outstanding with
First Union National Bank of $2,250,000 and for working capital and acquisition
purposes. In addition, the Company will utilize a portion of the proceeds of the
term loan to pay part of the consideration to repurchase up to $2 million of the
Company's outstanding shares of Common Stock from time to time on the open
market at prevailing market prices or through privately negotiated transactions.
As of November 1, 1998, the Company had repurchased 724,000 shares of its Common
Stock for an aggregate cost of $476,000. Unused amounts under the working
capital and acquisition revolvers bear a commitment fee of 0.25% and 0.20%,
respectively. Availability of borrowings under the working capital revolver are
based on eligible accounts receivable as defined. Availability of borrowings
under the acquisition revolver will be based on financial covenants and
eligibility criteria with respect to each proposed acquisition. Approximately
$4.5 million was available under the working capital and acquisition revolvers
as of September 30, 1998. The New Credit Facility is secured by all of the
Company's assets.
As part consideration for the acquisition of the capital stock of Shady
Grove Fertility Centers, Inc., the Company issued $1.1 million in promissory
notes which are payable in two equal annual installments, due on April 1, 1999
and 2000, respectively, and bear interest at an annual rate of 8.5%.
Also included in notes payable is the Company's aggregate obligation of
approximately $1.6 million in the form of cash, stock, and a note to acquire the
balance of the capital stock of Shady Grove Fertility Centers, Inc., in early
1999.
10
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- EQUITY:
Effective August 31, 1998, the Board of Directors approved a resolution to
reprice certain stock option agreements held by each officer, director and
employee of the Company, under the 1992 Incentive and Non-Incentive Stock Option
Plan and/or the 1998 Stock Option Plan. Per the resolution, stock option
agreements where the exercise price per share was greater than $1.03 were
amended to provide for an exercise price per share of $1.03 ("New Options").
Except for the exercise price of the New Options, all other terms and conditions
of the agreements remain in full force and effect. Per the resolution, options
to purchase approximately 1.4 million shares of Common Stock were repriced.
The Board of Directors has authorized the repurchase of up to $2 million of
the Company's outstanding shares of Common Stock from time to time on the open
market at prevailing market prices or through privately negotiated transactions.
The Company will utilize a portion of the term loan proceeds from its new credit
facility with Fleet Bank, N.A. to fund a portion of the price of the stock
repurchases.
As of September 30, 1998, dividend payments of approximately $563,000 on
the Series A Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock") were in arrears. In October 1998, the Company paid all dividend payments
which were in arrears.
The Board of Directors has authorized a one for four reverse stock split of
its outstanding shares of Common Stock through an amendment to the Company's
Amended and Restated Certificate of Incorporation. The reverse stock split will
be submitted for approval by the Company's stockholders at a Special Meeting of
Stockholders to be held on November 17, 1998. If approved by the Company's
stockholders, every four shares of Common Stock will be converted into one share
of Common Stock. On September 21, 1998, the Common Stock had been trading below
$1.00 for 30 consecutive trading days. The reverse stock split is intended to
allow the Company to comply with the minimum $1.00 bid price per share
requirement for continued listing of the Company's Common Stock on the Nasdaq
National Market.
During the first quarter of 1998, the Company consummated an equity private
placement of $5.5 million with entities affiliated with Morgan Stanley Venture
Partners ("Morgan Stanley") 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 a portion of these funds to acquire the capital stock of Shady
Grove Fertility Centers, Inc. (see Note 6).
In March and April 1998, pursuant to amendments to the Bay Area, FCI and
Shady Grove management agreements, the Company issued warrants to purchase an
aggregate of 150,000 shares of Common Stock, at a weighted average exercise
price of $1.77 per share to the shareholder physicians of the respective medical
practices in exchange for an extension of the term of the Company's respective
management agreements from twenty to twenty-five years.
NOTE 6 -- RECENT ACQUISITIONS:
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 the consummation of
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 12, 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
11
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consummation 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 in early 1999.
The aggregate purchase price for all of the Shady Grove capital stock was $5.7
million, consisting of approximately $2.8 million in cash, approximately $1.4
million in Common Stock, and approximately $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. 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 of approximately
$1.6 million in the form of cash, stock and a note in early 1999 (the "Second
Closing Date"), when the balance of the Shady Grove capital stock is transferred
to the Company. The $1.1 million of promissory notes currently outstanding are
payable in two equal annual installments 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 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.
The following unaudited pro forma results of operations for the three and
nine-month periods ended September 30, 1998 and 1997 have been prepared by
management based on the unaudited financial information for Shady Grove, the
Maryland professional corporation, which management arrangement was entered into
in March 1998, and Fertility Centers of Illinois, S.C. which management
agreement was entered into in August 1997, 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 Shady Grove management
agreement had been consummated on January 1, 1998 and 1997, respectively, and as
if the FCI management agreement, excluding the in-market mergers in 1997 and
1998, had been consummated on January 1, 1997. 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 For the
three-month nine-month
period ended period ended
September 30, September 30,
(000's omitted) (000's omitted)
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net................................................. $9,756 $7,123 $29,433 $20,853
Net income (loss) from continuing operations (1).............. $ 422 $ 622 $ (498) $ 1,414
Basic and diluted earnings (loss) per share of Common Stock
from continuing operations................................. $ 0.02 $ 0.04 $ (0.03) $ 0.11
(1) Pro forma income from continuing operations before restructuring and other
charges for the nine-month period ended September 30, 1998 was
approximately $1.6 million, or $0.07 per share.
</TABLE>
NOTE 7 -- DISCONTINUED OPERATIONS:
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division operations. On September 1, 1998 the Company disposed of the
AWM operations via a sale of certain of its fixed assets to a third party and
the third party's assumption of the employees, building lease, research
12
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contracts, and medical records. As of September 30, 1998, the Company's
Consolidated Balance Sheet includes approximately $30,000 of accounts payable,
$20,000 of accrued liabilities and $262,500 in notes payable related to the AWM
Division. During the nine-month period ended September 30, 1998, the Company
reported a loss from the disposal of the AWM Division of approximately $3.6
million, which principally represented approximately $3.3 million related to the
write-off of goodwill and $243,000 for estimated operating losses during the
phase-out period. During the three-month periods ended September 30, 1998 and
1997, the AWM Division recorded revenues of approximately $338,000 and $459,000,
respectively. During the nine-month periods ended September 30, 1998 and 1997,
the AWM Division recorded revenues of approximately $1.0 million and $1.7
million, respectively.
NOTE 8 -- RESTRUCTURING AND OTHER CHARGES:
The Company recorded approximately $2.1 million in restructuring and other
charges in the three-month period ended June 30, 1998. Such charges included
approximately $1.4 million associated with its termination of its management
agreement with the Reproductive Science Center of Greater Philadelphia, a single
physician Network Site, effective July 1, 1998, which primarily consisted of
exclusive management right impairment and other asset write-offs. Such charges
also included approximately $700,000 for exclusive management right impairment
losses related to two other single physician Network Sites.
NOTE 9 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three and nine-month periods ended September
30, 1998 and 1997 is as follows (000's omitted, except for per share amounts):
<TABLE>
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
------------------- -------------------
1998 1997 1998 1997
----- ------ ------ ------
Numerator
<S> <C> <C> <C> <C>
Income (loss) from continuing operations.................. $ 422 $ 308 $ (665) $ 406
Less: Preferred stock dividends accrued................... 33 33 99 99
------- ------- ------- -------
Income (loss) from continuing operations
available to Common stockholders....................... 389 275 (764) 307
Recapture (loss) from discontinued operations............. 350 (200) (4,501) (249)
------- ------- ------- -------
Net income (loss) available to Common Stockholders........ $ 739 $ 75 $(5,265) $ 58
======= ======= ======= =======
Denominator
Weighted average shares outstanding....................... 21,372 13,243 20,904 10,790
Effect of dilutive options and warrants................... 247 230 -- 230
------- ------- ------- -------
Weighted average shares and dilutive potential
Common shares.......................................... 21,619 13,473 20,904 11,020
======= ======= ======= =======
Basic and diluted EPS:
Continuing operations..................................... $ 0.02 $ 0.02 $ (0.04) $ 0.03
Discontinued operations................................... 0.01 (0.01) (0.21) (0.02)
------- ------- ------- -------
Net earnings (loss)....................................... $ 0.03 $ 0.01 $ (0.25) $ 0.01
======= ======= ======= =======
</TABLE>
The effect of the assumed exercise of options to purchase approximately
20,000 shares of Common Stock and warrants to purchase 240,000 shares of Common
Stock at exercise prices of $0.625 and of $0.01, respectively, were included in
computing the diluted per share amount for the three-month period ended
September 30, 1998. These shares were excluded in computing the diluted per
share amount for the nine-month period ended September 30, 1998 as they were
antidilutive due to the Company's net loss during the nine-month period. For the
three and nine-month periods ended September 30, 1998, the effect of the assumed
exercise of options to purchase approximately 1.4 million shares of Common Stock
and warrants to purchase approximately 313,000 shares of Common Stock at
13
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exercise prices ranging from $1.00 to $1.03 per share and exercise prices
ranging from $1.25 to $10.34 per share, respectively, were excluded in computing
the diluted per share amount as the exercise price of the options and warrants
equaled or exceeded the average market price of the Common Stock during these
periods. For the three and nine-month periods ended September 30, 1998,
approximately 523,000 shares of Common Stock from the assumed conversion of
Preferred Stock were excluded in computing the diluted earnings per share as the
amount of the dividend declared for these periods per share of Common Stock
obtainable on conversion exceeded basic earnings per share.
The effect of the assumed exercise of options to purchase approximately
562,000 shares of Common Stock and warrants to purchase approximately 150,000
shares of Common Stock at exercise prices ranging from $0.625 to $1.68 and from
$1.25 to $1.81, respectively, were included in computing the diluted per share
amount for the three and nine-month periods ended September 30, 1997. For the
three and nine-month periods ended September 30, 1997, the effect of the assumed
exercise of options to purchase approximately 583,000 shares of Common Stock and
warrants to purchase approximately 233,000 shares of Common Stock at exercise
prices ranging from $2.00 to $3.75 and from $10.34 to approximately $14.54 per
share, respectively, were excluded in computing the diluted per share amount as
the exercise price of the options and warrants exceeded the average market price
of the Common Stock during the period. For the three and nine-month periods
ended September 30, 1997, approximately 414,000 shares of Common Stock from the
assumed conversion of Preferred Stock were excluded in computing the diluted
earnings per share as the amount of the dividend declared for these periods per
share of Common Stock obtainable on conversion exceeded basic earnings per
share.
NOTE 10 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS:
In connection with the Company's termination of its management agreement
with the Reproductive Sciences Medical Center, Inc. effective September 1, 1998,
the Company was discharged from its remaining exclusive management right
obligation of $650,000.
In connection with the Company's termination of its management agreement
with the Reproductive Science Center of Greater Philadelphia and due to this
Network Site's historical operating losses, approximately $583,000 of the
Company's exclusive right to manage obligation to the physician owner was
applied against the Company's receivable from the physician owner during the
six-month period ended June 30, 1998.
In connection with its acquisition of the exclusive right to manage CFRM in
January 1998, the Company issued 184,314 shares of Common Stock with an
aggregate fair value equal to approximately $300,000.
In connection with its acquisition of the exclusive right to manage the
Shady Grove P.C., in March 1998, the Company issued 639,551 shares of Common
Stock with an aggregate fair value equal to approximately $1.2 million and
approximately $1.1 million in promissory notes. The Company also recorded an
additional aggregate obligation of approximately $1.6 million in the form of
cash, stock and a note to acquire the balance of the capital stock of Shady
Grove, which is anticipated to occur in early 1999.
In connection with its acquisition of the exclusive right to manage Bay
Area Fertility in January 1997, the Company issued 333,333 shares of Common
Stock with an aggregate fair value equal to approximately $500,000.
In March and April 1998, pursuant to amendments to the Bay Area, FCI and
Shady Grove management agreements, the Company issued warrants to purchase an
aggregate 150,000 shares of the Company's Common Stock at a weighted average
exercise price of $1.77 per share to the shareholder physicians of the
respective medical practices in exchange for an extension of the term of the
Company's respective managements agreement from twenty to twenty-five years.
In the three-month period ended September 30, 1997, the Company entered
into a capital lease obligation in the amount of $105,000 for medical equipment.
Accrued dividends on Convertible Preferred Stock outstanding increased by
$99,000 to $563,000 and by $99,000 to $430,000, in the nine-month periods ended
September 30, 1998 and 1997, respectively.
14
<PAGE>
State taxes, which primarily reflect various state income taxes, of
$376,000 and $66,000 were paid in the nine-month periods ended September 30,
1998 and 1997, respectively.
Interest paid in cash in the nine-month periods ended September 30, 1998
and 1997 amounted to $306,000 and $48,000, respectively. Interest received in
the nine-month periods ended September 30, 1998 and 1997 amounted to $45,000 and
$168,000 respectively.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
Overview
IntegraMed America, Inc. (the "Company") is a health services management
company specializing in fertility and assisted reproductive technology (ART)
services. The Company provides comprehensive management services to a nationwide
network of medical providers currently consisting of nine sites (each, a
"Network Site" or "Reproductive Science Center"). Each Reproductive Science
Center 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. The current network of nine Reproductive Science Centers
is comprised of twenty-one locations in nine states and the District of Columbia
and forty-seven affiliated physicians, including physicians employed by the
Medical Practice, as well as, physicians who have arrangements to utilize the
Company's facilities.
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 fertility health care services. The primary elements of the Company's
strategy include: (i) establishing additional Reproductive Science Centers, (ii)
increasing revenue at the Reproductive Science Centers, (iii) increasing
operating efficiencies at the Reproductive Science Centers and (iv) developing a
nationwide integrated information system.
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 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 historically 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 its consolidated statement of operations ("display
method"). Due to changes in the management agreements related to the Long Island
and Boston Network Sites effective in October 1997 and January 1998,
respectively, the Company no longer displays the patient services revenue of the
Long Island and Boston Medical Practices. As a result, the Company no longer
displays the patient services revenue and Medical Practice retainage related to
these Network Sites in the accompanying consolidated statement of operations for
the periods prior to January 1, 1998. The revised management agreements provide
for the Company to receive a specific management fee which the Company has
reported in "Revenues, net" in the accompanying consolidated statement of
operations. The revised agreements provide for increased incentives and
risk-sharing for the Company's affiliated Medical Practices.
In the nine-month period ended September 30, 1998, the Company recorded
restructuring and other charges of approximately $2.1 million associated with
its termination of its management agreement with the Reproductive Science Center
of Greater Philadelphia, a single-physician Network Site, effective July 1,
1998, and exclusive management right impairment losses related to two other
single-physician Network Sites.
Due to continued operating losses and the Company's decision to focus
exclusively on fertility services, in June 1998, the Company committed itself to
a formal plan to dispose of the operations of the Adult Women's Medical Division
("AWM Division"). The AWM Division operations were sold effective September 1,
1998. The nine-month period ended September 30, 1998 reflects an aggregate
charge of approximately $4.5 million related to the operating losses and the
disposal of the AWM Division.
During the first quarter of 1998, the Company consummated an equity private
placement of $5.5 million with entities affiliated with Morgan Stanley Venture
Partners. A portion of these funds was 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.
16
<PAGE>
In September 1998, the Company obtained from Fleet Bank, N.A. a $13.0
million credit facility to fund acquisitions over approximately the next one to
two years, to provide working capital, and to refinance its existing bank debt.
In addition, the Company will utilize a portion of the proceeds of the term loan
from its new credit facility to pay part of the consideration to repurchase up
to $2 million of the Company's outstanding shares of Common Stock from time to
time on the open market at prevailing market prices or through privately
negotiated transactions.
The Board of Directors has authorized a one for four reverse stock split of
its outstanding shares of Common Stock through an amendment to the Company's
Amended and Restated Certificate of Incorporation. The reverse stock split will
be submitted for approval by the Company's stockholders at a Special Meeting of
Stockholders to be held on November 17, 1998. If approved by the Company's
stockholders, every four shares of Common Stock will be converted into one share
of Common Stock. On September 21, 1998, the Common Stock had been trading below
$1.00 for 30 consecutive trading days. The reverse stock split is intended to
allow the Company to comply with the minimum $1.00 bid price per share
requirement for continued listing of the Company's Common Stock on the Nasdaq
National Market.
Results of Operations
The following table shows the percentage of net revenue represented by
various expense and other income items reflected in the Company's Consolidated
Statement of Operations.
<TABLE>
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net................................................... 100% 100% 100% 100%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses................. 38.27% 38.01% 39.57% 36.97%
Direct materials........................................... 11.82% 6.09% 12.03% 6.95%
Occupancy costs............................................ 7.43% 9.36% 7.59% 8.96%
Depreciation............................................... 3.52% 3.93% 3.49% 4.16%
Other expenses............................................. 16.03% 12.78% 14.18% 14.41%
----- ----- ----- -----
Total costs of services.................................... 77.07% 70.17% 76.86% 71.45%
Network Sites' contribution..................................... 22.93% 29.83% 23.14% 28.55%
General and administrative expenses............................. 14.20% 20.28% 13.81% 22.65%
Amortization of intangible assets............................... 2.40% 3.25% 2.44% 2.61%
Interest income................................................. (0.24)% (0.60)% (0.16)% (0.73)%
Interest expense................................................ 1.29% 0.28% 1.09% 0.36%
----- ----- ----- -----
Total other expenses....................................... 17.65% 23.21% 17.18% 24.89%
----- ----- ----- -----
Restructuring and other charges................................. 0.00% 0.00% 7.46% 0.00%
Income (loss) from continuing operations before income taxes.... 5.28% 6.62% (1.50)% 3.66%
Provision for income taxes...................................... 0.96% 0.40% 0.88% 0.63%
----- ----- ----- -----
Income (loss) from continuing operations (a).................... 4.32% 6.22% (2.38)% 3.03%
Discontinued operations (recapture) loss........................ (3.59)% 4.04% 16.12% 1.86%
----- ----- ----- -----
Net income (loss)........................................... 7.91% 2.18% (18.5)% 1.17%
===== ===== ===== =====
(a) Excluding the effect of the restructuring and other charges in
1998, income from continuing operations as a percent of revenues, net
would have been 5.08% for the nine months ended September, 30, 1998.
</TABLE>
17
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Revenues, net for the three months ended September 30, 1998 (the "third
quarter of 1998") were approximately $9.8 million as compared to approximately
$5.0 million for the three months ended September 30, 1997 (the "third quarter
of 1997"), an increase of $4.8 million, or 96.9%. The increase in revenues,
excluding revenues related to the Philadelphia Network Site agreement which was
terminated effective July 1, 1998 and including revenues related to the San
Diego Network Site agreement which was terminated effective September 1, 1998,
was approximately 72.5% attributable to new management agreements entered into
in the first quarter of 1998 and the second and third quarter of 1997 and
approximately 27.5% attributable to same market growth. Same market growth was
principally achieved via new service offerings, the expansion of ancillary
services, and increases in patient volume. The aggregate increase in revenue was
comprised of the following: (i) an approximate $4.0 million increase in
reimbursed costs of services; and (ii) an approximate $760,000 increase in the
Company's management fees derived from the managed Medical Practices' net
revenue and/or earnings.
Total costs of services as a percentage of revenue increased by 6.9% in the
third quarter of 1998 as compared to the third quarter of 1997. Employee
compensation and related expenses, direct materials, and other expenses as a
percentage of revenue increased primarily due to the factors attributable to
increasing revenues. Occupancy costs and depreciation as a percentage of revenue
decreased primarily due to the significant increase in revenues.
Network Sites' contribution increased by approximately 51.4% to $2.2
million in the third quarter of 1998 as compared to $1.5 million in the third
quarter of 1997 due to the factors attributable to increasing revenues.
General and administrative expenses for the third quarter of 1998 were
approximately $1.4 million as compared to approximately $1.0 million in the
third quarter of 1997, an increase of 37.8%. As a percentage of revenues,
general and administrative expenses decreased to approximately 14.2% from
approximately 20.3% primarily due to the significant increase in revenues.
Amortization of intangible assets was $234,000 in the third quarter of 1998
as compared to $161,000 in the third quarter of 1997. This increase was
attributable to the Company's acquisitions of new management agreements in the
first quarter of 1998 and the second and third quarters of 1997, partially
offset by the absence of amortization related to certain single physician
Network Sites due to exclusive management right impairment losses which were
recorded in the second quarter of 1998.
Interest income for the third quarter of 1998 decreased to $24,000 from
$30,000 for the third quarter of 1997, due to a lower invested cash balance.
Interest expense for the third quarter of 1998 increased to $126,000 from
$14,000 in the third quarter of 1997, due to increases in bank borrowings
principally to finance working capital and acquisition needs and in notes
payable to Medical Providers for exclusive management rights.
The provision for income taxes primarily reflected various state income
taxes in both the third quarter of 1998 and the third quarter of 1997.
Income from continuing operations was approximately $422,000 in the third
quarter of 1998 as compared to $308,000 in the third quarter of 1997. The
increase was primarily due to the $759,000 increase in Network Site
contribution, which was partially offset by increases in general and
administrative expenses, amortization of intangible assets, interest and income
tax expense.
The Company disposed of the AWM Division via a sale of its operations
effective September 1, 1998. Discontinued operations in the third quarter of
1998 reflect the recapture of $350,000 of disposal costs which had been recorded
in the second quarter of 1998. During the third quarter of 1998 and 1997, the
AWM Division recorded revenues of $338,000 and $459,000, respectively.
18
<PAGE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Revenues, net for the nine months ended September 30, 1998 were
approximately $27.9 million as compared to approximately $13.4 million for the
nine months ended September 30, 1997, an increase of approximately $14.5
million, or 109%. The increase in revenues, excluding revenues related to the
Philadelphia Network Site agreement which was terminated effective July 1, 1998
and including revenues related to the San Diego Network Site agreement which was
terminated effective September 1, 1998, was approximately 74.8% attributable to
new management agreements entered into in the first quarter of 1998 and the
second and third quarter of 1997 and approximately 25.2% attributable to same
market growth. Same market growth was principally achieved via new service
offerings, the expansion of ancillary services, and increases in patient volume.
The aggregate increase in revenue was comprised of the following: (i) an
approximate $11.9 million increase in reimbursed costs of services; and (ii) an
approximate $2.6 million increase in the Company's management fees derived from
the managed Medical Practices' net revenue and/or earnings.
Total costs of services as a percentage of revenue increased by 5.41% for
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. Employee compensation and related expenses, direct
materials, and other expenses as a percentage of revenue increased primarily due
to the factors attributable to increasing revenues. Occupancy costs and
depreciation as a percentage of revenue decreased primarily due to the
significant increase in revenues.
Network Sites' contribution increased by approximately 69.3% to $6.5
million for the nine months ended September 30, 1998 as compared to $3.8 million
for the nine months ended September 30, 1997 due to the factors attributable to
increasing revenues.
General and administrative expenses for the nine months ended September 30,
1998 were approximately $3.9 million as compared to approximately $3.0 million
for the nine months ended September 30, 1997, an increase of 27.3%. As a
percentage of revenues, general and administrative expenses decreased to
approximately 13.8% from approximately 22.7% primarily due to the significant
increase in revenues.
Amortization of intangible assets was $681,000 for the nine months ended
September 30, 1998 as compared to $349,000 for the nine months ended September
30, 1997. This increase was attributable to the Company's acquisitions of new
management agreements in the first quarter of 1998 and the second and third
quarters of 1997, partially offset by the absence of amortization related to
certain single physician Network Sites due to exclusive management right
impairment losses which were recorded in the second quarter of 1998.
Interest income for the nine months ended September 30, 1998 decreased to
$45,000 from $98,000 for the nine months ended September 30, 1997, due to a
lower invested cash balance. Interest expense for the nine months ended
September 30, 1998 increased to $306,000 from $48,000 for the nine months ended
September 30, 1997, due to an increase in bank borrowings principally to finance
working capital and acquisition needs and in notes payable to Medical Providers
for exclusive management rights.
The provision for income taxes primarily reflected various state income
taxes in both the nine months ended September 30, 1998 and September 30, 1997.
Restructuring and other charges were approximately $2.1 million for the
nine months ended September 30, 1998. Such charges included approximately $1.4
million associated with the Company's termination of its management agreement
with the Reproductive Science Center of Greater Philadelphia, a single physician
Network Site, effective July 1, 1998, which primarily consisted of exclusive
management right impairment and other asset write-offs. Such charges also
included approximately $700,000 for exclusive management right impairment losses
related to two other single physician Network Sites.
Income from continuing operations excluding restructuring and other charges
was approximately $1.4 million for the nine months ended September 30, 1998 as
compared to $406,000 for the nine months ended September 30, 1997. The increase
was primarily due to the approximate $2.6 million increase in Network Site
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contribution, which waspartially offset by increases in general and
administrative expenses, amortization of intangible assets, interest and income
tax expense.
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division operations. On September 1, 1998 the Company disposed of the
AWM Division operations via a sale of certain of its fixed assets to a third
party and the third party's assumption of the employees, building lease,
research contracts, and medical records. Discontinued operations for the nine
months ended September 30, 1998 reflect an aggregate charge of approximately
$4.5 million of which $923,000 represented loss from operations and
approximately $3.6 million represented loss from the disposal of the AWM
Division. The loss from disposal of the AWM Division principally represented
approximately $3.3 million related to the write-off of goodwill and $243,000 for
estimated operating losses during the phase-out period. During the nine months
ended September 30, 1998 and 1997, the AWM Division recorded revenues of
approximately $1.0 million and $1.7 million, respectively.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. More recently, the Company has commenced using bank
financing for working capital and acquisition purposes. 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 Company's existing
Network Sites. The Medical Practices may require capital for renovation and
expansion and for the addition of medical equipment and technology. In September
1998, the Company obtained from Fleet Bank, N. A. a $13.0 million credit
facility to fund acquisitions over approximately the next one to two years, to
provide working capital, and to refinance its existing bank debt. In addition,
the Company will utilize a portion of the proceeds of the term loan from its new
credit facility to pay part of the consideration to repurchase up to $2 million
of the Company's outstanding shares of Common Stock from time to time on the
open market at prevailing market prices or through privately negotiated
transactions.
During the first quarter of 1998, the Company consummated an equity private
placement of $5.5 million with entities affiliated with Morgan Stanley Venture
Partners 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. A portion of these
funds were used by the Company to purchase the capital stock of Shady Grove and
the right to manage the Shady Grove P.C.'s infertility medical practice. The
balance of these funds have been used for working capital purposes.
At September 30, 1998, the Company had working capital of approximately
$8.0 million, approximately $5.0 million of which consisted of cash and cash
equivalents, compared to working capital of approximately $4.1 million at
December 31, 1997, approximately $1.9 million of which consisted of cash and
cash equivalents. The net increase in working capital at September 30, 1998 was
principally due to the $5.5 million proceeds received from the equity private
placement with Morgan Stanley and $6.0 million in bank loan proceeds, partially
offset by approximately $3.2 million in payments for exclusive management
rights, approximately $2.8 million in debt repayments and an approximate $1.9
million increase in short-term debt related to the Shady Grove transaction.
Patient accounts receivable increased by approximately $2.7 million. The net
increase in patient accounts receivables represented an approximate increase of
$4.9 million in purchased patient accounts receivable, excluding any receivables
acquired on the day of the closing of a new management agreement, partially
offset by an approximate decrease of $2.2 million in patient accounts receivable
which were a function of Company revenue.
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 a 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 early 1999 ( the "Second Closing Date") 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 $1.1 million
of promissory notes currently outstanding are payable in two equal annual
installments, due on April 1, 1999 and 2000, respectively, and bear interest at
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an annual rate of 8.5%. The number of shares of Common Stock of the Company to
be issued in early 1999 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.
As previously noted, in September 1998, the Company obtained from Fleet
Bank, N.A. ("Fleet") a $13.0 million credit facility (the "New Credit
Facility"). The New Credit Facility is comprised of a $4.0 million three-year
working capital revolver, a $5.0 million three-year acquisition revolver and a
$4.0 million 5.5 year term loan. Each component of the New Credit Facility bears
interest by reference to Fleet's prime rate or LIBOR, at the option of the
Company, plus a margin ranging from 0.00% to 0.25% in the case of prime-based
loans or 2.75% to 3.00% in the case of LIBOR-based loans, which margins vary
based on a leverage test. Interest on the prime-based loans is payable monthly
and interest on LIBOR-based loans is payable on the last day of each interest
period applicable thereto provided that, in the case of interest periods in
excess of three months, interest is payable at three-month intervals during such
periods. Borrowings under the term loan will require only interest payments for
the first twenty months. Upon closing of the New Credit Facility, the Company
drew the entire $4.0 million available under the term loan to repay in full its
balance outstanding with First Union National Bank of $2,250,000 and for working
capital and acquisition purposes. In addition, the Company will utilize a
portion of the proceeds of the term loan to pay part of the consideration to
repurchase up to $2 million of the Company's outstanding shares of Common Stock
from time to time on the open market at prevailing market prices or through
privately negotiated transactions. As of November 1, 1998, the Company had
repurchased 724,000 shares of its Common Stock for an aggregate cost of
$476,000. Unused amounts under the working capital and acquisition revolvers
bear a commitment fee of 0.25% and 0.20%, respectively. Availability of
borrowings under the working capital revolver are based on eligible accounts
receivable as defined. Availability of borrowings under the acquisition revolver
will be based on financial covenants and eligibility criteria with respect to
each proposed acquisition. Approximately $4.5 million was available under the
working capital and acquisition revolvers as of September 30, 1998. The New
Credit Facility is secured by all of the Company's assets.
The Board of Directors has authorized a one for four reverse stock split of
its outstanding shares of Common Stock through an amendment to the Company's
Amended and Restated Certificate of Incorporation. The reverse stock split will
be submitted for approval by the Company's stockholders at a Special Meeting of
Stockholders to be held on November 17, 1998. If approved by the Company's
stockholders, every four shares of Common Stock will be converted into one share
of Common Stock. On September 21, 1998, the Common Stock had been trading below
$1.00 for 30 consecutive trading days. The reverse stock split is intended to
allow the Company to comply with the minimum $1.00 bid price per share
requirement for continued listing of the Company's Common Stock on the Nasdaq
National Market.
As of September 30, 1998, dividend payments of approximately $563,000 on
the Series A Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock") were in arrears. In October 1998 the Company paid all dividend payments
which were in arrears.
Year 2000 Issue
The Company's management has recognized the need to ensure that its
operations and relationships with its vendors and other third parties will not
be adversely impacted by software processing errors arising from calculations
using the year 2000 and beyond ("Year 2000"). As such, the Company has appointed
a Year 2000 Task Force to identify and assess the risks associated with its
information systems and operations, and its interactions with vendors and
third-party insurance payors ("the Year 2000 Project"). The five phases of the
Task Force's Year 2000 project are as follows: 1) identification of risks, 2)
assessment of risks, 3) development of remediation and contingency plans, 4)
implementation and 5) testing. The Company's Year 2000 Task Force is currently
in the assessment phase and is scheduled to begin testing in early 1999. The
Company has not yet determined the extent of contingency planning that may be
required.
The Company believes that the Year 2000 risks associated with its
information systems and certain medical equipment may be potentially
significant. In nearly all cases, the Company is relying on assurances from
third party vendors that certain information systems and medical equipment will
be Year 2000 compliant. In addition, in the normal course of business, the
Company has made capital investments in certain third party software and
hardware systems to address the financial and operational needs of the business.
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These systems, which will improve the efficiencies and productivity of the
replaced systems, have been represented to be Year 2000 compliant by the vendors
and have been or will be installed by November 1999. The Company plans to test
such third-party systems and equipment, but cannot be sure that its test will be
adequate or that, if problems are identified, they will be addressed in a timely
and satisfactory way.
The Company is also highly dependent upon receiving payments from third
party payors for insurance reimbursement for claims submitted by the managed
Medical Practices, and as such, the ability of such payors to process claims
submitted by Medical Practices accurately and timely, constitutes a significant
risk to the Company's cash flow. Individual Network Sites have been or will be
in communication with these payors throughout the country to insure that these
payors will be Year 2000 compliant and will be able to process the Medical
Practices' claims uninterrupted. In addition, the Company deals with numerous
financial institutions, all of whom have indicated that the Year 2000 compliance
issue is being addressed proactively and will not present a problem on the
effective date.
As the Company and its managed Medical Practices are primarily reliant on
third party vendors and payors to be Year 2000 compliant, the Company does not
anticipate that it will incur a material incremental cost associated with
addressing Year 2000 problems. To date, all of the Company's capital projects
regarding information systems were part of its long-term capital strategic plan
and their timing was not accelerated as a result of the Year 2000 issue.
In the event any third parties cannot timely provide the Company with
information systems, equipment or services that meet the Year 2000 requirements,
the Company's ability and the ability of its managed Medical Practices to offer
services and to process sales and the Company's cash flows could be materially
adversely affected. In addition, if the Company fails to satisfactorily resolve
Year 2000 issues related to its operations in a timely manner, it could be
exposed to liability to third parties, particularly, the managed Medical
Practices and their patients.
Management believes that the Company is taking reasonable and adequate
action to address Year 2000 issues. However, there can be no assurance that the
Company's information systems, medical equipment and other non-information
technology systems will be Year 2000 compliant on or before December 31, 1999,
or that vendors and third-party insurance payors are, or will be, Year 2000
compliant, or that the costs required to address the Year 2000 issue will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
Like virtually every company, and indeed every aspect of contemporary
society, the Company is at risk for the failure of major infrastructure
providers to adequately address potential Year 2000 problems. The Company is
highly dependent on a variety of public and private infrastructure providers to
conduct its business in numerous jurisdictions throughout the country. Failures
of the banking system, basic utility providers, telecommunication providers and
other services, as a result of Year 2000 problems, could have a material adverse
effect on the ability of the Company to conduct its business. While the Company
is cognizant of these risks, a complete assessment of all such risks is beyond
the scope of the Company's Year 2000 project or ability of the Company to
address. The Company has focused its resources and attention on the most
immediate and controllable Year 2000 risks.
New Accounting Standards
On June 17, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). The Company does not believe
that SFAS No. 133 will have a material effect on the Company's financial
position or results of operations.
Fluctuations in Quarterly Results
The Company's revenues are typically lower during the first quarter of the
Company's fiscal year. This lower level of revenues is primarily attributable to
the commencement of fertility treatment by the patients of the Medical Practices
at the beginning of the calendar year. Quarterly results also may be materially
affected by the timing of acquisitions and the timing and magnitude of costs
related to acquisitions. Therefore, results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.
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Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results 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 raise
additional debt and/or equity capital 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, increases in overhead due to expansion, the
exclusion of infertility and ART services from insurance coverage, government
laws and regulation regarding health care, changes in managed care contracting,
the timely development of and acceptance of new infertility, ART and/or genetic
technologies and techniques and the risks relating to the Year 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 1, 1998, the Company and Reproductive Sciences
Medical Center, Inc. ("RSMC") entered into a stipulation
and settlement agreement, resolving all claims against each
other. The management agreement has been terminated, RSMC
will lease the Company's assets over a period of three
years, and the parties have entered into mutual consulting
agreements. Dr. Samuel H. Wood will serve as a special
consultant to the Company with respect to new ART
technologies and the Company shall serve as consultant to
RSMC's Laboratory Director on issues of laboratory
technology.
On October 9, 1998, W.F. Howard, M.D., P.A., filed a
lawsuit against the Company in the District Court of Denton
County, Texas, seeking to rescind the management agreement
related to the Dallas Network Site, or collect damages, on
the ground that its practice has not realized the degree of
growth or increases as allegedly projected by the Company.
The complaint asserts alleged breaches of contract,
fiduciary duties and warranties, as well as a claim under
the Texas Deceptive Trade Practices Act, and claims lost
profit damages as well as an exemplary award under statute.
Litigation counsel has advised the Company that it is too
early in the litigation to meaningfully assess the
likelihood of success of this lawsuit. Nonetheless, counsel
believes that even an unfavorable result will not have a
material adverse effect on the Company. The management
agreement remains in full operation during the pendency of
the lawsuit.
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 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
As of September 30, 1998, dividend payments of
approximately $563,000 on the Series A Cumulative
Convertible Preferred Stock were in arrears. In October
1998 the Company paid all dividend payments which were in
arrears.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Index to Exhibits on page 26.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: November 16, 1998 By: /s/ Eugene R. Curcio
----------------------------------
Eugene R. Curcio
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
25
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INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.44(c) -- Stipulation of Settlement and Compromise of all Claims Among
IngetraMed America, Inc. and Assisted Reproductive Technologies,
P.C., d/b/a Mainline Reproductive Science Center, Reproductive
Diagnostics, Abraham Munabi, M.D., Reproductive Science Center of
Suburban Philadelphia
10.52(a) -- Agreement dated September 1, 1998 By and Among Women's Medical &
Diagnostic Center, Inc., IntegraMed America, Inc. and Florida
Medical and Research Institute, P.A.
10.81(b) -- Stipulation of Settlement and Compromise of all Claims Among
IntegraMed America, Inc. and Reproductive Sciences Medical Center,
Inc. and Samuel H. Wood, M.D.
10.113(a)-- Loan Agreement dated September 11, 1998 between IntegraMed
America, Inc. and Fleet Bank, National Association
27 -- Financial Data Schedule
26
STIPULATION OF SETTLEMENT AND COMPROMISE OF ALL CLAIMS
AMONG
INTEGRAMED AMERICA, INC.
AND
ASSISTED REPRODUCTIVE TECHNOLOGIES, P.C., d/b/aMAINLINE
REPRODUCTIVE SCIENCE CENTER, REPRODUCTIVE DIAGNOSTICS,
ABRAHAM MUNABI, M.D., REPRODUCTIVE SCIENCE CENTER OF
SUBURBAN PHILADELPHIA
THIS STIPULATION AND SETTLEMENT AGREEMENT dated July 1, 1998
["Agreement"], by and among (1) IntegraMed America, Inc., a Delaware corporation
with its principal place of business at One Manhattanville Road, Purchase, New
York 10577 ["INMD"]; and (2) Assisted Reproductive Technologies, P.C. d/b/a
Reproductive Science Center of Greater Philadelphia ("ART") and Reproductive
Science Center of Suburban Philadelphia ("PC"), both Pennsylvania professional
corporations with their principal place of business at 950 West Valley Road,
Suite 2401, Wayne Pennsylvania 19087, and Reproductive Diagnostics, Incorporated
("RDI") [RDI and ART collectively known as the "Companies"] and Dr. Abraham
Munabi ("Munabi")
R E C I T A L S
WHEREAS, Companies and INMD are parties to a Management Agreement dated
May 15, 1995 ["Management Agreement"]; and
WHEREAS, for the purposes of this Stipulation and Settlement Agreement
["Agreement"], the Companies, PC and INMD accept and adopt the defined terms and
definitions contained in the Management Agreement; and
WHEREAS, the Companies and INMD are parties to an Asset Purchase
Agreement dated May 15, 1995; and
WHEREAS, pursuant to such Management Agreement, the Companies, Munabi
and INMD have operated a program providing Infertility Services (as such term is
defined in ss. 1.7 of the Management Agreement) and known as "Reproductive
Science Center of Greater Philadelphia" [hereinafter "Program"]; and
WHEREAS the Program was part of the INMD Reproductive Science Center
Division, which consists of a national network of similar Programs; and
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WHEREAS, pursuant to the Asset Purchase Agreement, INMD purchased all
of the assets of the Companies and, on this date, is the record tenant of the
office and laboratory space of the Program, the owner and/or lessee of all
equipment, fixtures and fixed assets and the employer of all personnel at the
Program with the exception of physicians; and
WHEREAS, pursuant to the Asset Purchase Agreement and the Management
Agreement, INMD was to make certain payments, over the term of the Management
Agreement, for the Exclusive Management Right ["RTM Payments"];and
WHEREAS, pursuant to the Management Agreement, INMD made certain
Advances to the Companies, which Advances were to be repaid by the Companies to
INMD; and
WHEREAS, Munabi and ART were parties to a Physician Employment
Agreement dated May 15, 1995, pursuant to which Munabi was the medical director
of the Program and obligated to enforce said Management Agreement;
WHEREAS, certain disputes have arisen between and among the parties to
this Agreement in which the parties have mutually served Notices of Termination
and claimed breaches of the various agreements; and
WHEREAS, the parties desire to effectuate a termination of the
Management Agreement in an orderly fashion, so as to insure the quality of
Infertility Services at the Program, and to settle and compromise all their
disputes in order to avoid the expense and the uncertainty of litigation.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the parties, intending to be legally bound, agree as
follows:
1. Termination of Agreements. INMD and the Companies hereby terminate the
Asset Purchase Agreement and the Management Agreements, effective July
1, 1998 and, except for the rights and obligations contained in this
Agreement, all parties are discharged from any obligations under the
Asset Purchase or Management Agreements, including but not limited to
the repayment of Advances, payment of RTM payments, and covenants not
to compete, it being the intention of the parties to accelerate all RTM
payments and apply those accelerated payments to repay Advances and
discharge any remaining Advances' balance.
2. General Releases. IntegraMed, on the one hand, and the Companies, the
PC and Munabi, on the other hand, hereby release and forever discharge
one another (including their subsidiaries, affiliates, successors,
assigns, agents, officers, directors and employees) from any and all
claims, suits, demands, debts, causes of action, liabilities,
indemnities, obligations, costs, losses, damages and expenses of
whatsoever kind or nature, whether legal, equitable or statutory,
liquidated or unliquidated, known or unknown, including but not limited
to those arising out of the Management Agreement, Asset Purchase
Agreement and Physician Employment Agreement, arising from the first
day of the world until the date of this Settlement Agreement.
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<PAGE>
3. Continuation of the Program and Withdrawal of INMD. (a) The parties
acknowledge and agree that the Program shall, commencing July 1, 1998,
be operated solely by Munabi, PC and the Companies, and that INMD shall
withdraw (except for the INMD Representative detailed in paragraph 11
hereof) and cease to offer any management, administrative or support
services to the Program.
(b) Employees. Effective July 1, 1998, at the opening of business, INMD
shall terminate the employment of all its employees located at the
Program (other than the INMD Representative referred to in paragraph
11) and the Companies or the PC shall hire such employees.
(c) Insurances. Effective July 1, 1998, INMD shall cancel the general
liability insurance policy in effect for the Companies and the Program
Premises [as defined in paragraph 7(c)] and shall cancel the
professional liability insurance policy in effect for the Companies'
and PC's staff (including Munabi). Munabi covenants and warrants that
the PC and Munabi have had professional liability insurance. in an
amount of no less than $1 million per claim/$3 million in the
aggregate, since June 24, 1998 and that the Companies and Munabi shall
provide INMD, proof of such insurance, and proof of general liability
insurance for the Program Premises no later than July 8, 1998. The
Munabi/Companies/PC obligation to provide proof of such insurance shall
continue annually (on the anniversary date of the first proof) until
and unless the Payment Price, as defined in paragraph 5 hereof, has
been fully paid to INMD. Munabi hereby acknowledges and agrees that any
and all health and/or disability benefits provided by INMD shall cease
on July 1, 1998.
(d) Notification of Patients. Munabi, the Companies and PC shall notify
patients of the Program, on or before July 10, 1998, that he and the
Companies/PC are no longer affiliated with INMD. The form and content
of such notification shall be previously approved by INMD, such
approval not to be unreasonably withheld.
(e) Biological Materials.
(i) The Companies, PC and Munabi, hereby acknowledge and agree
that, at all times during the time period of the Management
Agreement, and at all times hereafter, the Companies, Munabi
and/or PC have solely been the rightful custodian of all
biological materials, including but not limited to sperm,
oocytes and embryos (cryopreserved or fresh)["Biological
Materials"] and that they shall continue to preserve and
protect such Biological Materials as are in their custody.
3
<PAGE>
(ii) The Companies and PC shall provide INMD with a list of
all patients who (1) have cryopreserved biological materials
in storage at the Program as of July 1, 1998, and (2) who have
had cryopreserved biological materials in storage at the
Program from May 15, 1995 through July 1, 1998, together with
information as to and the date as to when storage ceased.
(iii) The Companies/PC shall indemnify, defend and hold
harmless INMD against any claims arising out of the custody or
storage of Biological Materials on or after July 1, 1998.
(f) Removal of Proprietary Information. INMD shall remove from the
Program Premises any and all copies of proprietary information, as
listed on Schedule A annexed hereto, and the Companies, Munabi and PC
hereby covenant not to copy or utilize any consents, procedure or
policy manuals or proprietary information henceforth in operation of
the Program.
(g) Billing Cooperation. INMD shall leave at the Program any and all
documentation and equipment necessary for the Program to bill for
unbilled Infertility Services and to collect outstanding amounts. This
shall include data stored in the computer system at the Program. INMD's
corporate staff, with the exception of the INMD Representative
described in paragraph 11, shall no longer have modem or network access
to the Companies/PC's computers at the Program.
4. Change of name. On or before March 31, 1999, ART, Munabi, PC or any PC,
fictitious name and/or business entity through which Munabi shall
practice medicine, shall cease and desist from utilizing any corporate
name and/or any fictitious name under which each or any may trade, that
includes the phrase "Reproductive Science Center" and shall cease and
desist from using any marketing materials that include the name
"Reproductive Science Center".
5. Payment Price for INMD Withdrawal. In consideration of the termination
of the Management Agreement and Asset Purchase Agreement and for the
withdrawal of INMD from the Program as described above at paragraph 4,
PC shall pay the following to INMD:
(a) The Asset Price as delineated in paragraph 7 below; and
(b) An amount ("June Net Costs") equal to the difference between (1)
the Costs of Services (as defined in Section 2.1 of the Management
Agreement) actually incurred by INMD in the operation of the Program
during the time period June 1 through June 30, 1998; and (2) INMD's
Severance Cost, such term being defined as the costs and expenses that
INMD would have incurred had it terminated all of its employees at the
Program on July 1, 1998. The parties agree that INMD and PC's agent,
Cogen & Sklar, shall, in good faith, agree on the foregoing Costs of
Services and Severance Costs, no later than July 15, 1998, and that
INMD shall provide appropriate backup information and documentation to
support the calculation thereof.
4
<PAGE>
The parties hereto agree that items (a) and (b), in the aggregate,
represent the total "Payment Price" for the assets and withdrawal of
INMD.
6. Payment of Payment Price and Covenant by Munabi. Munabi hereby
covenants and represents that the obligation for payment of the Payment
Price is that of the PC, which is the current professional corporation
through which he practices medicine. He hereby covenants and represents
that if, at any time prior to the full payment of the Payment Price, he
should establish another professional corporation or entity through
which he shall practice medicine, he shall do so only if such PC and/or
sole proprietorship or business entity expressly assumes the
obligations of the Payment Price and the obligations of this Agreement.
7. Purchase of Assets. The PC shall purchase the tangible assets (a
tentative schedule of such assets being here attached as Schedule B) at
a Closing ("Closing") to occur at a mutually convenient date on or
before July 30, 1998. The documents to be exchanged at such closing
shall be held in escrow by the law firm of Ledy-Gurren & Blumenstock,
LLP ["LG&B"], 230 Park Avenue, New York, New York, until the first
installment of the Payment Price has been paid.
(a) The parties agree that the PC and IntegraMed shall agree, in good
faith, on the accuracy of such schedule on or before July 15, 1998.
(b) The purchase price for such assets shall be the net book value
thereof ("Asset Price") and the parties agree to utilize Schedule B
attached hereto as a starting point, and to come to an agreement, in
good faith,as to the net book value of such assets. Such agreement
shall occur on or before July 15, 1998.
(c) The PC shall assume, as of July 1, 1998, the lease for the office
space of the Program located in Wayne, PA ("Program Premises") and
shall indemnify INMD against any claims for rent or payments thereunder
made by the Landlord.
(d) The PC shall assume the leases,as of July 1, 1998, for any and all
medical and/or office equipment located at the Program Premises and
shall indemnify INMD against any claims for rent or payments thereunder
made by the Lessors thereof.
8. Payment of Payment Price. The Payment Price shall be paid as follows:
(a). a down payment equal to 10% thereof ["Downpayment"], payable on
September 1, 1998.
5
<PAGE>
(b). the balance thereof due in 16 quarterly payments, with the first
quarterly payment due on December 1, 1998. The quarterly payments for
the first two years ("Year 1" and "Year 2") shall be eight equal
payments which, together with the Downpayment shall, in the aggregate,
be in an amount equal to 40% of the total Payment Price, and those for
the last 2 years ("Year 3" and "Year 4") shall be eight equal payments
which, in the aggregate, shall be in an amount equal to 60% of the
total Payment Price.
(c). Interest shall accrue on the Payment Price as of September 1, 1998
at a rate equal to the lesser of INMD's cost of funds (as of September
1, 1998) or the "Prime Rate" (as of September 1, 1998) as the same
shall be published in The Wall Street Journal on September 2, 1998)
(hereafter, the "Interest Rate").
(d) In the event that the Payment Price is fully repaid prior to
the end of Year 4, the PC shall be entitled to a discount on
the remaining balance, as of the date of such pre-payment, in
an amount equal to the then remaining balance of the Payment
Price multiplied by the Interest Rate.
(e) The payment schedule detailed in sections (a) through (d)
above is specifically subject to paragraph 12 below.
9. Security. The Payment Price shall be secured as follows:
(a) PC shall, at Closing, grant and deliver to INMD, a security
interest, in proper form suitable for filing pursuant to the
Uniform Commercial Code, in the Assets, such security interest
to be operative from the period beginning at the Closing and
ending on September 1, 2000 and to secure the payments of
Years 1 and 2; and
(b) Munabi's shall, at Closing, deliver to INMD, his personal
guaranty, in mutually acceptable form (the parties to use good
faith in agreeing to such form) for the payment of the amounts
that shall become payable in Years 3 and 4.
(c) The securities granted hereunder shall be fully operative and
subject to paragraph 12 below.
10. Right to Accounts Receivable. The parties hereby acknowledge and agree
that, during the operation of the Program, certain accounts receivable
were, and shall continue to be, generated. For the purposes of this
Agreement, accounts receivable are deemed generated on the date that
the medical or laboratory service or treatment is provided to a
patient, irrespective of the date (before or after treatment) that
payment is actually received. The parties hereby agree and acknowledge
the following rights and interests in accounts receivable of the
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Program, it being understood and agreed that any "unapplied payments"
(that is, payments as to which, after reasonable inquiry, it is not
possible to determine which medical or laboratory service it relates
to) made by patients and/or payors shall be prorated, between May and
June Receivables, based on the percentage of May and June Receivables
contained in the entire outstanding balance of the patient at the time
of the receipt of the unapplied payment.
(a) Any and all accounts receivable generated on or prior to May 31,
1998 ("May Receivables") are the sole property of INMD, whether payment
therefor has, or in the future is, received by INMD, the Companies, the
PC and/or Munabi.
(b) Any and all accounts receivable generated on and after June 1, 1998
("June Receivables") are the sole property of the Companies and the PC,
whether payment therefor has been, or in the future is, received by any
or all of INMD, the Companies, the PC and/or Munabi.
(c) The Companies, PC and Munabi shall provide to INMD a full
accounting of payments received by them since June 1, 1998 ["PC
Receipts"], estimated at approximately $20,000 (twenty thousand
dollars), by providing all bank statements and records of the PC and/or
Munabi relating to such monies and identifying the patient names,
amounts paid and procedures performed and the date thereof, so that
INMD may identify such amounts as May Receivables or June Receivables,
or a combination thereof. It is understood and agreed that such bank
records will reveal a deposit of $3300 (thirty-three hundred dollars)
to the PC account which represents the personal money of Munabi.
(d) INMD shall provide a full accounting to the PC of the amount
"swept" by INMD on or about June 18, 1998, estimated at approximately
$118,000 ["Swept Money"], by identifying the patient names, amounts
paid and date of medical treatment performed, so that PC can identify
such amounts as May Receivables or June Receivables, or a combination
thereof. Further, INMD shall provide a full accounting, in the same
manner, to the PC of any amount "swept" by INMD on or after June 1,
1998.
(e) In the event there arises a dispute between INMD and PC as to the
nature and character of the PC Receipts or Swept Money (as May or June
Receivables), the parties shall first rely on the date the service was
rendered, as shown on the computer records generated by INMD. PC shall
have the burden of proving such records erroneous by supplying copies
of the patient medical records.
(f) Escrow monies. Munabi, the PC and the Companies shall promptly, and
no later than July 6, deliver the PC Receipts to LG&B, to be held in an
attorney escrow account (non-interest bearing). The parties shall
agree, in good faith, on the division of such PC Receipts no later than
July 10, 1998. LG&B shall fax notice of the proposed distribution to PC
or INMD, as the case shall be, and shall distribute such escrow money,
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<PAGE>
at the conclusion of the next business day, in accordance with such
notice unless the PC counsel or INMD notifies LG&B of an intention to
arbitrate a disagreement with the terms of said proposed distribution.
INMD shall promptly, and no later than July 6, deliver the Swept Money
to LG&B, to be held in an attorney escrow account (non-interest
bearing). The parties shall agree, in good faith, on the division of
such Swept Money by July 10, 1998. LG&B shall fax notice of the
proposed distribution to PC or INMD, as the case shall be, and shall
distribute such escrow money, at the conclusion of the next business
day, in accordance with such notice, unless the PC counsel or INMD
notifies LG&B of an intention to arbitrate a disagreement with the
terms of said proposed distribution.
11. Collection of Accounts Receivable. A representative of INMD (of INMD's
choosing) (the "INMD Representative") shall be on the Program Premises
for up to and including 120 days, beginning July 1, 1998, in order to
oversee and make efforts for the collection of the accounts receivable
of the Program and the PC. Such collection shall be jointly supervised
and conducted by the INMD Representative and a representative of the
Companies/PC designated by Munabi (the "Companies Representative"). The
INMD and Companies Representatives shall have joint and simultaneous
access to the PC's P.O. Box at the Southeastern PA Post Office in
Wayne, PA. and shall have full and complete access to any and all
billing information, data and computer information necessary to
process, record and document payment of such accounts receivable. The
INMD Representative and the Companies Representative shall, jointly and
in good faith, allocate any and all monies received as being either May
Receivables or June Receivables. INMD and the PC shall, in good faith,
insure that the June Receivables are paid to the PC and the May
Receivables are paid to INMD. The PC and Munabi hereby covenant to
cooperate with the INMD Representative in his/her efforts to collect
May Receivables and agree not to interfere, by omission or commission,
with that effort. In the event that there is a dispute between the
Companies' Representative and the IntegraMed Representative concerning
whether monies received constitute a May Receivable or a June
Receivable, the parties shall first rely on the date of the service
rendered, as shown in the computer records generated by INMD and, if
the Companies' representative disagrees with such records, he/she shall
produce the patient's records. If the parties cannot, in good faith,
8
<PAGE>
agree to the allocation on the basis of such records, such collections
shall be put in escrow until the matter is determined by arbitration or
agreement.
12. Acceleration. The Payment Price shall be accelerated and become
immediately due and payable on the occurrence of any of the following::
(1) Munabi sells his reproductive science practice, or a greater than
49% interest therein; or (2) if Munabi, the Companies or the PC
interfere in the collection of the accounts receivable, as the same is
described in Paragraph 11 above; or (3) if a payment is not made within
fifteen (15) days after written notice by INMD of a default in payment,
sent by certified mail to the PC.
13. Waiver of Further Walter Reed Payments. The parties acknowledge agree
that, during the operation of the Management Agreement, Munabi has
received monthly payments, in the nature of a "finder's fee" arising
out of INMD's management agreement with the U.S. Defense Department and
Walter Reed Hospital. Munabi hereby waives any and all future payment
or claim of any nature, to such monies or any interest in said
management agreement or renewal thereof.
14. Cooperation. In the event of any claims, suits or governmental
investigations, arising out of or relating to the Program, in which
INMD, Munabi, the Companies and/or the PC shall be named or involved,
whether or not pending during the term of the Management Agreement, the
parties hereto agree to fully cooperate 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 or an investigation by an insurer, response
to subpoenae and the coordination of any individual defenses with
counsel for all parties. Munabi, the Companies and the PC shall, as
soon as practicable, deliver to INMD copies of any summonses,
complaints, suit letters, subpoenae or legal papers of any kind, served
upon them or their attorneys. This obligation to cooperate shall
survive the satisfaction of any payment obligations hereunder, or the
termination of this Agreement for whatever reason, and nothing in this
paragraph shall obligate the parties to pay any legal fees incurred by
the other.
15. Non-Disparagement and Confidentiality. The parties acknowledge that
this Agreement represents a fully consensual and amicable separation of
interests and that, hereafter, each party covenants that, in
communicating with third parties, they shall not, by action or word,
defame, criticize or condemn the actions, conduct or motives of the
other. Each party recognizes that this covenant represents a material
obligation of both parties under this Agreement, the breach of which
may impact adversely on the business interests of the non-breaching
party. The parties further covenant that they shall keep the terms of
this Agreement confidential, except to the extent necessary to enforce
the terms hereof.
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<PAGE>
16. Additional Agreements. The parties anticipate that it will be necessary
to prepare various documents (including but not limited to "Bill of
Sale", security agreement and guaranty) to effectuate the intent of
this Agreement. They shall agree in good faith on the terms of such
documents. In addition, the parties shall cooperate in good faith to
carry out the provisions of this Agreement and the intent thereof, and
shall deliver the necessary documents to effectuate the intention of
this Agreement.
17. Arbitration. Any dispute arising out of or relating to this Agreement,
or the obligations of the parties to each other, shall be settled by
arbitration in accordance with the Rules of Commercial Arbitration of
the American Arbitration Association and judgement upon such award
rendered by the arbitrator shall be final and binding upon the parties
and may be entered in any court having jurisdiction thereof. The
arbitrator shall be an arbitrator qualified to serve in accordance with
the rules of the American Arbitration Association who is approved by
both Munabi and INMD. In the absence of such approval, Dr. Munabi and
INMD each shall designate a person qualified to serve as an arbitrator
in accordance with the rules of the American Arbitration Association
and the two persons so designated shall select the arbitrator from
among those persons qualified to serve in accordance with the rules of
the American Arbitration Association. The arbitration shall be held in
Philadelphia, PA. Except as otherwise provided herein, the costs and
expenses of the two individuals who shall have selected the arbitrator
and of the arbitrator shall be paid by the losing party (who shall be
specifically designated as such by the arbitrator as part of his or her
judgment). Notwithstanding the foregoing, the parties shall be entitled
to obtain an injunction, temporary restraining order or other equitable
relief from a court of competent jurisdiction.
18. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without reference to rules of conflicts
of laws.
19. 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.
20. No assignment or delegation of this Agreement or the rights and
obligations hereunder shall be valid without the specific consent of
all parties.
21. No consent or waiver, express or implied, by either party hereto, 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 in 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
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<PAGE>
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.
22. Any notices, requests, demands and other communications provided for in
this Agreement as required among the parties in connection with the
Agreement shall be in writing and shall be deemed to have been given at
the time when mailed at any United States Post Office via register or
certified mail, prepaid, or sent by overnight delivery services,
addressed to the party at the address set forth below or such other
addresses as such party may designate by notice:
To PC, Companies and/or Munabi:
Abraham Munabi, M.D.
950 West Valley Road
Suite 2401
Wayne, Pennsylvania 19087
11
<PAGE>
To IntegraMed America, Inc:
Donald S. Wood, Ph.D.
Chief Operating Officer
Integramed America, Inc.
One Manhattanville Road
Purchase, New York 10577
IN WITNESS WHEREOF, the parties have set their hands hereunto this 1st day of
July 1998.
INTEGRAMED AMERICA,INC. ART
By: /s/Donald S. Wood By: /s/Abraham Munabi
----------------------- ----------------------
Donald S. Wood, Ph.D. Abraham Munabi, M.D.
Title: Chief Operating Officer Title: President
RDI REPRODUCTIVE SCIENCE CENTER
OF SUBURBAN PHILADELPHIA
By: /s/Abraham Munabi By: /s/Abraham Munabi
------------------- --------------------
Abraham Munabi, M.D. Abraham Munabi,M.D.
Title: President Title: President
/s/Abraham Munabi
- --------------------------------------
Abraham Munabi, M.D.
12
AGREEMENT
THIS AGREEMENT ("Agreement") is dated September 1, 1998 by and among
Women's Medical & Diagnostic Center, Inc., a Florida corporation, with its place
of business at 222 S.W. 36th Terrace, Gainesville, Florida ("WMDC"), IntegraMed
America, Inc., a Delaware corporation, with its principal place of business at
One Manhattanville Road, Purchase, New York 10577 ("INMD") and Florida Medical
and Research Institute, P.A., a Florida professional association, with its place
of business at 6440 N.W. Newberry Road, Suite 204, Gainesville, Florida 32605
("FMRI").
RECITALS:
WMDC is a wholly-owned subsidiary of INMD conducting a medical practice
in the State of Florida;
INMD and FMRI have entered into a Memorandum of Understanding dated
August 24, 1998 ("MOU") pursuant to which, among other things, INMD has agreed
to sell certain WMDC accounts receivable to FMRI; and
WMDC has agreed to assign certain Clinical Research Trials to FMRI.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. RIGHT TO CLINICAL ACCOUNTS RECEIVABLE. The parties hereby
acknowledge and agree that, during the operation of WMDC, certain accounts
receivable were generated in connection with medical and/or clinical services
rendered by WMDC ("Clinical Receivables"). For the purposes of this Agreement,
Clinical Receivables are deemed generated on the date that the medical and/or
clinical service or treatment is provided to a patient, irrespective of the date
(before or after treatment) that payment is actually received. The parties
hereby agree and acknowledge the following rights and interests in the Clinical
Receivables:
<PAGE>
(a) Any and all Clinical Receivables generated on or prior to August
31, 1998 ("Pre- Closing Clinical Receivables") are the sole property of
WMDC, whether payment therefor has, or in the future is, received by
WMDC or FMRI. Any and all payments received by FMRI on and after
September 1, 1998 for Pre-Closing Clinical Receivables will be promptly
forwarded to IntegraMed America, Inc., One Manhattanville Road,
Purchase, New York 10577, Attention: John Kearns, Director of
Accounting (b) Any and all Clinical Receivables generated on and after
September 1, 1998 ("Post- Closing Clinical Receivables") are the sole
property of FMRI, whether payment therefor has, or in the future is,
received by INMD or FMRI. Any and all payments received by WMDC on or
after September 1, 1998 for Post-Closing Clinical Receivables will be
promptly forwarded to FMRI, Attention: Accounts Receivable Department.
Nothing contained herein shall be construed to obligate FMRI to collect
the Pre-Closing Clinical Receivables generated by WMDC; provided,
however, FMRI shall give WMDC and INMD access, from time to time, as
reasonably needed, to the data supporting the Pre-Closing Clinical
Receivables, and, if necessary, give WMDC or INMD representatives
access to FMRI's office at 222 SW 36th Terrance, Gainesville, Florida,
on reasonable notice, in pursuit of collecting Pre-Closing Clinical
Receivables. (c) In the event there arises a dispute between WMDC and
FMRI as to the nature and character of the Clinical Receivable, the
parties shall first rely on the date the service was rendered, as shown
on the computer records generated by WMDC. FMRI shall have the burden
of proving such records erroneous by supplying copies of the patient
medical records. FMRI shall not be responsible for any refunds due
patients for services rendered prior to September 1, 1998.
<PAGE>
2. RIGHT TO CLINICAL RESEARCH ACCOUNTS RECEIVABLE. The parties hereby
acknowledge and agree that, during the operation of WMDC, certain accounts
receivable were generated in connection with clinical research services rendered
by WMDC ("Research Receivables"). For the purposes of this Agreement, Research
Receivables are deemed generated on the date that the medical and/or clinical
service, or treatment is provided to a patient, irrespective of the date (before
or after treatment) that payment is actually received. The parties hereby agree
and acknowledge that any and all Research Receivables generated prior to
September 1, 1998 are being assigned to FMRI, and WMDC does hereby assign,
transfer and convey such Research Receivables as set forth on Exhibit A,
attached hereto, to FMRI in consideration for the payment of One-Hundred
Sixty-Five Thousand Dollars ($165,000.00), the receipt of which is hereby
acknowledged. To the best of WMDC's knowledge and belief, Exhibit A represents
Research Receivables as of August 31, 1998.
3. CLINICAL RESEARCH. Marvin Heuer, MD, Medical Director of WMDC
("Heuer") is the Research Scientist or Principal Investigator for various
clinical trials ("Clinical Trials") being conducted by WMDC. All such Clinical
Trials are hereby assigned to FMRI. Neither WMDC nor INMD makes any
representation or warranty that the Clinical Trials are assignable or can be
assigned to FMRI; however, WMDC will use its best efforts to assist with the
assignment of such Clinical Trials to FMRI. WMDC hereby assigns all new research
protocols whichwould have been contractually awarded to WMDC, or to Heuer in his
role as WMDC's employee, to FMRI, and will use its best efforts to assist with
any such assignment.
4. CLINICAL CHARTS. Effective September 1, 1998, FMRI shall assume
responsibility for all patient charts maintained by WMDC, other than the
patients of Drs. Hinshaw, Markle and Sample.
<PAGE>
5. FURNISHINGS AND EQUIPMENT. Pursuant to paragrapgh 8 of the MOU
certain equipment and furnishings located at the Ocala and Gainesville offices
are being conveyed to FMRI, effective the date hereof. Attached hereto as
Exhibit B is a listing of such furnishings and equipment.
6. CONFLICT. Except as may be modified herein, all the terms and
conditions of the MOU remain in full force and effect. In the event any term or
condition herein is inconsistent with or is in conflict with the MOU, this
Agreement shall control.
7. INDEMNIFICATION
(a) WMDC and INMD agree to indemnify and hold harmless FMRI,
its directors, officers, employees and agents from any suits, claims, actions,
losses, liabilities or expenses (including reasonable attorneys' fees and costs)
arising out of or in connection with any act or failure to act by either of them
during the operations of WMDC. To the best of INMD's and WMDC's knowledge and
belief, all incidents that potentiate a claim have been reported to their
professional liability insurer.
(b) FMRI agrees to indemnify and hold harmless WMDC and INMD,
their respective officers, directors, employees and agents, from any suits,
claims, actions, losses, liabilities or expenses (including reasonable attorneys
fees and costs) arising out of or in connection with any act or failure to act
by it after September 1, 1998.
8. PROFESSIONAL LIABILITY INSURANCE. WMDC agrees to keep medical
malpractice coverage in place for Heuer until such time, not to exceed 60 days
from September 1, 1998, that Heuer effects such coverage in his own name.
<PAGE>
9. COOPERATION. In the event of any claims, suits or
governmentalinvestigations, arising out of or relating to the operations of WMDC
in which WMDC, INMD or FMRI or an individual of either shall be named or
involved whether occurring or pending prior to this Agreement, the parties agree
to cooperate with each other in the defense of such suit, claim or investigation
by the production of any documents in their possession for review. The parties
shall, as soon as practical, deliver to each other copies of any summonses,
complaints, suit letters, subpoenas or legal papers of any kind, served upon a
party or a party's attorneys. Nothing in this Section shall obligate the parties
to pay any legal fees incurred by the other.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. 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
Florida, City of Gainesville (hereinafter "Arbitration"); provided, however,
mediation shall be a precursor to Arbitration. The party seeking determination
shall subject any such dispute, claim or controversy to either (i)
JAMS/Endispute or (ii) the American Arbitration Association, and the rules of
commercial arbitration of the selected entity shall govern. The Arbitration
shall be conducted and decided by three (3) arbitrators, unless the parties
mutually agree, in writing at the time of the Arbitration, to fewer arbitrators.
In reaching a decision, the arbitrators shall no authority to change or modify
any provision of this Agreement, including without limitation, any liquidated
damages provision. Each party shall bear its own expenses and one-half the
expenses and costs of the arbitrators. Any application to compel arbitration,
confirm or vacate an arbitral award or otherwise enforce this Paragraph shall be
brought either in the Courts of the State of Florida.
<PAGE>
11. 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 writingand shall be deemed to have been given at the
time when personally delivered, mailed at any United States Post Office via
certified mail, prepaid, return receipt requested, or sent by overnight delivery
services 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 INMD or WMDC:
Mr. Jay Higham, Vice President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
With a Copy to:
Claude E. White, General Counsel
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
If to FMRI:
Marvin Heuer, MD, President
Florida Medical and Research Institute, P.A.
6640 N.W. Newberry Road
Gainesville, Florida 32605
With a Copy to:
Ellen Gershow, Esq.
Dell Graham, P.A.
P.O. Box 850
203 N.E. 1st Street
Gainesville, Florida 32601
12. 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 shall be severed from this Agreement and shall not effect the validity
of the remainder of this Agreement.
<PAGE>
13. INDEPENDENT STATUS. The Parties agree that FMRI is purchasing
assets and certain receivables of WMDC and accepting assignment of certain
leases and agreements. Nothing contained herein or with respect to any aspect of
the transaction shall be construed to constitute FMRI as a related or successor
party-in-interest to WMDC.
14. TELEPHONE NUMBERS. WMDC hereby assigns its right to the telephone
numbers previously used by it to FMRI and agrees to execute any further
documentation necessary to transfer such numbers.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written. WOMEN'S MEDICAL & DIAGNOSTIC CENTER, INC.
By: /s/Jay Higham
-----------------------------
Jay Higham, Vice President
FLORIDA MEDICAL AND RESEARCH INSTITUTE, P.A.
By: /s/Marvin Heuer
------------------------------
Marvin Heuer, MD, President
INTEGRAMED AMERICA, INC.
By: /s/Jay Higham
------------------------------
Jay Higham, Vice President
STIPULATION OF SETTLEMENT AND COMPROMISE OF ALL CLAIMS
AMONG
INTEGRAMED AMERICA, INC.
AND
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
AND SAMUEL H. WOOD, M.D.
THIS STIPULATION AND SETTLEMENT AGREEMENT effective September 1, 1998
["Agreement"], by and among (1) IntegraMed America, Inc., a Delaware corporation
with its principal place of business at One Manhattanville Road, Purchase, New
York 10577 ["INMD"]; and (2) Reproductive Sciences Medical Center, Inc., a
California professional corporation, with its principal place of business at
4150 Regents Row, Suite 280, La Jolla, California 92037 ["PC"]; and (3) Samuel
H. Wood, M.D., having a post office address at P.O. Box 1208, Rancho Sante Fe,
California 92067 ["Wood"].
R E C I T A L S
WHEREAS, PC and INMD are parties to a Management Agreement dated June
6, 1997, as amended ["Management Agreement"]; and
WHEREAS, Wood and INMD are parties to an Asset Purchase Agreement dated
June 6, 1997, as amended ["Asset Agreement"]; and
WHEREAS, PC, Wood and INMD are parties to a Personal Responsibility
Agreement dated June 6, 1997, as amended ["Personal Responsibility
Agreement"];and
WHEREAS, PC and Wood are parties to a Physician-Shareholder Employment
Agreement dated June 6, 1998, as amended ["Employment Agreement"] pursuant to
which Wood was the medical director of the Program; and
WHEREAS, the Management Agreement, Asset Purchase Agreement, Personal
Responsibility Agreement and Employment Agreement, and any Amendments thereto,
are herein collectively referred to as the "Various Agreements"; and
WHEREAS, for the purposes of this Agreement, PC, Wood and INMD accept,
adopt and here utilize the defined terms and definitions contained in the
Management Agreement; and
1
<PAGE>
WHEREAS, pursuant to such Management Agreement, the PC, Wood and INMD
have operated a program providing Infertility Services (as such term is defined
in ss.1.1.7 of the Management Agreement) and known as "Reproductive Sciences
Medical Center of San Diego" [hereinafter "Program"]; and
WHEREAS the Program is part of the INMD Reproductive Science Center
Division, which consists of a national network of similar Programs; and
WHEREAS, pursuant to the Asset Agreement, INMD purchased all of the
assets of Wood used in the operation of Wood and PC's practice of providing
Infertility Services ["Wood Practice"] and Wood, on this date, is the record
tenant of the office and laboratory space of the Program, the record tenant of
space at Xi-Med ["Xi-Med Leasehold"]; and
WHEREAS, INMD is the owner and/or lessee of all equipment, fixtures and
fixed assets and the employer of all personnel at the Program with the exception
of physicians; and
WHEREAS, pursuant to the Asset Agreement and the Management Agreement,
INMD was to make certain payments, during the term of the Management Agreement,
for the assets and the name "Reproductive Sciences Medical Center" ["Asset
Payments"]; and
WHEREAS, pursuant to the Management Agreement, INMD was to make certain
payments, over the term of the Management Agreement and at certain milestones,
to PC, for the Exclusive Management Right ["RTM Payments"]; and
WHEREAS, pursuant to the Management Agreement, INMD was obligated to
make certain Advances to the PC, which Advances if made, were to be repaid by
the PC to INMD; and
WHEREAS, certain disputes have arisen between and among the parties to
this Agreement in which the parties have both served various Notices of Breach,
claimed breaches of the various agreements, as well as fraud in the inducement
and requests for damages and payments; and
WHEREAS, on June 12, 1998, INMD commenced an arbitration before
JAMS/Endispute in San Diego, California ["JAMS Arbitration"], against PC and
Wood, in which INMD seeks damages and recission and/or termination of the
Various Agreements ["INMD Claims"]; and
WHEREAS, PC and Wood have interposed a counterclaim in the JAMS
Arbitration as against INMD, which seeks damages and recission and/or
termination of the Various Agreements, and which asserts various theories of
recovery, in both tort and contract, and which asserts the right to both
compensatory and exemplary damages ["Wood/PC Claims"]; and
2
<PAGE>
WHEREAS, the parties desire to effectuate a termination of the Various
Agreements, and a transition of the management of the Program to Wood and PC in
an orderly fashion, so as to insure the quality of Infertility Services at the
Program, and to settle and compromise all their disputes in order to avoid the
expense and the uncertainty of litigation.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the parties, intending to be legally bound, and
without coercion or duress of any kind, hereby agree as follows:
1. TERMINATION OF AGREEMENTS. INMD and the PC hereby terminate the Asset
Agreement, the Management Agreement, the Employment Agreement and the
Personal Responsibility Agreement, effective September 1, 1998. As of
such date, except for the rights and obligations contained in this
Agreement, all parties are discharged from any obligations arising from
the Various Agreements, including but not limited to, the repayment of
Advances, payment of RTM payments, and covenants not to compete or
solicit employees, and any Lab Build-Out. The parties hereby accelerate
all unamortized RTM payments and apply those accelerated payments to
repay Advances and discharge any remaining Advances' balance.
2. GENERAL RELEASES. (a) INMD hereby releases and forever discharges PC
and Wood, their subsidiaries, affiliates, successors, shareholders,
predecessors, heirs, assigns, agents, officers, directors and employees
from any and all claims, suits, demands, debts, causes of action,
liabilities, indemnities, obligations, costs, losses, damages and
expenses of whatsoever kind or nature, whether legal, equitable or
statutory, liquidated or unliquidated, known or unknown, including but
not limited to those arising out of the Management Agreement, Asset
Purchase Agreement, Personal Responsibility Agreement and Physician
Employment Agreement, and all causes of actions and claims asserted (or
which could have been asserted) in the JAMS Arbitration, arising from
the first day of the world until the date of this Settlement Agreement.
It is expressly understood by INMD that the granting of this general
release to PC and Wood shall constitute a voluntary and knowing waiver
of any right to legal recourse as against Wood and PC except such legal
action that may be necessary to enforce the terms of this Agreement.
(b) PC and Wood hereby release and forever discharge INMD, its
subsidiaries, affiliates, successors, shareholders, predecessors,
assigns, agents, officers, directors and employees, from any and all
claims, suits, demands, debts, causes of action, liabilities,
indemnities, obligations, costs, losses, damages and expenses of
whatsoever kind or nature, whether legal, equitable or statutory,
liquidated or unliquidated, known or unknown, including but not limited
to those arising out of the Management Agreement, Asset Purchase
Agreement, Personal Responsibility Agreement and Physician Employment
Agreement, and all causes of actions and claims asserted (or which
could have been asserted) in the JAMS Arbitration, arising from the
first day of the world until the date of this Settlement Agreement.
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It is expressly understood by PC and Wood that the granting of this
general release to INMD shall constitute a voluntary and knowing waiver
of any right to legal recourse as against INMD, except such legal
action that may be necessary to enforce the terms of this Agreement.
(c) Each of Wood, PC and INMD knowingly and voluntarily waives any and
all rights that it has under the provisions of Section 1542 of the
Civil Code of the State of California, which reads as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Each of the undersigned acknowledges and agrees that this waiver of
claims governed by Section 1542 is an essential and material term of
this Stipulation for Settlement, without which this document would not
have been executed.
3. CONTINUATION OF THE PROGRAM AND WITHDRAWAL OF INMD. (a) The parties
acknowledge and agree that the Program shall, commencing September 1,
1998, be operated solely by PC and Wood, and that INMD shall withdraw
(except for the INMD Employee detailed in paragraph 8 hereof) and cease
to offer any management, administrative, financial or support services
to the Program.
(b) Employees. INMD shall terminate the employment of all its employees
located at the Program (other than the Employee referred to in
paragraph 8) and PC and Wood shall hire such employees. INMD shall
indemnify Wood and PC for any claims by INMD Employees, arising out of
their employment during the term of the Management Agreement, except
for any and all claims arising out of the volitional or intentional
acts of Wood.
(c) Insurances. (1) Effective September 1, 1998, INMD shall cancel the
general liability insurance policy in effect for the PC and the
Facilities [as defined in paragraph 3.2 of the Management Agreement and
including the Xi-Med Leasehold] and shall cancel any professional
liability insurance policy in effect for the PC and PC's staff
(including Wood). Wood and PC covenant and warrant that the PC and Wood
shall have, effective no later than September 1, 1998, professional
liability insurance , insuring all professional acts including the
storage of Biological Materials in an amount of no less than $1 million
per claim/$3 million in the aggregate, and that the PC and Wood shall
provide INMD, proof of such insurance, and proof of general liability
insurance for the Facilities no later than September 1, 1998. The
Wood/PC obligation to provide proof of such insurance shall continue
annually (on the anniversary date of the first proof) for three (3)
years. Wood hereby acknowledges and agrees that any and all health
and/or disability benefits provided by INMD shall cease on September 1,
1998.
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(2)INMD shall continue, in full force and effect, "tail insurance" ,
covering the PC and INMD's prior employees for professional acts,
including the storage of biological materials for claims made after
September 1, 1998 but arising out of professional acts or conduct
occuring during the term of the Management Agreement. INMD shall
provide PC and Wood with proof of such insurance no later than
September 1, 1998 and shall continue to provide such proof of insurance
annually (on the anniversary date of the first proof) for three years.
(d) Notification of Patients. Wood and PC shall notify patients of the
Program, on or before October 1, 1998, that he and the PC are no longer
affiliated with INMD. The form and content of such notification shall
be previously approved by INMD, such approval not to be unreasonably
withheld or delayed.
(e) Biological Materials.
(i) The PC and Wood, hereby acknowledge and agree that, at all
times during the time period of the Management Agreement, and
at all times hereafter, the PC and/or Wood have been the sole
and rightful custodians of all biological materials, including
but not limited to sperm, oocytes and embryos (cryopreserved
or fresh)["Biological Materials"] and that they shall continue
to preserve and protect such Biological Materials as are in
their custody.
(ii) The PC shall provide INMD with a list of all patients who
(1) currently have cryopreserved biological materials in
storage at the Program as of September 1, 1998, and (2) who
have ever had cryopreserved biological materials in storage at
the Program from June 6, 1997 through September 1, 1998,
together with information as to and the date as to when
storage ceased.
(f) Removal of Proprietary Information. INMD shall remove from the
Program Premises any and all copies of proprietary written information
(as listed on the annexed Schedule A), and PC and Wood hereby covenant
not to copy or utilize any consents, procedure or policy manuals or
proprietary information henceforth in operation of the Program, except
that, the PC shall, for a period of ninety days (up to and including
November 30, 1998) be permitted to utilize the text of the INMD
Consents, now utilized for documenting patient consent, provided that
all reference to INMD is redacted or removed therefrom.
(g) Billing Cooperation. INMD shall leave at the Program any and all
documentation and equipment necessary for the Program to bill for
unbilled Infertility Services and to collect outstanding amounts. This
shall include data stored in the computer system at the Program.
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4. COVENANT BY WOOD. Wood hereby covenants and represents that the PC is
the current professional corporation through which he practices
medicine. He further covenants and represents that if, at any time
prior to the full payment of the Payment Price, he should establish
another professional corporation or entity through which he shall
practice medicine, he shall do so only if such PC and/or sole
proprietorship or business entity expressly assumes the obligations of
the Payment Price and the obligations of this Agreement.
5. LEASE OF ASSETS. The PC shall lease the Program's tangible assets and
leasehold improvements of the Program on the terms of the Asset Lease
["Payment Price"] here annexed as Exhibit A and executed simultaneously
with this Agreement.
6. ASSUMPTION OF LEASEHOLD INTERESTS. (a) The PC shall assume all future
lease payments, as of September 1, 1998, the lease for the office space
of the Program located at 4150 Regents Row, Suite 280, La Jolla,
California ["Program Premises"], and the XiMed Leasehold and shall
indemnify INMD against claims for rent or payments thereunder made by
the Landlord, except as provided in paragraph 11 hereof.
(b) The PC shall assume the leases, as of September 1, 1998, for any
and all medical and/or office equipment located at the Program Premises
except for the Diagnostic Products Corporation Immulite Immunology
Analyzer, Serial # 5379010 ["Immulite Analyzer"] and shall indemnify
INMD against any claims for rent or payments thereunder made by the
Lessors thereof. INMD shall assume the lease for the Immulite Analyzer,
and the parties shall cooperate, in good faith, in efforts to sell,
lease, transfer or return such Immulite Analyzer, such sale, leasehold,
transfer or return not to take place prior to October 1, 1998. PC and
Wood shall pay to INMD the monthly lease price of $1,736.82 (One
thousand seven hundred and thirty six dollars and eighty-two cents) for
the use of the Immulite Analyzer for the period September 1, 1998 until
October 1, 1998 ["Immulite Payment"]. The Immulite Payment shall be
offset, or deducted, from the first payment to be earned by Wood
pursuant to Section 9(d)(2) of this Agreement.
7. RIGHT TO ACCOUNTS RECEIVABLE. The parties hereby acknowledge and agree
that, during the operation of the Program up to and including August
31, 1998, certain accounts receivable were, and shall continue to be,
generated. For the purposes of this Agreement, accounts receivable are
deemed generated on the date that the medical or laboratory service or
treatment is provided to a patient, irrespective of the date (before or
after treatment) that payment is actually received. The parties hereby
agree and acknowledge the following rights and interests in accounts
receivable of the Program:
(a) Any and all accounts receivable generated prior to September 1,
1998 ("Pre- September Receivables") are the sole property of INMD,
whether payment therefor has, or in the future is, received by INMD,
the PC and/or Wood.
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(b) Any and all accounts receivable generated on and after September 1,
1998 ("Future Program Receivables") shall be the sole property of the
PC, whether payment therefor has been, or in the future is, received by
any or all of INMD, the the PC and/or Wood.
(c) In the event there arises a dispute between INMD and PC as to the
nature and character of the Program Receipts (as Pre-September or
Future Receivables), the parties shall first rely on the date the
service was rendered, as shown on the computer records generated by
INMD. PC shall have the burden of proving such records erroneous by
supplying copies of the patient medical records.
8. COLLECTION OF ACCOUNTS RECEIVABLE. An employee of INMD (of INMD's
choosing)(the "INMD Employee") shall be on the Program Premises for up
to and including December 31, 1998, in order to oversee and make
efforts for the collection of the accounts receivable of the Program
and the PC. Such collection shall be jointly supervised and conducted
by the INMD Employee and a representative of the PC designated by Wood
(the "PC Representative"). The INMD Employee and PC Representative
shall have joint and simultaneous access to any and all billing
information, data and computer information necessary, provided,
however, such information be restricted to information needed to
process, record and document payment of such accounts receivable. The
INMD Employee shall have access to the Program Premises at any time
during normal business hours. The INMD Representative and the PC
Representative shall, jointly and in good faith, allocate any and all
monies received as being either Pre-September Receivables or Future
Receivables. INMD and the PC shall, in good faith, insure that the
Future Receivables are paid to the PC and the Pre-September Receivables
are paid to INMD. The PC and Wood hereby covenant to cooperate with the
INMD Employee in his/her efforts to collect Pre-September Receivables
and agree not to interfere, by omission or commission, with that
effort. In the event that there is a dispute between the Companies'
Representative and the IntegraMed Representative concerning whether
monies received constitute a Pre-September Receivable or a Future
Receivable, the parties shall first rely on the date of the service
rendered, as shown in the computer records generated by INMD and, if
the Companies' representative disagrees with such records, he/she shall
produce the patient's records. If the parties cannot, in good faith,
agree to the allocation on the basis of such records, such collections
shall be put in escrow until the matter is determined by arbitration or
agreement. The parties anticipate that the amount of Pre- September
Receivables to be subject to collection by INMD are the sum of (1) One
hundred and twenty-two thousand four hundred and ninety dollars
($122,490.00) and (2) such accounts receivable generated by the Program
between August 1 and August 31, 1998 ["August Receivables"]. Between
September 1 and September 30, 1998, INMD shall account to PC for any
money collected on behalf of the Program which represented pre-payments
by patients for medical services to be performed on or after September
1, 1998, including both "patient deposits" and "suspended credits"
["Pre-payments"].The aggregate amount of such Pre-payments shall be
paid by INMD to PC no later than October 1, 1998. Between September 1
and September 30, 1998, Wood and PC shall account to INMD for the
amount of August Receivables.
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9. ENTITLEMENTS OF PC AND WOOD. In consideration for the withdrawal of
INMD from the Program, the termination of the Various Agreements, and
the obligations of this Agreement, PC and Wood shall receive the
following:
(a) Any and all INMD Common Shares ["INMD Shares"] issued to PC and/or
Wood upon the signing of the Management Agreement, shall no longer be
subject to the provisions of Section 7.1.7 of the Management Agreement,
but shall be subject to all applicable Federal and State law. INMD
agrees to provide any documentation or approval reasonably required by
PC or Wood in order to sell the INMD Shares in accordance with law. No
additional INMD Shares shall be issued to Wood or the PC as a result
of, or based upon any rights contained in, the Various Agreements,
hereafter.
(b) INMD shall pay one hundred percent (100%) of the monthly payments
on the XiMed Leasehold for (1) a period of six months, commencing
September 1, 1998; or (2) until the XiMed Leasehold is fully sublet to
another tenant or (3) the commencement of a Navy contract between the
government and the PC or Wood, whichever shall first occur. PC and Wood
covenant to use commercially reasonable efforts to sublet the premises
governed by the XiMed Leasehold.
(c) INMD shall Advance the Costs of Services of the Program up to and
including August 31, 1998 and shall be repaid such money solely from
the collected Pre- September Accounts Receivable.
(d) Consulting Agreement. (1) Commencing September 1, 1998, and for a
period of twenty-nine months thereafter, Wood shall be a Special
Consultant to INMD. His duties as a Special Consultant shall be to,
upon request of INMD, consult and advise INMD with respect to new ART
technologies, laboratory methods, protocols for new procedures and
results. It is expressly understood that INMD shall provide Wood with
reasonable notice of such requests, but Wood shall also make himself
reasonably available for such consultation, it being understood between
the parties to this Agreement that the time devoted by Wood to his
duties as a Special Consultant shall be not greater than an average of
10 hours per month.
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(2) Wood's compensation for performance of his duties as Special
Consultant shall be $4800 per month ["Consulting Payment"], payable on
the 15th day of each month, providing however, that INMD shall be
entitled to offset the payment against the Immulite Payment due under
Section 6(b) of this Agreement and any Asset Lease payments due, or to
become due within 30 days of the date of required payment by INMD.
10. GOVERNMENT CONTRACT EFFORT. (a) The parties agree and acknowledge that
there is a Request for Quotation (RFQ) issued by the Naval Medical
Center San Diego [NMCSD] which seeks an infertility program to
associate with NMSCD physicians for the provision of Infertility
Services to active, retired and/or reservist US Navy care-eligible
personnel referred to NMSCD for infertility treatment ["Navy
Contract"]. PC and Wood desire to submit a proposal for such Navy
Contract and desire that INMD, specifically its COO Dr. Donald S. Wood,
lend their/his expertise in preparing the necessary documents and
presentation of such proposal on behalf of PC and Wood. Wood and INMD
have evaluated the RFQ and have determined that the Scope of Work and
qualifications listed therein may, in fact, be too narrow to permit the
PC (and other infertility programs) to qualify for consideration,
inasmuch as the RFQ may be designed to meet the specific qualifications
of a prior Navy contractor. Nonetheless, both parties feel it is
nonetheless worthwhile to prepare and submit a proposal on behalf of
PC. In consideration of this Agreement, INMD and Donald S. Wood, hereby
agree to use commercially reasonable efforts to assist PC and Wood in
the preparation and submission of a proposal for such Navy Contract.
The parties agree and acknowledge that the deadline for such submission
is September 6, 1998, and that the preparation of such proposal on
behalf of PC and Wood shall be a time-consuming project. INMD agrees
that it shall use such efforts and shall devote such time as is
reasonably necessary, at its own cost and expense, it being understood
by the parties that whatever the nature of the INMD efforts, there can
be no assurance that Wood or PC will secure the Navy Contract and that
it shall be impossible to ascertain the reason underlying an award of
the Navy Contract to an entity other than PC or Wood. (b) PC and Wood
agree that the proposal for the Navy Contract shall not contain any
description of INMD's future relationship with PC unless said language
receives the express approval of INMD, and such express approval shall
not be unreasonably withheld or delayed.
(c) In the event that PC secures the Navy Contract, INMD agrees that it
shall function as Special Consultant to the Director of the Laboratory
of PC. INMD's duties shall be to, upon request of Wood or the Director
of the Laboratory of PC, to advise PC with respect to new ART
Technologies, laboratory methods, protocols and techniques.
(d) It is expressly understood among the parties that Wood, in his role
as Special Consultant, shall function purely as an advisor and
independent contractor and that conduct of INMD, even if based upon his
advice and/or recommendation, shall be the sole responsibility of INMD.
It is also expressly understood among the parties that INMD, in its
role as Special Consultant to PC, shall function purely as an advisor
and independent contractor and that the conduct of PC, even if based on
INMD's advice and/or recommendation shall be the sole responsibility of
PC.
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11. DISCONTINUANCE OF JAMS ARBITRATION. INMD, PC and Wood shall, within
seven (7) business days of this Agreement, write a letter (or
independent letters ) to JAMS/Endispute, discontinuing all claims
against each other with prejudice. Each party shall bear its/his own
costs, expenses and attorneys fees. The cost of any administrative fee
assessed by JAMS, over and above the filing fee already paid by INMD
shall be borne equally between INMD and PC.
12. COOPERATION. In the event of any claims, suits or governmental
investigations, arising out of or relating to the Program, in which
INMD, Wood and/or the PC shall be named or involved, whether or not
pending during the term of the Management Agreement, the parties hereto
agree to fully cooperate 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 or an investigation by an insurer, response
to subpoenae and the coordination of any individual defenses with
counsel for all parties. Wood and the PC shall, as soon as practicable,
deliver to INMD copies of any summonses, complaints, suit letters,
subpoenae or legal papers of any kind, served upon them or their
attorneys. This obligation to cooperate shall survive the satisfaction
of any payment obligations hereunder, or the termination of this
Agreement for whatever reason, and nothing in this paragraph shall
obligate the parties to pay any legal fees incurred by the other.
13. NON-DISPARAGEMENT AND CONFIDENTIALITY. The parties acknowledge that
this Agreement represents a fully consensual and amicable separation of
interests and that, hereafter, each party covenants that, in
communicating with third parties, they shall not, by action or word,
defame, criticize or condemn the actions, conduct or motives of the
other. Each party recognizes that this covenant represents a material
obligation of both parties under this Agreement, the breach of which
may impact adversely on the business interests of the non-breaching
party. The parties further covenant that the terms of this Agreement
shall not be disclosed to any third party,except to the extent
necessary to enforce the terms hereto, and except that each party may
disclose such terms to his/its spouses, attorneys, financial advisors
or in response to judicial process.
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14. ARBITRATION. Any and all claims, disputes, or controversies arising
under, out of, or in connection with this Agreement or any breach
thereof, shall be determined by binding arbitration in the State of
California, County of San Diego (hereinafter "Arbitration"). The party
seeking determination shall subject any such dispute, claim or
controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial arbitration of the
selected entity shall govern. The Arbitration shall be conducted and
decided by three (3) arbitrators, unless the parties mutually agree, in
writing at the time of the Arbitration, to fewer arbitrators. In
reaching a decision, the arbitrators shall 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 either in
the Courts of the State of California or the United States District
Court for the Southern District of California, to whose jurisdiction
for such purposes PC, Wood and INMD hereby irrevocably consent and
submit.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without reference to rules of conflicts of laws.
16. 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.
17. No assignment or delegation of this Agreement or the rights and
obligations hereunder shall be valid without the specific consent of
all parties.
18. No consent or waiver, express or implied, by either party hereto, 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 in 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.
19. Any notices, requests, demands and other communications provided for in
this Agreement as required among the parties in connection with the
Agreement shall be in writing and shall be deemed to have been given at
the time when mailed at any United States Post Office via register or
certified mail, prepaid, or sent by overnight delivery services,
addressed to the party at the address set forth below or such other
addresses as such party may designate by notice:
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To PC or Wood at:
Reproductive Sciences Medical Center, Inc.
4150 Regents Park Row, Suite 280
La Jolla, CA 92037
Attention: Samuel H. Wood, M.D., P.C.
With Copy to:
David J. Hirsch, Esq.
9460 Wilshire Boulevard
Suite 830
Beverly Hills, California 90212
To IntegraMed America, Inc:
Donald S. Wood, Ph.D.
Chief Operating Officer
Integramed America, Inc.
One Manhattanville Road
Purchase, New York 10577
The failure of any party to claim such notice, or the refusal of
delivery, shall not alter the effectiveness of said notice.
20. This Agreement is the result of arms-length and deliberate negotiations
and each party has consulted with counsel. Should this Agreement be the
subject of interpretation, it shall be deemed to have been drafted by
all of the parties equally.
21. 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. This Agreement
shall be effective upon the receipt by each party of facsimile copies
of the signature page, with the original, executed documents to be
exchanged within seven (7) business days thereafter.
IN WITNESS WHEREOF, the parties have set their hands hereunto as of the
effective date herein written.
INTEGRAMED AMERICA, INC. REPRODUCTIVE SCIENCES
MEDICAL CENTER, INC.
By: /s/Donald S. Wood By: /s/Samuel H. Wood
------------------------------ ------------------------
Donald S. Wood, Ph.D. Samuel H. Wood, M.D.
Title: Chief Operating Officer Title: President
------------------------------
Samuel H. Wood, M.D.
12
Loan Agreement dated as of September 11, 1998 between INTEGRAMED
AMERICA, INC., a Delaware corporation with its chief place of business at One
Manhattanville Road, Purchase, New York 10577-2100 (the "Borrower") and FLEET
BANK, NATIONAL ASSOCIATION, a national banking association, 244 Westchester
Avenue, White Plains, New York 10604 (the "Bank").
The parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. As used herein the following terms shall have the
following meanings:
"Accounts" shall mean those accounts (i) arising out of the sale or
lease of goods or the rendition of services by the Borrower, or (ii) acquired by
the Borrower from another Person.
"Account Debtor" shall mean the person who is obligated on or under an
Account.
"Acquisition" shall mean with respect to any Person, the purchase or
other acquisition by such Person, by any means whatsoever (including through a
merger, amalgamation, dividend or otherwise and whether in a single transaction
or in a series of related transactions), of (i) any Capital Stock of any other
Person if, immediately thereafter, such other Person would be either a
Subsidiary of such Person or otherwise under the control of such Person, (ii)
any business, going concern or division or segment of any other Person, or (iii)
any Property of any other Person other than in the ordinary course of business,
provided, however, that no acquisition of all or substantially all of the assets
of such other Person shall be deemed to be in the ordinary course of business.
Acquisition shall exclude Capital Expenditures (as hereinafter defined)
otherwise permitted by this agreement. For purposes of this definition,
"Acquisition" shall take the form of the Borrower's entering into a Management
Agreement and the Borrower's acquisition of certain fixed assets in connection
therewith.
"Acquisition Cost" shall mean with respect to any Acquisition by any
Person, the sum of (i) all cash consideration paid or agreed to be paid by such
Person to make such Acquisition (inclusive of payments by such Person of the
seller's professional fees and expenses and other out-of- pocket expenses in
connection therewith), plus (ii) the fair market value of all non-cash
consideration paid by such Person in connection therewith, plus (iii) an amount
equal to the principal or stated amount of all liabilities assumed or incurred
by such Person in connection therewith. The principal or stated amount of any
liability assumed or incurred by a Person in connection with an Acquisition
which is a contingent liability shall be an amount equal to the stated amount of
such liability or, if the same is not stated, the maximum reasonably anticipated
amount payable by such Person in respect thereof as determined by such Person in
good faith.
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"Adjusted Net Income" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis for any period, the net income (or loss) of
the Borrower and its Subsidiaries on a consolidated basis for such period,
excluding extraordinary items, as determined in accordance with GAAP.
"Affiliate" as applied to any Person shall mean any other Person
directly or indirectly through one or more intermediaries controlling,
controlled by, or under common control with, that Person. For the purposes of
this definition, "control" (including with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" shall mean this Loan Agreement, as the same from time to
time may be amended, supplemented or modified.
"Applicable Margin" shall mean:
(a) with respect to the unpaid principal balance of Facility A
Revolving Credit Loans that consist of Fluctuating Rate Loans and LIBOR Loans,
in each case at all times during which the applicable Pricing Level set forth
below is in effect, the percentage set forth below next to such Pricing Level
and under the applicable column:
Applicable Margin (Type of Loan)
--------------------------------
Fluctuating
Pricing Level Rate Loan LIBOR Loan
------------- --------- ----------
Pricing Level I 0.25% 3.00%
Pricing Level II 0.00% 2.75%
Pricing Level III 0.00% 2.25%
(b) with respect to the unpaid principal balance of Facility B
Revolving Credit Loans and Term Loans that consist of Fluctuating Rate Loans and
LIBOR Loans, in each case at all times during which the applicable Pricing Level
set forth below is in effect, the percentage set forth below next to such
Pricing Level and under the applicable column:
Applicable Margin (Type of Loan)
--------------------------------
Fluctuating
Pricing Level Rate Loan LIBOR Loan
------------- --------- ----------
Pricing Level I 0.00% 2.75%
Pricing Level II 0.00% 2.50%
Pricing Level III 0.00% 2.25%
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In each of the above cases, changes in the Applicable Margin resulting
from a change in a Pricing Level shall be based upon the financial
statements/certificate most recently delivered pursuant to Sections 5.2(a)(i)
and 5.2(b) and shall become effective on the date such financial statements or
certificate, as applicable, are delivered to the Bank in the format required by
this Agreement. Notwithstanding anything to the contrary contained in this
definition, (i) if, at any time and from time to time, the Borrower shall be in
Default of its obligations under Section 5.2, Pricing Level I (as increased
pursuant to Section 2.11(c)) shall apply until such Default is cured, and (ii)
Pricing Level I shall apply during the period commencing on the date of this
Agreement and ending on the date of delivery thereafter of the financial
statements/certificate covering the fiscal period of the Borrower ending on
March 31, 1999.
"Borrowing Base" shall mean at any time 50% of the Borrower's Eligible
Accounts Receivable at such time.
"Borrowing Base Certificate" shall mean a certificate substantially in
the form of Exhibit D hereto.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York are required or permitted by law to
remain closed, except that "Business Day" in the context of a specific city
shall mean any date on which commercial banks are open for business in that city
and relative to the date of (i) making or continuing any Loans as, or converting
any Loans from or into, LIBOR Loans, (ii) making any payment or prepayment of
principal of or payment of interest on any portion of the principal amount of
any Loans being maintained as LIBOR Loans, or (iii) the Borrower's giving any
notice (or the number of Business Days to elapse prior to the effectiveness
thereof) in connection with any matter referred to in the foregoing clause (i)
or (ii), any day on which dealings in Dollars are carried on in the interbank
eurodollar market in London, England.
"Capital Expenditures" shall mean for any period, the additions to
property, plant and equipment and other capital expenditures of such Person for
such period as the same are or would be set forth in a consolidated statement of
cash flows of such Person for such period (or the notes thereto) prepared in
accordance with generally accepted accounting principles, excluding any such
additions which are attributable to an Acquisition.
"Capitalized Lease" shall mean any lease the obligations to pay rent or
other amounts under which constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations" shall mean as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be capitalized under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
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"Capital Stock" shall mean as to any Person, all shares, interests,
partnership interests, limited liability company interests, participations,
rights in or other equivalents (however designated) of such Person's equity
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other equity.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit or
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital in
excess of $200,000,000, (c) repurchase obligations of any commercial bank
satisfying the requirements of clause (b) of this definition, having a term not
more than seven days with respect to securities issued or fully guaranteed or
insured by the United States Government, (d) commercial paper of a domestic
issuer rated at least A-1 or the equivalent thereof by Standard & Poor's Ratings
Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Services,
Inc. ("Moody's") and in either case maturing within one year from the date of
acquisition, (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's, (f) securities with maturities of one year or less from
the date of acquisition backed by standby letters of credit issued by any
commercial bank satisfying the requirements of clause (b) of this definition or
(g) shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (f) of this
definition.
"Change in Control" shall mean that after the date of this Agreement
the ownership of the Borrower's outstanding Capital Stock shall change such that
any one Person or any one group of Affiliated Persons owns directly or
beneficially more than 50% of the issued and outstanding Capital Stock of the
Borrower.
"Cleanup Laws" shall mean any federal, state or local statute or
regulation relating to hazardous or toxic wastes or substances or the removal
thereof.
"Collateral" shall mean the collateral described in Section 9 of this
Agreement.
"Commitment" shall mean the Facility A Commitment and/or the Facility B
Commitment.
"Commitment Letter" shall mean the letter agreement between the
Borrower and the Bank dated July 16, 1998.
"Commitment Period" shall mean the Facility A Commitment Period and/or
the Facility B Commitment Period.
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"Consolidated" or "consolidated" shall mean the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Consolidated Adjusted EBITDA" shall mean, for any period, (i) with
respect to Network Sites owned by the Borrower for more than 12 months,
Consolidated EBITDA and (ii) with respect to Network Sites owned by the Borrower
for less than 12 months, the sum of (A) Consolidated EBITDA for each full month
the Network Site was owned by the Borrower for which the Bank has received
financial statements, plus (B) pro forma Consolidated EBITDA for that number of
months immediately prior to the Borrower's acquisition equal to 12 months minus
the number of months the Network Site was owned by the Borrower as calculated by
the Borrower in good faith and in a manner reasonably satisfactory to the Bank,
plus (C) any adjustments reasonably satisfactory to the Bank.
"Consolidated Debt Service" shall mean for any period, the sum of (i)
Consolidated Interest Expense for such period and (ii) all scheduled payments of
principal on Consolidated Funded Debt during such period, including payments
made on account of Capitalized Leases.
"Consolidated EBITDA" shall mean, with respect to the Borrower and its
Subsidiaries for any period, the sum of (i) Adjusted Net Income, (ii) Interest
Expense, (iii) depreciation, amortization and other non-cash charges and (iv)
provision for Federal, state and local income taxes, in each case of the
Borrower and its Subsidiaries on a consolidated basis for such period, computed
in accordance with GAAP.
"Consolidated Effective Net Worth" shall mean at any date of
determination, the sum of capital surplus, earned surplus (or accumulated
deficit), the par value of each class of capital stock multiplied by the number
of outstanding shares of such class of capital stock, additional paid-in capital
and Subordinated Debt of the Borrower and its Subsidiaries on a Consolidated
basis.
"Consolidated Funded Debt" shall mean at any date of determination, the
aggregate funded indebtedness (as determined in accordance with GAAP) of the
Borrower and its Subsidiaries, determined on a Consolidated basis in accordance
with GAAP, on such date.
"Consolidated Interest Expense" shall mean, with respect to the
Borrower and its Subsidiaries for the applicable period of determination
thereof, the interest expense of the Borrower and its Subsidiaries during such
period determined on a consolidated basis in accordance with GAAP.
"Consolidated Senior Funded Debt" shall mean at any date of
determination, the aggregate funded indebtedness of the Borrower that does not
constitute Subordinated Debt, determined on a Consolidated basis in accordance
with GAAP, on such date.
"Consolidating" or "consolidating" shall mean the Borrower and its
Subsidiaries each taken separately.
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"Continuation/Conversion Notice" is defined in Section 2.9.
"Contractual Obligations" shall mean as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Controlled" and "Control" shall mean any partnership, corporation or
other entity of which the Borrower, alone, or the Borrower and/or one or more of
its Subsidiaries, either has the power to direct the management or the power to
direct at least a majority of the voting interests.
"Cost of Funds" means the per annum rate of interest which the Bank is
required to pay, or is offering to pay, for wholesale liabilities, adjusted for
reserve requirements and such other requirements as may be imposed by federal,
state or local government and regulatory agencies, as determined by the Bank.
"Default" shall mean any of the events specified in this Agreement
under "Events of Default", whether or not any requirement for the giving of
notice, the lapse of time, or both, has been satisfied.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Eligible Accounts Receivable shall mean those Accounts (i) which do
not remain unpaid for more than 90 days from the original date of invoice, and
(ii) have been validly assigned to the Bank and, are subject to a first priority
Lien in favor of the Bank and comply with all of the terms, conditions,
warranties and representations made to the Bank under this Agreement and the
other Loan Documents; but Eligible Accounts Receivable shall not include the
following: (a) Accounts with respect to which the Account Debtor is an officer,
director, employee, or agent of the Borrower or an Affiliate; (b) Accounts
arising from a sale of goods which are placed on consignment, or subject to
guaranteed sale, bill-and-hold, repurchase or return, or other terms by reason
of which the payment of the Account Debtor may be conditional; (c) Accounts
arising from invoices for deposits, and rebills of amounts previously credited
to the extent of credits issued more than fifteen (15) days prior to such
rebill; (d) Accounts with respect to which the Account Debtor is not domiciled
in the United States of America unless such Account is fully secured by an
irrevocable letter of credit acceptable to the Bank and in favor of or assigned
to the Bank; (e) Accounts with respect to which the sale is on an installment
sale, lease or other extended payment basis; (f) Accounts with respect to which
the Account Debtor is a federal, state, local or foreign governmental authority
unless such governmental authority is the United States of America or any
department, agency or instrumentality of the Untied States, and the Borrower
complies with the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Section 203 et seq.; (g) Accounts with respect to which the Account Debtor is a
Subsidiary of, Affiliate of, or has common officers or directors with the
Borrower; (h) Accounts with respect to which the Bank does not for any reason
have a perfected first priority Lien; (i) Accounts with respect to which the
Borrower is or may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to the Borrower, to the extent of the
Borrower's existing or potential liability to such Account Debtor; (j) Accounts
with respect to which the Account Debtor has disputed any liability, or the
Account is otherwise subject to any right of setoff, deduction, breach of
warranty or other defense, dispute or counterclaim by the Account Debtor but
such Account shall be ineligible only to the extent of the disputed or otherwise
disallowed amount; (k) that portion of any Accounts representing late fees,
service charges or interest, but only to the extent of such portion; (l)
Accounts of an Account Debtor where the Account Debtor is located in New Jersey
or Minnesota unless the Borrower (1) with respect to such state, has received a
Certificate of Authority to do business and is in good standing in such state,
or (2) has filed a Notice of Business Activities Report with the New Jersey
Division of Taxation or the Minnesota Department of Revenue, as applicable, for
the then current year; (m) Accounts owed by any Account Debtor which is
insolvent or is the subject of an insolvency proceeding; (n) that portion or any
Accounts represented by an instrument, or chattel paper; and (o) any and all
Accounts of an Account Debtor whose creditworthiness is not satisfactory to the
Bank in its reasonable credit judgment based on information available to the
Bank. References to percentages of all Accounts are based on dollar amount of
Accounts, and not number of Accounts.
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<PAGE>
"Environmental Laws" shall mean any federal, state or local statute or
regulation relating to hazardous or toxic wastes or substances or the removal
thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" shall mean any of the events specified in this
Agreement under "Events of Default", provided that any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has been
satisfied.
"Facility A Commitment" shall mean the obligation of the Bank to make
Facility A Revolving Credit Loans to the Borrower during the Facility A
Commitment Period pursuant to the terms hereof as such Commitment is described
in Section 2.1(a) hereof and as subject to reduction in accordance with the
terms hereof.
"Facility A Commitment Period" shall mean the period from and including
the date hereof to and including the Facility A Termination Date or such earlier
date as the Facility A Commitment shall terminate as provided herein.
"Facility B Commitment" shall mean the obligation of the Bank to make
Facility B Revolving Credit Loans to the Borrower during the Facility B
Commitment Period pursuant to the terms hereof as such Commitment is described
in Section 2.1(a) hereof and as subject to reduction in accordance with the
terms hereof.
"Facility B Commitment Period" shall mean the period from and including
the date hereof to and including the Facility B Termination Date or such earlier
date as the Facility B Commitment shall terminate as provided herein.
"Facility A Revolving Credit Loan" shall mean a Loan made pursuant to
Section 2.1(a) hereof.
"Facility A Revolving Credit Note" shall mean the Note referred to in
Section 2.2(a) hereof.
"Facility B Revolving Credit Loan" shall mean a Loan made pursuant to
Section 2.1(b) hereof.
"Facility B Revolving Credit Note" shall mean the Note referred to in
Section 2.2(b) hereof.
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"Facility A Termination Date" shall mean September 11, 2001 or, if such
date is not a Business Day, the Business Day next succeeding such date.
"Facility B Termination Date" shall mean September 11, 2001 or, if such
date is not a Business Day, the Business Day next succeeding such date.
"Fixed Charge Coverage Ratio" shall be determined on a rolling
four-quarter basis and shall mean, for any such four-quarter period, the ratio
of (A) Consolidated Adjusted EBITDA for such period minus the sum of Capital
Expenditures during such period that have not been financed (excluding amounts
paid in connection with Permitted Acquisitions), and cash dividends paid during
such period and income taxes paid during such period to (B) Consolidated Debt
Service for such period.
"Fluctuating Rate Loans" shall mean Loans hereunder that bear interest
at a rate of interest based upon the Prime Rate plus the Applicable Margin, if
any.
"GAAP" shall mean generally accepted accounting principles applied in a
manner consistent with that employed in the preparation of the financial
statements described in Section 3.1.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing.
"Guarantees" shall mean the guarantees to be executed by the Guarantors
substantially in the form of Exhibit F hereto.
"Guarantors" shall mean each and every present and future Subsidiary of
the Borrower that the Bank in its reasonable discretion deems to be a "material"
Subsidiary of the Borrower.
"Indebtedness" shall mean (without duplication), with respect to any
Person, (a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person for the deferred purchase price of property or services, except
accrued expenses arising in the ordinary course of business, current accounts
payable arising in the ordinary course of business and not overdue beyond such
period as is commercially reasonable for such Person's business, amounts due to
medical providers and patient deposits (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (e) all payment obligations of such Person with
respect to interest rate or currency protection agreements , (f) all obligations
of such Person as an account party under any letter of credit or in respect of
bankers' acceptances, (g) all obligations of any third party secured by property
or assets of such Person (regardless of whether or not such Person is liable for
repayment of such obligations), (h) all guarantees of such Person, (i) all
Capitalized Lease Obligations of such Person and (j) the redemption price of all
redeemable preferred stock of such Person (but not accrued dividends on any
preferred stock), but only to the extent that such stock is redeemable at the
option of the holder or requires sinking fund or similar payments at any time
prior to the Termination Date.
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<PAGE>
"Installment Payment Date" shall mean any date on which all or any
portion of the principal amount of the Term Loan is due and payable.
"Interest Period" shall mean any period during which a Loan bears
interest at a fixed rate as elected by the Borrower in accordance with the terms
of this Agreement.
(a) If any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Business Day.
(b) No Interest Period shall extend beyond a stated Maturity Date.
(c) No portion of the Term Loan shall be continued as or converted into
a Libor Loan with an Interest Period which extends beyond an Installment Payment
Date if, after giving effect to the continuation or conversion of such Libor
Loan, the amount payable on any Installment Payment Date would exceed the sum of
(i) the aggregate principal amount of the outstanding portion of the Term Loan
constituting Libor Loans with Interest Periods ending prior to such Installment
Payment Date and (ii) the aggregate outstanding portion of the Term Loan
constituting Fluctuating Rate Loans.
(d) If such Interest Period commences on a day for which there exists
no numerically corresponding day in the final month of such Interest Period,
such Interest Period shall end on the last Business Day of such month.
"Leverage Ratio" shall mean at any date of determination, the ratio of
(i) Consolidated Senior Funded Debt as of such date to (ii) Consolidated EBITDA
for the four fiscal quarter period ending on such date or, if such date is not
the last day of a fiscal quarter, for the immediately preceding four fiscal
quarter period.
"LIBOR" shall mean, as applicable to any LIBOR Loan, the rate per annum
(rounded upward, if necessary, to the nearest 1/32 of one percent) as determined
on the basis of the offered rates for deposits in U.S. dollars, for a period of
time comparable to the interest period applicable to such LIBOR Loan which
appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that
is two London Business Days preceding the first day of the interest period
applicable to such LIBOR Loan; provided, however, if the rate described above
does not appear on the Telerate System on any applicable interest determination
date, the LIBOR rate shall be the rate (rounded upwards as described above, if
necessary) for deposits in dollars for a period substantially equal to the
interest period on the Reuters Page "LIBO" (or such other page as may replace
the LIBO Page on that service for the purpose of displaying such rates), as of
11:00 a.m. (London Time), on the day that is two (2) London Business Days prior
to the beginning of such Interest Period. If both the Telerate and Reuters
system are unavailable, then the rate for that date will be determined on the
basis of the offered rates for deposits in U.S. dollars for a period of time
comparable to the interest period applicable to such LIBOR Loan which are
offered by four major banks in the London interbank market at approximately
11:00 a.m. London time, on the day that is two (2) London Business Days
preceding the first day of the interest period applicable to such LIBOR Loan as
selected by the Bank. The principal London office of each of the four major
London banks will be requested to provide a quotation of its U.S. dollar deposit
offered rate. If at least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations. If fewer than two quotations
are provided as requested, the rate for that date will be determined on the
basis of the rates quoted for loans in U.S. dollars to leading European banks
for a period of time comparable to the interest period applicable to such LIBOR
Loan offered by major banks in New York City at approximately 11:00 a.m. New
York City time, on the day that its two London Business Days preceding the first
day of such LIBOR Loan. In the event that Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR pursuant to a LIBOR
Loan cannot be determined. In the event that the Board of Governors of the
Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR
deposits of the Bank then for any period during which such Reserve Percentage
shall apply, LIBOR shall be equal to the amount determined above divided by an
amount equal to 1 minus the Reserve Percentage.
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"LIBOR Loans" shall mean Loans hereunder that bear interest for the
Interest Period applicable thereto at a rate of interest based upon LIBOR plus
the Applicable Margin.
"Lien" shall mean any mortgage, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever which has the practical effect of creating a security interest
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
"Loan" or "Loans" shall mean any loan made by the Bank to the Borrower
hereunder whether a Facility A Revolving Credit Loan, Facility B Revolving
Credit Loan or the Term Loan.
"Loan Documents" shall mean this Agreement and each document, agreement
and instrument executed in connection herewith or pursuant hereto together with
each document, agreement and instrument made by the Borrower or any Guarantor
with or in favor of or owing to the Bank.
"Management Agreement" shall mean an agreement entered into between the
Borrower and a Practice Group pursuant to which the Borrower provides management
and administrative services to such Practice Group and furnishes such Practice
Group with facilities, equipment, personnel and supplies.
"Maturity Date" shall mean the date that all or a portion of the
outstanding principal balance of a Loan is due and payable pursuant to the terms
hereof which shall include without limitation (i) with respect to Revolving
Credit Loans, the applicable Termination Date, and (ii) with respect to the Term
Loan, each Installment Payment Date and the final Maturity Date of the Term
Loan.
"Network Site" means each location with respect to which a Practice
Group has entered into a single Management Agreement with the Borrower.
"Notes" shall mean collectively the Facility A Revolving Credit Note
referred to in Section 2.2(a) hereof, the Facility B Revolving Credit Note
referred to in Section 2.2(b) hereof and the Term Note referred to in Section
2.8 hereof.
"Notice of Borrowing" is defined in Section 2.3.
"Obligations" shall mean any and all sums owing under the Loan
Documents and all other obligations, direct or contingent, joint, several or
independent, of the Borrower now or hereafter existing due or to become due to,
or held or to be held by the Bank pursuant to the Loan Documents, whether
created directly or acquired by assignment or otherwise.
"Permitted Acquisition" shall mean an Acquisition permitted by Section
7.2.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, trust, unincorporated organization or any
other juridical entity, or a government or state or any agency or political
subdivision thereof.
"Plan" shall mean any plan of a type described in Section 4021(a) of
ERISA in respect of which the Borrower is an "employer" as defined in Section
3(5) of ERISA.
"Practice Group" means one or more physicians or a professional
corporation or professional association owned by physicians or a hospital or
medical center.
"Post-Default Rate" shall mean at any time a rate of interest equal to
4% per annum in excess of the rate that would then be applicable to Fluctuating
Rate Loans based upon the Pricing Level therefor.
"Pricing Level" shall mean Pricing Level I, Pricing Level II or Pricing
Level III, as applicable.
"Pricing Level I" shall mean the applicable Pricing Level at any time
when the Leverage Ratio is greater than 1.50:1.00.
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<PAGE>
"Pricing Level II" shall mean the applicable Pricing Level at any time
when the Leverage Ratio is greater than 1.00:1.00 but less than or equal to
1.50:1.00.
"Pricing Level III" shall mean the applicable Pricing Level at any time
when the Leverage Ratio is less than or equal to 1.00:1.00.
"Prime Rate" shall mean the variable per annum rate of interest so
designated from time to time by the Bank as its prime rate. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer.
"Property" shall mean all types of real, personal, tangible, intangible
or mixed property.
"Real Property" shall mean any real property owned or leased by the
Borrower or any of its Subsidiaries or any Guarantor or any of its Subsidiaries.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Requirements of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Revolving Credit Loan" shall mean any Facility A Revolving Credit Loan
and/or any Facility B Revolving Credit Loan made pursuant to Section 2.1 hereof.
"Revolving Credit Note" shall mean any Facility A Revolving Credit Note
and/or any Facility B Revolving Credit Note referred to in Section 2.2. hereof.
"Security Agreement" shall mean the Security Agreement(s) referred to
in this Agreement, certain or all of which are substantially in the form of
Exhibit G hereto.
"Specified Person" shall mean either the Borrower or any of its
Subsidiaries or any Guarantor or any of its Subsidiaries.
"Subordinated Debt" shall mean all Indebtedness owing by the Borrower
to any Person that is completely subordinated to all of the Borrower's
Obligations to the Bank pursuant to a subordination agreement in form and
substance satisfactory to the Bank.
"Subsidiary" or "Subsidiaries" of any Person shall mean any corporation
or corporations of which the Person alone, or the Person and/or one or more of
its Subsidiaries, owns, directly or indirectly, at least a majority of the
securities having ordinary voting power for the election of directors.
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<PAGE>
"Term Loan" shall mean the Loan made pursuant to Section 2.8 hereof.
"Term Note" shall mean the Note referred to in Section 2.8 hereof.
"Type" refers to whether a Loan is a Fluctuating Rate Loan or a Libor
Loan.
"Year 2000 Issue" shall mean failure of computer software, hardware and
firmware systems and equipment containing embedded computer chips to properly
receive, transmit, process, manipulate, store, retrieve, retransmit or in any
other way utilize data and information due to the occurrence of the year 2000 or
the inclusion of dates on or after January 1, 2000.
1.2 Accounting Terms. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not specifically
defined herein shall have the respective meanings given to them under generally
accepted accounting principles.
2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENT AND TERM NOTE.
2.1 Revolving Credit Commitments.
(a) Subject to the terms and conditions hereof, the Bank agrees to make
revolving credit loans to the Borrower (the "Facility A Revolving Credit Loans")
from time to time during the Facility A Commitment Period the aggregate
principal amount of which at any one time outstanding shall not exceed the
lesser of the Borrowing Base or $4,000,000, as such amount may be reduced as
provided in this Agreement (the "Facility A Commitment"). During the Facility A
Commitment Period the Borrower may use the Commitment for obtaining Loans by
borrowing, prepaying in whole or in part and reborrowing on a revolving basis,
all in accordance with the terms and conditions hereof.
(b) Subject to the terms and conditions hereof, the Bank agrees to make
revolving credit loans to the Borrower (the "Facility B Revolving Credit Loans")
from time to time during the Facility B Commitment Period the aggregate
principal amount of which at any one time outstanding shall not exceed
$5,000,000, as such amount may be reduced as provided in this Agreement (the
"Facility B Commitment"). During the Facility B Commitment Period the Borrower
may use the Facility B Commitment for obtaining Loans by borrowing, prepaying in
whole or in part and reborrowing on a revolving basis, all in accordance with
the terms and conditions hereof.
2.2 Revolving Credit Notes.
(a) The Facility A Revolving Credit Loans made by the Bank to the
Borrower pursuant to Section 2.1(a) hereof shall be evidenced by a promissory
note of the Borrower substantially in the form of Exhibit A hereto with
appropriate insertions (the "Facility A Revolving Credit Note"), payable to the
order of the Bank and representing the obligation of the Borrower to pay the
lesser of (a) the amount of the Facility A Commitment or, (b) the aggregate
unpaid principal amount of all Facility A Revolving Credit Loans made by the
Bank to the Borrower, with interest thereon as hereinafter prescribed. The
Facility A Revolving Credit Note shall (i) be dated the date hereof, (ii) be
stated to mature on the Facility A Termination Date and (iii) bear interest with
respect to the unpaid principal balance thereof from time to time outstanding at
a rate per annum to be elected by the Borrower in accordance with the notice
provisions set forth in Section 2.3 hereof, and in the case of LIBOR Loans for
the Interest Period therein specified, equal to either (1) LIBOR plus the
Applicable Margin, or (2) the Prime Rate plus the Applicable Margin (which
interest rate will change when and as the Prime Rate changes). In all cases
interest shall be computed on the basis of a 360-day year for actual days
elapsed and shall be payable as provided in this Agreement. After any stated or
accelerated maturity, the Facility A Revolving Credit Note shall bear interest
at the rate set forth in this Agreement.
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(b) The Facility B Revolving Credit Loans made by the Bank to the
Borrower pursuant to Section 2.1(b) hereof shall be evidenced by a promissory
note of the Borrower substantially in the form of Exhibit B hereto with
appropriate insertions (the "Facility B Revolving Credit Note"), payable to the
order of the Bank and representing the obligation of the Borrower to pay the
lesser of (a) the amount of the Facility B Commitment or, (b) the aggregate
unpaid principal amount of all Facility B Revolving Credit Loans made by the
Bank to the Borrower, with interest thereon as hereinafter prescribed. The
Facility B Revolving Credit Note shall (i) be dated the date hereof, (ii) be
stated to mature on the Facility B Termination Date and (iii) bear interest with
respect to the unpaid principal balance thereof from time to time outstanding at
a rate per annum to be elected by the Borrower in accordance with the notice
provisions set forth in Section 2.3 hereof, and in the case of LIBOR Loans for
the Interest Period therein specified, equal to either (1) LIBOR plus the
Applicable Margin, or (2) the Prime Rate plus the Applicable Margin (which
interest rate will change when and as the Prime Rate changes). In all cases
interest shall be computed on the basis of a 360-day year for actual days
elapsed and shall be payable as provided in this Agreement. After any stated or
accelerated maturity, the Facility B Revolving Credit Note shall bear interest
at the rate set forth in this Agreement.
2.3 Procedure for Borrowings. The Borrower may borrow under the
applicable Commitment during the applicable Commitment Period on any Business
Day by giving the Bank irrevocable notice (each a "Notice of Borrowing") of a
request for a Facility A Revolving Credit Loan and/or a Facility B Revolving
Credit Loan hereunder (a) in the case of LIBOR Loans three Business Days before
a proposed borrowing or continuation or conversion and (b) in the case of all
other Loans not less than one nor more than five Business Days before a proposed
borrowing or continuation or conversion, setting forth (i) the amount of the
Loan requested, which shall not be less than $100,000, (ii) the requested
borrowing date or Interest Period commencement date, as the case may be, (iii)
whether the Loan shall be a LIBOR Loan, Fluctuating Rate Loan or a combination
thereof, and (iv) if entirely or partially a LIBOR Loan, the length of the
Interest Period therefor, which shall be one, two, three or six months, as the
Borrower shall elect. As used in this Section 2.3, "conversion" shall mean the
conversion of a Loan from one Type to another Type as more fully described in
this Agreement. Such notice shall be written (including, without limitation, via
facsimile transmission) and shall be sufficient if received by l p.m. on the
date on which such notice is to be given. If any such request is sent by
facsimile it shall be confirmed in writing sent by the Borrower to the Bank
within two Business Days thereafter. Unless notification is otherwise furnished
by the Borrower to the Bank (in a manner consistent with the requirements of
this Section), Loans will be made by credits to the Borrower's demand deposit
account maintained with the Bank. If the Borrower furnishes such notice but no
election is made as to the Type of Loan or the Interest Period to be applicable
thereto, the Loan will automatically then be made as a Fluctuating Rate Loan
until such required information is furnished pursuant to the terms hereof.
2.4 [Reserved].
2.5 Commitment Fees.
(a) As additional compensation for the Facility A Commitment on the
revolving basis provided for herein, the Borrower agrees to pay the Bank a
commitment fee for the Facility A Commitment Period at the rate of .25% per
annum on the average daily unused portion of the Facility A Commitment
hereunder. Such commitment fee shall be payable quarterly, on the last day of
each March, June September and December during the Facility A Commitment Period,
commencing September 30, 1998, and on the Facility A Termination Date. If the
Borrower fails to pay any such amount to the Bank when due the amount of such
defaulted payment shall bear interest from the date when due until (but
excluding) the date when paid at the Post-Default Rate. The obligation so to pay
interest shall not be construed so as to waive the requirement to pay the
commitment fees as hereinabove set forth.
(b) As additional compensation for the Facility B Commitment on the
revolving basis provided for herein, the Borrower agrees to pay the Bank a
commitment fee for the Facility B Commitment Period at the rate of .20% per
annum on the average daily unused portion of the Facility B Commitment
hereunder. Such commitment fee shall be payable quarterly, on the last day of
each March, June September and December during the Facility B Commitment Period,
commencing September 30, 1998, and on the Facility B Termination Date. If the
Borrower fails to pay any such amount to the Bank when due the amount of such
defaulted payment shall bear interest from the date when due until (but
excluding) the date when paid at the Post-Default Rate. The obligation so to pay
interest shall not be construed so as to waive the requirement to pay the
commitment fees as hereinabove set forth.
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2.6 Regulatory Changes in Capital Requirements. If as a result of a
change in any existing, or the imposition of any future, law, regulation or
guideline or the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
the Bank with any request or directive (whether or not having the force of law)
of any such authority, imposes, modifies, deems applicable or results in the
application of, any capital maintenance, capital ratio or similar requirement
against loan commitments made by the Bank (or participations therein) or the
Bank in anticipation of the effectiveness of any capital maintenance, capital
ratio or similar requirement takes reasonable action to enable itself to comply
therewith, and the result thereof is to impose upon the Bank or increase any
capital requirement applicable as a result of the making or maintenance of
either or both Commitments or participations therein (which imposition of or
increase in capital requirements may be determined by the Bank's reasonable
allocation of the aggregate of such capital impositions or increases) then, upon
demand by the Bank, the Borrower shall immediately pay to the Bank from time to
time as specified by the Bank such additional amount as shall be sufficient to
compensate the Bank for such impositions of or increases in capital
requirements. Any such amount not paid within one Business Day after demand
being made by the Bank shall be paid together with interest at the Post-Default
Rate from the date demanded until payment in full thereof. A certificate setting
forth in reasonable detail the amounts necessary to compensate the Bank as a
result of an imposition of or increase in capital requirements submitted by the
Bank to the Borrower shall be conclusive, absent manifest error or bad faith, as
to the amount thereof. For purposes of this Section, all references to the
"Bank" shall be deemed to include any corporation controlling the Bank. The Bank
will promptly notify the Borrower of any event of which it has knowledge
occurring after the date hereof which will entitle it to compensation pursuant
to this Section and will designate a different lending office if such
designation will avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not, in the judgment of
the Bank, be otherwise disadvantageous to the Bank.
2.7 Termination or Reduction of Commitment. The Borrower shall have the
right, upon not less than three Business Days' irrevocable written notice, to
terminate either Commitment or, from time to time, to reduce the amount of such
Commitment, provided that (a) any such reduction (i) shall be in the minimum
amount of $500,000 or an integral multiple of $100,000 in excess thereof, (ii)
shall reduce permanently the amount of such Commitment then in effect, and (iii)
shall be accompanied by prepayment of the applicable Revolving Credit Loans
outstanding to the extent, if any, that the Loans then outstanding exceed the
amount of such Commitment as then reduced, together with accrued interest on the
amount so prepaid to and including the dates of each such prepayment and any
amounts payable pursuant to Section 2.14 in connection therewith and the payment
of any unpaid commitment fee applicable to such commitment then accrued
hereunder, and (b) any such termination of such Commitment shall be accompanied
by prepayment in full of the applicable Revolving Credit Loans together with
accrued interest thereon to and including the date of prepayment and any amounts
payable pursuant to Section 2.14 in connection therewith and the payment of any
unpaid commitment fee applicable to such commitment then accrued hereunder.
2.8 Term Loan. The Bank hereby agrees to make a 66-month $4,000,000
term loan (the "Term Loan") to the Borrower. The Term Loan shall be made as a
Fluctuating Rate Loan unless and until the Borrower furnishes the notices
required by this Agreement to convert all or a portion of such Loan to a Loan of
another Type. The Term Loan shall be evidenced by a promissory note of the
Borrower substantially in the form of Exhibit C hereto with appropriate
insertions (the "Term Note") and dated the date of such Term Loan. The principal
amount of the Term Note shall be payable in sixteen (16) consecutive quarterly
installments each of which shall be in an amount equal to Two Hundred Fifty
Thousand Dollars and 00/100 ($250,000.00), payable on the first day of each
January, March, June and September commencing June 1, 2000 until the entire
unpaid principal balance of the Term Note shall be paid in full. The Term Note
shall bear interest on the unpaid principal amount thereof from time to time
outstanding at a rate per annum, to be elected pursuant to the provisions of
this Agreement equal to either (i) LIBOR plus the Applicable Margin, or (ii) the
Prime Rate plus the Applicable Margin (which interest rate shall change when and
as the Prime Rate changes). In all cases interest shall be computed on the basis
of a 360-day year for actual days elapsed and shall be payable as provided in
this Agreement. After any stated or accelerated maturity thereof, the Term Note
shall bear interest at the increased rate set forth in this Agreement.
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2.9 Continuation and Conversion of Loans. The Borrower shall have the
right at any time on prior irrevocable written or telex notice to the Bank as
specified in this Agreement (i) to continue any LIBOR Loan as a Libor Loan for
the same or a different Interest Period (specifying the Interest Period to be
applicable thereto), (ii) to convert any LIBOR Loan into a Fluctuating Rate Loan
and (iii) to convert any Fluctuating Rate Loan into a LIBOR Loan (specifying the
Interest Period to be applicable thereto) (each such notice, a
"Continuation/Conversion Notice"), subject to the following:
(a) in the case of a conversion of less than all of the outstanding
Loans, the aggregate principal amount of Loans converted shall not be less than
$100,000 and shall be an integral multiple thereof;
(b) no LIBOR Loan shall be converted at any time other than at the end
of an Interest Period applicable thereto; and
(c) any portion of a Loan maturing or required to be prepaid in less
than one month may not be converted into or continued as a LIBOR Loan.
In the event that the Borrower shall not give notice to continue any
LIBOR Loan into a subsequent Interest Period or convert any such Loan into a
Loan of another type, on the last day of the Interest Period thereof, such Loan
(unless prepaid) shall automatically be converted into a Fluctuating Rate Loan.
The Interest Period applicable to any Libor Loan resulting from a conversion or
continuation shall be specified by the Borrower in the irrevocable notice
delivered by the Borrower pursuant to this Agreement; provided, however, that,
if such notice does not specify either the type of Loan or the Interest Period
to be applicable thereto, the Loan shall automatically be converted into, or
continued as, as the case may be, a Fluctuating Rate Loan until such required
information is furnished pursuant to the terms hereof. Notwithstanding anything
to the contrary contained above, if an Event of Default shall have occurred and
is continuing, no Libor Loan may be continued into a subsequent Interest Period
and no Fluctuating Rate Loan may be converted into a Libor Loan.
2.10 Prepayment.
(a) Voluntary. The Borrower may prepay any Fluctuating Rate Loan in
whole or in part without premium or penalty; provided, however, that each
partial prepayment on account of any Fluctuating Rate Loan shall be in an amount
not less than $100,000 or an integral multiple of $100,000 in excess thereof.
Except as provided otherwise in this Agreement, the Borrower may not prepay any
Libor Loan prior to the last day of the Interest Period therefor. Any amount
prepaid on account of a Revolving Credit Loan may be reborrowed in accordance
with the provisions of Section 2.1 hereof. Any partial prepayment of the Term
Loan shall be applied to the last maturing installments thereof in inverse order
of their respective maturities.
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(b) Mandatory. If, at any time, the aggregate outstanding principal
balance of Facility A Revolving Credit Loan(s) exceeds the Borrowing Base,
within five days of the first day there exists such excess, the Borrower shall
make payment to the Bank in an amount equal to such excess together with any
amounts payable pursuant to Section 2.14 in connection therewith. Such payment
shall be applied to reduce the aggregate unpaid principal balance of Facility A
Revolving Credit Loans then outstanding by first applying such payment to reduce
Fluctuating Rate Loans and then to reduce LIBOR Loans. Notwithstanding the
foregoing, the Borrower may direct by written notice to the Bank that any
prepayment or repayment be applied first, to the principal amount of LIBOR Loans
if such prepayment or repayment is made on the last day of the Interest Period
applicable thereto.
Each prepayment shall be made together with payment of accrued interest
on the amount prepaid to and including the date of prepayment.
2.11 Interest Payments; Manner of Payments; Rate After Default;
Schedule to Note.
(a) Interest accrued on each Loan shall be payable, without
duplication, on:
(i) the Maturity Date of such Loan (excluding any Installment
Payment Date unless interest would otherwise be payable on such Installment
Payment Date pursuant to subsections (ii) - (v) below);
(ii) with respect to any portion of any Loan repaid or prepaid
pursuant to this Agreement, the date of such repayment or prepayment, as the
case may be;
(iii) with respect to that portion of the outstanding principal
amount of all Loans maintained as Fluctuating Rate Loans, the first day of each
month commencing with the first such date following the date of the making of
such Loans;
(iv) with respect to that portion of the outstanding principal
amount maintained as LIBOR Loans, the last day of each applicable Interest
Period (and, if such Interest Period shall exceed three months, on the last day
of each three-month period occurring during such Interest Period), but in no
event more frequently than monthly;
(v) with respect to that portion of the outstanding principal
amount converted into Fluctuating Rate Loans or Libor Loans on a day when
interest would not otherwise have been payable pursuant to Subsections (a)(iii)
or (a)(iv), the date of such conversion.
(b) All payments (including prepayments) to be made by the Borrower on
account of principal or interest with respect to any Loan or on account of fees
or any other obligations of the Borrower to the Bank hereunder shall be made to
the Bank at the office of the Bank set forth in Section 10.1 hereof or at such
other place as the Bank may from time to time designate in writing in lawful
money of the United States of America in immediately available funds. If the
entire amount of any required principal and/or interest is not paid in full
within ten (10) days after the same is due, the Borrower shall pay to the Bank a
late fee equal to five percent (5%) of the required payment. The Borrower hereby
authorizes and directs the Bank to charge any account of the Borrower maintained
at any office of the Bank for any such payments. Subject to the provisions of
subparagraph (a) in the definition of Interest Period set forth in Section 1.1
hereof, if any payment to be so made hereunder, or under any Note, becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day and, to the extent permitted by applicable
law, interest thereon shall be payable at the then applicable rate during such
extension.
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(c) Upon and following an Event of Default, all Loans, and any and all
accrued and unpaid interest, fees or amounts due hereunder, to the extent
permitted by applicable law, shall bear interest (payable on demand, and in any
event on the last day of each month, and computed daily on the basis of a
360-day year for actual days elapsed) (i) in all cases other than Libor Loans at
the Post-Default Rate until paid and (ii) in the case of Libor Loans at a rate
which shall be the greater of the Post-Default Rate or 4% per annum in excess of
the rate applicable to such Libor Loan (based upon the Pricing Level therefor)
until the expiration of the Interest Period applicable to such Loan, at which
time the Loan will automatically be converted into a Fluctuating Rate Loan and
until paid shall bear interest at the Post-Default Rate. In no event, however,
shall interest payable hereunder be in excess of the maximum rate of interest
permitted under applicable law. The obligation so to pay interest upon any
obligation of the Borrower to the Bank shall not be construed so as to waive the
requirement for payment on the date that payment is due to the Bank as set forth
in this Agreement.
(d) The Borrower hereby expressly authorizes the Bank to record on the
schedule attached to each Revolving Credit Note the amount and date of each
Revolving Credit Loan, the rate of interest thereon, the date and amount of each
payment of principal and the unpaid principal balance; provided, however, that
the failure of the Bank to make any such notation shall not in any manner affect
the obligation of the Borrower to repay any Loan in accordance with the terms
hereof. All such notations shall be presumed to be correct.
2.12 Use of Proceeds.
(a) The proceeds of Facility A Revolving Credit Loans shall be used to
finance working capital requirements of the Borrower.
(b) The proceeds of Facility B Revolving Credit Loans shall be used by
the Borrower for Acquisitions within the limitations of this Agreement.
(c) The proceeds of the Term Loan hereunder shall be used to refinance
existing Indebtedness of the Borrower owing to First Union National Bank and to
finance a portion of the costs associated with the Borrower's Acquisitions
within the limitations of this Agreement.
2.13 Increased Costs. If the Bank determines that the effect of any
applicable law or government regulation, guideline or order or the
interpretation thereof by any Governmental Authority charged with the
administration thereof (such as, for example, a change in official reserve
requirements which the Bank is required to maintain in respect of loans or
deposits or other funds procured for funding such loans) is to increase the cost
to the Bank of making or continuing Libor Loans hereunder or to reduce the
amount of any payment of principal or interest receivable by the Bank thereon,
then the Borrower will pay to the Bank on demand such additional amounts as the
Bank may determine to be required to compensate the Bank for such additional
costs or reduction. Any additional payment under this section will be computed
from the effective date at which such additional costs have to be borne by the
Bank. A certificate as to any additional amounts payable pursuant to this
Section setting forth the basis and method of determining such amounts shall be
conclusive, absent manifest error, as to the determination by the Bank set forth
therein if made reasonably and in good faith. The Borrower shall pay any amounts
so certified to it by the Bank within 10 days of receipt of any such
certificate. The Bank will promptly notify the Borrower of any event of which it
has knowledge occurring after the date hereof which will entitle it to
compensation pursuant to this Section and will designate a different lending
office if such designation will avoid the need for, or reduce the amount of, any
such additional amounts which may thereafter accrue and would not, in the
judgment of the Bank, be otherwise disadvantageous to the Bank. For purposes of
this Section, all references to the "Bank" shall be deemed to include any
participant in any Commitment and/or Loans.
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2.14 Yield Maintenance. If, at any time (i) any Loan is a Libor Loan,
and (ii) the Bank in its sole discretion should determine that current market
conditions can accommodate a prepayment request, the Borrower shall have the
right at such time and from time to time to prepay such Loan in whole (but not
in part), and the Borrower shall pay to the Bank a yield maintenance fee in an
amount computed as follows: The current rate for United States Treasury
securities (bills on a discounted basis shall be converted to a bond equivalent)
with a maturity date closest to the maturity date of the term chosen pursuant to
the Fixed Rate Election as to which the prepayment is made, shall be subtracted
from the Cost of Funds component of the fixed rate in effect at the time of
prepayment. If the result is zero or a negative number, there shall be no yield
maintenance fee. If the result is a positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance being
prepaid. The resulting amount shall be divided by 360 and multiplied by the
number of days remaining in the term chosen pursuant to the Fixed Rate Election
as to which the prepayment is made. Said amount shall be reduced to present
value calculated by using the number of days remaining in the designated term
and using the above-referenced United States Treasury security rate and the
number of days remaining in the term chosen pursuant to the Fixed Rate Election
as to which the prepayment is made. The resulting amount shall be the yield
maintenance fee due to the Bank upon prepayment of the Libor Loan. Each
reference in this paragraph to "Fixed Rate Election" shall mean the election by
the Borrower pursuant to Section 2.3 of this Agreement.
If by reason of an Event of Default the Bank elects to declare any Loan
to be immediately due and payable, then the foregoing amount with respect to
such Loan shall become due and payable in the same manner as though the Borrower
had exercised such right of prepayment.
A certificate as to any additional amounts payable pursuant to this
Section setting forth the basis and method of determining such amounts shall be
conclusive, absent manifest error, as to the determination by the Bank set forth
therein if made reasonably and in good faith. The Borrower shall pay any amounts
so certified to it by the Bank within 10 days of receipt of any such
certificate. For purposes of this Section, all references to the "Bank" shall be
deemed to include any participant in any Commitment and/or Loans.
2.15 Alternate Rate of Interest. In the event, and on each occasion,
that on the day two Business Days prior to the commencement of any Interest
Period for a LIBOR Loan, the Bank shall have determined (i) that dollar deposits
in the amount of the requested principal amount of such LIBOR Loan are not
generally available in the London Interbank Market, (ii) that the rate at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to the Bank of making or maintaining such LIBOR Loan during such
Interest Period, or (iii) that reasonable means do not exist for ascertaining
the LIBOR, the Bank shall, as soon as practicable thereafter, give written or
telex notice of such determination to the Borrower. In the event of any such
determination, until the circumstances giving rise to such notice no longer
exist, (i) no LIBOR Loans will be made hereunder (ii) each outstanding LIBOR
Loan shall be converted into a Fluctuating Rate Loan on the last day of the then
current Interest Period applicable thereto and (iii) unless the Borrower
notifies the Bank at least two Business Days prior to the date of any proposed
borrowing of a LIBOR Loan for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, such Loan shall instead be made
as a Fluctuating Rate Loan.
Promptly upon becoming aware that the circumstances giving rise to such
notice no longer exist, the Bank shall use its best efforts to notify the
Borrower that its obligation to make LIBOR Loans and convert Loans into LIBOR
Loans has been reinstated, but its failure to do so shall impose no liability on
the Bank. Each determination by the Bank hereunder shall be conclusive absent
manifest error.
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2.16 Change in Legality.
(a) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration or interpretation thereof
shall make it unlawful for the Bank to make or maintain any LIBOR Loan, then, by
written notice to the Borrower, the Bank may:
(i) declare that LIBOR Loans will not thereafter be made by the
Bank hereunder, whereupon the Borrower shall be prohibited from requesting LIBOR
Loans from the Bank hereunder unless such declaration is subsequently withdrawn;
and
(ii) require that all outstanding LIBOR Loans made by it be
converted to Fluctuating Rate Loans, in which event (x) all such LIBOR Loans
shall be automatically converted to Fluctuating Rate Loans as of the effective
date of such notice as provided in paragraph (b) below and (y) all payments and
prepayments of principal which would otherwise have been applied to repay the
converted LIBOR Loans shall instead be applied to repay the Fluctuating Rate
Loans resulting from the conversion of such LIBOR Loans.
(b) For purposes of this Section, a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective with respect to each LIBOR
Loan, if lawful, on the last day of the then current Interest Period for such
LIBOR Loan; in all other cases, such notice shall be effective on the day of
receipt by the Borrower and (ii) all references to the "Bank" shall be deemed to
include any participant in any Commitment and/or the Loans.
Promptly upon becoming aware that the circumstances giving rise to such
notice no longer exist, the Bank shall use its best efforts to notify the
borrower that its obligation to make LIBOR Loans and convert Loans into LIBOR
Loans has been reinstated, but its failure to do so shall impose no liability on
the Bank.
3. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and to make
the financial accommodations herein provided for, the Borrower hereby covenants,
represents and warrants to the Bank that:
3.1 Financial Condition. The consolidated balance sheet of the Borrower
and the Guarantors as at December 31, 1997, and the related consolidated
statements of operations and retained earnings and cash flows for the fiscal
year ended on such date, certified by Price Waterhouse LLP copies of which
certified statements have heretofore been furnished to the Bank, are complete
and correct and present fairly the financial condition of the Borrower and each
such Guarantor as at such date, and the results of its operations and changes in
financial position for the fiscal year then ended. Such certified financial
statements, including schedules and notes thereto, have been prepared in
accordance with generally accepted accounting principles. Neither the Borrower
nor any Guarantor has any material contingent obligations, contingent
liabilities or liabilities for taxes, long-term leases or unusual forward or
long-term commitments, which are not reflected in the foregoing certified
statements or in the notes thereto. Except as set forth in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998, respectively, since the date of the aforementioned financial
statements, there has been no material adverse change in the business
operations, assets or financial or other condition of the Borrower or any
Guarantor.
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3.2 Corporate Existence; Compliance with Law. The Borrower, each
Guarantor and each of their Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(b) has the corporate power and authority and the legal right to own and operate
its property, and to conduct the business in which it is currently engaged, (c)
is duly qualified as a foreign corporation and in good standing under the laws
of each jurisdiction where its ownership or operation of property or the conduct
of its business require such qualification, and (d) is in compliance with all
Requirements of Law; except to the extent that the failure to so qualify as a
foreign corporation as required by clause (c) of this Section or to comply with
all Requirements of Law as required by clause (d) of this Section could not, in
the aggregate, have a material adverse effect on the business, operations,
property or financial or other condition of any such Person, and could not
materially adversely affect the ability of (i) the Borrower to perform its
obligations under this Agreement, the Notes and its Security Agreement or (ii)
any Guarantor to perform its obligations under its Guarantee and Security
Agreement, if any.
3.3 Corporate Power; Authorization; Enforceable Obligations. The
Borrower has the corporate power and authority and the legal right to make,
execute, deliver and perform its obligations under this Agreement, its Security
Agreement and the Notes, and to borrow hereunder and has taken all necessary
corporate action to authorize the borrowings on the terms and conditions of this
Agreement, its Security Agreement and the Notes and to authorize the execution,
delivery and performance of this Agreement, its Security Agreement and the
Notes. No consent or authorization of, filing with, or other act by or in
respect of any other Person (including stockholders and creditors of such
Borrower) or any Governmental Authority, is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement, its Security Agreement or the Notes, except
for the filing of financing statements required to perfect the security interest
intended to be granted by the Security Agreement. This Agreement, its Security
Agreement and the Notes will be duly executed and delivered on behalf of the
Borrower and this Agreement, its Security Agreement and the Notes, when executed
and delivered, will each constitute a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and equitable principles of general applicability,
regardless of whether enforcement is sought in an action at law or a proceeding
in equity.
3.4 Power, Authorization, Enforceable Obligations of Guarantors. Each
Guarantor has the power and authority and the legal right to make, deliver and
perform its Guarantee and Security Agreement and the transactions contemplated
thereby and has taken all necessary corporate action to authorize the execution,
delivery and performance of its Guarantee and Security Agreement. No consent or
authorization of, filing with, or other act by or in respect of any other Person
(including stockholders and creditors of the Guarantors) or any Governmental
Authority is required in connection with the execution, delivery, performance,
validity or enforceability of such Guarantee or Security Agreement, except for
the filing of financing statements required to perfect the security interest
intended to be granted by the Security Agreement. Each individual and corporate
Guarantee and each Security Agreement have been duly executed and delivered by
the respective parties thereto, and each such document constitutes a legal,
valid and binding obligation of the respective Guarantor enforceable against
such Guarantor in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor's rights generally and
equitable principles of general applicability, regardless of whether enforcement
is sought in an action at law or a proceeding in equity.
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3.5 No Legal Bar. The execution, delivery and performance of this
Agreement, the Security Agreement and the Notes and the borrowings hereunder and
the use of the proceeds thereof by the Borrower and the execution, delivery and
performance of the Guarantees by the Guarantors, will not violate any
Requirement of Law or any Contractual Obligation of the Borrower or the
Guarantors, and will not result in, or require, the creation or imposition of
any Lien on any of its properties or revenues pursuant to any Requirement of Law
or Contractual Obligation except those in favor of the Bank provided herein.
3.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending by or against
any Specified Person or against any of their properties or revenues (a) with
respect to this Agreement, the Security Agreement, Notes, or the Guarantees or
any of the transactions contemplated hereby or thereby, or (b) except as set
forth in the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, which if adversely determined, would have a material adverse effect on
the business, operations, property or financial or other condition of the
Borrower and its Subsidiaries or of the Guarantors.
3.7 No Default. No Specified Person is in default under or with respect
to any Contractual Obligation in any respect which could be materially adverse
to the business, operations, property or financial or other condition of the
Borrower or any of its Subsidiaries or of the Guarantors, or which could
materially and adversely affect the ability of (i) the Borrower to perform its
obligations under this Agreement, its Security Agreement, the Notes or any Loan
Document to which it is a party, or (ii) the Guarantors to perform their
obligations under the Guarantees. No Default or Event of Default has occurred
and is continuing.
3.8 No Burdensome Restrictions. No Contractual Obligation of any
Specified Person and no Requirement of Law materially adversely affects, or
insofar as the Borrower may reasonably foresee may so affect, the business,
operations, property or financial or other condition of any such Specified
Person.
3.9 Taxes. The Borrower and the Guarantors have filed or caused to be
filed all tax returns which to the knowledge of the Borrower are required to be
filed, and have paid all taxes shown to be due and payable on said returns or on
any assessments made against them or any of their property.
3.10 Federal Regulations. The Borrower is not engaged nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Loans
hereunder will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of such Board of Governors.
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3.11 Environmental Matters.
(a) None of the Real Property contains, or to the best knowledge of the
Borrower has previously contained, (i) any hazardous or toxic waste or
substances in amounts or concentrations which (A) constitute or constituted a
violation of or (B) could reasonably be expected to give rise to liability under
any applicable environmental law, except in either case insofar as such
violation or liability could not reasonably be expected to have a material
adverse effect on the business, operations or financial condition of the
Borrower and the Guarantors or (ii) any underground storage tanks, except such
as have been removed or remediated in accordance with all applicable
environmental laws.
(b) The Real Property is in compliance in all material respects with
all applicable federal, state and local environmental standards and requirements
affecting such Real Property, and there are no environmental conditions of which
Borrower has knowledge which could interfere in any material respects with the
continued use of the Real Property.
(c) Neither the Borrower nor any of its Subsidiaries nor any Guarantor
has received any notices of violations or advisory action by regulatory agencies
regarding environmental control matters or environmental permit compliance.
(d) Hazardous waste has not been transferred from any of the Real
Property to any other locations except in compliance in all material respects
with all applicable environmental laws, regulations or permit requirements.
(e) With respect to the Real Property, there are no proceedings,
governmental administrative actions or judicial proceedings pending or, to the
best knowledge of the Borrower, contemplated under any federal, state or local
law regulating the discharge of hazardous or toxic materials or substances into
the environment, to which the Borrower or any of its Subsidiaries is named as a
party.
3.12. Year 2000 Issue. The Borrower and its Subsidiaries have reviewed
the effect of the Year 2000 Issue on the computer software, hardware and
firmware systems and equipment containing embedded microchips owned or operated
by or for the Borrower and its Subsidiaries or used or relied upon in the
conduct of their business (including systems and equipment supplied by others or
with which such computer systems of the Borrower and its Subsidiaries
interface). The costs to the Borrower and its Subsidiaries of any reprogramming
required as a result of the Year 2000 Issue to permit the proper functioning of
such systems and equipment and the proper processing of data, and the testing of
such reprogramming, and of the reasonably foreseeable consequences of the Year
2000 Issue to the Borrower or any of its Subsidiaries (including reprogramming
errors and the failure of systems or equipment supplied by others) are not
reasonably expected to result in a Default or Event of Default or to have a
material adverse effect on the business, assets, operations, prospects or
condition (financial or otherwise) of the Borrower or any of its Subsidiaries.
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4. CONDITIONS PRECEDENT.
4.1 Conditions to Initial Extensions of Credit. The obligation of the
Bank to make the initial extension of credit to the Borrower hereunder is
subject to the satisfaction of the following conditions precedent:
(a) Notes and Agreements. The Bank shall have received the
Facility A Revolving Credit Note, the Facility B Revolving Credit Note and the
Term Note, conforming to the requirements hereof and duly executed by the
Borrower.
(b) Guarantees. The Bank shall have received the Guarantees
substantially in the form of Exhibit F hereto duly executed by each Guarantor.
(c) Security Agreements. The Bank shall have received (i) a
Security Agreement from the Borrower and each Guarantor substantially in the
form of Exhibit G hereto, together with UCC-1 financing statements executed by
each such entity in favor of the Bank.
(d) Borrower Pledge Agreement. The Bank shall have received a
Borrower Pledge Agreement from the Borrower substantially in the form of Exhibit
H hereto duly executed by the Borrower.
(e) Borrowing Base Certificate. The Bank shall have received
and satisfactorily reviewed a Borrowing Base Certificate as set forth in Section
5.2(c) hereof.
(f) Legal Opinion. The Bank shall have received an opinion of
counsel to the Borrower and each Guarantor substantially in the form of Exhibit
E hereto. Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement and the Loan Documents as the Bank
shall reasonably require.
(g) Origination Fees. The Bank shall have been paid the
aggregate $50,000 balance of the origination fees described in the Commitment
Letter.
(h) Certificates and Resolutions. The Bank shall have received
(i) copies of the resolutions of the board of directors of the Borrower
authorizing the execution, delivery and performance of this Agreement and the
Loan Documents certified by the Secretary or an Assistant Secretary of such
corporation and like resolutions of each Guarantor authorizing the execution,
delivery and performance of its respective Guarantee and Security Agreement, if
any, certified respectively by the Secretary or an Assistant Secretary of each
such corporation; (ii) a certificate of the Secretary or an Assistant Secretary
of the Borrower and each Guarantor certifying the names and true signatures of
the officers of each such corporation authorized to sign any and all documents
to be delivered by each such corporation or as required or contemplated
hereunder; and (iii) good standing certificates issued by the applicable
Governmental Authority.
(i) Lien Searches. The Bank shall have received the results of
searches of Uniform Commercial Code and other Lien filings with respect to the
Borrower in each state where it conducts business and such searches shall
disclose no Liens on any assets encumbered, except for Liens permitted under
Section 7.4, or if unpermitted Liens are disclosed, the Bank shall have received
satisfactory evidence of release of such Liens.
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(j) Commitment Letter. The Borrower shall have satisfied all
the terms and conditions of the Commitment Letter.
(k) Legal Structure. The Bank shall be satisfied with the
corporate and legal structure and capitalization of the Company, including,
without limitation, the charter and bylaws of the Company and each agreement or
instrument relating thereto.
(l) Examination. The Bank shall have conducted an examination
of the Company's books and records and the books and records of the Network
Sites (subject to applicable laws and regulations relating to patient
confidentiality), at the Company's expense, by an examiner satisfactory to the
Bank and such examination shall be in form and substance satisfactory to the
Bank.
(m) Consents. All governmental and third-party consents and
approvals necessary in connection with each aspect of the transactions
contemplated by this Agreement shall have been obtained (without the imposition
of any conditions that are not acceptable to the Bank) and shall remain in
effect; all applicable waiting periods shall have expired or been terminated or
waived without any adverse action being taken by any authority having
jurisdiction; and no law or regulation shall be applicable in the judgment of
the Bank that restrains, prevents or imposes material adverse conditions upon
any aspect of the transactions contemplated by this Agreement.
(n) Compliance. The intended use of the proceeds of the Loans
shall be in full compliance with all applicable laws, including, without
limitation, Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System.
(o) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank and its counsel.
4.2 Conditions to All Extensions of Credit. The obligation of the Bank
to make any Loan (including the initial Loans) to be made by it hereunder is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. The representations and
warranties made by the Borrower herein or which are contained in any
certificate, document or financial or other written statement furnished at any
time under or in connection herewith, shall be correct on and as of the
borrowing date for such extension of credit as if made on and as of such date
except to the extent any such representation or warranty expressly speaks as of
a specific date.
(b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on the date an extension of credit
is to be made or after giving effect to the extension of credit to be made on
such date.
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(c) Compliance with Borrowing Base. As to Facility A Revolving
Credit Loans only, after taking into account the Facility A Revolving Credit
Loan to be made, all outstanding Facility A Revolving Credit Loans together with
the requested Facility A Revolving Credit Loan shall not exceed the Borrowing
Base.
(d) Compliance with Section 7.2. As to Facility B Revolving
Credit Loans only, the Borrower shall be in full compliance with each of the
provisions set forth in Section 7.2.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date of each such
borrowing that the conditions in clauses (a), (b), (c) and (d) of this Section
have been satisfied.
5. AFFIRMATIVE COVENANTS.
The Borrower hereby agrees that, so long as any Commitment remains in
effect, any Note remains outstanding and unpaid, or any other amount is owing to
the Bank hereunder, the Borrower will and will cause each Specified Person as
applicable to:
5.1 Corporate Existence and Qualification. Take the necessary steps to
preserve its corporate existence and its right to conduct business in all states
in which the nature of its business requires qualification to do business,
except where the failure so to qualify could not reasonably by expected to have
a material adverse effect on the business, operations or financial condition of
the Borrower or the Guarantors.
5.2 Financial Information and Compliance Certificates.
(a) Keep its books of account in accordance with good
accounting practices and furnish to the Bank within 90 days after the last day
of each of its fiscal years, (i) the consolidated balance sheets of the Borrower
and its Subsidiaries as at such last day of the fiscal year and statements of
income and retained earnings and cash flows for such fiscal year each prepared
in accordance with GAAP consistently applied and certified without qualification
by a firm of independent certified public accountants reasonably satisfactory to
the Bank; and within (ii) 45 days after the close of each fiscal month
consolidated balance sheets, statements of income and retained earnings and cash
flows of the Borrower and its Subsidiaries as of the last day of and for such
month and for the period of the fiscal year ended as of the close of the
particular month, all such monthly statements to be in reasonable detail, and
certified by the chief financial or accounting officer of the Borrower as having
been prepared in accordance with GAAP (exclusive of footnotes and subject to
year-end adjustments). The Borrower will also, with reasonable promptness,
furnish such other data as may be reasonably requested by the Bank and will at
all times and from time to time permit the Bank by or through any of its
officers, agents, employees, attorneys or accountants to inspect and make
extracts from such Borrower's books and records.
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(b) Within 45 days after the close of each fiscal quarter,
deliver a certificate of the president and the chief financial or accounting
officer of the Borrower evidencing a computation of compliance with the
provisions of Section 6 hereof and a computation of the Leverage Ratio (each
including supporting detail of each applicable calculation) and stating that in
each case except as disclosed in such certificate, the person making such
certificate has no knowledge of any Default or Event of Default.
(c) Within 30 days after the last day of each month, deliver
to the Bank an accounts receivable agings report accompanied by a Borrowing Base
Certificate indicating a computation of the Borrowing Base and executed by the
chief financial or accounting officer of the Borrower, covering the period
ending the last day of the immediately preceding month.
(d) Promptly after the same are sent, copies of all financial
statements and reports which the Borrower sends to its stockholders, and
promptly after the same are filed, copies of all financial statements and
reports which the Borrower may make to, or file with, any Governmental
Authority, agency, commission, board or bureau.
(e) Within five days of any officer of the Borrower obtaining
knowledge of any Default, if such Default is then continuing, Borrower shall
furnish to the Bank a certificate of the chief financial or accounting officer
of the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto.
5.3 Insurance. Maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower operates and
naming the Bank as an additional insured or loss payee (as appropriate) thereon
as its interest may appear.
5.4 Preservation of Properties; Compliance with Law. Maintain and
preserve all of its properties which are used or which are useful in the conduct
of its business in good working order and condition, ordinary wear and tear
excepted and comply in all material respects with all Requirements of Law .
5.5 Taxes. Duly pay and discharge all taxes or other claims which might become a
lien upon any of its property except to the extent that any thereof are being in
good faith appropriately contested with adequate reserves provided therefor.
5.6 Maintain Operating Accounts. Maintain all of its primary operating
accounts with the Bank, unless the Borrower shall have provided evidence
reasonably satisfactory to the Bank that for geographical purposes or in order
to comply with applicable Requirements of Law such accounts are required to be
maintained elsewhere.
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5.7 Notice of Litigation. Promptly notify the Bank in writing of any
litigation, legal proceeding or dispute, other than disputes in the ordinary
course of business or, whether or not in the ordinary course of business,
involving amounts in excess of $50,000, affecting the Borrower or any Subsidiary
whether or not fully covered by insurance, and regardless of the subject matter
thereof (excluding, however, any actions relating to workers' compensation
claims or negligence claims relating to use of motor vehicles, if fully covered
by insurance, subject to deductibles).
5.8 Indemnity (Environmental Matters). Indemnify the Bank against any
liability, loss, cost, damage, or expense (including, without limitation,
reasonable attorneys' fees) arising from (i) the imposition or recording of a
lien by any local, state, or federal government or governmental agency or
authority pursuant to any Cleanup Laws; (ii) claims of any private parties
regarding violations of Cleanup Laws; and (iii) costs and expenses (including,
without limitation, reasonable attorneys' fees and fees incidental to the
securing of repayment of such costs and expenses) incurred by any Specified
Person or the Bank in connection with compliance by any Specified Person or the
Bank with any statute, regulation or order issued pursuant to any Cleanup Laws
by any local, state or federal government or governmental agency or authority.
5.9 Year 2000 Issue. Take, and shall cause each of its Subsidiaries to
take, all necessary action to complete in all material respects by March 31,
1999, the reprogramming of computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for the
Borrower and its Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
systems of the Borrower or any of its Subsidiaries interface) required as a
result of the Year 2000 Issue to permit the proper functioning of such computer
systems and other equipment and the testing of such systems and equipment, as so
reprogrammed. At the request of the Bank, the Borrower shall provide, and shall
cause each of its Subsidiaries to provide, to the Bank reasonable assurance of
its compliance with the preceding sentence.
5.10 Material Subsidiaries. Cause each direct and indirect Subsidiary
of the Borrower to become a Guarantor (unless the Bank has provided written
notice to the Borrower that such Subsidiary is not, in the Bank's reasonable
judgment, a "material" Subsidiary of the Borrower) and take any action as shall
be necessary to grant the Bank a first priority perfected security interest
(subject to liens permitted by Section 7.4) in all the issued and outstanding
Capital Stock and all the personal property and fixtures of each such
Subsidiary.
5.11 Reserved.
5.12 After-Acquired Stock. Deliver to the Bank any After-Acquired Stock
(as defined in Section 7.3 hereof) and a stock power in connection therewith,
substantially in the form of Exhibit I hereto, executed by the Borrower, such
delivery to occur not more than 10 days after the acquisition of such After
Acquired Stock.
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6. FINANCIAL COVENANTS.
The Borrower hereby agrees that, so long as any Commitment remains in
effect, any Note remains outstanding and unpaid, or any other amount is owing to
the Bank hereunder, the Borrower and its Subsidiaries on a consolidated basis
will:
6.1 Fixed Charge Coverage Ratio. Maintain as at the last day of each
fiscal quarter a Fixed Charge Coverage Ratio of not less than 1.2 to 1.0.
6.2 Consolidated Effective Net Worth. Maintain as at the last day of
each fiscal quarter Consolidated Effective Net Worth in an amount not less than
$26,750,000, plus 50% of the Consolidated Adjusted Net Income of the Borrower
and its Subsidiaries, on a cumulative basis, commencing with June 30, 1998, for
the fiscal quarter then ending (provided, that, notwithstanding the definition
of Adjusted Net Income, there shall not be any reduction for any net loss), plus
80% of the net proceeds, on a cumulative basis, received by the Borrower in
connection with any issuance of securities (whether for cash or otherwise) by
the Borrower during the fiscal quarter then ending.
6.3 Adjusted Leverage Ratio. Maintain as at the last day of each fiscal
quarter a ratio of Consolidated Senior Funded Debt to Consolidated Adjusted
EBITDA of not more than 2.5 to 1.0.
7. NEGATIVE COVENANTS.
The Borrower hereby agrees that, so long as any Commitment remains in
effect, any Note remains outstanding and unpaid, or any other amount is owing to
the Bank hereunder it will not, nor will it permit any of its Subsidiaries or
any Guarantor or any of its Subsidiaries to:
7.1 Indebtedness for Borrowed Money. Incur, or permit to exist, any
Indebtedness for borrowed money except (i) Indebtedness incurred pursuant to
borrowings hereunder and under any other loans made by the Bank in its
discretion to the Borrower or any Subsidiary, (ii) Indebtedness existing on the
date hereof and reflected in the financial statements referred to in Section 3.1
hereof, (iii) Indebtedness incurred after the date of this Agreement in an
aggregate amount not in excess of $1,125,000 in any fiscal year (except for the
period from the date hereof through December 31, 1998 such aggregate amount
shall be $750,000) and not in excess of $3,000,000 in the aggregate at any time
outstanding; provided, that, same is incurred in connection with the acquisition
of fixed assets within the limitations of Section 7.8 hereof, (iv) purchase
money Indebtedness incurred in connection with Permitted Acquisitions and (v)
Indebtedness of a Person which is the subject of a Permitted Acquisition or to
which any assets or business acquired in a Permitted Acquisition are subject
provided that, in each case, such Indebtedness existed at the time of, and was
not created in anticipation of, such Permitted Acquisition.
7.2 Mergers, Acquisitions and Sales of Assets.
(a) Enter into any merger or consolidation or liquidate, windup or
dissolve itself or sell, transfer or lease or otherwise dispose of all or any
substantial part of its assets (other than (i) sales of inventory and obsolete
equipment in the ordinary course of business and (ii) the disposition of
Reproductive Science Associates, Inc. and Reproductive Science Center of Dallas
by means of the sale of the Management Contract relating to such practice to the
physician/owner of such practice except that any Subsidiary may merge into or
consolidate with any other Subsidiary which is wholly-owned by the Borrower and
any Subsidiary which is wholly-owned by the Borrower may merge with or
consolidate into the Borrower provided that the Borrower is the surviving
corporation.
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(b) Make any Acquisition other than as provided in Section 7.2(a)
unless each of the following conditions shall have been satisfied (any
Acquisition permitted by Section 7.2(a) or whereby each of the following
conditions shall have been satisfied shall be referred to herein as a "Permitted
Acquisition"):
(i) the Acquisition Cost in respect thereof shall not exceed
(i) $8,000,000 with respect to any individual Acquisition; and (ii) $20,000,000
in the aggregate during any fiscal year;
(ii) no Default or Event of Default shall exist immediately
before or after giving effect thereto;
(iii) the Person, business or assets acquired in connection
with such Acquisition are related to the infertility and assisted reproductive
technology services business;
(iv) the Borrower shall have delivered to the Bank, not less
than 10 days prior to the consummation of such Acquisition, (i) a certificate of
a financial officer of the Borrower, in all respects reasonably satisfactory to
the Bank and dated the date of such consummation, attaching a pro-forma
compliance certificate (in a format satisfactory to the Bank) after giving
effect to such Acquisition and based on the most recent financial statements
delivered to the Bank pursuant to this Agreement and (ii) copies of the purchase
or merger agreement or any other material documents executed in connection with
the Acquisition;
(v) immediately after giving effect to each such Acquisition,
all of the representations and warranties contained in Section 3 shall be true
and correct as if then made except to the extent any such representation or
warranty expressly speaks of a specific date;
(vi) the Acquisition shall have the approval of the target
company's board of directors (or similar governing body);
(vii) the Bank shall have received such other information or
documents as it shall have reasonably requested in connection with such
Acquisition.
(viii) the acquisition shall have been consummated in
accordance with the definitive acquisition agreement, without any waiver or
amendment of any term or condition therein not consented to by the Bank and in
compliance with all applicable laws and all necessary approvals;
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(ix) the Bank shall be satisfied that any otherwise applicable
state takeover law and any applicable supermajority charter provisions are not
applicable to the Acquisition or that any conditions to avoiding such
restrictions have been satisfied;
(x) all governmental and third-party consents and approvals
necessary in connection with each aspect of the Acquisition shall have been
obtained (without the imposition of any conditions that are not acceptable to
the Bank) and shall remain in effect; all applicable waiting periods shall have
expired or been terminated or waived without any adverse action being taken by
any authority having jurisdiction; and no law or regulation shall be applicable
in the judgment of the Bank that restrains, prevents or imposes material adverse
conditions upon any aspect of the Acquisition; and
(xi) any Acquisition with a total Acquisition Cost in excess
of $1,000,000 or any Acquisition occurring after the Borrower has paid, during
any twelve-month period, in excess of $3,000,000 in Acquisition Costs in respect
of all such Acquisitions during such period, will require the consent of the
Bank.
7.3 Lending, Advances and Investments. Lend or advance money, credit or
property to or invest in (by capital contribution, loan, purchase or otherwise)
any firm, corporation, or other Person except (i) investments in Cash
Equivalents, (ii) accounts receivable arising out of sales of inventory or the
rendering of services in the ordinary course of business (iii) loans or advances
not in excess of $1,500,000 in the aggregate at any one time outstanding to
Practice Groups who have executed a Management Agreement with the Borrower, (iv)
purchases of accounts receivable pursuant to Management Agreements to which the
Borrower or any Subsidiary is party; provided same is existing as of the date
hereof or arises out of a Permitted Acquisition, (v) a loan in a principal
amount of up to $50,000 to Gerardo Canet and a loan in a principal amount of up
to $15,000 to Donald Wood to enable each to exercise options to purchase stock
of the Borrower, (vi) loans to officers, directors and employees in an aggregate
amount at any one time outstanding not to exceed $500,000, (vii) the purchase of
537 shares of Shady Grove Fertility Centers, Inc. not presently owned by the
Borrower, from Robert J. Stillman, M.D. ("After-Acquired Stock") and (viii)
payroll advances to employees which are to be repaid through payroll deduction.
7.4 Liens. Create, assume or permit to exist, any Lien on any of its
property or assets now owned or hereafter acquired except (i) Liens in favor of
the Bank; (ii) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit and which do not
materially impair the use thereof in the operation of its business; (iii) Liens
for taxes or other governmental charges which are not delinquent or which are
being contested in good faith and for which a reserve shall have been
established in accordance with generally accepted accounting principles; (iv)
purchase money Liens granted to secure the unpaid purchase price of any fixed
assets purchased within the limitations of Section 7.8 hereof; (v) judgment
Liens in existence less than 30 days after the entry thereof or with respect to
which execution has been stayed; (vi) any interest or title of a lessor secured
by a lessor's interest under any lease permitted by this Agreement; and (vii)
leases or subleases granted to others not interfering in any material respect
with the business of such Person..
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7.5 Contingent Liabilities. Assume, endorse, be or become liable for or
guarantee the obligations of any Person excluding however, (i) the endorsement
of negotiable instruments for deposit or collection in the ordinary course of
business; (ii) the Guarantees and (iii) the assumption of leases in connection
with an Acquisition.
7.6 Dividends. (a) Declare or pay any dividends on its Capital Stock,
except (i) dividends payable solely in shares of its own common stock, (ii) as
long as no Default or Event of Default has occurred and is continuing, dividends
in connection with the Borrower's outstanding preferred stock in an aggregate
amount not in excess of $133,000 in any fiscal year and (iii) any Subsidiary
wholly owned by the Borrower may declare and pay dividends to the Borrower, or
(b) purchase, redeem, retire or otherwise acquire any of its Capital Stock at
any time outstanding (other than in connection with the surrender of shares of
the Borrower's Series A Cumulative Convertible Preferred Stock upon its
conversion into shares of the Borrower's Common Stock).
7.7 Sales of Receivables; Sale - Leasebacks. Sell, discount or
otherwise dispose of notes, accounts receivable or other obligations owing to
the Borrower, with or without recourse, except for the purpose of collection in
the ordinary course of business; or sell any asset pursuant to an arrangement to
thereafter lease such asset from the purchaser thereof.
7.8 Capital Expenditures; Capitalized Leases. Expend or agree to expend
in the aggregate for the Borrower and all Subsidiaries in excess of $1,500,000
in any fiscal year for Capital Expenditures including assets acquired under
Capitalized Leases, excluding amounts paid in connection with Permitted
Acquisitions.
7.9 Lease Payments. Expend in the aggregate for the Borrower and all
Subsidiaries in excess of $2,000,000 in any fiscal year for the lease, rental or
hire of real or personal property pursuant to any rental agreement therefor,
whether an operating lease, capitalized lease or otherwise.
7.10 Nature of Business. Materially alter the nature of its business.
7.11 Stock of Subsidiaries. Sell or otherwise dispose of any Subsidiary
(except in connection with a merger or consolidation of a Subsidiary into the
Borrower or another Subsidiary) or permit a Subsidiary to issue any additional
shares of its capital stock except pro rata to its stockholders.
7.12 ERISA. (i) Terminate any Plan so as to result in any material
liability to the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (the "PBGC"), (ii) engage in or permit any
person under its control to engage in any "prohibited transaction" (as defined
in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended) involving any Plan which would subject a Borrower to any material tax,
penalty or other liability, (iii) incur or suffer to exist any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, involving any Plan, or (iv) allow or suffer to exist any event or
condition, which presents a material risk of incurring a material liability to
the PBGC by reason of termination of any Plan.
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7.13 Accounting Changes. Make, or permit any Subsidiary to make any
change in its accounting treatment or financial reporting practices except as
required or permitted by GAAP in effect from time to time.
7.14 Transactions with Affiliates. Except for the Management Agreements
and as otherwise specifically set forth in this Agreement, directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or enter into any other transaction, with any Affiliate
except in the ordinary course of business and at prices and on terms not less
favorable to it than those which would have been obtained in an arm's-length
transaction with a non-affiliated third party.
8. EVENTS OF DEFAULT.
Upon the occurrence and during the continuance of any of the following
events (each an Event of Default):
(a) Borrower shall fail to pay principal of any of the Notes when due,
or shall fail to pay any interest, or other amount payable hereunder within two
Business Days after the same becomes due; or
(b) Any representation or warranty made or deemed made by the Borrower
herein or which is contained in any certificate, document or financial or other
written statement furnished at any time under or in connection with this
Agreement shall prove to have been false in any material respect on or as of the
date made or deemed made; or
(c) Borrower shall default in the observance or performance of any
covenant or provision contained in Section 6 or 7 hereof; or
(d) Borrower shall default in the observance or performance of any
other provision contained in this Agreement or any other Loan Document and such
default shall continue unremedied with respect to other provisions of this
Agreement for a period of 10 days after written notice thereof is given to the
Borrower by the Bank and with respect to other Loan Documents after the
expiration of any applicable grace or cure periods; or
(e) Any Specified Person shall (i) default in any payment in excess of
$10,000 in the aggregate with respect to any Indebtedness for borrowed money
(other than the Notes) in excess of $50,000 beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created; or (ii) default in the observance or performance of any other agreement
or condition relating to any such indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto or any other event shall
occur or condition exist, in each case the effect of which default or other
event or condition is to cause or permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause such Indebtedness to become due prior to its stated maturity; or
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<PAGE>
(f) (i) Any Specified Person shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or any Specified Person shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against any Specified Person any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against any Specified Person any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall have not been vacated,
discharged, or stayed or bonded pending appeal within 30 days from the entry
thereof; or (iv) any Specified Person shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii) or (iii) of this Section 8(f); or (v) any
Specified Person shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) any Specified Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Plan, which Reportable Event or institution of
proceedings is, in the reasonable opinion of the Bank, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, and, in the case of
a Reportable Event, the continuance of such Reportable Event unremedied for ten
days after notice of such Reportable Event pursuant to Section 4043(a), (c) or
(d) of ERISA is given or the continuance of such proceedings for ten days after
commencement thereof, as the case may be, (iv) any Plan shall terminate for
purposes of Title IV of ERISA, and in each case in clauses (i) through (iv)
above, such event or condition could subject the Borrower to any tax, penalty or
other liabilities in the aggregate material in relation to the business,
operations or property of the Borrower; or
(h) the rendition by any court of a final judgment against any
Specified Person in excess of $50,000 (to the extent not covered by insurance as
to which the insurer has acknowledged liability) which shall not be
satisfactorily stayed, discharged, vacated or set aside within 60 days of the
making thereof; or the attachment of any property of any Specified Person which
has not been released or provided for to the reasonable satisfaction of the Bank
within 60 days after the making thereof; or
(i) any Guarantee of any Guarantor shall cease to be in full force and
effect (other than by reason of a transaction permitted by Section 7.2(a) of
this Agreement); or
33
<PAGE>
(j) any of the Liens created and granted pursuant to the Security
Agreement(s) shall fail to be valid, first, perfected Liens subject to no prior
or equal Lien except as permitted by this Agreement; or
(k) a Change of Control shall occur; or
(l) the Bank shall have determined in its reasonable discretion that
there has occurred a material adverse change in the business, properties or
financial condition of the Borrower;
then, in any such event, any or all of the following actions may be taken: (i)
the Bank may, at its option, declare either or all Commitments to be terminated
forthwith, whereupon such Commitment(s) and all obligations of the Bank to make
Revolving Credit Loans shall immediately terminate; (ii) the Bank may, at its
option, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable and
the same, and all interest accrued thereon, shall forthwith become due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby waived, anything contained herein or in any instrument evidencing the
Loans to the contrary notwithstanding.
9. COLLATERAL SECURITY.
9.1 General Loan and Collateral Agreement. As collateral security for
the payment of the Obligations, the Borrower and each Guarantor hereby grant to
the Bank a lien on and security interest in and right of setoff with respect to
any and all deposits or other sums at any time credited by or due from the Bank
or any Affiliate of the Bank to the Borrower and/or any Guarantor, whether now
existing or hereafter arising, whether in regular or special depository accounts
or otherwise, and any and all monies, credit, collateral, securities and other
property of the Borrower and/or any Guarantor, whether now existing or hereafter
arising, and the proceeds thereof, now or hereafter held or received by or in
transit to the Bank or any Affiliate of the Bank from or for the Borrower and/or
any Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise. At any time, without demand or notice, the Bank may set
off the same or any part thereof and apply the same to any of the Obligations of
the Borrower and/or any Guarantor even though unmatured and regardless of the
adequacy of any other collateral securing the Loans. ANY AND ALL RIGHTS TO
REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER
OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
9.2 Additional Collateral Security. In addition to the collateral
described in Section 9.1 hereof, payment of the Obligations is also secured by a
first priority (subject to Liens permitted by this Agreement) security interest
in (i) all personal property and fixtures of the Borrower and each Guarantor,
(ii) assignments of all financing statements in favor of the Borrower and/or the
Guarantors in connection with its (their) purchase of accounts receivable, (iii)
all the issued and outstanding Capital Stock of each Subsidiary that is or
becomes a Guarantor, and (iv) all proceeds and products of the forgoing, whether
now owned or hereafter acquired, as provided in a Security Agreement executed or
to be executed and delivered by the Borrower and each Guarantor to the Bank.
34
<PAGE>
10. MISCELLANEOUS.
10.1 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing unless otherwise
expressly provided herein and shall be deemed to have been duly given or made
when delivered by hand or by nationally recognized overnight courier service, or
by telegram or telecopy, or when deposited in the mail addressed as follows, or
to such address as may be hereafter notified in writing by the respective
parties hereto and any future holders of any Note:
The Borrower: IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Att: Eugene R. Curcio, Vice President Finance and
Chief Financial Officer
Telecopy No.: 914-253-8008
with a copy to: Bachner, Tally, Polevoy & Misher LLP
380 Madison Ave.
New York, New York 10017
Attn: Sheldon E. Misher, Esq.
Telecopy No.: 212-682-5729
The Bank: Fleet Bank, National Association
244 Westchester Avenue
White Plains, New York 10604
Att: Thomas G. Carley, Vice President
Telecopy No.: 914-681-5045
with a copy to: Richard M. Skoller, Esq.
Emmet, Marvin & Martin, LLP
120 Broadway
New York, New York 10271
Telecopy No.: 212-238-3100
10.2 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right.
35
<PAGE>
10.3 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Notes.
10.4 Payment of Expenses; Examination.
(a) The Borrower agrees to pay or reimburse the Bank for all its costs
and expenses (including, without limitation, the reasonable fees and expenses of
attorneys for the Bank) incurred in connection with (i) the enforcement or
preservation of any rights under this Agreement or any Note or any other Loan
Document or any other instrument or agreement entered into in connection
herewith or therewith including, without limitation, the reasonable fees and
disbursements of attorneys for the Bank; (ii) any claim or action threatened,
made or brought against the Bank arising out of or relating to any extent to
this Agreement, the Security Agreement, any Note or Loan Documents or any
instrument or agreement entered into in connection with the transactions
contemplated hereby or thereby; (iii) the perfection of any security interest in
the Collateral or in the maintenance of the Collateral; (iv) any amendment or
modification of any Loan Document; (v) the payment of any tax, assessment,
recording fee or similar charge imposed on or with respect to the Collateral or
the filing or recording of any Loan Document; (vi) any waiver of any right of
the Bank under any Loan Document and (vii) the reasonable fees and disbursements
of any counsel to the Bank incurred from time to time in connection with the
transactions contemplated by this Agreement.
(b) The Borrower agrees that at any time and from time to time the Bank
may conduct an examination of the Borrower's books and records and the books and
records of each Network Site (subject to applicable laws and regulations
relating to patient confidentiality). The cost of one such examination in each
calendar year shall be borne by the Borrower; provided, that, should at any time
a Default or Event of Default shall have occurred and be continuing, the cost of
all such examinations shall thereafter be borne by the Borrower until such
Default or Event of Default shall have been cured or waived. The obligations set
forth in this Section 10.4 shall be in addition to any other obligations or
liabilities of the Borrower to the Bank hereunder or at common law or otherwise.
The provisions of this Section 10.4 shall survive the payment of the Notes and
the termination of this Agreement.
10.5 WAIVER OF JURY TRIAL, SET-OFF AND COUNTERCLAIM. THE BORROWER AND
THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT TO A TRIAL BY JURY, AND THE BORROWER WAIVES THE RIGHT TO INTERPOSE ANY
SETOFF OR COUNTERCLAIM, IN EACH CASE IN RESPECT OF ANY CLAIM BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN ) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO
ACCEPT THIS AGREEMENT AND MAKE THE LOANS.
36
<PAGE>
10.6 WAIVER OF AUTOMATIC STAY. THE BORROWER AGREES THAT, IN THE EVENT
THAT THE BORROWER, ANY GUARANTOR OR ANY OF THE PERSONS OR PARTIES CONSTITUTING
THE BORROWER OR ANY GUARANTOR SHALL (i) FILE WITH ANY BANKRUPTCY COURT OF
COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER TITLE 11 OF THE
U.S. CODE, AS AMENDED ("BANKRUPTCY CODE"), (ii) BE THE SUBJECT OF ANY ORDER FOR
RELIEF ISSUED UNDER THE BANKRUPTCY CODE, (iii) FILE OR BE THE SUBJECT OF ANY
PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT,
LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL
OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR
DEBTORS, (iv) HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF
ANY TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR, OR (v) BE THE SUBJECT OF ANY
ORDER, JUDGMENT, OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION
APPROVING A PETITION FILED AGAINST SUCH PARTY FOR ANY REORGANIZATION,
ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR
RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO
BANKRUPTCY, INSOLVENCY, OR RELIEF FOR DEBTORS, THE BANK SHALL THEREUPON BE
ENTITLED AND THE BORROWER IRREVOCABLY CONSENTS TO IMMEDIATE AND UNCONDITIONAL
RELIEF FROM ANY AUTOMATIC STAY IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR
OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE
AVAILABLE TO THE BANK AS PROVIDED FOR HEREIN, IN ANY NOTE, OTHER LOAN DOCUMENTS
DELIVERED IN CONNECTION HEREWITH AND AS OTHERWISE PROVIDED BY LAW, AND THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO OBJECT TO SUCH RELIEF AND WILL
NOT CONTEST ANY MOTION BY THE BANK SEEKING RELIEF FROM THE AUTOMATIC STAY AND
THE BORROWER WILL COOPERATE WITH THE BANK, IN ANY MANNER REQUESTED BY THE BANK,
IN ITS EFFORTS TO OBTAIN RELIEF FROM ANY SUCH STAY OR OTHER PROHIBITION.
10.7 LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY THE BORROWER, ANY
GUARANTOR, ANY SPECIFIED PERSON, OR ANY OTHER PERSON AGAINST THE BANK OR THE
AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF THE BANK FOR
ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR, TO THE FULLEST EXTENT
PERMITTED BY LAW, FOR ANY PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM OR CAUSE OF
ACTION (WHETHER BASED ON CONTRACT, TORT, STATUTORY LIABILITY, OR ANY OTHER
GROUND) BASED ON, ARISING OUT OF OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION THEREWITH, AND THE BORROWER (FOR ITSELF AND ON BEHALF OF
EACH GUARANTOR AND EACH SPECIFIED PERSON) HEREBY WAIVES, RELEASES AND AGREES
NEVER TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER SUCH CLAIM NOW EXISTS
OR HEREAFTER ARISES AND WHETHER OR NOT IT IS NOW KNOWN OR SUSPECTED TO EXIST IN
ITS FAVOR.
37
<PAGE>
10.8 Modification and Waiver. No modification or waiver of, or with
respect to any provision of this Agreement or any document or instrument
delivered in connection therewith shall be effective unless and until it shall
be in writing and signed by the Bank, and then such modification or waiver shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on the Borrower in any case shall, of itself, entitle it
to any other or further notice or demand in similar or other circumstances.
10.9 Successors and Assigns. (a) This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Bank, all future holders of the
Notes and their respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights under this Agreement without the prior
written consent of the Bank. The term "Bank" as used herein shall be deemed to
include the Bank and its successors, endorsees and assigns.
(b) The Bank shall have the unrestricted right at any time or from time
to time, and without Borrower's or any Guarantor's consent, to assign any
portion (equivalent to an initial Commitment and/or Loans of not less than
$1,000,000 in principal amount) of its rights and obligations hereunder to one
or more banks or other financial institutions (each, an "Assignee") and the
Borrower and each Guarantor agree that it shall execute, or cause to be
executed, such documents, including without limitation, amendments to this
Agreement and to any other documents, instruments and agreements executed in
connection herewith as the Bank shall deem necessary to effect the foregoing. In
addition, at the request of the Bank and any such Assignee, the Borrower shall
issue one or more new promissory notes, as applicable, to any such Assignee and,
if the Bank has retained any of its rights and obligations hereunder following
such assignment, to the Bank, which new promissory notes shall be issued in
replacement of, but not in discharge of, the liability evidenced by the
promissory note held by the Bank prior to such assignment and shall reflect the
amount of the respective commitments and loans held by such Assignee and the
Bank after giving effect to such assignment. Upon the execution and delivery of
appropriate assignment documentation, amendments and any other documentation
required by the Bank in connection with such assignment, and the payment by
Assignee of the purchase price agreed to by the Bank, and such Assignee, such
Assignee shall be a party to this Agreement and shall have all of the rights and
obligations of the Bank hereunder (and under any and all other guaranties,
documents, instruments and agreements executed in connection herewith) to the
extent that such rights and obligations have been assigned by the Bank pursuant
to the assignment documentation between the Bank and such Assignee, and the Bank
shall be released from its obligations hereunder and thereunder to a
corresponding extent. Notwithstanding the foregoing, no Assignee or other
transferee of any rights of the Bank shall be entitled to receive any greater
payment under Section 2.6 or 2.13 than the Bank would have been entitled to
receive with respect to the rights transferred, unless such transfer was made at
a time when the circumstance giving rise to such greater payment did not exist.
(c) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the Borrower or any
Guarantor, to grant to one or more banks or other financial institutions (each,
a "Participant") participating interests in the Bank's obligation to lend
hereunder and/or any or all of the Loans held by the Bank hereunder. In the
event of any such grant by the Bank of a participating interest to a
Participant, whether or not upon notice to the Borrower, the Bank shall remain
responsible for the performance of its obligations hereunder and the Borrower
shall continue to deal solely and directly with the Bank in connection with the
Bank's rights and obligations hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time to time to prospective
Assignees and Participants, provided that the Bank shall require any such
prospective Assignee or Participant to agree in writing to maintain the
confidentiality of such information. Notwithstanding the foregoing, the Bank and
any Participants shall not be entitled to receive any greater payment under
Section 2.6 or 2.13 than the Bank would have been entitled to receive had no
participating interests been granted.
38
<PAGE>
10.10 Governing Law; Consent to Jurisdiction. This Agreement, the Notes
and any documents and instruments delivered in connection herewith and therewith
and the rights and duties of the parties hereunder and thereunder shall be
governed by, and construed and interpreted in accordance with, the law of the
State of New York and the Borrower consents to the jurisdiction of the courts of
the State of New York in any action brought to enforce any rights of the Bank
under this Agreement and any document or instrument related hereto.
10.11 Entire Agreement. This Agreement and any other agreements,
documents and instruments executed and delivered pursuant to or in connection
with the Obligations contain the entire agreement between the parties relating
to the subject matter hereof and thereof. The Borrower expressly acknowledges
that the Bank has not made and the Borrower is not relying on any oral
representations, agreements or commitments of the Bank or any officer, employee,
agent or representative thereof.
10.12 Interest Adjustment. All agreements between Borrower and
Guarantors and the Bank are hereby expressly limited so that in no contingency
or event whatsoever, whether by reason of acceleration of maturity of the
indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to
be paid to the Bank for the use or the forbearance of the indebtedness evidenced
hereby exceed the maximum permissible under applicable law. As used herein, the
term "applicable law" shall mean the law in effect as of the date hereof
provided, however, that in the event there is a change in the law which results
in a higher permissible rate of interest, then the Loan Documents shall be
governed by such new law as of its effective date. In this regard, it is
expressly agreed that it is the intent of Borrower and the Bank in the
execution, delivery and acceptance of this Agreement to contract in strict
compliance with the laws of the State of New York from time to time in effect.
If, under or from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Loan Documents at the time of performance of such
provision shall be due, shall involve transcending the limit of such validity
prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever the Bank should ever receive as interest and amount
which would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced by
a Note (in such manner as the Bank may determine in its sole discretion) and not
to the payment of interest. This provision shall control every other provision
of all agreements between the Borrower, Guarantors and the Bank.
10.13 Pledge to Federal Reserve. The Bank may at any time pledge all or
any portion of its rights under the loan documents including any portion of the
promissory note to any of the twelve (12) Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
enforcement thereof shall release Bank from its obligations under any of the
loan documents.
10.14 Lost Notes. Upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of any Note or any other
security document which is not of public record, and, in the case of any such
loss, theft, destruction or mutilation, upon surrender and cancellation of such
Note or other security document, the Borrower will issue, in lieu thereof, a
replacement Note or other security document in the same principal amount thereof
and otherwise of like tenor.
10.15 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York by their proper and duly
authorized officer as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By: /s/Eugene R. Curcio
---------------------------
Name: Eugene R. Curcio
Title: Vice President, Finance and
Chief Financial Officer
FLEET BANK, NATIONAL ASSOCIATION
By: /s/Thomas G. Carley
-----------------------------
Name: Thomas G. Carley
Title: Vice President
<PAGE>
EXHIBIT A
FORM OF FACILITY A REVOLVING CREDIT NOTE
<PAGE>
FACILITY A REVOLVING CREDIT NOTE
$4,000,000.00 White Plains, New York
September 11, 1998
INTEGRAMED AMERICA, INC., a Delaware corporation (the "Borrower"), for
value received, hereby promises to pay to the order of FLEET BANK, NATIONAL
ASSOCIATION (the "Bank") on September 11, 2001, at the office of the Bank
specified in Section 10.1 of the Loan Agreement dated as of September 11, 1998,
between the Borrower and the Bank, as amended from time to time (as so amended
the "Agreement"; terms defined in the Agreement shall have their defined
meanings when used in this Note), in lawful money of the United States of
America and in immediately available funds the principal amount of FOUR MILLION
and 00/100 DOLLARS ($4,000,000.00) or, if less than such principal amount, the
aggregate unpaid principal amount of all Loans made by the Bank to the Borrower
pursuant to Section 2.1(a) of the Agreement. The Borrower further promises to
pay interest in like money on the unpaid principal balance of this Note from
time to time outstanding at an annual rate as selected by the Borrower pursuant
to the terms of Section 2.2 of the Agreement. Interest shall be computed on the
basis of a 360-day year for actual days elapsed and shall be payable as provided
in the Agreement. All Loans made by the Bank pursuant to subsection 2.1(a) of
the Agreement and all payments of the principal thereon may be endorsed by the
holder of this Note on the schedule annexed hereto, to which the holder may add
additional pages. The aggregate net unpaid amount of Loans set forth in such
schedule shall be presumed to be the principal balance hereof. After the stated
or any accelerated maturity hereof, this Note shall bear interest at an
increased rate as set forth in the Agreement, payable on demand, but in no event
in excess of the maximum rate of interest permitted under applicable law.
This Note is the Facility A Revolving Credit Note referred to in the
Agreement, and is entitled to the benefits thereof and may be prepaid, and is
required to be prepaid, in whole or in part (subject to the indemnity provided
in the Agreement) as provided therein. Upon the occurrence of any one or more of
the Events of Default specified in the Agreement, all amounts then remaining
unpaid on this Note may be declared to be immediately due and payable as
provided in the Agreement. This Note is secured by the collateral described in
each Security Agreement.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
INTEGRAMED AMERICA, INC.
By: /s/Eugene R. Curcio
---------------------------
Name: Eugene R. Curcio
Title: Vice President Finance and
Chief Financial Officer
<PAGE>
EXHIBIT B
FORM OF FACILITY B REVOLVING CREDIT NOTE
<PAGE>
FACILITY B REVOLVING CREDIT NOTE
$5,000,000.00 White Plains, New York
September 11, 1998
INTEGRAMED AMERICA, INC., a Delaware corporation (the "Borrower"), for
value received, hereby promises to pay to the order of FLEET BANK, NATIONAL
ASSOCIATION (the "Bank") on September 11, 2001, at the office of the Bank
specified in Section 10.1 of the Loan Agreement dated as of September 11, 1998,
between the Borrower and the Bank, as amended from time to time (as so amended
the "Agreement"; terms defined in the Agreement shall have their defined
meanings when used in this Note), in lawful money of the United States of
America and in immediately available funds the principal amount of FIVE MILLION
and 00/100 DOLLARS ($5,000,000.00) or, if less than such principal amount, the
aggregate unpaid principal amount of all Loans made by the Bank to the Borrower
pursuant to Section 2.1(b) of the Agreement. The Borrower further promises to
pay interest in like money on the unpaid principal balance of this Note from
time to time outstanding at an annual rate as selected by the Borrower pursuant
to the terms of Section 2.2 of the Agreement. Interest shall be computed on the
basis of a 360-day year for actual days elapsed and shall be payable as provided
in the Agreement. All Loans made by the Bank pursuant to subsection 2.1(b) of
the Agreement and all payments of the principal thereon may be endorsed by the
holder of this Note on the schedule annexed hereto, to which the holder may add
additional pages. The aggregate net unpaid amount of Loans set forth in such
schedule shall be presumed to be the principal balance hereof. After the stated
or any accelerated maturity hereof, this Note shall bear interest at an
increased rate as set forth in the Agreement, payable on demand, but in no event
in excess of the maximum rate of interest permitted under applicable law.
This Note is the Facility B Revolving Credit Note referred to in the
Agreement, and is entitled to the benefits thereof and may be prepaid, and is
required to be prepaid, in whole or in part (subject to the indemnity provided
in the Agreement) as provided therein. Upon the occurrence of any one or more of
the Events of Default specified in the Agreement, all amounts then remaining
unpaid on this Note may be declared to be immediately due and payable as
provided in the Agreement. This Note is secured by the collateral described in
each Security Agreement.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
INTEGRAMED AMERICA, INC.
By: Eugene R. Curcio
----------------------------
Name: Eugene R. Curcio
Title: Vice President Finance and
Chief Financial Officer
<PAGE>
EXHIBIT C
FORM OF TERM NOTE
<PAGE>
TERM NOTE
$4,000,000.00 White Plains, New York
September 11, 1998
INTEGRAMED AMERICA, INC., a Delaware corporation (the
"Borrower"), for value received, hereby promises to pay to the order of FLEET
BANK, NATIONAL ASSOCIATION (the "Bank") at its office specified in Section 10.1
of the Loan Agreement dated as of September 11, 1998 between the Borrower and
the Bank, as amended from time to time (as so amended the "Agreement"; terms
defined in the Agreement shall have their defined meanings when used in this
Note) in lawful money of the United States and in immediately available funds,
the principal sum of FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00) payable in
sixteen (16) consecutive quarterly installments in the amount of $250,000.00
each and the last and final installment equal to the then unpaid principal
balance of this Note payable on the first day of each , January, March, June and
September, commencing June 1, 2000. The Borrower further promises to pay
interest at said office in like money on the unpaid principal balance of this
Note from time to time outstanding (computed on the basis of a 360 day year for
actual days elapsed) at an annual rate as selected by the Borrower pursuant to
the terms of Section 2 of the Agreement. Interest shall be payable as provided
in the Agreement. Whenever the entire unpaid principal amount of this Note
becomes due and payable (whether at the stated maturity hereof, by acceleration
or otherwise) interest hereon shall thereafter be payable on demand at a rate as
set forth in the Agreement, but in no event in excess of the maximum rate of
interest permitted under any applicable law.
This Note is the Term Note referred to in the Agreement, and is
entitled to the benefits and subject to the terms thereof and may be prepaid in
whole or in part (subject to the indemnity provided in the Agreement) as
provided therein. This Note is secured by the Collateral described in each
Security Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Agreement, all amount then remaining unpaid under the Note may
be declared immediately due and payable as provided in the Agreement.
This Note shall be construed in accordance with and governed by
the laws of the State of New York.
INTEGRAMED AMERICA, INC.
By: /s/Eugene R. Curcio
----------------------------
Name: Eugene R. Curcio
Title: Vice President Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 5,037
<SECURITIES> 0
<RECEIVABLES> 13,272
<ALLOWANCES> 613
<INVENTORY> 0
<CURRENT-ASSETS> 19,146
<PP&E> 5,077 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,378
<CURRENT-LIABILITIES> 11,112
<BONDS> 0
0
166
<COMMON> 213
<OTHER-SE> 27,581
<TOTAL-LIABILITY-AND-EQUITY> 44,378
<SALES> 27,927
<TOTAL-REVENUES> 27,927
<CGS> 21,465
<TOTAL-COSTS> 21,465
<OTHER-EXPENSES> 2,084 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306
<INCOME-PRETAX> (420)
<INCOME-TAX> 245
<INCOME-CONTINUING> (665)
<DISCONTINUED> 4,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,166)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
<FN>
<F1>
PP&E is net of accumulated depreciation.
<F2>
Represents restructuring and other charges.
</FN>
</TABLE>
