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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 March 31, 1999
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 May 3, 1999 was 4,918,460.
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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 March 31, 1999 (unaudited) and
December 31, 1998......................................... 3
Consolidated Statement of Operations for the three-month
periods ended March 31, 1999 and 1998 (unaudited)......... 4
Consolidated Statement of Cash Flows for the three-month
periods ended March 31, 1999 and 1998 (unaudited)......... 5
Notes to Consolidated Financial Statements (unaudited).....6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................... 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 13
Item 2. Changes in Securities.......................................... 13
Item 3. Defaults upon Senior Securities................................ 13
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 5. Other Information.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
SIGNATURES ................................................................15
INDEX TO EXHIBITS.............................................................16
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all dollars in thousands)
<CAPTION>
ASSETS
March 31, December 31,
-------- ------------
1999 1998
-------- ------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ..................................................... $ 2,280 $ 4,241
Patient accounts receivable, less allowance for doubtful
accounts of $789 and $526 in 1999 and 1998, respectively..................... 10,106 10,749
Management fees receivable, less allowance for doubtful
accounts of $358 and $305 in 1999 and 1998, respectively..................... 2,113 1,963
Other current assets .......................................................... 991 1,736
------- -------
Total current assets....................................................... 15,490 18,689
------- -------
Fixed assets, net ............................................................. 6,036 5,116
Intangible assets, net......................................................... 19,060 19,269
Other assets................................................................... 608 619
------- -------
Total assets............................................................... $41,194 $43,693
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 229 $ 684
Accrued liabilities............................................................ 2,570 3,480
Due to Medical Practices....................................................... 2,068 1,877
Current portion of long-term notes payable and other obligations............... 1,011 2,099
Patient deposits .............................................................. 2,193 2,888
------- -------
Total current liabilities.................................................. 8,071 11,028
------- -------
Long-term notes payable and other obligations.................................... 5,203 5,282
Commitments and Contingencies.................................................... -- --
Shareholders' equity:
Preferred Stock, $1.00 par value - 3,165,644 shares authorized
in 1999 and 1998, 2,500,000 undesignated; 665,644 shares
designated as Series A Cumulative Convertible of which 165,644 shares
were issued and outstanding in 1999 and 1998, respectively................... 166 166
Common Stock, $.01 par value - 50,000,000 shares authorized in 1999 and 1998;
and 5,368,960 and 5,343,092 shares issued in 1999 and 1998, respectively..... 53 53
Capital in excess of par ...................................................... 54,240 53,712
Accumulated deficit ........................................................... (25,030) (25,548)
Treasury Stock, at cost - 450,500 and 340,500 shares in 1999 and
1998, respectively........................................................... (1,509) (1,000)
------- -------
Total shareholders' equity ................................................ 27,920 27,383
------- -------
Total liabilities and shareholders' equity................................. $41,194 $43,693
======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
3
<PAGE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the
three-month period
ended March 31,
-----------------
1999 1998
---- ----
(unaudited)
Revenues, net ........................................... $10,532 $8,341
Cost of services incurred on behalf of Network Sites:
Employee compensation and related expenses............ 4,068 3,563
Direct materials...................................... 1,095 753
Occupancy costs....................................... 675 672
Depreciation.......................................... 309 285
Other expenses........................................ 2,051 1,167
------- -------
Total cost of services rendered..................... 8,198 6,440
------- ------
Network Sites' contribution.............................. 2,334 1,901
General and administrative expenses...................... 1,380 1,113
Amortization of intangible assets........................ 244 181
Interest income.......................................... (23) (12)
Interest expense......................................... 135 72
------- ------
Total other expenses.................................. 1,736 1,354
------- ------
Income from continuing operations before income taxes.... 598 547
Provision for income taxes............................... 80 49
------- ------
Income from continuing operations........................ 518 498
Loss from operations of discontinued AWM Division
(less applicable income taxes of $0).................. -- 288
Net income............................................... $ 518 $ 210
Less: Dividends paid and/or accrued on Preferred Stock... (33) (33)
------- ------
Net income applicable to Common Stock.................... $ 485 $ 177
======= ======
Basic and diluted earnings per share of Common Stock:
Continuing operations............................... $ 0.10 $ 0.09
Discontinued operations............................. -- (0.06)
------- ------
Net earnings........................................ $ 0.10 $ 0.03
======= ======
Weighted average shares - basic.......................... 4,976 5,006
======= ======
Weighted average shares - diluted........................ 5,077 5,100
======= ======
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the
three-month period
ended March 31,
---------------------
1999 1998
-------- ------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income .............................................................................. $ 518 $ 210
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization....................................................... 618 581
Writeoff of fixed and other assets ................................................. -- 37
Changes in assets and liabilities net of effects from acquired businesses
-- Decrease (increase) in assets:
Patient accounts receivable......................................................... 643 (2,384)
Management fees receivable.......................................................... (150) (449)
Other current assets................................................................ 745 (701)
Other assets........................................................................ (2) 8
(Decrease) increase in liabilities:
Accounts payable................................................................... (455) (1,435)
Accrued liabilities................................................................ (546) 86
Due to Medical Practices........................................................... 191 455
Patient deposits................................................................... (695) (78)
------- ------
Net cash provided by (used in) operating activities......................................... 867 (3,670)
------- ------
Cash flows (used in) provided by investing activities:
Payment for exclusive management rights and acquired physician practices............... -- (3,109)
Purchase of net liabilities of acquired businesses..................................... -- 487
Purchase of fixed assets and leasehold improvements.................................... (1,295) (438)
------- ------
Net cash used in investing activities....................................................... (1,295) (3,060)
------- ------
Cash flows (used in) provided by financing activities:
Proceeds from issuance of Common Stock................................................. -- 5,500
Used for stock issue costs............................................................. -- (61)
Proceeds from bank under Credit Facility............................................... -- 2,000
Principal repayments on debt........................................................... (990) (286)
Principal repayments under capital lease obligations................................... (1) (36)
Repurchase of Common Stock............................................................. (509) --
Dividends paid on Convertible Preferred Stock.......................................... (33) --
Proceeds from exercise of Common Stock options......................................... -- 62
------- ------
Net cash (used in) provided by financing activities......................................... (1,533) 7,179
------- ------
Net (decrease) increase in cash............................................................. $(1,961) $ 449
Cash at beginning of period................................................................. 4,241 1,930
------- ------
Cash at end of period....................................................................... $ 2,280 $2,379
======= ======
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 March 31, 1999, 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, 1999. 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, 1998.
NOTE 2 -- SIGNIFICANT MANAGEMENT CONTRACTS:
For the three months ended March 31, 1999 and 1998, the Boston, FCI, New
Jersey, 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:
Percent of Company Percent of Network
Revenues, net Sites' contribution
for the three-month for the three-month
period ended March 31, period ended March 31,
---------------------- ----------------------
1999 1998 1999 1998
----- ----- ----- ------
Boston.......... 16.7 17.6 26.6 23.4
FCI............. 26.7 30.1 24.0 32.7
New Jersey...... 12.4 12.0 25.1 29.1
Shady Grove..... 17.8 4.0 13.1 2.5
NOTE 3 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
The amount owed by the Company to acquire the balance of the capital stock
of Shady Grove Fertility Centers, Inc. was paid on January 5, 1999 as follows:
(i) $951,800 in cash, (ii) $175,900 in stock, or 25,868 shares of Common Stock,
and (iii) a $402,750 promissory note. The promissory note for $402,750 is
payable in two equal annual installments, due on July 1, 1999 and April 1, 2000
and bears interest at a rate of 10.17%. per annum.
6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS from continuing operations computations for the three-month periods
ended March 31, 1999 and 1998 is as follows (000's omitted, except for per share
amounts):
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------- ----------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations...... $518 $498
Less: Preferred stock
dividends paid or accrued........... (33) (33)
---- ----
Basic EPS
Income from continuing
operations available to
Common stockholders................. $485 4,976 $0.10 $465 5,006 $0.09
==== ===== ===== ==== ===== =====
Effect of Dilutive Securities
Options................................ 37 42
Warrants............................... 64 52
------ -----
Diluted EPS
Income from continuing
operations available to
Common stockholders................. $485 5,077 $0.10 $465 5,100 $0.09
==== ====== ===== ==== ===== =====
</TABLE>
For the three-month period ended March 31, 1999, the effect of the assumed
exercise of options to purchase approximately 39,000 shares of Common Stock at
exercise prices of $5.00 per share and warrants to purchase approximately 75,000
shares of Common Stock at exercise prices ranging from $4.94 to $8.54 per share
were excluded in computing the diluted per share amount because the exercise
prices of the options and warrants were greater than the average market price of
the shares of Common Stock, therefore causing these options and warrants to be
antidilutive.
For the three-month period ended March 31, 1998, the effect of the assumed
exercise of options to purchase approximately 253,000 shares of Common Stock and
warrants to purchase approximately 92,000 shares of Common Stock at exercise
prices ranging from $8.12 to $15.00 per share and from $36.08 to $41.36 per
share, respectively, were excluded in computing the diluted per share amount
because the exercise prices of the options and warrants were greater than the
average market price of the shares of Common Stock, therefore causing these
options and warrants to be antidilutive.
For the three-month periods ended March 31, 1999 and 1998, approximately
133,000 and 127,000 shares of Common Stock, respectively, from the assumed
conversion of Preferred Stock were excluded in computing the diluted per share
amount as they were anti-dilutive.
7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- SUBSEQUENT EVENTS:
In April 1999, the Company formed a new wholly owned subsidiary, IntegraMed
Pharmaceutical Services, Inc. ("IPS"). IPS is based in Carrollton, Texas and
will be licensed to distribute pharmaceutical products directly to patients in
most of the United States and in all states where the Company's managed
Reproductive Science Centers are currently located. IPS will be engaged in the
retail distribution of drugs, pharmaceuticals and products related to the
treatment of human fertility ("Pharmaceutical Products") to customers of the
Reproductive Science Centers. IPS was formed in conjunction with IVP
Pharmaceutical Care, Inc., a licensed pharmacy specializing in dispensing
Pharmaceutical Products, which will provide certain management services to IPS.
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
Effective May 1, 1999, the Company entered into a new management agreement
(the "New Agreement") with the Medical Practice at the Reproductive Science
Associates Network Site (the "RSA Medical Practice") located in Kansas City,
Missouri. The New Agreement contemplates that the Company will offer other
medical practices, via separate management agreements, use of the medical
offices and clinical space which are currently provided by the Company and
utilized by the RSA Medical Practice. The New Agreement also provides for
certain changes in the financial arrangements between the Company and the RSA
Medical Practice.
8
<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, 1998.
Results of Operations
The following table shows the percentage of revenues represented by various
expense and other income items reflected in the Company's Consolidated Statement
of Operations.
<TABLE>
<CAPTION>
For the
three-month period
ended March 31,
-------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Revenues, net............................................ 100% 100%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses.......... 38.6% 42.7%
Direct materials.................................... 10.4% 9.0%
Occupancy costs..................................... 6.4% 8.1%
Depreciation........................................ 2.9% 3.4%
Other expenses...................................... 19.5% 14.0%
---- ----
Total costs of services............................. 77.8% 77.2%
Network Sites' contribution.............................. 22.2% 22.8%
General and administrative expenses...................... 13.1% 13.3%
Amortization of intangible assets........................ 2.3% 2.2%
Interest income.......................................... (0.2%) (0.1%)
Interest expense......................................... 1.3% 0.8%
---- ----
Total other expenses................................ 16.5% 16.2%
---- ----
Income from continuing operations before income taxes.... 5.7% 6.6%
Provision for income taxes............................... 0.8% 0.6%
---- ----
Income from continuing operations........................ 4.9% 6.0%
Loss from discontinued operations........................ -- (3.5%)
Net income............................................... 4.9% 2.5%
==== ====
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues for the three months ended March 31, 1999 (the "first quarter of
1999") were approximately $10.5 million as compared to approximately $8.3
million for the three months ended March 31, 1998 (the "first quarter of 1998"),
an increase of 26.3%. The increase in revenues was attributable to same market
growth and to there being a full quarter of revenues from the Shady Grove
Network Site which was acquired in mid-March 1998. Same market growth in
revenues was principally attributable to increases in patient volume. The
aggregate increase in revenues was comprised of the following: (i) an
approximate $1.8 million increase in reimbursed costs of services; and (ii) an
approximate $433,000 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 revenues were 77.8% in the first
quarter of 1999 as compared to 77.2% in the first quarter of 1998. Direct
materials and other expenses increased primarily due to the increase in patient
9
<PAGE>
volume at the managed Medical Practices. Employee compensation and related
expenses, occupancy costs and depreciation as a percentage of revenues decreased
primarily due to the significant increase in revenues.
Network Sites' contribution was approximately $2.3 million in the first
quarter of 1999 as compared to $1.9 million in the first quarter of 1998, an
increase of approximately 22.8%. Such increase resulted from there being a full
quarter of Network Site contribution from the Shady Grove Network Site, which
was acquired late in the first quarter of 1998, and the increase in revenues at
existing Network Sites. As a percentage of revenues, Network Sites' contribution
decreased to 22.2% in the first quarter of 1999 as compared to 22.8% in the
first quarter of 1998, primarily due to increases in contractual allowances
related to lower reimbursements under managed care contracts.
General and administrative expenses for the first quarter of 1999 were
approximately $1.4 million as compared to approximately $1.1 million in the
first quarter of 1998, an increase of 24.0%. The increase was largely due to an
increase in staffing, consulting and other costs attributable to the
development, implementation and maintenance of the Company's proprietary
ArtWorks(TM) suite of fertility care information systems, and to an increase in
marketing costs. As a percentage of revenues, general and administrative
expenses decreased to approximately 13.1% from approximately 13.3% due to the
increase in revenues previously discussed.
Amortization of intangible assets was $244,000 in the first quarter of 1999
as compared to $181,000 in the first quarter of 1998. This increase was
attributable to the Company's acquisition of the Shady Grove Network Site late
in the first quarter of 1998. This increase was partially offset by the
elimination of amortization of exclusive management rights associated with two
single-physician Network Site management agreements which were terminated and
written off in 1998.
Interest income for the first quarter of 1999 increased to $23,000 from
$12,000 for the first quarter of 1998, due to a higher cash balance. Interest
expense for the first quarter of 1999 increased to $135,000 from $72,000 in the
first quarter of 1998, due to an increase in bank borrowings and in amounts
payable to Medical Providers for exclusive management rights.
The provision for income taxes primarily related to state taxes. The
provision for income taxes increased to $80,000 in the first quarter of 1999
from $49,000 in the first quarter of 1998 due to the increase in Network Site
contribution at existing sites and to the addition of the Shady Grove Network
Site.
Income from continuing operations was $518,000 in the first quarter of 1999
as compared to $498,000 in the first quarter of 1998. The increase was primarily
due to the $433,000 increase in Network Sites' contribution, which was partially
offset by increases in general and administrative expenses, amortization of
intangible assets and interest expense.
Net income increased to $518,000 in the first quarter of 1999 as compared
to $210,000 in the first quarter of 1998 due to the increase in income from
continuing operations and the elimination of losses from the AWM Division which
is classified as discontinued operations and was sold in the third quarter of
1998.
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.
At March 31, 1999, the Company had working capital of approximately $7.4
million, approximately $2.3 million of which consisted of cash and cash
equivalents, compared to working capital of approximately $7.7 million at
10
<PAGE>
December 31, 1998, approximately $4.2 million of which consisted of cash and
cash equivalents. The net decrease in working capital at March 31, 1999 was
principally due to purchases of fixed assets and leasehold improvements of
approximately $1.3 million and to the repurchase of 110,000 shares of the
Company's Common Stock for an aggregate purchase price of $509,000, partially
offset by decreases in patient deposits and accrued liabilities.
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
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 ("Y2K"). As such, the Company has appointed a Y2K
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 Y2K Project"). The Y2K Project is comprised of five
phases as follows: 1) identification of risks, 2) assessment of risks, 3)
development of remediation and contingency plans, 4) implementation, and 5)
testing. The Company has identified the Y2K risks and is approximately 75%
complete in assessing these risks. The Company is currently working on the last
three phases of the Y2K Project.
The Company believes that the Y2K 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 Y2K compliant. In
addition, in the normal course of business, the Company has made capital
investments in certain vendor supplied software applications and hardware
systems to address the financial and operational needs of its business. These
systems, which will improve the efficiencies and productivity of the replaced
systems, have been represented to be Y2K compliant by the vendors and have been
or will be installed by November 1999. The Company has tested, is currently
testing or will have tested such vendor supplied systems and equipment, but
cannot be sure that its tests will be adequate or that, if problems are
identified, they will be addressed in a timely and satisfactory manner.
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 Y2K 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 Y2K compliance issue is being
addressed proactively and should not present a problem on or after January 1,
2000.
11
<PAGE>
As the Company and its managed Medical Practices are primarily reliant on
third party vendors and payors to be Y2K compliant, the Company does not
anticipate that it will incur a material incremental cost associated with
addressing Y2K problems. To date, all of the Company's capital projects
regarding information systems were part of its long-term capital strategic plan.
The timing of implementation of these capital projects was not accelerated as a
result of the Y2K issue, with the exception of the timing of the installation of
a new financial system at the FCI Network Site which was accelerated from the
year 2000 to 1999. The Company estimates that it will incur an aggregate cost of
$315,000 related to the Y2K Project as follows: (i) approximately $140,000
related to computer hardware and software and medical equipment replacements and
upgrades, of which approximately 90% will be capitalizable due to the added
value of such replacements and upgrades; (ii) approximately $130,000 of
non-incremental employee opportunity costs for time spent by information systems
and Y2K Task Force employees who would have ordinarily been spending their time
elsewhere; and (iii) approximately $45,000 in incremental staffing costs. By
accelerating the implementation of the new financial system at the FCI Network
Site, approximately $110,000 of capitalizable equipment and software costs and
approximately $50,000 of training costs will be incurred in 1999 instead of the
year 2000.
In the event any third parties cannot timely provide the Company with
information systems, equipment or services that meet the Y2K requirements, the
Company's ability and that of its managed Medical Practices to offer services
and to process sales, and the Company's cash flows, could be disrupted. In
addition, if the Company fails to satisfactorily resolve Y2K issues related to
its operations in a timely manner, it could be exposed to liability,
particularly to the managed Medical Practices and their patients. As developed
to date, the Company's contingency plan provides for the following: (i)
stockpiling higher than normal inventories of critical supplies; (ii) ensuring
an adequate line of bank credit if third party payor payments are disrupted; and
(iii) ensuring all critical staff are available or scheduled for work prior to,
during and immediately after December 31, 1999.
Management believes that the Company is taking reasonable and adequate
measures to address Y2K issues. However, there can be no assurance that the
Company's information systems, medical equipment and other non- information
technology systems will be Y2K compliant on or before December 31, 1999, or that
vendors and third-party insurance payors are, or will be, Y2K compliant, or that
the costs required to address the Y2K 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 Y2K 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 Y2K 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 Y2K Project or ability of the Company to address. The
Company has focused its resources and attention on the most immediate and
controllable Y2K risks.
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
Reproductive Science Centers 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 regulations 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 Y2K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
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
(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. The Company believes
that this complaint is without merit, denies the
allegations, and intends to vigorously defend its position.
Despite the filing of the suit, the Company continued to
perform its obligations under the Management Agreement.
On March 30, 1999, W.F. Howard, M.D., P.A., communicated
its intent to terminate the Management Agreement and no
longer allowed the Company to provide its management
services to the Dallas Network Site. The Company
immediately terminated the Management Agreement for cause,
and interposed several counterclaims, against the P.A., Dr.
W.F. Howard and two former Company employees of the Network
Site. These counterclaims allege breach of fiduciary
duties, interference with the Company's contractual
relations and conversion of assets. The Company also
sought, and was provided, return of its confidential and
proprietary business documents and the P.A.'s cessation of
use of the name "Reproductive Science Center". The Company
intends to vigorously pursue all counterclaims, both as
against the P.A. and the individuals named as parties to
the lawsuit. 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
results of the Company's operations.
On May 4, 1999, the Court of Appeals of New York, in a
lawsuit encaptioned Karlin v. IVF America, et. al.,
determined that plaintiffs' claims could be heard under the
New York consumer protection statute, General Business Law
ss.ss. 349 and 350. The case was originally instituted in
New York Supreme Court, Westchester County, in 1995.
Plaintiffs originally denominated the case as a class
action, and their request for certification as a class was
denied by both the trial and appellate courts (Appellate
Division, Second Department). The Court of Appeals refused
to review the denial of class action status. The case now
represents a single individual claim. The action seeks
damages from the Company, United Hospital and Dr. John
Stangel, for pecuniary loss and personal injuries,
purportedly arising out of an alleged misstatement of
success rates at the in vitro fertilization program at
United Hospital which was managed by the Company at that
time. The complaint originally asserted multiple causes of
action; however, through motion practice, the defendants
have achieved dismissal of all causes of action except the
General Business Law claims which were reinstated by the
Court Appeals in May 1999. The Company intends to
vigorously defend the remaining cause. Litigation counsel
has advised the Company that its position is supported on
the merits and that the action, even if successful, would
not have a material adverse effect on the Company.
There are other minor 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,
results of operations or the cash flows of the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
13
<PAGE>
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
14
<PAGE>
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: May 14, 1999 By: /s/Gerardo Canet
---------------------------------
Gerardo Canet
President, CEO and
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
4.11(d) -- Warrant issued to Robert J. Stillman, M.D. dated January 6, 1999
(1)
10.48(c) -- Management Agreement among IntegraMed America, Inc. and
Reproductive Endocrine & Fertility Consultants, P.A. and Midwest
Fertility Foundations & Laboratory, Inc.
10.61(b) -- Amendment No. 2 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical Group,
Inc.
10.114 -- Management Agreement Among IntegraMed Pharmaceutical Services,
Inc., IVP Pharmaceutical Care, Inc., and IntegraMed America, Inc.
27 -- Financial Data Schedule
- ---------------------------------
(1) Incorporated by reference to the Exhibit with the identical number to
Registrant's Annual Report on Form 10- K for the year ended December
31, 1998.
16
MANAGEMENT AGREEMENT
AMONG
INTEGRAMED AMERICA, INC.
AND
REPRODUCTIVE ENDOCRINE & FERTILITY CONSULTANTS, P.A.
AND
MIDWEST FERTILITY FOUNDATIONS & LABORATORY, INC.
THIS MANAGEMENT AGREEMENT ("Agreement"), dated as of May 1, 1999, by
and among IntegraMed America, Inc., a Delaware corporation, with its principal
place of business at One Manhattanville Road, Purchase, New York 10577
("Management Company"), Reproductive Endocrine & Fertility Consultants, P.A., a
Kansas professional association, having its principal place of business at Two
Brush Creek, Suite 500, Kansas City, Missouri 64112 ("PA"), and Midwest
Fertility Foundations & Laboratory, Inc., a Kansas corporation, having its
principal place of business at Two Brush Creek, Suite 500, Kansas City, Missouri
64112 ("Midwest"). PA and Midwest are collectively referred to herein as
"Providers" and PA, Midwest and Management Company are collectively referred to
as "Parties" and individually, as a "Party."
RECITALS:
PA is a medical practice ("Medical Practice") specializing in
gynecological services, treatment of human infertility encompassing the
provision of in vitro fertilization and other assisted reproductive services
("Infertility Services").
Midwest is a licensed clinical reference laboratory (the "Lab").
Management Company is in the business of owning certain assets and
providing management and administrative services ("Management Services") to
medical practices specializing in the provision of Infertility Services, and
furnishing such medical practices with the necessary facilities, equipment,
personnel, supplies and support staff.
This Agreement is made with reference to that certain management
agreement by and among the Parties dated November 1, 1995, as amended by
agreements dated May 22, 1997 and July 1, 1998, and that certain interim
agreement by and among the Parties dated January 25, 1999, as amended by
agreement dated March 26, 1999 (collectively, "Former Agreements"). All Former
Agreements, upon execution of this Agreement are canceled, null, void and of no
further legal effect. Any obligation of a Party contained in the Former
Agreements not specifically set forth herein is deemed canceled.
Management Company will provide Management Services and the use of
certain Facilities, as defined herein, on the terms and conditions provided
herein for use by PA for conducting its Medical Practice, and Midwest to operate
the Lab, which Facilities and Management Services will be provided
simultaneously to other entities providing Infertility Services.
PA desires to utilize the services of Management Company to perform
management and administrative functions, on its behalf, to permit PA to devote
its efforts on a concentrated and continuous basis to the rendering of
Infertility Services to its patients; and Midwest desires to obtain the services
of Management Company to manage and administer the Lab.
NOW THEREFORE, in consideration of the above recitals which the parties
incorporate into this Agreement, the mutual covenants and agreements herein
contained and other good and valuable consideration , Management Company agrees
to provide the Management Services and the Facilities on the terms and
conditions provided herein.
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following definitions
shall apply:
1.1.1 "Assets" shall mean those fixed assets owned by
Management Company and utilized in connection with the operation of the
Medical Practice and the Lab, including, but not limited to, fixed
assets and leasehold improvements.
1.1.2 "Adjustments" shall mean adjustments for refunds,
discounts, contractual adjustments, professional courtesies and other
activities that do not generate a collectible fee as reasonably
determined by Management Company and Providers.
1.1.3 "Facilities" shall mean the medical offices and clinical
spaces of Providers, including any satellite locations, related
businesses and all medical group business operations of PA, which are
provided by Management Company and utilized by Providers.
1.1.4 "Fiscal Year" shall mean the 12-month period beginning
January 1 and ending December 31 of each year.
1.1.5 "Infertility Services" shall mean gynecological
services, treatment of human infertility encompassing the provision of
in vitro fertilization, and other assisted reproductive services
provided by PA, Midwest or any Physician Employee, Other Professional
Employee, or Technical Employee.
1.1.6 "Lab Revenue" shall mean all fees earned and actually
recorded each month (net of Adjustments) based on the accrual method of
accounting pursuant to generally accepted accounting principles
("GAAP") by or on behalf of Midwest as a result of laboratory services
furnished by Lab.
1.1.7 "Other Professional Employee" shall mean a non-physician
individual who provides services to Providers, including nurse
anesthetists, physician assistants, nurse practitioners, psychologists,
and other such professional employees who generate professional
charges, but shall not include Technical Employees.
1.1.8 "RMC Receivables" shall mean, and include, those
receivables for services rendered by PA to RMC patients as more
particularly defined in Section 4.3 of that certain agreement among
Management Company, PA and Research Medical Center ("RMC") dated July
15, 1998 ("RMC Agreement"). RMC Receivables shall not mean, and
excludes, those receivables under the RMC Agreement for services
rendered by Management Company to RMC under the RMC Agreement.
1.1.9 "PDE" shall mean an amount equal to a) Revenue, less b)
the amount calculated under Section 7.1.1 plus the amount calculated
under Section 7.1.2.
1.1.10 "Physician-Employee" shall mean an individual, who is
an employee of PA or is otherwise under contract with PA to provide
professional services to PA patients and is duly licensed as a
physician in the state of Missouri.
1.1.11 "Physician and Other Professional Revenue" shall mean
all fees earned, and actually recorded each month (net of Adjustments)
in accordance with GAAP, by or on behalf of PA as a result of
professional medical services personally furnished to patients of PA by
Physician-Employees or Other Professional Employees, and other fees or
income earned in their capacity as professionals, whether rendered in
an inpatient or outpatient setting, including but not limited to,
medical director fees or technical fees from medical ancillary
services, consulting fees and ultrasound fees from businesses owned or
operated by Physician-Stockholders. In addition, Physician and Other
Professional Revenue shall include all fees earned, and actually
recorded each month (net of Adjustments) in accordance with GAAP, as a
result of professional medical services performed by PA for RMC at the
Facilities pursuant to the RMC Agreement. Physician and Other
Professional Revenues shall not include (i) board attendance fees and
other compensation in connection with board memberships, (ii) other
services where a Physician-Employee does not provide professional
medical services such as testimony and consultation for
litigation-related proceedings, lectures, passive investments,
fundraising, or writing ("Permitted Services"), the compensation from
which Permitted Services such Physician-Employee may retain without
limit, and (iii) compensation resulting from a Physician-Employee's
affiliation with an academic institution in a teaching capacity. PA
agrees that not less than 14 days prior to a Physician-Employee
engaging in an affiliation with an academic institution in a teaching
capacity, PA and the Physician-Employee will obtain Management
Company's consent, which shall not be unreasonably withheld, to such
activities.
<PAGE>
1.1.12 "Providers' Receivables" shall mean and include all
rights to payment for services rendered or goods sold, accounts,
receivables, contract rights, chattel paper, documents, instruments and
other evidence of patient indebtedness to PA or Midwest, policies and
certificates of insurance relating to any of the foregoing, all rights
to payment, reimbursement or settlement or insurance or other medical
benefit payments assigned to PA or Midwest by patients or pursuant to
any Preferred Provider, HMO, capitated payment agreements, or other
agreements between PA and/or a payer, and all of PA's rights to payment
for services rendered by PA for RMC patients at the Facilities in
accordance with the RMC Agreement, recorded each month (net of
Adjustments) in accordance with GAAP. Providers' Receivables shall not
include any Medicare or Medicaid receivables.
1.1.13 "Receivables" shall mean the sum of Providers'
Receivables and RMC Receivables.
1.1.14 "Revenue" shall mean the sum of Physician and Other
Professional Revenue, and Lab Revenue.
1.1.15 "Technical Employees" shall mean technicians such as
embryologists and other laboratory personnel, ultrasonographers and
phlebotomists who provide services to Providers.
ARTICLE 2
COST OF SERVICES
2.1 "Cost of Services" shall mean all ordinary and necessary expenses of
Providers and all direct ordinary and necessary operating expenses of Management
Company incurred in connection with the management of Providers, and the
provision of Facilities, unless expressly provided otherwise herein, including
but not limited to:
2.1.1 Salaries, benefits, payroll taxes and other direct cost
of all Management Company employees working at the Facilities;
2.1.2 Expenses incurred in the recruitment of additional
physicians for PA, including, but not limited to employment agency
fees, relocation and interviewing expenses and any actual out-of-pocket
expenses, provided such out-of-pocket expenses are agreed upon by
Management Company and PA prior to being incurred, of Management
Company personnel or any Physician-Employee in connection with such
recruitment effort;
2.1.3 Direct marketing expenses of PA, such as direct costs of
printing marketing materials prepared by Management Company;
2.1.4 Any sales and use taxes assessed against PA related to
the operation of PA's medical practice;
<PAGE>
2.1.5 Lease payments, depreciation expense (determined
according to GAAP), taxes and interest directly relating to the
Facilities and equipment, and other expenses of the Facilities
described in Section 3.2 below;
2.1.6 Legal fees paid by Management Company or PA to outside
counsel in connection with matters specific to the operation of PA such
as regulatory approvals required as a result of the parties entering
into this Agreement; provided, however, legal fees incurred by the
parties relative to completion of this Agreement or as a result of a
dispute between the parties under this Agreement shall not be
considered a Cost of Services;
2.1.7 All insurance necessary to operate PA including fire,
theft, general liability and malpractice insurance for
Physician-Employees of the PA;
2.1.8 Professional licensure fees and board certification fees
of Physician-Employees, and Other Professional Employees rendering
Infertility Services on behalf of PA;
2.1.9 Membership in professional associations and continuing
professional education for Physician-Employees and Other Professional
Employees;
2.1.10 Quality Improvement Program described in Section 3.8
herein;
2.1.11 Cost of filing fictitious name permits pursuant to this
Agreement;
2.1.12 Cost of supplies, medical and administrative, and all
direct general and administrative expenses of PA;
2.1.13 $10,000 in the aggregate, annually, per
Physician-Employee for travel and entertainment expenses, car
allowances (including car leases), dues and subscriptions, cellular
telephone and other business related expenses relative to PA;
2.1.14 $9,000 in the aggregate, annually, per
Physician-Employee for health, life and long-term disability insurance;
and
2.1.15 Such other costs and expenses directly incurred by
Management Company necessary for the management or operation of PA.
2.2 Management Company covenants and represents that any management
agreement consummated between Management Company and a Co-Occupant
shall include a definition of cost of services that is substantially
the same as the definition of Cost of Services in Section 2.1 of the
Agreement.
2.3 "Facilities Cost of Services" shall mean the costs incurred under
Section 2.1 of this Agreement plus the costs incurred under the
definition of cost of services contained in each management agreement
consummated between Management Company and a Co-Occupant.
2.4 The amount paid to Management Company monthly by PA pursuant to Section
7.1.1 hereof shall cover the Cost of Services identified in Section
2.1. To the extent that PA requires services or equipment over and
above those provided for in, and covered by, Section 2.1, PA shall bear
the cost of such services or additional expenses, which costs and
additional expenses shall be excluded from determination of the PDE
calculation defined in Section 1.1.9. Management Company shall have no
obligation to make any payments for such costs and additional expenses,
and PA agrees not to incur any such costs or additional expenses in the
name of Management Company.
<PAGE>
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF MANAGEMENT COMPANY
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 The PA and Midwest acknowledge and agree that the
Management Services and Facilities will be provided to PA and Midwest
on a non-exclusive basis and that such Management Services and the
Facilities may be shared by other entities and/or medical practices who
have signed a management agreement with Management Company
("Co-Occupants"). Management Company will allocate resources and its
personnel's time so as to fulfill its obligations under this Agreement.
Notwithstanding anything herein to the contrary, nothing herein shall
obligate Management Company to devote all of its personnel at the
Facilities and Management Services to PA, Midwest and Co-Occupants, to
the exclusion of anyone of them.
3.1.2 Providers hereby appoint Management Company as
Providers' sole and exclusive manager and administrator of all of their
day-to-day business functions and grant Management Company all the
necessary authority to carry out, with Providers' advice and consent,
its duties and responsibilities pursuant to the terms of this Agreement
to provide the Management Services on a non-exclusive basis. Only
Physician-Employees or their designees, whose credentials are reviewed
and approved by Management Company prior to rendering any medical
functions at the Facilities, will perform the medical functions of the
Medical Practice. Management Company will have no authority, directly
or indirectly, to perform, and will not perform, any medical function.
3.1.3 Management Company will, on behalf of PA and Midwest,
and in accordance with applicable laws, bill patients and other
responsible persons and third-party payors and collect professional
fees for Infertility Services rendered by Providers to Providers'
patients at the Facilities, outside the Facilities for PA's
hospitalized patients, and for all other Infertility Services rendered
by any Physician- Employee, Other Professional Employee, or Technical
Employee. Providers hereby appoint Management Company for the term
hereof to be their true and lawful attorney-in-fact, for the following
purposes: (i) to bill patients in Providers' name and on their behalf;
(ii) to collect Receivables resulting from such billing in Providers'
name and on their behalf; (iii) to receive payments from insurance
companies, prepayments received from health care plans, and all other
third-party payors; (iv) to take possession of and endorse in the name
of Providers (and/or in the name of any Physician-Employee or Other
Professional Employee rendering Infertility Services to patients of PA)
any notes, checks, money orders, and other instruments received in
payment of Receivables; and (v) to initiate the institution of legal
proceedings in the name of Providers, with Providers' advice and
consent, to collect any accounts and monies owed to Providers, to
enforce the rights of either Provider as creditor under any contract or
in connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors.
3.1.3.1 Prior to referring any Receivable to a collection
agency, or sending any letter, other than a standard billing cycle
statement, or commencing litigation, Management Company shall provide
Providers with thirty (30) days' written notice of its intent to take
such action. If within said period, Providers advise Management Company
that Providers do not want (i) a particular Receivable or any part
thereof referred to a collection agency, or (ii) any letter other than
a standard billing cycle statement sent or (iii) litigation commenced,
then Providers will repurchase the Receivable from Management Company
within thirty (30) days of such notice from Management Company. If
Providers fail to repurchase the Receivable within the thirty (30)
days, Management Company will proceed with such collection efforts, as
it deems appropriate.
<PAGE>
3.1.4 Management Company will provide the administrative
services function of supervising and maintaining (on behalf of
Providers) all files and records relating to the operations of the
Facilities, including but not limited to accounting and billing
records, including for billing purposes, patient medical records, and
collection records. Patient medical records shall at all times be and
remain the property of PA and, if applicable, Midwest, and shall be
located at the Facilities and be readily accessible for patient care.
Management Company's management of all files and records shall comply
with all applicable state and federal laws and regulations, including
without limitation, those pertaining to confidentiality of patient
records. The medical records of each patient shall be expressly deemed
confidential and shall not be made available to any third party except
in compliance with all applicable laws, rules and regulations.
Management Company shall have access to such records in order to
provide the Management Services hereunder, to perform billing
functions, and to prepare for the defense of any lawsuit in which those
records may be relevant. The obligation to maintain the confidentiality
of such records shall survive termination of this Agreement. Providers
shall have access, on reasonable notice, to all of their records,
including but not limited to documentation of any expense incurred by
Management Company as Cost of Services, whether on behalf of Providers
or, to the extent Providers share payment of the expense, Providers
and/or other Co-Occupants, at all times.
3.1.5 Management Company will supply to Providers all
reasonably necessary clerical, accounting, bookkeeping and computer
services, printing, postage and duplication services, medical
transcribing services, and any other necessary or appropriate
administrative services reasonably necessary for the efficient
operation of Providers' businesses at the Facilities.
3.1.6 Management Company, subject to Providers' prior
approval, shall design and assist Providers with the implementation of
an appropriate marketing and public relations program, with appropriate
emphasis on public awareness of the availability of Infertility
Services from PA and the services of Midwest. The Parties agree that
the public relations program shall be conducted in compliance with
applicable laws and regulations governing advertising by the medical
profession. Recognizing that Providers' participation in carrying any
marketing and public relations program is essential, Providers shall
participate in developing advertising and marketing strategies, and
approve collateral materials, relative to any marketing and public
relations program.
3.1.7 Management Company, upon request of PA, will assist PA
in recruiting additional physicians, including such administrative
functions as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, PA
shall interview and make the ultimate decision as to the suitability of
any physician to become associated with PA. All physicians recruited by
Management Company and accepted by PA shall be employees of or
independent contractors to PA.
3.1.8 Management Company will assist Providers in negotiating
any managed care, PPO, HMO and other provider contracts to which either
Provider desires to become a party. Decisions regarding the
establishment, maintenance or termination of relationships with
institutional health providers shall be made by Providers, in
consultation with Management Company. Management Company will provide
administrative assistance to Providers in fulfilling their respective
obligations under any such contract. In connection with assisting
Providers in negotiating any managed care, PPO, HMO and other provider
contracts, Management Company will use its best efforts to safeguard
the confidentiality of Providers' Confidential Information, as herein
defined, as well as to avoid use of Providers' Confidential Information
for anti-competitive purposes.
3.1.9 Management Company will arrange for legal services as
may be reasonably required in the ordinary course of Providers'
operations, including the cost of enforcing any physician contract
containing restrictive covenants, but excluding personal legal,
accounting and tax services to any Physician-Employee.
3.1.10 Management Company will negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Article 11.
3.1.11 Management Company will take such other reasonable
actions to collect fees and pay expenses of the Facilities in a timely
manner as are deemed reasonably necessary to facilitate the operations
of Providers at the Facilities.
<PAGE>
3.2 FACILITIES. Management Company will provide the Facilities identified
in Exhibit 3.2 hereto, on a non-exclusive basis, necessary for the
operation of the Medical Practice and the Lab, including but not
limited to, the use of the Facilities, all furniture, equipment and
furnishings necessary for the proper and efficient operation of the
Facilities, all repairs, maintenance and improvements thereto, utility
(telephone, electric, gas, water) services, customary janitorial
services, refuse disposal and all other services reasonably necessary
in conducting the Facilities' physical operations. Management Company
will provide for the cleanliness of the Facilities, and timely
maintenance and cleanliness of the equipment, furniture and furnishings
located therein.
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Management Company will hire and
appoint a manager, subject to the approval of the Joint Practices
Management Board, to manage and administer all of the day-to-day
business functions of the Facilities ("Executive Director/Manager").
Management Company shall determine salary and fringe benefits paid to
the Executive Director/Manager. At the direction, supervision and
control of Management Company, the Executive Director/Manager, subject
to the terms of this Agreement, will implement the policies agreed upon
by the Joint Practices Management Board and will generally perform the
administrative duties assigned to the Executive Director/Manager by
Management Company.
3.3.2 PERSONNEL. Management Company will employ and provide
Other Professional Employees, Technical Employees, support and
administrative personnel, clerical, secretarial, bookkeeping and
collection personnel reasonably necessary for the efficient operation
of the Providers at the Facilities. Management Company shall determine
and cause to be paid the salaries and benefits of all such personnel
who will be under the direction, supervision and control of Management
Company, with Technical Employees and Other Professional Employees
subject to the professional supervision of PA. Management Company
agrees that Other Professional Employees and Technical Employees will
comply with the reasonable instructions of Physician-Employees
supervising such personnel. If Providers are dissatisfied with the
services of any person employed by Management Company and working at
the Facilities, Providers will consult with Management Company.
Management Company shall in good faith determine whether the employment
of that employee warrants termination. The overriding principle and
goal of facilitating the Providers' provision of high quality medical
care and laboratory services will govern Management Company's
obligations to personnel described herein. Personnel assignments shall
be made to ensure consistent and continued rendering of quality support
services in the Facilities and to ensure prompt availability and
accessibility of individual medical support staff to
Physician-Employees in order to develop constant, familiar, and routine
working relationships between individual Physician-Employees and
individual members of the support staff. If Providers disagree with an
assignment Providers may appeal such assignment to the Management
Company. Management Company shall make every effort consistent with
sound business practices to honor the specific requests of Providers
with regard to the assignment of Management Company's employees. In
addition, Management Company, upon PA's request for nursing or other
personnel in excess of such covered by PA's share of Cost of Services
as provided for in Section 7.1.1, shall assist PA in recruiting
additional nursing and/or other personnel specific or unique to PA's
Medical Practice. All recruiting costs, salaries and benefits for such
personnel shall be borne by PA from PA's share of PDE.
<PAGE>
3.3.1 OTHER PROFESSIONAL EMPLOYEES AND TECHNICAL EMPLOYEES.
Management Company will ensure that each Other Professional Employee
and Technical Employee:
3.3.3.1 Maintains a current, valid, unrestricted license or
other applicable authorization to practice his or her profession in the
State of Missouri, and maintains good standing with the authority
responsible for such licensure or authorization;
3.3.3.2 Performs professional services at the Facilities in
accordance with applicable laws and regulations and prevailing
standards of care in the medical community and in accordance with the
reasonable direction and/or instructions of a Physician-Employee.
3.3.3.3 Maintains his or her professional skills through
continuing education and training; and
3.3.3.4 Maintains eligibility for insurance under the
professional liability policy or policies carried by Management
Company.
3.4 FINANCIAL PLANNING AND GOALS. Management Company will prepare, for the
approval of Providers, an annual capital and operating budget (the "Budget")
reflecting the anticipated Revenue and Cost of Services, sources and uses of
capital for growth of PA's practice and for the provision of Infertility
Services at the Facilities. Management Company will present the Budget to
Providers for approval at least sixty (60) days prior to the commencement of the
Fiscal Year. Management Company will indicate the targeted profit margin for
Providers which will be reflected in the Budget. If the parties can not agree on
the Budget for PA for any Fiscal Year during the term of this Agreement, the
Budget for the preceding Fiscal Year will serve as the Budget until such time as
the dispute can be resolved.
3.5 FINANCIAL STATEMENTS. Management Company will prepare and deliver to the
representative of each Provider provided for in the notice section of this
Agreement an annual management report within sixty (60) days of the close of the
Fiscal Year ("Annual Management Report"). Management Company will prepare and
deliver to the representative of each Provider provided for in the notice
section of this Agreement a monthly management report within twenty (20) days of
the close of each month ("Monthly Management Report"). Each Annual or Monthly
Management Report will contain a balance sheet, statement of operations showing
Revenue and Costs of Services, and Receivables aging schedule. The Receivables
aging schedule will indicate Receivables aging for 30, 90 and 120 days.
Providers have the right to request from Management Company and inspect all
billing statements, original receipts, and other documents relating to the
management of Providers under this Agreement.
3.6 TAX PLANNING AND TAX RETURNS. Management Company will not be responsible for
any tax planning or tax return preparation for Providers, but will provide
support documentation in connection with the same. Such support documentation
will not be destroyed without Providers consent.
<PAGE>
3.7 INVENTORY AND SUPPLIES. Management Company shall order and purchase
inventory and supplies, and such other materials that are requested by Providers
to enable PA Midwest to deliver Infertility Services in a cost-effective high
quality manner.
3.8 QUALITY IMPROVEMENT. Management Company shall assist PA in fulfilling its
obligations to maintain a Quality Improvement Program and in meeting the goals
and standards of such program. Management Company will also establish policies
and procedures for assisting Providers in offering Infertility Services to
patients under financial arrangements arranged through third parties, and
assisting patients in determining eligibility for Infertility Services coverage
through patients' medical carriers.
3.9 RISK MANAGEMENT. Management Company shall assist PA in the development of a
Risk Management Program and in meeting the standards of such Program.
3.10 PERSONNEL POLICIES AND PROCEDURES. Management Company shall develop
personnel policies, procedures and guidelines, to govern office behavior,
protocol and procedures, designed to insure that the Facilities observe all laws
and guidelines related to employment and human resources management.
3.11 LICENSES AND PERMITS. Management Company shall, on behalf of Providers,
coordinate and assist Providers in its application for and efforts to obtain and
maintain all federal, state and local licenses, certifications and regulatory
permits required for or in connection with the operations of PA and Midwest, and
equipment located at the Facilities, including those relating to the practice of
medicine or the administration of drugs by Physician-Employees.
3.12 PRODUCTION REPORTS. Within thirty (30) days of the execution of this
Agreement, Management Company and Providers will mutually agree upon appropriate
periodic production reports that will provide Providers with the number and
types of procedures performed by Physician-Employees, and the charges for each
such procedures, and the number of patients who have received Infertility
Services at the Facilities over the applicable period and the aggregate charges
for all such services. Such production reports shall be produced on no less than
a monthly basis.
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PA AND MIDWEST
4.1 PROFESSIONAL SERVICES. PA shall cause its Physician-Employees to provide
Infertility Services to PA's patients in compliance at all times with ethical
standards, laws and regulations applying to the practice of medicine in the
applicable jurisdiction which such Physician-Employee provides Infertility
Services on behalf of PA. Such obligation of PA shall include ensuring that
adequate patient coverage is provided at all times for its patients. PA shall
ensure that each Physician-Employee, any Other Professional Employee employed by
PA, and any other professional provider associated with PA is duly licensed to
provide the Infertility Services being rendered within the scope of such
provider's practice. In addition, PA shall require each Physician-Employee to
maintain a DEA number and appropriate medical staff privileges as determined by
PA during the term of this Agreement. In the event that any disciplinary actions
or medical malpractice actions are initiated against any Physician-Employee or
other professional provider, PA shall promptly inform the Executive
Director/Manager and provide the underlying facts and circumstances of such
action, and the proposed course of action to resolve the matter. Periodic
updates, but not less than monthly, shall be provided to Management Company.
4.2 MEDICAL PRACTICE. PA shall use and occupy the Facilities exclusively for the
purpose of providing gynecologic services, Infertility Services, and related
services and shall comply with all applicable laws and regulations and all
applicable standards of medical care, including, but not limited to, those
established by the American Society of Reproductive Medicine. The Medical
Practice conducted at the Facilities by PA shall be conducted solely by
Physician-Employees, and Other Professional Employees employed by PA, Midwest or
Management Company, as applicable. No other physician or medical practitioner
shall be permitted to use or occupy the Facilities without the prior written
consent of Management Company, except in the case of a medical emergency, in
which event, notification shall be provided to Management Company as soon after
such use or occupancy as possible.
<PAGE>
4.3 EMPLOYMENT OF PHYSICIAN-EMPLOYEES AND OTHER PROFESSIONAL EMPLOYEES. In the
event PA shall determine that additional physicians are necessary, PA shall
undertake and use its best efforts to locate physicians who, in PA's judgment,
possess the credentials and expertise necessary to enable such physician
candidates to become affiliated with PA for the purpose of providing Infertility
Services. PA shall cause each Physician-Employee to enter into an employment
agreement in a form that is mutually acceptable to PA and Management Company
("Physician-Employment Agreement"), which acceptance shall not be unreasonably
withheld by either party. As long as Elwyn M. Grimes, MD ("Dr. Grimes"), remains
the sole shareholder and Physician-Employee of PA, Management Company shall not
withhold acceptance of Dr. Grimes' Physician-Employment Agreement on the basis
that it lacks a non-compete provision. Except as otherwise provided in Sections
4.6.4 and 5.2.8 of this Agreement, PA shall have complete control of and
responsibility for the hiring, compensation, supervision, evaluation, and
termination of its Physician-Employees, although at the request of PA,
Management Company shall consult with PA respecting such matters.
4.4 CONTINUING MEDICAL EDUCATION. PA shall require its Physician-Employees to
participate in such continuing medical education as PA deems to be reasonably
necessary for such physicians to remain current in the provision of Infertility
Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY.PA shall cooperate in the obtaining and
retaining of professional liability insurance by assuring that its
Physician-Employees and Other Professional Employees, if applicable, are
insurable and participating in an on-going Risk Management Program, under
Management Company's directions.
4.6 DIRECTION OF PRACTICE. PA, as a continuing condition of Management Company's
obligations under this Agreement, shall at all time during the Term be and
remain legally organized and operated to provide Infertility Services in a
manner consistent with state and federal laws. In furtherance of which:
4.6.1 PA shall operate and maintain at the Facilities, on a
non-exclusive basis, a full-time practice of medicine specializing in
the provision of Infertility Services and shall maintain and enforce
the Physician-Employment Agreements. PA covenants that it shall not
employ any physician, or have any physician as a shareholder, unless
said physician shall sign a Physician Employment Agreement prior to
assuming the status as employee and/or shareholder of PA.
4.6.2 PA shall not, except in accordance with the
Physician-Employment Agreement or as otherwise stated herein, terminate
any Physician-Employment Agreement, amend or modify any
Physician-Employment Agreement in any material manner, waive any
material rights of the PA thereunder without the prior written approval
of Management Company, which approval will not be unreasonably
withheld. PA may amend or modify the Physician-Employment Agreements
without Management Company's consent in order to comply with applicable
law. In addition, in the exercise of Management Company's sole
discretion, if PA fails to pursue the enforcement of its rights against
a Physician-Employee, Management Company shall have the right, but not
the obligation, to direct, initiate, or join in a lawsuit to enforce
the provisions of any Physician Employment Agreement and PA shall
assign its rights and remedies against such Physician-Employee upon the
request of Management Company.
4.6.3 Recognizing that Management Company would not have
entered into this Agreement but for the PA's covenant to maintain and
enforce the Physician-Employment Agreements, subject to the limitations
stated in Section 4.6.2, and in reliance upon a Physician-Employee's
observance and performance of all of the obligations under a Physician
Employment Agreement, any damages, liquidated damages, compensation,
payment, or settlement received by the PA from a physician whose
employment is terminated, shall be paid to Management Company in
proportion to Management Company's loss or damages.
4.6.4 PA shall retain that number of Physician-Employees as
are reasonably necessary and appropriate for the provision of
Infertility Services. However, PA agrees that it will not hire more
physicians than consented to by the Joint Practice Management Board,
which shall not be unreasonable in giving its consent. Each
Physician-Employee shall hold and maintain a valid and unrestricted
license to practice medicine in the applicable jurisdiction where such
Physician-Employee provides Infertility Services on behalf of PA, and
shall be board eligible in the practice of gynecology, with training in
the subspecialty of infertility and assisted reproductive medicine. PA
shall be responsible for paying the compensation and benefits, as
applicable, for all Physician-Employees, and for withholding, as
required by law, any sums for income tax, unemployment insurance,
social security, or any other withholding required by applicable law.
Management Company may, on behalf of the PA, and at PA's request,
administer the compensation with respect to such Physician-Employees in
accordance with the written agreement between the PA and each
Physician-Employee. Management Company shall neither control nor direct
any Physician in the performance of Infertility Services for patients,
and Management Company will not unreasonably interfere with the
employer-employee relationship between PA and its Physician-Employees.
<PAGE>
4.6.5 PA shall insure that Physician-Employees provide patient
care and clinical backup as required to insure the proper provision of
Infertility Services to patients of the PA at the Facilities set forth
in Exhibit 3.2, and/or such other location as shall be mutually agreed
to by PA and Management Company. PA shall insure that its
Physician-Employees devote substantially all of their professional
time, effort and ability to PA's practice, including the provision of
Infertility Services and the development of such practice. PA shall
insure that Physician-Employees timely (within 24 hours of rendering
services) note in all patient charts, any and all procedures performed
and services rendered so that proper billing of patients and
third-party payors can be performed by Management Company.
4.6.6 PA covenants to obtain necessary licenses and operate
clinical laboratory and tissue bank services in accordance with all
applicable laws and regulations. PA agrees that any Medical Director(s)
or Tissue Bank Director(s) shall be Physician-Employees or Other
Professional Employees, if applicable, of the PA who meet the
qualifications required by applicable State law or regulation, and that
should there be a vacancy in any such position, PA will cause another
Physician-Employee or Other Professional Employee, if applicable, to
fill such vacancy in accordance with applicable State law.
4.6.7 PA acknowledges that it bears all medical obligations to
patients treated at the Facilities and PA and Midwest covenant that
they are responsible for all tissue, specimens, embryos or biological
material ("Biological Materials") kept at the Facilities on behalf of
the patients (or former patients) of PA or Midwest. In the event of a
termination or dissolution of PA or Midwest, or the termination of this
Agreement for any reason, PA and Midwest will have the obligation to
account to its patients and to arrange for the storage or disposal of
such Biological Materials in accordance with patient consent and the
ethical guidelines of the American Society of Reproductive Medicine
("Relocation Program"). Management Company, in such event, will, at the
request of the PA, assist in the administrative details of such a
Relocation Program. These obligations shall survive the termination of
this Agreement.
4.6.8 Except for circumstances outside the control of PA or
Shareholders of PA, PA covenants not to terminate or dissolve as a
professional services corporation except on six months prior written
notice to Management Company. In the event that such termination or
dissolution occurs, for a reason other than the death or disability of
all of the shareholders, or any successor entity fails to continue the
medical practice of PA substantially in the form contemplated by this
Agreement, PA and its individual shareholders, shall indemnify
Management Company for: (a) the actual costs of maintaining the
Facilities and any reasonably necessary Other Professional Employees
during a Relocation Program (Section 4.6.7); and (b) any damages,
costs, liabilities, including reasonable attorneys fees, arising from
claims, suits, causes of action or proceedings, brought by a patient of
the PA having an interest in any Biological Materials kept at the
Facilities. These obligations shall survive the termination of this
Agreement.
<PAGE>
4.7 PHYSICIAN-EMPLOYEES, SUPERVISION OF OTHER PROFESSIONAL AND TECHNICAL
EMPLOYEES. PA will ensure that each Physician-Employee:
4.7.1 Maintains a current, valid, unrestricted license or
other applicable authorization to practice his or her profession in the
State of Missouri, and maintains good and unrestricted standing with
the authority responsible for such licensure or authorization;
4.7.2 Performs professional services at the Facilities in
accordance with applicable laws and regulations and prevailing
standards of care in the community;
4.7.3 Maintains his or her professional skills through
continuing education and training;
4.7.4 Maintains eligibility for insurance; and
4.7.5 Does not ask or direct any Management Company employee
to engage in any conduct that violates any federal, local or state law
or regulation, or ask or direct any Management Company employee to
engage in conduct for which said employee is not licensed to perform or
engage.
4.8 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT. PA agrees
that during the term of this Agreement, PA covenants for itself and will use its
best efforts to cause its Physician-Employees to:
4.8.1 Execute such documents and take such steps reasonably
necessary to assist billing and collecting for patient services
rendered by PA, Midwest and Physician-Employees;
4.8.2 Promote PA's medical practice and Midwest's Infertility
Services and participate in marketing efforts developed by Management
Company, and approved by PA and the Joint Practices Management Board.
4.8.3 Participate in Management Company Reproductive Science
Center Network activities and programs such as the Physician and
Scientist Council.
4.9 PERSONNEL POLICIES. PA covenants for itself and will cause its
Physician-Employees and any other employees to comply with reasonable personnel
policies and guidelines developed for the PA and Midwest by Management Company
and/or the Joint Practice Management Board, which shall include administrative
protocols and policies designed to insure that the Facilities comply with all
applicable laws and regulations, federal, state and local.
4.10 MIDWEST. Midwest shall provide clinical laboratory services to patients in
compliance at all times with all applicable ethical standards, laws and
regulations.
<PAGE>
ARTICLE 5
JOINT DUTIES AND RESPONSIBILITIES
5.1 FORMATION AND OPERATION OF JOINT PRACTICES MANAGEMENT BOARD. Management
Company, PA and Co-Occupants will establish a joint practices management board
("Joint Practices Management Board") which will be responsible for developing
management and administrative policies for the overall operation of the
Facilities. The Joint Practices Management Board will consist of designated
management representatives from Management Company, one representative from PA,
one from each Co-Occupant, and the Executive Director/ Manager. It is the intent
and objective of Management Company and PA that they agree on the overall
operations of the Facilities. In the case of any matter requiring a formal vote,
PA shall have one (1) vote, each Co-Occupant shall have one (1) vote, and
Management Company shall have one (1) vote. The desire is that Management
Company, PA and Co-Occupants agree on matters of operations and that, if they
disagree, they will have to work cooperatively to resolve any disagreement.
5.2 DUTIES AND RESPONSIBILITIES OF THE JOINT PRACTICES MANAGEMENT BOARD. The
Joint Practices Management Board shall have, among others, the following duties
and responsibilities:
5.2.1 ANNUAL BUDGETS AND PROFITABILITY. All annual capital and
operation budgets prepared by Management Company for the Facilities
shall be subject to the review, amendment, approval, and disapproval of
the Joint Practices Management Board. Providers covenant and agree to
use their best efforts to agree upon the budgets, in place from time to
time. Providers and Management Company agree that, recognizing changes
in circumstances, annual budgets and forecast are subject to revisions
and, accordingly, they will cause the Joint Practices Management Board
to modify the annual budgets, as needed, including without limitation,
staff reductions, to ensure that Providers operate in a profitable
mode, subject to Management Company's duties and responsibilities under
this Agreement.
5.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any renovation and expansion plans, and capital
equipment expenditures with respect to the Facilities shall be reviewed
and approved by the Joint Practices Management Board and shall be based
upon the best interests of all occupants, and shall take into account
capital priorities, economic feasibility, physician support,
productivity and then current market and regulatory conditions.
5.2.3 ADVERTISING BUDGET. All annual advertising and other
marketing budgets for the Facilities prepared by Management Company
shall be subject to the review, amendment, approval and disapproval of
the Joint Practices Management Board.
5.2.4 PATIENT FEES. Providers, in their sole discretion, shall
determine an appropriate fee schedule for all physician and ancillary
services rendered by Providers at the Facilities.
5.2.5 ANCILLARY SERVICES. The Joint Practices Management Board
shall approve ancillary services rendered at the Facilities.
5.2.6 STRATEGIC PLANNING. The Joint Practices Management Board
shall, to the extent permitted by applicable law, develop long-term
strategic plans, from time to time.
5.2.7 PHYSICIAN HIRING. The Joint Practices Management Board
shall, in conjunction with PA and Co-Occupants, determine the number
and type of physicians required for the efficient operation of the
Facilities.
<PAGE>
5.2.8 EXECUTIVE DIRECTOR AND KEY PERSONNEL.
(a) The selection and retention of the Executive
Director/Manager pursuant to Section 3.3.1 by Management Company shall
be subject to the recommendation of the Joint Practices Management
Board. If PA is dissatisfied with the services provided by the
Executive Director/Manager, PA shall consult with Management Company
who shall, in good faith, determine whether the performance of the
Executive Director/Manager could be brought to acceptable levels
through counsel and assistance, or whether the Executive
Director/Manager should be terminated.
(b) Management Company shall follow the recommendations of the
Joint Practices Management Board with respect to the hiring,
terminating, or relocating of key personnel at the Facilities, provided
such recommendations do not cause Management Company to violate any
federal, state or local laws or regulations.
5.3 FEE SCHEDULES. PA understands and agrees that each Co-Occupant of the
Facilities may establish and publish its own separate and distinct fee schedule,
and nothing herein shall obligate PA to share its fee schedule with a
Co-Occupant or utilize the schedule of a Co-Occupant. Upon request of patients,
third parties, or governmental agencies, Management Company personnel will be
permitted to disclose PA's fee schedule.
ARTICLE 6
LICENSE OF MANAGEMENT COMPANY NAME
6.1 GRANT OF LICENSE. Management Company hereby grants to Providers a revocable,
non-exclusive and non-assignable license for the term of this Agreement to use
the name REPRODUCTIVE SCIENCE ASSOCIATES and a revocable, non-exclusive and
non-assignable license with respect to any other service names, trademark names
and logos of Management Company (the "Trade Names") in conjunction with the
provision of Infertility Services at the Facilities.
6.2 FICTITIOUS NAME PERMIT. If necessary, PA and Midwest shall file or cause to
be filed an original, amended or renewal application with an appropriate
regulatory agency to obtain a fictitious name permit which allows PA and Midwest
to practice at the Facilities under the Trade Names and shall take any other
actions reasonably necessary to procure protection of or protect Management
Company's rights to the Trade Names. Management Company shall cooperate and
assist PA and Midwest in obtaining any such original, amended or renewal
fictitious name permit.
6.3 RIGHTS OF MANAGEMENT COMPANY. PA and Midwest acknowledge Management
Company's exclusive right, ownership, title and interest in and to the Trade
Names and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest. In connection with the use of the Trade Names, PA and
Midwest shall not in any manner represent that it has any ownership interest in
the Trade Names, and PA's and Midwest's use shall not create in PA's and
Midwest's favor any right, title, or interest in or to the Trade Names other
than the right of use granted hereunder, and all such uses by PA Midwest shall
inure to the benefit of Management Company. PA and Midwest shall notify
Management Company immediately upon becoming aware of any claim, suit or other
action brought against it for use of the Trade Names or the unauthorized use of
the Trade Names by a third party. PA and Midwest shall not take any other action
to protect the Trade Names without the prior written consent of Management
Company. Management Company, if it so desires, may commence or prosecute any
claim or suit in its own name or in the name of PA or Midwest or join PA and
Midwest as a party thereto. PA and Midwest shall not have any rights against
Management Company for damages or other remedy by reason of any determination of
Management Company not to act or by reason of any settlement to which Management
Company may agree with respect to any alleged infringements, imitations, or
unauthorized use by others of the Trade Names, nor shall any such determination
of Management Company or such settlement by Management Company affect the
validity or enforceability of this Agreement.
<PAGE>
6.4 RIGHTS UPON TERMINATION.
6.4.1 Upon termination of this Agreement, PA and Midwest
shall: (i) within 30 days of the termination, cease using the Trade
Names in all respects and refrain from making any reference on its
letterhead or other publicly-disseminated information or material to
its former relationship with Management Company; and (ii) take any and
all actions required to make the Trade Names available for use by any
other person or entity designated by Management Company.
6.4.2 PA's or Midwest's failure (except as otherwise provided
herein) to cease using the Trade Names at the termination or expiration
of this Agreement will result in immediate and irreparable damage to
Management Company and to the rights of any licensee of Management
Company. There is no adequate remedy at law for such failure. In the
event of such failure, Management Company shall be entitled to
equitable relief by way of injunctive relief and such other relief as
any court with jurisdiction may deem just and proper. Additionally,
pending such a hearing and the decision on the application for such
permanent injunction, Management Company shall be entitled to a
temporary restraining order, without prejudice to any other remedy
available to Management Company. All such remedies hereunder shall be
at the expense of PA and Midwest and shall not be a Cost of Services.
<PAGE>
ARTICLE 7
FINANCIAL ARRANGEMENTS
7.1 COMPENSATION. The compensation set forth in this Article 7 is being paid to
Management Company in consideration of the substantial commitment made and
services to be rendered by Management Company hereunder and is fair and
reasonable. Management Company shall be paid the following amounts (collectively
"Compensation"):
7.1.1 Based on Providers' current staffing and operations, for
the first 12 months of this Agreement, $75,000 per month ("Initial
Monthly Cost of Services") for all Cost of Services provided for in
Section 2.1 (whether incurred by Management Company or Providers)
accrued by Management Company pursuant to the terms of this Agreement.
Beginning with the 13th month of this Agreement and on a quarterly
basis thereafter, the Initial Monthly Cost of Services will be adjusted
and, as adjusted, will equal the product of (i) Revenue for the
previous 3 months divided by total revenue for all medical services
provided at the Facilities for the previous 3 months, multiplied by
(ii) Facilities Cost of Services for the previous 3 months ("Adjusted
Monthly Cost of Services"). Notwithstanding the above, neither the
Initial Monthly Cost of Services nor the Adjusted Monthly Cost of
Services for the 36-month period beginning May 1, 1999 and ending April
30, 2002, shall exceed $75,000 per month.
7.1.1.1 Notwithstanding the provisions of Section 7.1.1, in
the event that Co-Occupants begin utilizing the Facilities during the
first 12 months of this Agreement, cost of services paid to Management
Company by all occupants, including Providers, for the first 12 months
of this Agreement, in excess of the Facilities Cost of Services for the
first 12 months of this Agreement shall be remitted to Providers within
60 days after the first 12 months of this Agreement.
7.1.1.2 PA and Management Company recognize and agree that it
is in their mutual best interests to cooperate in bringing Co-Occupants
into the Facility. Accordingly, Providers agree to use their best
efforts to assist Management Company in consummating management
agreements with other Co-Occupants as soon as possible. In the event
Management Company successfully consummates a management agreement with
a Co-Occupant on or before October 31, 1999, Management Company will
pay $7,500.00 to PA. In the event Management Company successfully
consummates a management agreement with a second Co-Occupant on or
before October 31, 1999, Management Company will pay PA an additional
$15,000.00. All payments under this Section will be paid to PA as
follows: one-third of the total on the effective date of the relevant
management agreement between Management Company and a Co-Occupant, and
the remaining two-thirds in two equal monthly payments 30 days and 60
days after the effective date of the relevant management agreement.
This offer expires at midnight, October 31, 1999, except that any
payments due thereafter based on management agreements consummated
prior to that date will be paid in accordance with the schedule
provided for in this Section 7.1.1.2.
7.1.2 During each year of this Agreement, a Base Management
Fee, paid monthly but reconciled to annual Revenues, of an amount equal
to six percent (6%) of Revenues;
7.1.3 During each year of this Agreement, an Additional
Management Fee, paid monthly but reconciled to annual operating results
of PA, equal to 20% of PDE; provided, however, the first $8,333.33 of
monthly PDE and the first $100,000 of annual PDE shall inure to PA;
7.1.4 In the event that Section 7.1.2 and/or Section 7.1.3 of
this Agreement is found to be illegal, unenforceable, against public
policy, or forbidden by law, by any local, state or federal agency or
department, or any court of competent jurisdiction ("Findings"), then
Section 7.1.2 and/or 7.1.3 and the Base Management Fee and Additional
Management Fee shall be replaced, effective immediately and retroactive
tot he date of this Agreement, by a fixed annual Management Fee,
payable in equal monthly installments ("Alternate Management Fee") on
or before the 15th business day of each month. Said Alternate
Management Fee shall be an amount mutually agreed upon, within thirty
(30) day's time from the Findings, between Management Company and
Providers; however, pending such agreement, the Alternate Management
Fee shall be $96,700 per annum. In the event of a Finding which causes
the Alternate Management Fee to become operative, the parties shall,
within sixty (60) days of the Finding, account for all payments made
prior to the date of the Finding, and recalculate such amounts pursuant
to the formula provided for in the Alternate Management Fee. Any
overpayment to Management Company resulting from the prior application
of Sections 7.1.2 and/or 7.1.3 shall be applied so as to satisfy 50% of
each future monthly Alternate Management Fee until the aggregate of
such overpayment is fully paid by Management Company. Any underpayment
to Management Company resulting from the prior application of Sections
7.1.2 and/or 7.1.3 shall be paid to Management Company commencing on
the first day of the next full month following the date of the Finding,
in eighteen (18) equally monthly installments.
<PAGE>
7.1.5 The right of termination provided for in Section 9.1.3
of this Agreement, if based on the fact that Section 7.1.2 and Section
7.1.3 of this Agreement have been found to be illegal, unenforceable,
void, against public policy or forbidden by law, shall only be
exercisable in the event that both (i) Sections 7.1.2 and 7.1.3 and
(ii) the Alternate Management Fee have been so found by a local, state
or federal agency or department, or a court of competent jurisdiction.
7.2 MONTHLY NET INCOME.
7.2.1 On or before the 15th business day of each month,
Management Company shall calculate the Receivables arising during the
previous calendar month. Subject to the terms and conditions of this
Agreement, PA and Midwest hereby sell and assign to Management Company
as absolute owner, and Management Company hereby agrees to purchase
from PA and Midwest all such Receivables following their calculation by
Management Company as above. All Receivables are sold on a full
recourse basis. PA and Midwest shall cooperate with Management Company
and execute all necessary documents in connection with the purchase and
assignment of such Receivables to Management Company or at Management
Company's option, to its lenders. All collections in respect of such
Receivables shall be deposited in a bank account at a bank designated
by Management Company. To the extent PA or Midwest comes into
possession of any payments in respect of such Receivables, PA and
Midwest shall direct such payments to Management Company for deposit in
bank accounts designated by Management Company.
7.2.2 Each month during the term of the Agreement, in
consideration for Providers' transfer and sale of the previous calendar
month's Receivables to Management Company in accordance with Section
7.2.1, Management Company shall pay to PA the sum of the Receivables
for the previous calendar month, less Compensation due Management
Company for the previous calendar month calculated in accordance with
Section 7.1 ("Monthly Net Income") on the first and third Friday of
each calendar month, with the first payment of each month to equal
$7,500 and the second payment of each month to equal Monthly Net Income
for the previous calendar month less $7,500. For the month of May 1999
only, both payments shall equal $7,500.
<PAGE>
7.3 PRIOR DEBT AND COVENANT BY PHYSICIAN. PA and Management Company acknowledge
and agree that effective as the date hereof PA is indebted to Management Company
in the amount set forth on Exhibit 7.3(A) ("PA Debt") as a result of the Former
Agreements. Management Company acknowledges that it has no right to payment of
PA Debt from Midwest. PA hereby covenants and represents that the obligation for
payment of the PA Debt is PA's. PA and Management Company agree that the PA Debt
will be evidenced by a note (the "Note") in the form attached hereto as Exhibit
7.3(B).
7.3.1 On the anniversary date of this Agreement during the
term of the Agreement, Management Company will deduct $166,953.60 from
the PA Debt. This provision shall survive the termination of this
Agreement if Dr. Grimes continues to provide Infertility Services at
the Facilities.
7.3.2 In the event this Agreement terminates for any reason
prior to the satisfaction of the Note and Dr. Grimes no longer provides
Infertility Services at the Facilities, PA agrees to pay the unpaid
balance of the Note within 90 days of the termination.
ARTICLE 8
EXCLUSIVE MANAGEMENT RIGHT AND TERM
8.1 In consideration of the considerable investment of time and resources in PA
and Midwest expected by Management Company, PA and Midwest grant to Management
Company the exclusive right to manage PA and Midwest during the term of this
Agreement (the "Exclusive Management Right").
8.2 The term of this Agreement shall begin May 1, 1999 (the "Effective Date")
and shall expire May 1, 2004 (the "Term") unless earlier terminated pursuant to
Article 9, below. This Agreement may be renewed by either party, if within the
period of 180 days prior to the expiration date one party gives notice to the
other of its intention to continue this Agreement under the same terms and
conditions as set forth herein or under such different terms and conditions as
particularly set forth in the written notice and further providing that the
other party has 30 days from the date of notice to accept, reject or modify the
offer. If within 30 days, the other party does not respond or by written notice
accepts, this Agreement shall continue for an additional 10 years under the
terms and conditions as provided in the notice.
8.3 PA and Midwest acknowledge and agree that they have been advised by
Management Company, that Management Company is currently negotiating with other
parties, the names of which have been disclosed to them, that may result in such
other parties utilizing and having access to the Facilities. Although Management
Company has not finalized such negotiations, PA and Midwest understand that the
results of such negotiations may impact this Agreement. Management Company
intends to continue with such negotiations and will use its best efforts to
preserve the economic benefits anticipated by PA and Midwest hereunder.
<PAGE>
ARTICLE 9
TERMINATION OF THE AGREEMENT
9.1 TERMINATION
Either party in the event of the following may terminate this
Agreement:
9.1.1 Insolvency. If a receiver, liquidator or trustee of any
party shall be appointed by court order, or a petition to reorganize
shall be filed against any party under any bankruptcy, reorganization,
or insolvency law, and shall not be dismissed within 90 days, or any
party shall file a voluntary petition in bankruptcy or make assignment
for the benefit of creditors, then either Management Company or
Providers may terminate this Agreement upon 10 days prior written
notice to the other parties.
9.1.2 MATERIAL BREACH. If either party shall materially breach
its obligations hereunder, then the other party may terminate this
Agreement by providing 30 days prior written notice to the breaching
party detailing the nature of the breach and providing the breaching
party with the opportunity to cure the breach. If the breach is not
cured within such 30-day period, this Agreement shall terminate,
provided that if the breach is not curable within such 30-day period
and the breaching party is making diligent efforts to cure the breach
during such 30-day period, this Agreement shall not terminate. If after
the exercise of diligent efforts, the breaching party shall be unable
to cure the breach within 60 days from the notice of breach from the
non-breaching party, the non-breaching party in its sole discretion may
extend the time in which to cure the breach, upon request of the
breaching party. In the event the non-breaching party does not extend
the time in which to cue the breach, this Agreement will terminate at
the expiration of 60 days from the original notice of breach from the
non-breaching party.
9.1.3 ILLEGALITY. Any party may terminate this Agreement
immediately upon receipt of notification by any local, state, or
federal agency or court of competent jurisdiction that the conduct
contemplated by this Agreement is forbidden by law; except that this
Agreement shall not terminate during such period of time as to any
party which contests such notification in good faith and the conduct
contemplated by this Agreement is allowed to continue during such
contest. If any governing regulatory agency asserts that the services
provided by Management Company under this Agreement are unlawful or
that the practice of medicine by PA as contemplated by this Agreement
requires a certificate of need, and any such assertion is not contested
(or if contested, the agency's assertion is found to be correct by a
court of competent jurisdiction and no appeal is taken, or if any
appeals are taken and the same are unsuccessful), this Agreement shall
thereupon terminate with the same force as if such termination date was
the date originally specified in this Agreement as the date of final
expiration of the terms of this Agreement.
9.2 TERMINATION BY MANAGEMENT COMPANY This Agreement may be terminated by
Management Company for the following reasons:
9.2.1 FOR PROFESSIONAL DISCIPLINARY ACTIONS. PA shall be
obligated to suspend a Physician-Employee whose license to practice
medicine in Missouri is suspended, revoked, or not renewed. Management
Company may terminate this Agreement upon 10 days prior written notice
to PA if a Physician-Employee's license to practice medicine is
suspended, revoked, or not renewed and PA has failed to suspend such
Physician-Employee; provided, however, such action may not be taken
until PA has been given 30 days to resolve such physician's
authorization to practice medicine in Missouri. PA shall notify
Management Company within five (5) days of a notice that a
Physician-Employee's license to practice medicine in Missouri is
suspended, revoked, or not renewed or that formal disciplinary action
has been taken against a physician which could reasonably lead to a
suspension, revocation, or non-renewal of a physician's license.
9.3 TERMINATION BY PA OR MIDWEST. PA or Midwest may terminate this Agreement in
the event that a Physician-Employee who is also a shareholder in PA and Midwest,
and is the only Physician-Employee, dies or becomes disabled.
9.4 TERMINATION WITHOUT CAUSE. Either party may terminate this Agreement without
cause by notifying the other party in writing 90 days before the effective date
of the termination.
<PAGE>
ARTICLE 10
PURCHASE OF ASSETS - OBLIGATIONS AND OPTIONS
10.1 TERMINATION BY MANAGEMENT COMPANY. If Management Company terminates this
Agreement due to the insolvency of PA or Midwest (Section 9.1.1), for a material
breach by PA or Midwest (Section 9.1.2), or PA fails to suspend a
Physician-Employee whose license is suspended, revoked or not renewed (Section
9.2.1), PA and/or Midwest agree, within 90 days of the date of termination of
this Agreement, at Management Company's option, to purchase from Management
Company the Assets as more fully set forth in Sections 10.1.1 and 10.1.3 below
if there is no Co-Occupant.
10.1.1 The purchase price of the Assets will be the net book
value determined in accordance with GAAP, consistently applied, as at
the date of the termination.
10.1.2 In addition to purchasing the Assets, PA shall satisfy
any remaining obligations under the Note.
10.1.3 If a purchase is completed under Section 10.1, PA shall
assume all leases for offices and equipment used directly for the
management and operation of Providers' businesses and may hire such
employees from Management Company as Providers chose. In such event, PA
shall be obligated to indemnify Management Company for any and all
severance or termination obligations to Management Company employees
utilized directly in providing Management Services whom are not
subsequently hired by PA or Midwest.
10.2 TERMINATION BY PA. In the event PA terminates this Agreement as a result of
the insolvency of Management Company (9.1.1) or material breach by Management
Company (9.1.2), PA's obligations under the Note shall continue to be satisfied
in accordance with the Note.
<PAGE>
ARTICLE 11
INSURANCE
11.1 Management Company shall use its best efforts to cause PA to be made an
additional insured under Management Company's professional liability coverage;
provided, however, conditions for being made an additional insured shall be (i)
PA utilizing patient informed consent forms supplied by Management Company,
provided such forms are consistent with law and any guidelines issued by the
American Society of Reproductive Medicine and (ii) PA complying with
requirements of Management Company's insurance company. Management Company shall
also carry a policy of public liability and property damage insurance with
respect to the Facilities under which the insurer agrees to indemnify Management
Company and PA against all cost, expense and/or liability arising out of or
based upon any and all claims, accidents, injuries and damages customarily
included within the coverage of such policies of insurance available for
Management Company. The minimum limits of liability of such insurance shall be
$1 million combined single limit covering bodily injury and property damage.
Certificates of Insurance evidencing such policies and additional insured status
shall be presented to PA within thirty (30) days after such coverage is
effected.
11.2 In the event Management Company is unable to cause PA to be made an
additional insured under Management Company's professional liability coverage,
PA shall procure and maintain throughout the Term of this Agreement,
professional liability insurance covering itself and its employees providing
Infertility Services pursuant to this Agreement in the minimum amount of $1
million per incident, $3 million in the aggregate. If possible under the terms
of such coverage, PA shall use its best efforts to cause Management Company to
be named an additional insured. Evidence of such coverage shall be presented to
Management Company within 30 days of the execution of this Agreement.
11.3 PA and Management Company shall provide written notice to the other at
least thirty (30) days in advance of the effective date of any reduction,
cancellation or termination of the insurance required to be carried by each
hereunder.
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. Management Company, PA and Midwest are independent
contracting parties. In this regard, the parties agree that:
12.1.1 The relationship between Management Company, and PA and
Midwest is that of an independent supplier of non-medical services and
a medical practice and provider of laboratory services, respectively,
and, unless otherwise provided herein, nothing in this Agreement shall
be construed to create a principal-agent, employer-employee, or
master-servant relationship between Management Company and PA and
Midwest;
12.1.2 Notwithstanding the authority granted to Management
Company herein, Management Company and PA agree that PA shall retain
the full authority to direct all of the medical, professional, and
ethical aspects of its medical practices;
12.1.3 Any powers of Providers not specifically vested in
Management Company by the terms of this Agreement shall remain with
Providers;
12.1.4 PA shall, at all times, employ the (i)
Physician-Employees, and (ii) Other Professional Employees required by
law to be employees of PA. The parties shall be solely responsible for
the payment of all applicable federal, state, or local withholding or
similar taxes and provision of workers' compensation and disability
insurance for their respective employees;
12.1.5 No party shall have the right to participate in any
benefits, employment programs or plans sponsored by the other party on
behalf of the other party's employees, including, but not limited to,
workers' compensation, unemployment insurance, tax withholding, health
insurance, life insurance, pension plans, or any profit sharing
arrangement;
12.1.6 In no event shall any party be liable for the debts or
obligations of any other party except as otherwise specifically
provided in this Agreement; and
12.1.7 Matters involving the internal agreements and finances
of Providers, including but not limited to the distribution of
professional fee income among Physician-Employees and, if applicable,
Other Professional Employees who are providing professional services to
patients of Providers, and other employees of Providers, disposition of
Providers property and stock, accounting, tax preparation, tax
planning, and pension and investment planning (and expenses relating
solely to these internal business matters), hiring and firing of
Physician-Employees, decisions and contents of reports to regulatory
authorities governing Providers and licensing, shall remain the sole
responsibility of Providers and the individual Physician-Employees who
are Shareholders of Providers, except with respect to the number of
Physician-Employees the Providers hire which will be based upon
recommendations of the Joint Practices Management Board.
12.2 FORCE MAJEURE. No party shall be liable to the other parties for failure to
perform any of the services required under this Agreement in the event of a
strike, lockout, calamity, act of God, unavailability of supplies, or other
event over which such party has no control, for so long as such event continues
and for a reasonable period of time thereafter, and in no event shall such party
be liable for consequential, indirect, incidental or like damages caused
thereby.
<PAGE>
12.3 EQUITABLE RELIEF. Without limiting other possible remedies available to a
non-breaching party for the breach of the covenants contained herein, including
the right of Management Company to cause PA to enforce any and all provisions of
the Physician Employment Agreements described in Section 4.3 hereof, injunctive
or other equitable relief shall be available to enforce those covenants, such
relief to be without the necessity of posting bond, cash or otherwise. If any
restriction contained in said covenants is held by any court to be unenforceable
or unreasonable, a lesser restriction shall be enforced in its place and
remaining restrictions therein shall be enforced independently of each other.
12.4 PRIOR AGREEMENTS; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings, including the Former Agreements, between the
parties as to the subject matter covered hereunder, and this Agreement may not
be amended, altered, changed or terminated orally. No amendment, alteration,
change or attempted waiver of any of the provisions hereof shall be binding
without the written consent of all parties, and such amendment, alteration,
change, termination or waiver shall in no way affect the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force.
12.5 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and obligations
hereunder may not be assigned without the prior written consent of all of the
parties, and any attempted assignment without such consent shall be void and of
no force and effect, except that Management Company may assign this Agreement to
any affiliate, which for purposes of this Agreement, shall include any parent or
subsidiary of Management Company, without the consent of PA. The provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties' respective heirs, legal representatives, successors and permitted
assigns.
12.6 WAIVER OF BREACH. The failure to insist upon strict compliance with any of
the terms, covenants or conditions herein shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right at any one or more times be deemed a waiver or relinquishment of such
right at any other time or times.
12.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, irrespective of the principal
place of business of the parties hereto. Any and all claims, disputes, or
controversies arising under, out of, or in connection with this Agreement or any
breach thereof, except for equitable relief sought pursuant to Section 6.4 or
Section 12.3 hereof, shall be determined by binding arbitration in the State of
Missouri, City of Kansas City (hereinafter "Arbitration"). The party seeking
determination shall subject any such dispute, claim or controversy to either (i)
JAMS/Endispute or (ii) the American Arbitration Association, and the rules of
commercial arbitration of the selected entity shall govern. The Arbitration
shall be conducted and decided by three (3) arbitrators, unless the parties
mutually agree, in writing at the time of the Arbitration, to fewer arbitrators.
In reaching a decision, the arbitrators shall have no authority to change or
modify any provision of this Agreement, including any liquidated damages
provision. Each party shall bear its own expenses and one-half the expenses and
costs of the arbitrators. Any application to compel Arbitration, confirm or
vacate an arbitral award or otherwise enforce this Paragraph shall be brought in
the Courts of the State of Missouri or the United States District Court for the
District of Missouri, to whose jurisdiction for such purposes PA and Management
Company hereby irrevocably consent and submit.
12.8 SEPARABILITY. If any portion of the provisions hereof shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such portion or provisions in circumstances other than those in which it is
held invalid or unenforceable, shall not be affected thereby, and each portion
or provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law, but only to the extent the same continues to reflect fairly
the intent and understanding of the parties expressed by this Agreement taken as
a whole.
12.9 HEADINGS. Section and paragraph headings are not part of this Agreement and
are included solely for convenience and are not intended to be full or accurate
descriptions of the contents thereof.
12.10 NOTICES. Any notice or other communication required by or which may be
given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service, such as FedEx or Airborne Express, prepaid, and shall be
deemed given when postmarked or when placed with any such delivery service. Any
such notice or communication shall be sent to the address set forth below:
<PAGE>
12.10.1 If for Management Company:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
With copies to:
Claude E. White, Esq.
General Counsel
IntegraMed America Inc.
One Manhattanville Road
Purchase, New York 10577
12.10.2
If for PA:
Elwyn M. Grimes, MD, President
Reproductive Endocrine & Fertility Consultants, P.A.
Two Brush Creek
Suite 500
Kansas City, Missouri 64112
With copies to:
Douglas M. Salaway, Esq.
Polsinelli, White, Vardeman & Shalton, P.C.
West 47th Street, Suite 1000
Kansas City, Missouri 64112
12.10.3 If for Midwest:
Elwyn M. Grimes, MD, President
Midwest Fertility Foundations & Laboratory, Inc.
Two Brush Creek
Suite 500
Kansas City, Missouri 64112
With copies to:
Douglas M. Salaway, Esq.
Polsinelli, White, Vardeman & Shalton, P.C.
West 47th Street, Suite 1000
Kansas City, Missouri 64112
Any party hereto, by like notice to the other parties, may designate
such other address or addresses to which notice must be sent.
12.11 ENTIRE AGREEMENT. This Agreement and all attachments hereto represent the
entire understanding of the parties hereto with respect to the subject matter
hereof and thereof, and cancel and supersede all prior agreements and
understandings among the parties hereto, whether oral or written, with respect
to such subject matter.
12.12 NO MEDICAL PRACTICE BY MANAGEMENT COMPANY. Management Company will not
engage in any activity that constitutes the practice of medicine, and nothing
contained in this Agreement is intended to authorize Management Company to
engage in the practice of medicine or any other licensed profession.
<PAGE>
12.13 CONFIDENTIAL INFORMATION.
12.13.1 During the initial term and any renewal term(s) of
this Agreement, the parties may have access to or become acquainted
with each other's trade secrets and other confidential or proprietary
knowledge or information concerning the conduct and details of each
party's business ("Confidential Information"). At all times during and
after the termination of this Agreement, no party shall directly or
indirectly, communicate, disclose, divulge, publish or otherwise
express to any individual or governmental or non-governmental entity or
authority (individually and collectively referred to as "Person") or
use for its own benefit, except in connection with the performance or
enforcement of this Agreement, or the benefit of any Person any
Confidential Information, no matter how or when acquired, of another
party. Each party shall cause each of its employees to be advised of
the Confidential nature of such Confidential Information and to agree
to abide by the confidentiality terms of this Agreement. No party shall
photocopy or otherwise duplicate any Confidential Information of
another party without the prior express written consent of the such
other party except as is required to perform services under this
Agreement. All such Confidential Information shall remain the exclusive
property of the proprietor and shall be returned to the proprietor
immediately upon any termination of this Agreement.
12.13.2 Confidential Information shall not include information
which (i) is or becomes known through no fault of a party hereto; (ii)
is learned by a party from a third-party legally entitled to disclose
such information; or (iii) was already known to a party at the time of
disclosure by the disclosing party.
12.13.3 In order to minimize any misunderstanding regarding
what information is considered to be Confidential Information,
Management Company or Providers will designate at each other's request
the specific information which Management Company or Providers
considers to be Confidential Information.
<PAGE>
12.14 INDEMNIFICATION.
12.14.1 Management Company agrees to indemnify and hold
harmless PA, its, shareholders, directors, officers, employees and
servants from any suits, claims, actions, losses, liabilities or
expenses (including reasonable attorney's fees) arising out of or in
connection with any act or failure to act by Management Company related
to the performance of its duties and responsibilities under this
Agreement. The obligations contained in this Section 12.14.1 shall
survive termination of this Agreement.
12.14.2 PA agrees to indemnify and hold harmless Management
Company, its shareholders, directors, officers, employees and servants
from any suits, claims, actions, losses, liabilities or expenses
(including reasonable attorney's fees) arising out of or in connection
with any act or failure to act by PA related to the performance of its
duties and responsibilities under this Agreement. The obligations
contained in this Section 12.14.2 shall survive termination of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By: /s/Donald S. Wood
---------------------------------------------
DONALD S. WOOD, PH.D., SENIOR VICE PRESIDENT
& CHIEF OPERATING OFFICER
REPRODUCTIVE ENDOCRINE & FERTILITY CONSULTANTS, P.A.
BY: /s/Elwyn M. Grimes
---------------------------------------------
ELWYN M. GRIMES, MD, PRESIDENT
MIDWEST FERTILITY FOUNDATIONS & LABORATORY, INC.
BY:/s/Elwyn M. Grimes
----------------------------------------------
ELWYN M. GRIMES, MD, PRESIDENT
<PAGE>
EXHIBIT 3.2
OFFICE AND FACILITIES
TO BE PROVIDED BY MANAGEMENT COMPANY TO PA AND LAB
Two Brush Creek, Suite 500, Kansas City, Missouri 64112
<PAGE>
EXHIBIT 7.4(A)
PA DEBT (AS OF DECEMBER 31, 1998)
$ 923,101 Advances balance as of December 31, 1998
175,000 Note Balance at December 31, 1998 ($250,000 Original Amount)
--------
$ 1,098,101 Balance Due IntegraMed America Inc. as of December 31, 1998
263,333 Unpaid Right to Manage Fees
=========
$ 834,768 Balance of PA Debt owed to IntegraMed America Inc.
<PAGE>
EXHIBIT 7.4 (B)
PROMISSORY NOTE
[See attached]
AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP, INC.
THIS AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT ("Amendment No. 2"), dated
July 21, 1998 by and between IntegraMed America, Inc., a Delaware corporation,
with its principal place of business at One Manhattanville Road, Purchase, New
York 10577 ("INMD") and Bay Area Fertility and Gynecology Medical Group, Inc., a
California professional medical corporation, with its principal place of
business at 5601 Norris Canyon Road, Suite 300, San Ramon, California 94583
("PC").
RECITALS:
WHEREAS, INMD and PC entered into a Management Agreement dated January
7, 1997 (the "Management Agreement"), as amended by Amendment No. 1 to
theManagement Agreement dated April 5, 1998; and
WHEREAS, INMD and PC wish to amend the Management Agreement, in
pertinent part to clarify what the Base Management Fee, as defined in the
Management Agreement, includes; and
WHEREAS, INMD and PC wish to amend the Management Agreement to provide
for joint responsibilities and duties under the Management Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and as contained in the Management Agreement, as amended, INMD
and PC agree as follows:
1. Section 3.3.1 of the Management Agreement is hereby deleted in its
entirety and the following hereby substituted therefor:
"3.3.1 Executive Director. Subject to the approval of the Joint
Practice Management Board, INMD shall hire and appoint an Executive
Director or other individual with similar responsibilities to manage
and administer all the day-to-day business functions of the Facilities
and shall determine the salary and fringe benefits paid to such person.
At the direction, supervision and control of INMD, such person, subject
to the terms of this Agreement, shall perform the administrative duties
assigned by INMD and implement the policies agreed to by the Joint
Practice Management Board."
<PAGE>
2. Section 6.1.2 of the Managment Agreement is hereby deleted in its
entirety and the following hereby substituted therefor, effective January 7,
1997:
"6.1.2 during each year of this Agreement, a Base Management Fee, which
includes a licensing fee for use of the names REPRODUCTIVE SCIENCE CENTER and
BAY AREA FERTILITY, in an amount equal to six percent (6%) of the Revenues."
3. The Management Agreement is hereby amended to add the following
Article:
"Article 12
JOINT DUTIES AND RESPONSIBILITIES
12.1 FORMATION AND OPERATION OF JOINT PRACTICE MANAGEMENT BOARD. INMD
and PC will establish a Joint Practice Management Board which will be
responsible for developing management and administrative policies for the
overall operation of PC. The Joint Practice Management Board will consist of
designated management representative(s) from INMD, one or more PC owners, as
determined by PC, such other practice physicians, as appropriate and the
Executive Directors. In the case of any matter requiring a formal vote, PC shall
have one (1) vote and INMD shall likewise have one (1) vote..
12.2 DUTIES AND RESPONSIBILITIES OF THE JOINT PRACTICE MANAGEMENT
BOARD. The Joint Practice Management Board shall have the following duties and
responsibilities:
12.2.1 ANNUAL BUDGETS. All annual capital and operation
budgets prepared by INMD shall be subject to the review, amendment,
approval and disapproval of the Joint Practice Management Board.
12.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any renovation and expansion plans, and capital
equipment expenditures with respect to PC shall be reviewed and
approved by the Joint Practice Management Board and shall be based upon
the best interests of PC, and shall take into account capital
priorities, economic feasibility, physician support, productivity and
then current market and regulatory conditions.
12.2.3 ADVERTISING BUDGET. All annual advertising and other
marketing budgets prepared by INMD shall be subject to the review,
amendment, approval and disapproval of the Joint Practice Management
Board.
12.2.4 PATIENT FEES. The Joint Practice Management Board shall
review and approve the fee schedule for all physician and ancillary
services rendered by PC.
12.2.5 ANCILLARY SERVICES. The Joint Practice Management Board
shall approve ancillary services rendered by PC.
<PAGE>
12.2.6 PROVIDER AND PAYER RELATIONSHIPS. Decisions regarding
the establishment or maintenance of relationship with institutional
health care providers and payers shall be made by the Joint Practice
Management Board in consultation with PC; provided, however, that
unanimous consent of PC designated members of the Joint Practice
Management Board shall be necessary to discontinue any existing PC
institutional relationship.
12.2.7 STRATEGIC PLANNING. The Joint Practice Management Board
shall develop long-term strategic plans, from time to time.
12.2.8 PHYSICIAN HIRING. The Joint Practice Management Board
shall determine, except as otherwise provided for herein, the number
and type of physicians required for the efficient operation of PC. The
approval of the Joint Practice Management Board shall be required for
any modifications to the restrictive covenants contained in any
physician agreement.
12.2.9 PROVIDER CONTRACTS. The Joint Practice Management Board
shall approve, disapprove, or amend all managed care, PPO, HMO,
Medicare risk and other provider contracts negotiated by INMD.
4. All other provisions of the Management Agreement, as amended, not
in conflict with this Amendment No. 2 remain in full force and effect.
IN WITNESS WHEREOF, the parties have signed this Amendment No. 2 as the
date first written above.
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
----------------------------
Gerardo Canet, President
BAY AREA FERTILITY AND GYNECOLOGY MEDICAL GROUP, INC.
By: /s/Arnold Jacobson, M.D.
----------------------------------
Arnold Jacobson, M.D., President
Among
INTEGRAMED PHARMACEUTICAL SERVICES, INC.,
IVP PHARMACEUTICAL CARE, INC.,
And
INTEGRAMED AMERICA, INC.
THIS MANAGEMENT AGREEMENT ("Agreement"), dated effective as of April
21, 1999 (the "Effective Date"), is made and entered into by and among
IntegraMed Pharmaceutical Services, Inc., a Texas corporation with its principal
place of business at 2833 Trinity Square Drive, Suite 170, Carrollton, Texas
75006 ("IPSI"), IVP Pharmaceutical Care, Inc., a Texas corporation with its
principal place of business at 2833 Trinity Square Drive, Suite 105, Carrollton,
Texas 75006 ("IVP"), and IntegraMed America, Inc., a Delaware corporation with
its principal place of business at One Manhattanville Road, Purchase, New York
10577 ("IntegraMed").
RECITALS
0.1 WHEREAS, IVP is a licenced pharmacy specializing in dispensing
ingestable, injectable, and infusion drugs, pharmaceuticals, and products
related to the treatment of human infertility, pursuant to the prescription of a
duly licensed and authorized physician ("Pharmaceutical Products"), to end-user
patients ("Customers");
0.2 WHEREAS, IntegraMed has developed, and may develop in the future,
relationships with certain Reproductive Science Centers in the United States and
the infertility medical practices associated therewith, as set forth on Exhibit
0.2 attached hereto, as may be amended from time to time (such existing and any
future Reproductive Science Centers and associated infertility medical practices
shall hereinafter be referred to collectively as the "Medical Practices");
0.3 WHEREAS, IPSI is a for-profit corporation formed by IntegraMed to
be engaged in the retail distribution of Pharmaceutical Products to Customers of
the Medical Practices ("Pharmaceutical Services");
0.4 WHEREAS, IntegraMed owns all of the outstanding capital stock of
IPSI and has agreed to provide advertising, promotional, and marketing services
to IPSI under the terms and conditions set forth herein (the "Marketing
Services");
0.6 WHEREAS, IntegraMed desires to cause IPSI to engage IVP to provide
such management, administrative, business, and pharmacy services as are
necessary and appropriate for the conduct and day-to-day administration of
IPSI'S Pharmaceutical Services (the "Management Services"); and
0.7 WHEREAS, IVP has agreed to be retained by IPSI to perform the
Management Services, under the terms and conditions set forth herein;
0.8 NOW, THEREFORE, in consideration of the foregoing premises and of
the mutual covenants and obligations set forth herein, and for such other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby covenant and agree as
follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
1.1.1 "Cost of Operations" shall mean a monthly fee paid by
IPSI to IVP on the first day of each month for the items described in
Section 2.1 below. Cost of Operations shall equal that percentage of
the Net Revenues of IPSI realized or accrued during the immediately
preceding month as set forth on Exhibit 1.1.1 attached hereto, as may
be amended from time to time.
1.1.2 "Cost of Pharmaceutical Products" shall mean the cost of
Pharmaceutical Products sold on behalf of IPSI to Customers of Medical
Practices and shall equal IVP's wholesale cost for such Pharmaceutical
Products, as set forth on Exhibit 1.1.2 attached hereto, as may be
amended from time to time.
1.1.3 "Collections" shall mean all payments actually received
by or on behalf of IPSI from the distribution of Pharmaceutical
Products and the provision of Pharmaceutical Services.
1.1.4 "Cycle Kit" shall mean the packaging format and patient
education materials that IVP supplies to Customers under the tradename
"Cycle Kit(TM)."
1.1.5 "Dedicated Assets" shall mean those fixed assets,
including equipment, furniture, and systems, purchased by IPSI and
dedicated exclusively to the provision of Pharmaceutical Services by or
on behalf of IPSI.
1.1.6 "Direct Costs" shall mean the cost of outside
accountants and attorneys who provide services directly to IPSI.
1.1.7 "Employees" shall mean such accounting, nursing,
pharmacy, secretarial, receptionist, and billing and collections
personnel necessary for IPSI to provide Pharmaceutical Services. Such
Employees may be employees exclusively of IPSI, exclusively of IVP, or
may be independent contractors or leased employees.
1.1.8 "Facilities" shall initially mean the office and space,
including furniture and fixtures, situated initially at 2833 Trinity
Square Drive, Suite 170, Carrollton, Texas 75006, or such additional
facilities determined by the JOB to be necessary to conduct the
Pharmaceutical Services.
1.1.9 "Fiscal Year" shall mean the 12-month period beginning
January 1 and ending December 31 of each year.
1.1.10 "GAAP" shall mean generally accepted accounting
principles applied to public companies in the United States.
1.1.11 "JOB" shall mean the Joint Operating Board described in
Section 5.1 below.
1.1.12 "Just-in-time basis" shall mean that Pharmaceutical
Products shall be delivered to IPSI at a point in time contemporaneous
with the time for distribution by IPSI to Customers; provided, however,
a minimal inventory, not to exceed the dollar amount set forth on
Exhibit 1.1.12 attached hereto, as may be amended from time to time,
may be maintained at the Facilities at all times during the Term of
this Agreement (as defined in Section 8.2 below).
1.1.13 "month" shall mean a calendar month.
1.1.14 "Net Revenues" shall mean gross revenues that are
earned and recorded in accordance with GAAP less contractual sales
discounts.
<PAGE>
ARTICLE 2
COST OF OPERATIONS AND ADDITIONAL MANAGEMENT FEE
2.1 OPERATIONS. Operations shall include, and Costs of Operations shall
reimburse, cover, and fully compensate IVP for, the following costs and
expenses, which shall be paid on behalf of IPSI to IVP:
2.1.1 Salaries, fringe benefits, payroll taxes, and other
costs of employing or retaining Employees.
2.1.2 Expenses incurred in the recruitment of Employees for
IPSI, including, but not limited to employment agency fees, relocation
and interviewing expenses, and any actual out-of-pocket expenses of IVP
personnel in connection with such recruitment effort;
2.1.3 Any sales and use taxes assessed against IVP related to
the operation of IPSI'S business;
2.1.4 Lease payments, depreciation expense (determined in
accordance with GAAP), interest, and property taxes directly relating
to the Facilities and equipment, utilities, waste removal, and all
other expenses of the Facilities described in Section 3.2 below;
2.1.5 Professional and regulatory licensure fees;
2.1.6 Insurance premiums that are paid with respect to the
insurance delineated in Article 11 below.
2.1.7 Such other costs and expenses actually incurred by IVP
reasonably necessary for the provision of the Management Services under
this Agreement.
2.2 Notwithstanding anything to the contrary contained herein, Cost of
Operations shall not include the following:
2.2.1 Direct Costs;
2.2.2 The Additional Management Fee;
2.2.3 Any federal or state income or franchise taxes of IPSI
or IVP; or
2.2.4 Cost of Pharmaceutical Products.
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF IVP
3.1 MANAGEMENT SERVICES AND ADMINISTRATION. IVP agrees to provide the
Management Services provided for in this Section 3.1, all of which shall be
covered by and included in the Cost of Operations and the Additional Management
Fee, if any.
<PAGE>
3.1.1 IPSI hereby appoints IVP as IPSI'S sole and exclusive
manager and administrator of all of its day-to-day operations and
business functions and grants IVP all the necessary authority to carry
out its duties and responsibilities pursuant to the terms of this
Agreement.
3.1.2 IVP shall, on behalf of IPSI, bill patients and collect
fees for Pharmaceutical Products supplied to Customers of the Medical
Practices. IPSI hereby appoints IVP during the Term of this Agreement
to be its true and lawful attorney-in-fact, for the following purposes:
(a) to bill patients in IPSI'S name and on its behalf; (b) to collect
accounts receivable resulting from such billing in IPSI'S name and on
its behalf; (c) to receive payments from insurance companies,
prepayments received from health care plans, and all other third-party
payors; (d) to open in the name of IPSI such savings, checking, and
other accounts at such financial institutions as IVP deems appropriate;
(e) to take possession of and endorse in the name of IPSI any notes,
checks, money orders, and other instruments received in payment of
accounts receivable; and (f) with the consent of IPSI, not to be
unreasonably withheld, to initiate the institution of legal proceedings
in the name of IPSI, to collect any accounts and monies owed to IPSI,
to enforce the rights of IPSI as creditor under any contract or in
connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors.
3.1.3 IVP shall supervise and maintain (on behalf of IPSI) all
files and records relating to the operations of the Facilities,
including, but not limited to, accounting and billing records,
prescription records, and collection records. Prescription records
shall at all times be and remain the property of IVP and shall be
located at the Facilities and be readily accessible to IPSI. IVP's
management of all files and records shall comply with all applicable
state and federal laws and regulations, including, without limitation,
those pertaining to confidentiality of patient records. The records
relating to patients shall be expressly deemed confidential and shall
not be made available to any third party except in compliance with all
applicable laws, rules, and regulations. IVP may utilize such records
in order to provide the services hereunder, to perform billing
functions, and to prepare for the defense of any lawsuit in which those
records may be relevant. The obligation to maintain the confidentiality
of such records shall survive termination of this Agreement. IPSI shall
have unrestricted access to all of such records at all times.
3.1.4 IVP shall supply to IPSI all reasonably necessary
management, administrative, supervisory, nursing, pharmacy, clerical,
accounting and bookkeeping Employees necessary to provide, and IVP
shall provide, quality and competent pharmacy services to Customers of
IPSI. IVP shall provide such computer services, printing, postage and
duplication services, and any other necessary or appropriate
administrative services reasonably necessary for the operation of
IPSI'S Pharmaceutical Services. IVP shall have the responsibility for
hiring, supervising, promoting, reprimanding, suspending, and/or
reinstating and terminating all Employees consistent with IVP's
policies and procedures applicable to IVP's own employees.
3.1.5 IVP shall arrange for such legal and accounting services
as may be reasonably required in the ordinary course of the IPSI'S
operation; provided, however, that IVP shall have no authority to
arrange for any legal or accounting services to the extent that the
interests of IVP and IPSI in the matter in question shall be adverse.
IVP will provide IPSI with all bookkeeping services necessary to
support IPSI'S Pharmaceutical Services, including, without limitation,
maintenance, custody, and supervision of all business records, papers,
documents, ledgers, journals and reports, and the preparation,
distribution, and recordation of all bills and statements for services
rendered by IPSI, including the billing and completion of reports and
forms required by insurance companies, governmental agencies, or other
third-party payors.
3.1.6 IVP shall open appropriate bank accounts in the name of
IPSI and shall deposit the proceeds of all Capitalization Loans and all
Collections in such bank accounts and pay Costs of Operations, Costs of
Pharmaceutical Products, Direct Costs, the Additional Management Fee,
if any, taxes, the repayment of Capitalization Loans, and the
distribution of Net Profits from such bank accounts.
3.1.7 In connection with any Pharmaceutical Products sold to
IPSI, IVP shall provide CycleKits and any patient educational materials
in the same manner as it provides such to Customers purchasing
Pharmaceutical Products directly from IVP.
<PAGE>
3.2 FACILITIES.
3.2.1 IVP shall arrange for such Facilities reasonably
necessary for the proper operation of IPSI'S Pharmaceutical Services.
IVP shall arrange for and ensure that all repairs, maintenance, and
improvements thereto, utility (telephone, electric, gas, water)
services, customary janitorial services, refuse disposal, and all other
services reasonably necessary in conducting the Facilities' physical
operations. IVP shall ensure the cleanliness of the Facilities, and
timely maintenance and cleanliness of the equipment, furniture, and
furnishings located therein. IVP shall consult with IPSI regarding the
condition, use, and needs for the Facilities, including equipment,
services, and improvements thereto. The Facilities may be rented and/or
purchased and may be designated for IPSI'S sole and exclusive use
and/or may be shared with IVP or with any person or entity. A
description of the initial Facilities are set forth on Exhibit 3.2.1
attached hereto.
3.2.2 In the reasonable judgment of the JOB based on
recommendations of IVP, IVP and the IPSI may establish such other or
additional Facilities for the operation of the business of IPSI.
3.2.3 IVP (a) shall purchase for its own account at its own
cost, and shall maintain in its own inventory, sufficient
Pharmaceutical Products as may be necessary from time to time to
satisfy IPSI'S Pharmaceutical Services in a timely fashion; (b) shall
sell to IPSI, at the Cost of Pharmaceutical Products, only such
Pharmaceutical Products as are necessary to fill the orders of
Customers of the Medical Practices on a just-in-time basis; and (c)
shall distribute such Pharmaceutical Products to Customers of the
Medical Practices in accordance with all applicable laws and
regulations and as prescribed by physicians associated with the Medical
Practices. Cost of Pharmaceutical Products shall be paid by IPSI to IVP
under the following schedule: Pharmaceutical Products sold during the
first 15 days of a month shall be paid for on the 25th day of such
month; Pharmaceutical Products sold during the 16th day through the end
of the month shall be paid on the 10th day of the immediately
succeeding month.
3.3 FINANCIAL PLANNING AND GOALS. IVP shall prepare an annual capital
and operating budget for IPSI reflecting the anticipated revenues and expenses
and sources and uses of capital for growth of IPSI'S business at the Facilities.
IVP shall present the budget to the JOB for its approval at least 30 days prior
to the commencement of the Fiscal Year. If the JOB does not agree on the budget
or any aspect thereof for any Fiscal Year, the budget, or portion of the budget
in disagreement, for the preceding Fiscal Year shall serve as the budget until
such time as a budget is the subject of agreement.
3.4 FlNANCIAL STATEMENTS.
3.4.1 IVP shall arrange for the preparation of, and within 30
days following the end of each Fiscal Year shall present to IPSI, (a) a
balance sheet, dated as of the last day of such Fiscal Year; (b) a cash
flow statement showing the cash flows for the month and for the entire
Fiscal Year then concluded; and (c) a statement showing the income and
expenses of IPSI for the month and for the entire Fiscal Year then
concluded. At the election of IntegraMed expressed in writing to IVP at
least 90 days prior to the end of a Fiscal Year, the financial
statements referred to in this Section 3.4 shall be audited by
PriceWaterhouseCoopers or other independent certified public account
approved by the JOB. IVP's failure to present annual financial
statements to IPSI in accordance with this Section 3.4.1 within 45 days
following the end of the Fiscal Year shall be deemed a material breach
subject to Section 9.1.2 below.
3.4.2 IVP shall prepare, and within six days following the end
of each month shall present to IPSI, (a) an unaudited balance sheet,
dated as of the last day of such month; (b) a cash flow statement
showing the cash flow for the month and for the Fiscal Year to date;
and (c) a statement showing the income and expenses of IPSI for such
month and for the Fiscal Year to date.
3.5 INVENTORY AND SUPPLIES. IVP shall order and purchase inventory and
supplies, other than Pharmaceutical Products governed by Section 3.2.3 of this
Agreement, and such other materials that are reasonably requested by IPSI to
enable IPSI'S Pharmaceutical Services to be conducted in a cost-effective
manner.
3.6 LICENSES AND PERMITS. IVP shall, on behalf of and in the name of
IVP or, at the election of IVP, in the name of IPSI, coordinate and maintain all
pharmacy and other licenses, permits, and certificates of authority necessary
for the conduct of IPSI'S Pharmaceutical Services.
<PAGE>
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF INTEGRAMED AND IPSI
4.1 USE OF FACILITIES. IntegraMed shall take such reasonable steps as
are necessary to cause IPSI to use and occupy, and IPSI shall use and occupy,
the Facilities exclusively for the purpose of providing Pharmaceutical Services
to Customers of Medical Practices.
4.2 LICENCES AND PERMITS. IntegraMed and IPSI covenant to use diligent
efforts to cooperate with IVP in order to obtain necessary licenses, permits,
and certificates of authority necessary for IPSI to conduct Pharmaceutical
Services.
4.3 PARTICIPATION IN MANAGEMENT. IPSI, while delegating all of the
day-to-day operations of its business through this Management Agreement, shall
nonetheless actively participate in such management through its participation in
the JOB and the presence of its Employees at the Facilities. IntegraMed, as the
sole shareholder of IPSI, shall participate in the supervision of IPSI through
(a) its election of its representative to the JOB; and (b) its review,
supervision, and/or audit of the Management Services provided under this
Agreement. IntegraMed hereby agrees that all compensation, expenses, and travel
costs for its officers, directors, employees, and consultants, other than
Employees, shall be paid by IntegraMed.
4.4 COOPERATION WITH IVP. IPSI and IntegraMed agree that during the
Term of this Agreement, they will use their best efforts to cause their officers
and employees to execute such documents, agreements, notifications, and consents
and take such steps reasonably necessary to assist IVP in conducting its
Management Services under this Agreement and in billing and collecting for
Pharmaceutical Products sold.
4.5 SALES AND MARKETING. Marketing Services on behalf of IPSI shall be
performed exclusively by IntegraMed at its sole cost and expense. IntegraMed
shall prepare an annual sales and marketing plan for IPSI detailing its
anticipated activities in such regard. IntegraMed shall present the plan to the
JOB for its approval at least 45 days prior to the commencement of the Fiscal
Year. If the JOB does not agree on the plan or any aspect thereof for any Fiscal
Year, the plan, or portion of the plan in disagreement, for the preceding Fiscal
Year shall serve as the plan until such time as a plan is the subject of
agreement.
4.6 ADDITIONAL COVENANTS OF IPSI AND INTEGRAMED. IPSI hereby covenants
that, during the Term of this Agreement, it will not do any of the following:
(a) except with the consent of the JOB, enter into any line of business other
than the sale of Pharmaceutical Products and Pharmaceutical Services pursuant to
this Agreement; (b) incur any indebtedness except as contemplated in this
Agreement; or (c) merge, consolidate, liquidate, or sell all or substantially
all of its assets. IntegraMed hereby covenants that, during the Term of this
Agreement, it will not sell, assign, convey, or transfer its stock in IPSI.
Either of IPSI'S or IntegraMed's breach of this Section 4.6 shall be deemed a
material breach subject to Section 9.1.2 below.
<PAGE>
ARTICLE 5
JOINT DUTIES AND RESPONSIBILITIES
5.1 FORMATION AND OPERATION OF JOINT OPERATIONS BOARD. IVP and
IntegraMed shall establish a Joint Operations Board ("JOB"), which shall be
responsible for developing management and administrative policies for the
overall operation of IPSI. IntegraMed and IVP shall each be entitled to elect
two members to the JOB, provided, however, that each party shall be allowed only
one vote on each matter submitted to the JOB for its vote. The representatives
of IntegraMed and IVP on the JOB shall be either directors or executive officers
of their respective parties.
5.2 DUTIES AND RESPONSIBILITIES OF THE JOB. The JOB shall have the
following duties and responsibilities:
5.2.1 ANNUAL BUDGETS AND MARKETING PLANS. All annual capital
and operation budgets prepared by IVP, and all sales, marketing,
advertising, and promotions plans prepared by IntegraMed, shall be
subject to the review, amendment, approval, and/or disapproval of the
JOB. Approval shall not be unreasonably withheld.
5.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any capital improvements with respect to any
Facilities and expansion plans with respect to IPSI shall be reviewed
and approved by the JOB and shall be based upon the best interests of
IPSI, and shall take into account capital priorities, economic
feasibility, productivity and then current market and regulatory
conditions.
5.2.3 CAPITALIZATION LOANS. The JOB shall have the sole power
to authorize and direct Capitalization Loans.
5.2.4 STRATEGIC PLANNING. The JOB shall develop long-term
strategic plans, from time to time.
5.2.5 RETAIL PRICING POLICIES. The JOB shall establish retail
pricing policies.
5.2.6 PROVIDER CONTRACT. The JOB shall have veto authority
over all managed care, PPO, HMO, Medicare risk and other provider
contracts.
<PAGE>
ARTICLE 6
FEES
6.1 IVP's FEES. IVP shall be paid the following for its Management
Services rendered pursuant to this Agreement:
6.1.1 The Cost of Operations; and
6.1.2 An Additional Management Fee, accrued and paid monthly,
but reconciled to IPSI'S annual results of operations, equal to 50% of
the net income before tax (determined in accordance with GAAP and
without reference to the Additional Management Fee), provided, however,
that at any time during which Capitalization Loans are outstanding,
payment (but not accrual) of the Additional Management Fee shall be
limited to Net Available Cash of IPSI. "Net Available Cash" of IPSI
shall mean the amount resulting from (a) all Collections and other
income actually received during the preceding month; less the sum of
(b) all Costs of Pharmaceutical Products; (c) all Cost of Operations
for such month; (d) Direct Costs for such month; (e) the payment of
interest and the repayment, if any, of the current principal portion of
all Capitalization Loans during such month; and (f) a reserve, in an
amount determined by the JOB, for anticipated expenses, capital needs,
or contingencies of IPSI and for the payment of all applicable income,
franchise, property, and payroll taxes of IPSI for such month
(calculated after deduction of expenses of the Additional Management
Fee).
6.2 PRIORITY OF PAYMENTS. IVP, IntegraMed, and IPSI hereby covenant
that all payments from accounts of IPSI shall be paid by IPSI to IVP and
IntegraMed in the following order of priority: (a) the payment of Costs of
Pharmaceutical Products; (b) the payment of Costs of Operations; (c) the payment
of Direct Costs; (d) the payment or reserve for payment of interest accrued on
Capitalization Loans to IVP and IntegraMed (or other lender), pari passu; (e)
the payment or reserve for payment of the current portion of the Capitalization
Loans to IVP and IntegraMed (or other lender), pari passu; and (f) the payment
of the Additional Management Fee to IVP and the payment of dividends to
IntegraMed (not to exceed the amount of the Additional Management Fee) pari
passu.
ARTICLE 7
CAPITALIZATION LOANS
7.1 CAPITALIZATION LOANS.
7.1.1 IVP hereby covenants and agrees to lend to IPSI, and
IntegraMed covenants and agrees to lend to or to securing financing
from another source to lend to IPSI, within five days following the
first meeting of the JOB, 50% of the aggregate funds determined by the
JOB to be sufficient and necessary to secure the IPSI pharmacy
licensure in the States in which the JOB intends IPSI to transact
business, to provide initial operating capital, and to finance other
start-up costs identified by the Board (the "Initial Loans"). IVP shall
have no obligation to transfer such funds to IPSI unless and until IPSI
delivers to IVP proof of receipt of a matching amount of funds from
IntegraMed or another source. Such Initial Loans shall be evidenced by
Promissory Notes substantially in the form of Exhibit 7.1.1 attached
hereto.
7.1.2 In the event that, from time to time, the JOB determines
that IPSI requires additional capital to finance operating deficits
and/or capital expenditures of IPSI, IVP hereby covenants and agrees to
lend to IPSI, and IntegraMed covenants and agrees to lend to or to
securing financing from another source to lend to IPSI, within five
days following the meeting of the JOB authorizing such loans, 50% of
the aggregate funds determined by the JOB to be sufficient and
necessary to finance such operating deficits and/or capital
expenditures ("Subsequent Loans"). IVP shall have no obligation to
transfer such funds to IPSI unless and until IPSI delivers to IVP proof
of receipt of a matching amount of funds from IntegraMed or another
source. Such loan shall be evidenced by Promissory Notes substantially
in the form of Promissory Notes representing the Initial Loans.
7.1.3 The Initial Loans and all Subsequent Loans, if any
(collectively, the "Capitalization Loans"), shall bear interest at the
30-Year Treasury Note rate, and interest shall be paid by IPSI no less
than annually. All Capitalization Loans shall be unsecured obligations
of IPSI, without a fixed term, and the principal thereon shall be paid
solely out of Net Profits of IPSI. "Net Profits" of IPSI shall mean the
amount resulting from the following: (a) all Collections, together with
other income actually received, during the preceding Fiscal Year (or
other such other period determined by the JOB); less the sum of (b) all
costs of Pharmaceutical Products sold to IPSI'S Customers during such
period; (c) all Cost of Operations for such period; (d) all Direct
Costs for such period; (e) the payment of interest on all
Capitalization Loans during such period; (f) the payment of, or reserve
for, all applicable income, property, and payroll taxes of IPSI for
such period; and (g) a reserve, in an amount determined by the JOB, for
anticipated expenses, capital needs, or contingencies of IPSI.
<PAGE>
ARTICLE 8
EXCLUSIVE MANAGEMENT RIGHT, TERM AND RENEWAL
8.1 IPSI grants IVP the exclusive right to manage IPSI during the Term
of this Agreement.
8.2 The term of this Agreement shall begin on the Effective Date of
this Agreement and shall expire on the date 10 years after such date (unless
this Agreement is renewed from time to time as provided in this Section 8.2) or
on any earlier date if this Agreement is terminated pursuant to Article 9 below
(the Effective Date through the date of final expiration or termination shall be
referred to as the "Term of this Agreement"). This Agreement may be renewed by
either party, if within the period of 180 days prior to the date of expiration,
one party gives notice to the other of its intention to continue this Agreement
under the same terms and conditions as set forth herein or under such different
terms and conditions as particularly set forth in the written notice and further
providing that the other party has 30 days from the date of notice to accept,
reject, or modify the offer. If within 30 days the other party does not respond
or by written notice accepts, this Agreement shall continue for an additional 10
years under the terms and conditions as provided in the notice. In the event the
offer is not accepted, the parties agree to negotiate, in good faith, a renewal
of this Agreement.
<PAGE>
ARTICLE 9
TERMINATION OF THE AGREEMENT
9.1 TERMINATION. This Agreement may be terminated by any party to this
Agreement in the event of the following, provided, however, that no party having
the right to terminate this Agreement shall be obligated to exercise such right:
9.1.1 INSOLVENCY. If a receiver, liquidator, or trustee of any
party shall be appointed by court order, or a petition to reorganize
shall be filed against any party under any bankruptcy, reorganization,
or insolvency law, and shall not be dismissed within 90 days, or if any
party shall file a voluntary petition in bankruptcy or make assignment
for the benefit of creditors, then either of the other parties may
terminate this Agreement upon 10 days prior written notice to the other
parties.
9.1.2 MATERIAL BREACH. If any party shall materially breach
its obligations hereunder, then either of the other parties may
terminate this Agreement by providing 30 days prior written notice to
the breaching party detailing the nature of the breach, provided that
the breaching party shall not have cured the breach within such 30-day
period, or, with respect to breaches that are not curable within such
30-day period, shall not have commenced to cure such breach within such
30-day period and thereafter shall not have cured the breach with the
exercise of due diligence. It shall be a material breach of the
obligation to provide Management Services for IVP to provide Management
Services in a manner inconsistent with the generally prevailing
standard of care in the delivery of pharmacy services to Customers, or
to provide Management Services in a commercially unreasonable manner or
in a manner that wastes or destroys the assets or reputation of IPSI.
IntegraMed and/or IPSI shall have the burden of proving that IVP has
failed to provide Management Services in a commercially reasonable
manner or has destroyed the assets or reputation of IPSI in an
arbitration proceeding or court of competent jurisdication.
9.1.3 ILLEGALITY. Any party may terminate this Agreement
immediately upon receipt of notification by any local, state, or
federal agency or court of competent jurisdiction that the conduct
contemplated by this Agreement is forbidden by law; except that this
Agreement shall not terminate during such period of time as to any
party that contests such notification in good faith and the conduct
contemplated by this Agreement is allowed to continue during such
contest. If any governing regulatory agency asserts that the services
provided by any party under this Agreement are unlawful and such
assertion is not contested by such party (or if contested, the agency's
assertion is found to be correct by a court of competent jurisdiction
and no appeal is taken, or if any appeals are taken and the same are
unsuccessful), this Agreement shall thereupon terminate with the same
force as if such termination date was the date originally specified in
this Agreement as the date of final expiration of the terms of this
Agreement. Notwithstanding this paragraph, the parties acknowledge that
this Agreement serves the interests of all of the parties. For these
reasons, the parties agree to make such amendments to this Agreement as
are necessary to conform to the opinions, reviews, and/or orders of
regulatory and/or administrative agencies of any jurisdiction, such as
to preserve the legality of this Agreement, provided that such are not
to the material financial detriment of any party.
9.1.4 TERMINATION UPON LOSS OF LICENSE. IPSI may terminate
this Agreement upon 10 days prior written notice to IVP should IVP's
license to practice pharmacy, in any jurisdiction where Pharmaceutical
Services are provided to Customers of Medical Practices, is suspended,
revoked, or not renewed. Any loss, revocation, or failure to renew
licenses of IVP shall be deemed a material breach of this Agreement by
the party or parties whose negligence, fault, or failure to provide
necessary information is the primary cause of such loss, revocation, or
non-renewal.
9.1.5 TERMINATION UPON UNPROFITABILITY. In the event that, at
any time following the date nine months from the Effective Date of this
Agreement, IPSI does not have net income determined in accordance with
GAAP for any period of six consecutive months, then any party may
terminate this Agreement upon 30 days prior written notice to the other
parties.
9.1.6 Terminations pursuant to Sections 9.1.1 through 9.1.3
and the second sentence of Section 9.1.4 inclusive shall be deemed
termination for cause ("Termination for Cause"), and shall be made by
delivering a termination notice, detailing the reasons therefor, to the
non-terminating party, and providing the opportunity to cure under the
provisions of Section 9.1.2 above. Terminations pursuant to the first
sentence of Section 9.1.4 or pursuant to Section 9.1.5 shall be deemed
termination without cause ("Termination without Cause").
<PAGE>
ARTICLE 10
RIGHTS UPON TERMINATION
10.1 If this Agreement is Terminated for Cause by IPSI or IntegraMed,
then:
10.1.1 IPSI shall have the right, but not the obligation, to
sell to IVP (and if exercised by IPSI, IVP shall have the obligation to
purchase from IPSI) all Dedicated Assets, at their net book value
determined in accordance with GAAP as of the date of termination.
10.1.2 IPSI shall have the right, but not the obligation, to
assume all leases for Facilities and Dedicated Assets (to the extent
that such leases are not in the name of IPSI), or if the assumption is
not permitted, to make all payments to IVP called for under such leases
and to enjoy uninterrupted use of such Facilities and Dedicated Assets.
10.1.3 IPSI shall elect its course of action, with respect to
Sections 10.1.1 and 10.1.2 above, by the service of a written notice on
IVP 30 days prior to the date of termination.
10.1.4 Any and all Capitalization Loans payable to IVP,
outstanding at the date of termination, shall be deemed paid in full,
and no further payments of interest and/or principal shall be due or
payable thereon.
10.1.5 The provisions of Articles 11 and 12.1 shall be of no
force and effect.
10.1.6 The license granted by Article 13 shall cease, and IPSI
shall cease to use any such Tradename and cease to utilize any written
materials, for delivery to Customers of Pharmaceutical Products,
supplied by IVP.
10.2 If this Agreement is Terminated for Cause by IVP, then:
10.2.1 IVP shall have the right, but not the obligation, to
purchase from IPSI (and if exercised by IVP, IPSI shall have the
obligation to sell to IVP), all Dedicated Assets at their net book
value determined in accordance with GAAP as of the date of termination.
10.2.2 IVP shall have the right, but not the obligation, to
assume all leases for Facilities and Dedicated Assets, or if the
assumption is not permitted, to make all payments to IPSI called for
under such leases and to enjoy uninterrupted use of such Facilities and
Dedicated Assets.
10.2.3 IVP shall elect its course of action, with respect to
Sections 10.2.1 and 10.2.2 above, by the service of a written notice on
IPSI 30 days prior to the date of termination.
10.2.4 Any and all Capitalization Loans payable to IVP,
outstanding at the date of termination, shall be paid by IPSI or
IntegraMed immediately.
10.2.5 The provisions of Articles 11 and 12.2 shall be of no
force and effect.
10.2.6 The license granted by Article 13 shall cease, and IPSI
shall cease to use any such Tradename and cease to utilize any written
materials, for delivery to Customers of Pharmaceutical Products,
supplied by IVP.
<PAGE>
10.3 If this Agreement is Terminated without Cause by any party, then:
10.3.1 If IVP is the non-terminating party, then (a) IVP shall
be entitled to the immediate payment of any outstanding IVP
Capitalization Loans; (b) the provisions of Section 12.1 shall continue
to apply for the periods specified therein; and (c) the license granted
by Article 13 shall cease, and IPSI shall cease to use any such
Tradename and cease to utilize any written materials, for delivery to
Customers of Pharmaceutical Products, supplied by IVP.
10.3.2 If IPSI and IntegraMed are the non-terminating parties,
then (a) IPSI shall be entitled, as liquidated damages, to an amount
equal to the aggregate amount of any and all outstanding Capitalization
Loans (other than IVP's Capitalization Loans); (b) the provisions of
Section 12.2 shall continue to apply for the periods specified therein;
and (c) the license granted by Article 13 shall cease, and IPSI shall
cease to use any such Tradename and cease to utilize any written
materials, for delivery to Customers of Pharmaceutical Products,
supplied by IVP.
10.3.3 The terminating party shall waive the right to payment
for any outstanding Capitalization Loans (or if Capitalization Loans
are provided by a source other than IntegraMed, a termination by IPSI
or IntegraMed shall waive the right to payment for any outstanding
Capitalization Loans for such other source).
10.3.4 The terminating party shall bear any (a) accounting and
bookkeeping; and (b) severance/vacation costs associated with any
Employees which directly result from the termination.
<PAGE>
10.4 In the event that this Agreement is terminated for any reason,
then IVP shall cease dispensing Pharmaceutical Products to Customers of IPSI as
of the date of notice of termination, and IVP and IPSI covenant to utilize their
best efforts, for a period 90 days prior to the termination date and 30 days
thereafter, or, if the required notice of termination be only 30 days, then for
the notice period and 90 days post-termination, to fully cooperate so as to
effect a transition of the operation to IPSI, the collection of all accounts
receivable earned as of the termination date and the payment of all trade and
accounts payable as of the termination date, including, if applicable,
Capitalization Loans (the "Transition Period"). For any services provided by IVP
during a Transition Period that extend beyond the termination date, IVP shall be
paid a reasonable fee to be agreed upon between the IVP and IPSI, but in no
event shall such amount be less than the Cost of Operations and Additional
Management Fee, if any, that would have been earned by IVP during the Transition
Period had the Agreement not so terminated.
ARTICLE 11
INSURANCE
11.1 IVP, at its own cost, shall secure and carry insurance, covering
itself and its employees providing services under this Agreement in the minimum
amount of $1 million per incident, $3 million in the aggregate, for professional
negligence and general liability. Such insurance shall name IPSI and IntegraMed
as additional named insureds. IVP shall also carry a policy of public liability
and property damage insurance with respect to the Facilities under which the
insurer agrees to indemnify IPSI and IntegraMed, subject to ordinary
deductibles, against all cost, expense, and/or liability arising out of or based
upon any and all claims, accidents, injuries, and damages customarily included
within the coverage of such policies of insurance available for IVP. The minimum
limits of liability of such insurance shall be $1 million combined single limit
covering bodily injury and property damage. IPSI and IntegraMed shall be
additional named insureds under the terms of such insurance coverages. A
certificate of insurance evidencing such policies shall be presented to IPSI
within 30 days after the execution of this Agreement. Failure to provide such
certificate(s) with such period shall constitute a material breach by IVP
hereunder subject to the procedures of Section 9.1.2 above.
11.2 IVP shall provide IPSI with written notice, at least 10 days in
advance of the Effective Date, of any reduction, cancellation or termination of
the insurance required to be carried by each hereunder.
ARTICLE 12
NON-SOLICITATION AND NON-COMPETITION
12.1 During the Term of this Agreement, and for a period of two years
after the termination thereof (except as provided in Section 10 above), neither
IntegraMed nor IPSI shall, either individually or through an affiliate, (a)
enter into any agreement with another independent person or entity, other than
IVP, to provide Management Services substantially similar to the Management
Services required under this Agreement; (b) market or sell any pharmaceuticals
to any end-user patients except through IPSI during the Term of this Agreement;
or (c) employ or solicit for employment any employee of IVP, or contact any
employee of IVP for the purpose of encouraging such employees to leave the
employment of IVP.
<PAGE>
12.2 During the Term of this Agreement, and for a period of two years
after the termination thereof (except as provided in Section 10 above), IVP
shall not, either individually or through an affiliate, (a) market or sell any
Pharmaceutical Products to any patients of the Medical Practices except through
IPSI (and subject to the terms of this Agreement), provided, however, that this
prohibition shall not apply to the Medical Practices identified on Exhibit 12.2
attached hereto who had Customers that had purchased Pharmaceutical Products
from IVP prior to the Effective Date of this Agreement; or (b) employ or solicit
for employment any Employee of IPSI (other than Employees who are employees of
or shared employees with IVP or independent contractors), IntegraMed, or their
affiliates ("IPSI Employees"), or contact any IPSI Employees for the purpose of
encouraging such employees to leave their employment.
ARTICLE 13
Licenses and Confidential Information
13.1 GRANT OF LICENSE. During the Term of this Agreement, IVP hereby
grants to IPSI a nonexclusive, personal, nonassignable, nontransferable,
royalty-free license to use the "Cycle Kit" tradename ("Tradename") in IPSI'S
business. IPSI hereby acknowledges IVP's exclusive ownership of the Tradename.
13.2 TRADE SECRETS, PROPRIETARY AND CONFIDENTIAL INFORMATION. IPSI
hereby acknowledges that it shall have access to and become familiar with
certain management information systems, trade secrets, and proprietary and
confidential information of IVP, as described and scheduled on Exhibit 13.2
("Confidential Information"). IPSI hereby acknowledges IVP's exclusive ownership
of Confidential Information and agrees not to use or disclose such Confidential
Information without the prior written consent of IVP, which consent may be
withheld by IVP in its sole and absolute discretion. IPSI shall not photocopy or
otherwise duplicate any Confidential Information of another party without the
prior express written consent of the such other party except as is required to
perform services under this Agreement. All such Confidential Information shall
remain the exclusive property of IVP and shall be returned to the proprietor
immediately upon any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 FURTHER ASSURANCES. Each party hereto agrees to perform any
further acts and to execute and deliver any further documents that may be
reasonably necessary to carry out the provisions of this Agreement.
<PAGE>
14.2 PRIOR AGREEMENTS; AMENDMENTS. This Agreement and the accompanying
exhibits represent the entire agreement and understanding of the parties hereto
and supersedes all prior agreements and understandings between the parties as to
the subject matter covered hereunder, and this Agreement may not be amended,
altered, changed or terminated orally. No amendment, alteration, change or
attempted waiver of any of the provisions hereof shall be binding without the
written consent of all parties, and such amendment, alteration, change,
termination or waiver shall in no way affect the other terms and conditions of
this Agreement, which in all other respects shall remain in full force.
14.3 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
all of the parties, and any attempted assignment without such consent shall be
void and of no force and effect. Subject to such limitations on assignment, the
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns.
14.4 WAIVER OF BREACH. The failure to insist upon strict compliance
with any of the terms, covenants or conditions herein shall not be deemed a
waiver of such terms, covenants or conditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver or
relinquishment of such right at any other time or times.
14.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. Any and all claims,
disputes, or controversies arising under, out of, or in connection with this
Agreement or any breach thereof, shall be determined by binding arbitration in
Washington, D.C. (hereinafter "Arbitration"). The party seeking determination
shall subject any such dispute, claim or controversy to the American Arbitration
Association, Washington, D.C., and the rules of commercial arbitration of the
selected entity shall govern. The Arbitration shall be conducted and decided by
three arbitrators, unless the parties mutually agree, in writing at the time of
the Arbitration, to fewer arbitrators. In reaching a decision, the arbitrators
shall have no authority to change or modify any provision of this Agreement,
including any liquidated damages provision. Each party shall bear its own
expenses and one-half the expenses and costs of the arbitrators. Any application
to compel Arbitration, confirm, or vacate an arbitral award or otherwise enforce
this Section shall be brought only in the Courts of the States of New York or
Texas or the United States District Courts for the Southern District of New York
or the Northern District of Texas, to whose jurisdiction for such purposes IPSI,
IntegraMed, and IVP hereby irrevocably consent and submit.
14.6 SEPARABILITY. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement take as a whole.
14.7 HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.
14.8 NOTICES. Any notice hereunder shall have been deemed to have been
given only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
14.8.1 If for IPSI:
Gerardo Canet, President & CEO
IntegraMed Pharmaceutical Services, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
14.8.2 If for IVP:
Von L. Best, President & CEO
IVP Pharmaceutical Care, Inc.
2833 Trinity Square Drive
Suite 105
Carrollton, TX 75006
14.8.3 If for IntegraMed:
Gerardo Canet, President & CEO
IntegraMed America Inc.
One Manhattanville Road
Purchase, NY 10577-2100
<PAGE>
Either party hereto, by like notice to the other parties, may designate
such other address or addresses to which notice must be sent.
14.9 INDEMNIFICATION.
14.9.1 IVP agrees to indemnify and hold harmless IPSI and
IntegraMed, their shareholders, directors, officers, employees and
servants from any suits, claims, actions, losses, liabilities or
expenses (including reasonable attorney's fees and costs) arising out
of or in connection with any act or failure to act by IVP related to
the performance of its duties and responsibilities under this
Agreement. The obligations contained in this Section 14.9.1 shall
survive termination of this Agreement.
14.10.2 IPSI and IntegraMed each agree to indemnify and hold
harmless IVP, its shareholders, directors, officers, employees and
servants from any suits, claims, actions, losses, liabilities or
expenses (including reasonable attorney's fees and costs) arising out
of or in connection with any act or failure to act by IPSI or
IntegraMed related to the performance of its duties and
responsibilities under this Agreement. The obligations contained in
this Section 14.9.2 shall survive termination of this Agreement.
14.11 In the event of any claims or suits in which IVP, IntegraMed,
and/or IPSI and/or their directors, officers, employees and servants are named,
each of IVP, IntegraMed, and IPSI for their respective directors, officers,
employees agree to cooperate in the defense of such suit or claim; such
cooperation shall include, by way of example but not limitation, meeting with
defense counsel (to be selected by the respective party hereto), the production
of any documents in his/her possession for review, response to subpoenas and the
coordination of any individual defense with counsel for the respective parties
hereto. The respective party shall, as soon as practicable, deliver to the other
copies of any summonses, complaints, suit letters, subpoenas or legal papers of
any kind, served upon such party, for which such party seeks indemnification
hereunder. This obligation to cooperate in the defense of any such claims or
suits shall survive the termination, for whatever reason. of this Agreement.
14.12 Promptly after the receipt by IPSI or IntegraMed of notice of any
claim or commencement of any action or proceeding subject to indemnification
delineated in Section 14.9.1 ("asserted liability"), IPSI or IntegraMed, as the
case may be, will demand such indemnification from IVP and proffer the defense
to IVP. IVP may thereafter, at its option, assume such defense at its own
expense and by its own counsel. IVP shall provide written notice to IPSI or
IntegraMed, as the case may be, within 20 days, of its assumption or declination
of such defense. If IVP shall undertake to compromise any asserted liability, it
shall promptly notify IPSI or IntegraMed, as the case may be, of its intention
to do so and IPSI or IntegraMed, as the case may be, agrees to cooperate fully
and promptly with IVP and its counsel in the compromise and defense of any
asserted liability. IVP shall not enter into any non-monetary settlement
hereunder without the prior written consent of IPSI or IntegraMed, as the case
may be. Notwithstanding the foregoing, IPSI or IntegraMed, as the case may be,
shall have the right to participate in the compromise or defense of any asserted
liability with its own counsel and at its own expense.
<PAGE>
14.13 Promptly after the receipt by IVP of notice of any claim or
commencement of any action or proceeding subject to indemnification delineated
in Section 14.9.2 ("asserted liability"), IVP will demand such indemnification
from IPSI or IntegraMed, as the case may be, and proffer the defense to such
party. Such party may thereafter, at its option, assume such defense at its own
expense and by its own counsel. Such party shall provide written notice to IVP,
within 20 days, of its assumption or declination of such defense. If IPSI or
IntegraMed, as the case may be, shall undertake to compromise any asserted
liability, it shall promptly notify the IVP of its intention to do so and IVP
agrees to cooperate fully and promptly with IVP and its counsel in the
compromise and defense of any asserted liability. Neither IPSI nor IntegraMed
shall enter into any non-monetary settlement hereunder without the prior written
consent of IVP. Notwithstanding the foregoing, IVP shall have the right to
participate in the compromise or defense of any asserted liability with its own
counsel and at its own expense.
14.14 CONSTRUCTION. Each party and its counsel have participated fully
in the review and revision of this Agreement. In construing this Agreement, it
shall be deemed to have been drafted jointly.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
IVP PHARMACEUTICAL CARE, INC.
By: /s/Von L. Best
-------------------------------
Von L. Best, President and CEO
INTEGRAMED PHARMACEUTICAL SERVICES, INC.
By: /s/ Gerardo Canet
--------------------------------
Gerardo Canet, President and CEO
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
--------------------------------
Gerardo Canet, President and CEO
<PAGE>
EXHIBIT 0.2
IntegraMed America Inc. Reproductive Science Centers Network
1. Reproductive Science Center of Boston
2. Reproductive Science Associates- Mineola, New York and Stoney Brook, New York
3. Reproductive Science Center of the Bay Area Fertility and Gynecology
Medical Group
4. Reproductive Science Associates- Kansas City, Missouri
5. Reproductive Science Center at the Walter Reed Army Medical Center
6. Institute of Reproductive Medicine and Science of Saint Barnabas
Medical Center
7. Fertility Centers of Illinois
8. Shady Grove Fertility Centers
<PAGE>
EXHIBIT 1.1.1
Cost of Operations
(% of Net Revenue)
--------------------------------------------------------------------------
Monthly Cost Of
Net Revenue Operations
--------------------------------------------------------------------------
$25,000 Or Below 22.84%
$50,000 Or Below 17.15%
$100,000 Or Below 14.30%
$200,000 Or Below 12.86%
$400,000 Or Below 12.16%
$800,000 Or Below 11.81%
$1,250,000 Or Below 11.68%
$1,500,000 Or Below 11.64%
<PAGE>
EXHIBIT 1.1.2
Cost of Pharmaceutical Products
IVP will purchase Pharmaceutical Products and will use its wholesale
license to resell to IPSI on a just-in-time basis. IVP will pass along its
utilization and market-share rebates to IPSI; however, IVP will not pass along
its 2% Gonal F special rebate, its trade discounts received as incentive for
timely payment, or its discounts on bulk purchases as defined below. These
guidelines yield the following rebate structure as of the Effective Date of this
Agreement:
Qualifying Rebates (Passed along to IPSI):
1. The variable Serono market-share rebates and the Serono Gonal F Sales Force
rebate.
2. The Organon utilization rebates.
3. The Ferring market-share rebates.
Non-Qualifying Rebates (Kept by IVP):
1. All rebates given as incentive for timely payment (e.g., 2% 30/ Net 31).
2. The Serono 2% Gonal F special rebate.
Other Issues:
1. A few manufacturers, e.g., TAP, do not offer any rebates, and IVP buys
at Wholesale Acquisition Cost (WAC). These products will be billed at
net invoice +2%.
2. From time to time, IVP may receive additional discounts from
manufacturers for committing to bulk purchases. The quantities usually
represent a three- to 12-month supply, and the value of the discounts
is partially offset by IVP's cost of capital, storage costs, and
property taxes. These discounts will not be passed along to IPSI.
3. WAC will be the basis by which all products are sold to IPSI.
Qualifying rebates that are taken by IVP at time of payment will be
passed to IPSI on IVP's invoice. Qualifying rebates that are received
via check from the manufacture at a later time will be estimated and
accrued in the IPSI monthly financials.
<PAGE>
EXHIBIT 1.1.12
Pharmaceutical Products Kept On The Shelf
($15,000 Maximum)
2x2 Nonsterile Gauze
Alcohol Prep Pads
Amoxil Cap 500mg
Aygestin Tab 5mg
Climara Dis 0.05mg
Climara Dis 0.1mg
Clomid 50mg
Clomiphene Citrate 50mg
Demulen 1/35 28 Tabs
Dexamethasone Tab 0.25mg
Dexamethasone Tab 0.5mg
Dexamethasone Tab 0.5mg
Doxycycline Hyclate Cap 100mg
Estrace Tab 0.5mg
Estrace Tab 1mg
Estrace Tab 2mg
Estraderm Dis 0.1mg
Estradiol Tab 0.5mg
Estradiol Tab 1mg
Estradiol 2mg
Folic Acid Tab 1mg
Heparin Sodium DCU Inj 20000ml
Heparin Sodium Inj 10000ml
Medrol Tab 16mg
Medrol Tab 4mg
Medrol Tab 8mg
Methylprednisolone Tab 4mg
Ortho-Novum 1/35 21 Tabs
Ortho-Novum 7/7/7 28 Tabs
Ovcon 35/21 Tabs
Ovu Quick 9 day
Ovu Quick 6 day
Parlodel Tab 2.5mg
Prednisone Tab 10mg
Prednisone Tab 20mg
Prednisone Tab 5mg
Prenate Ultra Tab
Serophene Tab 50mg
Stuartnatal Plus Tab Plus
Synarel Sol 2mg/ml
Tetracycline HCL Cap 500mg
Vivelle Dis 0.1mg
<PAGE>
EXHIBIT 3.2.1
[floor plan to be inserted here]
<PAGE>
EXHIBIT 7.1.1
Form of Promissory Notes Representing Capitalization Loans
NON-NEGOTIABLE PROMISSORY NOTE
BORROWER: IntegraMed Pharmaceutical Service, Inc.
2833 Trinity Square Drive
Suite 170
Carrollton, Texas 75006
LENDER: ________________________________________
________________________________________
________________________________________
PRINCIPAL AMOUNT: $150,000.00
INDEX: 30-Year Treasury Bill Rate
INITIAL RATE: 5.25%
DATE OF NOTE: April __, 1999
PROMISE TO PAY. Borrower promises to pay to Lender, in lawful money of the
United States of America, the principal amount of One Hundred Fifty Thousand
Dollars and Zero Cents ($150,000.00) or so much as may be outstanding, together
with interest on the unpaid outstanding principal balance, on December 31, 2009
(the "Maturity Date"), or earlier as provided herein.
DESCRIPTION OF NOTE. This Note represents a Capitalization Loan, as defined in
that certain Management Agreement dated April ___, 1999, by and among, inter
alia, Borrower and Lender (the "Management Agreement").
CHOICE OF USUARY CEILING AND INTEREST RATE. The interest rate on this Note has
been implemented under the "Indicated Rate Ceiling" as referred to in Article
5069-1.04(a)(1) of Vernon's Texas Civil Statutes, as amended ("V.T.C.S."). The
terms, including the rate, or index, formula, or provision of law used to
compute the rate, on the Note, will be subject to revision as to current and
future balances, from time to time, by notice from Lender in compliance with
Article 5069-1.04(i) V.T.C.S.
PAYMENT. Except as provided herein, Borrower shall pay this loan in one payment
of all outstanding principal plus all accrued unpaid interest on the Maturity
Date. Borrower shall make regular yearly payments of accrued but unpaid interest
beginning December 31, 1999, and all subsequent interest payments are due on the
same day of each year thereafter. Interest on this Note is computed on a 365/360
simple interest basis; i.e., by applying the ratio of the annual interest rate
over a year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding,
unless such calculation would result in a usurious rate, in which case interest
shall be calculated on a per diem basis of a year of 365 or 366 days, as the
case may be. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing.
MANDATORY PREPAYMENT. Borrower shall make mandatory prepayments from time to
time equal to a portion of the "Net Profits" of Borrower, as defined in Section
7.1.3 of the Management Agreement, for such periods as Borrower and Lender may
mutually agree from time to time, such portion to equal the percentage that the
outstanding principal amount of the Capitalization Loan represented by this Note
bears to the outstanding principal amount of all Capitalization Loans subject to
the Management Agreement. This Note is also subject to acceleration, or this
Note may be deemed paid in full, upon the occurrence of certain events described
in Article 10 of the Management Agreement.
OPTIONAL PREPAYMENT. Borrower may pay without penalty all or any portion of the
amount owed prior to the Maturity Date. All prepayments will be applied first
against accrued but unpaid interest and then against the outstanding principal
balance.
<PAGE>
VARIABLE INTEREST RATE. The interest rate on this Note may be subject to change
from time to time based on changes in the coupon rate for new issuances of
30-Year U.S. Treasuries (the "Index"). Lender shall inform Borrower of the
current Index rate upon Borrower's request. The interest rate change will not
occur more frequently than once in any three-month period. The Index currently
is 5.25% per annum. The interest rate to be applied prior to the Maturity Date
to the unpaid principal balance of this Note initially will be at a rate equal
to the Index, resulting in an Initial Rate of 5.25% per annum, and shall
thereafter be equal to the greater of the Initial Rate or the Index, adjusted if
necessary for the maximum rate limitation described below. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law. For purposes of this Note, the "maximum rate allowed
by applicable law" means the lesser of (a) the maximum rate of interest
permitted under federal or other law applicable to the indebtedness evidenced by
this Note; or (b) the "Indicated Rate Ceiling" as referred to in Article
5069-1.04(a)(1) V.T.C.S.
POST-MATURITY DATE RATE. The Post-Maturity Date Rate on this Note is the maximum
rate allowed by applicable law. Borrower shall pay interest on all sums due
after the Maturity Date at the Post-Maturity Date Rate.
DEFAULT. Borrower will be in default, unless waived or deferred by Lender in
writing, upon the occurrence of any of the following events: (a) Borrower fails
to make any payment when due; (b) Borrower breaches any covenant, obligation,
representation, or warranty Borrower has made to Lender, or Borrower fails to
perform promptly at the time and strictly in the manner provided in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, including the Management Agreement; (c) any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect; or (d) Borrower becomes insolvent,
a receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws.
If any default, other than a default in payment, is curable, it may be cured
(and no event of default shall have occurred) if Borrower, after receiving
written notice from Lender demanding cure of such default: (a) cures the default
within 15 days; or (b) if the cure requires more than 15 days, immediately
initiates steps that Lender deems in Lender's reasonable discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER=S OBLIGATIONS; THIRD-PARTY CURE AND SUBSTITUTION. In the event of a
default in payment that is not waived by Lender, or any other default by
Borrower that is not cured pursuant to the immediately preceding paragraph,
Lender shall give written notice to the Company, attention Gerardo Canet,
specifying the type and, in the case of a default in payment, amount of such
default. The Company shall have the right, within 10 days following such written
notice, to cure such default and succeed to all of the rights and obligations of
Borrower under this Note.
LENDER'S RIGHTS. Upon default by Borrower, Lender may, subject to the Management
Agreement, declare the entire indebtedness, including the unpaid principal
balance on this Note, all accrued unpaid interest, and all other amounts, costs,
and expenses for which Borrower is responsible under this Note or any other
agreement with Lender pertaining to this loan, immediately due, without notice,
and Borrower must pay such amount. Lender may hire an attorney to help collect
this Note if Borrower does not pay, and Borrower will pay Lender's reasonable
attorneys' fees. Borrower also will pay Lender all other amounts actually
incurred by Lender as court costs, lawful fees for filing, recording, or
releasing to any public office any instrument securing this loan; the reasonable
costs actually expended for repossessing, storing, preparing for sale, and
selling any security; and fees for noting a lien on or transferring a
certificate of title to any titled collateral offered as security for this loan,
or premiums or identifiable charges received in connection with the sale of
authorized insurance. This Note has been delivered to Lender and accepted by
Lender in the State of Texas. If there is a lawsuit, and if the transaction
evidenced by this Note occurred in Dallas County, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Dallas County, the State
of Texas. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other. This Note shall be governed by and construed in accordance with the
laws of the State of Texas and applicable federal laws.
<PAGE>
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the enforceability of the rest of the Note. In particular, this
provision means (among other things) that Borrower does not agree or intend to
pay, and Lender does not agree or intend to contract for, charge, collect, take,
reserve, or receive (collectively referred to herein as "charge or collect"),
any amount in the nature of interest or in the nature of a fee for this loan,
which would in any way or event (including demand, prepayment, or acceleration)
cause Lender to charge or collect more for this loan than the maximum rate
allowed by applicable law. Any such excess interest or unauthorized fee shall,
instead of anything stated to the contrary, be applied first to reduce the
principal balance of this loan, and when the principal has been paid in full, be
refunded to Borrower. The right to accelerate all sums due under this Note does
not include the right to accelerate any interest that has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance, or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of the loan evidenced
by this Note until payment in full so that the rate or amount of interest on
account of the loan evidence hereby does not exceed the applicable usuary
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees, or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate this Note, and notice of acceleration of this Note. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker, or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon, or perfect Lender's security interest in the collateral
without the consent or notice to anyone. All such parties also agree that Lender
may modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
SECURITY. This Note is unsecured.
IN WITNESS WHEREOF, I have set my hand hereto as of the date first
written above.
BORROWER:
/s/Gerardo Canet
--------------------------------
Gerardo Canet, President and CEO
<PAGE>
EXHIBIT 12.2
IVP's Prior Relationships with Medical Practices
1. Reproductive Science Center of Boston
2. Shady Grove Reproductive Science Centers, Inc.
3. Institute of Reproductive Medicine and Science of Saint
Barnabas Medical Center
<PAGE>
EXHIBIT 13.2
IVP's Trade Secrets, Proprietary, and Confidential Information
1. All information related to IVP that is not directly related to IPSI.
2. IVP retail pricing structure.
3. All internal policies and procedures used by IVP.
4. IVP's rebate structure with all pharmaceutical drug manufacturers
and distributors.
5. IVP's business plans and strategies.
6. IVP's customer relationships, referral sources, payors, and patients. 7.
IVP's dispensing and drug utilization data. 8. IVP's trade names and
programs developed for its direct-to-patient distribution services. 9. Any
other material, programs, or systems that IVP deems as confidential.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 2,280
<SECURITIES> 0
<RECEIVABLES> 13,366
<ALLOWANCES> 1,147
<INVENTORY> 0
<CURRENT-ASSETS> 15,490
<PP&E> 6,036 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,194
<CURRENT-LIABILITIES> 8,071
<BONDS> 0
0
166
<COMMON> 53
<OTHER-SE> 27,701
<TOTAL-LIABILITY-AND-EQUITY> 41,194
<SALES> 10,532
<TOTAL-REVENUES> 10,532
<CGS> 8,198
<TOTAL-COSTS> 8,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 598
<INCOME-TAX> 80
<INCOME-CONTINUING> 518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<FN>
<F1>
PP&E is net of accumulated depreciation.
</FN>
</TABLE>
