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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 0-20260
Commission File No. 1-11440
INTEGRAMED AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1150326
(I.R.S. Employer Identification No.)
One Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip Code)
(914) 253-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Series A Cumulative Convertible Preferred Stock, $1.00 par value
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CRF ss. 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K [ ]
Aggregate market value of voting stock (Common Stock, $.01 par value and
Preferred Stock, $1.00 par value) held by non-affiliates of the Registrant was
approximately $13.5 million on March 1, 1999 based on the closing sales price of
the Common Stock and Preferred Stock on such date.
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding was approximately 4,973,460 on March 1, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
Registrant's definitive proxy statement for the fiscal year ended December
31, 1998 to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and the Exhibit Index hereto.
PART I
ITEM 1. Business
Company Overview
IntegraMed America, Inc. (the "Company") is a health services management
company specializing in fertility and assisted reproductive technology ("ART")
services. The Company provides comprehensive management services to a nationwide
network of medical providers currently consisting of nine sites (each, a
"Network Site" or "Reproductive Science Center(R)"). Each Network Site consists
of a location or locations where the Company has a management agreement with a
physician group or hospital (each, a "Medical Practice") which employs and/or
contracts with the physicians. The current network of nine Reproductive Science
Centers ("RSCs") is comprised of twenty-two locations in nine states and the
District of Columbia and fifty-four physicians and Ph.D. scientists, including
physicians and Ph.D. scientists employed and/or contracted by the Medical
Practice, as well as, physicians who have arrangements to utilize the Company's
facilities.
Industry
Health Services Management
The health care industry in the United States is undergoing significant
changes in an effort to manage costs more efficiently while continuing to
provide high quality health care services. The United States Health Care
Financing Administration has estimated that national health care expenditures in
1997 were $1.1 trillion, with approximately $218 billion directly attributable
to physician services. Historically, health care in the United States has been
delivered through a fragmented system of health care providers.
Concerns over the accelerating costs of health care have resulted in
increased pressures from payors, including governmental entities and managed
care organizations, on providers of medical services to provide cost-effective
health care. Many payors are increasingly expecting providers of medical
services to develop and maintain quality outcomes through utilization review and
quality management programs. In addition, such payors typically desire that
physician practices share the risk of providing services through capitation and
other arrangements that provide for a fixed payment per member for patient care
over a specified period of time. This focus on cost-containment and financial
risk sharing has placed physician groups and sole practitioners at a significant
competitive disadvantage because they typically have high operating costs,
limited purchasing power with suppliers and limited abilities to purchase
expensive state-of-the-art equipment and invest effectively in sophisticated
information systems.
In response to reductions in the levels of reimbursement by third-party
payors and the cost-containment pressures on health care providers, physicians
and hospitals are increasingly seeking to affiliate with larger organizations,
including health services management companies, which manage the non-medical
aspects of physician practices and hospitals, such as billing, purchasing and
contracting with payor entities. In addition, affiliation with health services
management companies provides physician groups and hospitals with improved
access to (i) state-of-the-art laboratory facilities, equipment and supplies,
(ii) the latest technology and diagnostic and clinical procedures, (iii) capital
and informational, managerial and administrative resources and (iv) access to
managed care relationships.
The trends that are leading physicians and hospitals to affiliate with
health service management companies are magnified in the field of reproductive
medicine due to several factors, including (i) the increasingly high level of
specialized skills and technology required for comprehensive patient treatment,
(ii) the capital intensive nature of acquiring and maintaining state of-the-art
medical equipment and laboratory and clinical facilities, (iii) the need to
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develop and maintain specialized management information systems to meet the
increasing demands of technological advances, patient monitoring and third-party
payors, and (iv) the need for seven-days-a-week service to respond to patient
needs and to optimize the outcomes of patient treatments.
Reproductive Medicine
Reproductive medicine encompasses several medical disciplines that focus on
male and female reproductive systems and processes. Within the field of
reproductive medicine, there are several subspecialties, such as obstetrics and
gynecology, infertility and reproductive endocrinology. While there are many
reasons why couples have difficulty conceiving, the single most prominent course
of infertility therapy involves management of the women's endocrine system to
optimize an opportunity for pregnancy. Most obstetricians perform ovulation
induction, and many gynecologists perform conventional infertility treatments.
Infertility specialists are gynecologists who perform more sophisticated medical
and surgical infertility treatments. Reproductive endocrinology refers to the
diagnosis and treatment of all hormonal problems that lead to abnormal
reproductive function or have an effect on the reproductive organs. Reproductive
endocrinologists are physicians who have completed four years of residency
training in obstetrics and gynecology and have at least two years of additional
training in an approved subspecialty fellowship program.
Conventional infertility services include diagnostic tests performed on the
female, such as endometrial biopsy, laparoscopy/hysteroscopy examinations and
hormone screens, and diagnostic tests performed on the male, such as semen
analysis and tests for sperm antibodies. Depending on the results of the
diagnostic tests performed, conventional treatment options may include, among
others, fertility drug therapy, artificial insemination and infertility
surgeries. These conventional infertility services are not classified as ART
services. Current types of ART services include in vitro fertilization, gamete
intrafallopian transfer, zygote intrafallopian transfer, tubal embryo transfer,
frozen embryo transfer and donor egg programs. Current ART techniques used in
connection with ART services include intracytoplasmic sperm injection, assisted
hatching and cryopreservation of embryos.
According to The American Society for Reproductive Medicine, it is
estimated that in 1996 approximately 10% of women between the ages of 15 and 44,
or 6.1 million women, had impaired fertility. Based on data derived from
industry sources, the Company estimates that annual expenditures relating to
infertility services are approximately $2 billion. The Company believes that
multiple factors over the past several decades have affected fertility levels. A
demographic shift in the United States toward the deferral of marriage and first
birth has increased the age at which women are first having children. This, in
turn, makes conception more difficult and increases the risks associated with
pregnancy, thereby increasing the demand for ART services. In addition, the
technological advances in the diagnosis and treatment of infertility have
enhanced treatment outcomes and the prognoses for many couples.
Traditionally, conventional infertility services generally have been
covered by managed care payors and indemnity insurance, while ART services have
been paid directly by patients. Currently, there are several states that mandate
offering benefits of varying degrees for infertility services, including ART
services. In some states, the mandate is limited to an obligation on the part of
the payor to offer the benefit to employers. In Massachusetts, Rhode Island,
Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage of
conventional infertility services as well as ART services.
In the United States, there are approximately 38,000 OB/GYNs and
approximately 1,500 infertility specialists of which approximately 600 are
reproductive endocrinologists. There are approximately 400 facilities providing
ART services in the United States, of which approximately one-third are
hospital-affiliated and two-thirds are free-standing physician practices.
Increasingly, hospital affiliated programs are moving out of the hospital and
into lower cost physician practice settings.
Company Strategy
The Company's objective is to develop, manage and integrate a nationwide
network of Medical Practices specializing in the provision of high quality, cost
effective fertility health care services. The primary elements of the Company's
strategy include: (i) establishing additional Network Sites; (ii) increasing
revenues at the Network Sites; and (iii) developing a nationwide integrated
information system.
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Establishing Additional Network Sites
The Company intends to further develop its nationwide network of Medical
Practices by acquiring certain assets of and the right to manage leading
physician group practices specializing in infertility and ART services. The
Company will primarily focus its acquisition activities on larger group
practices operating in major cities, as Medical Practices providing infertility
and ART services require high fixed overhead which smaller physician group
practices (two physicians) and sole practitioners have difficulty in supporting.
The Company believes that a number of beneficial factors will contribute to the
successful expansion of its network. These factors include: (i) the high quality
reputation of the Company in providing management services in the areas of
infertility and ART services; (ii) the Company's experience and expertise in
increasing revenues and operating in a cost effective manner at its Medical
Practices; (iii) the Company's success in supporting improved patient outcomes
by providing management services to its Medical Practices; and (iv) the
Company's affiliations and relationships with high quality physician groups with
outstanding reputations and market position.
In addition, the Company intends to target hospital affiliations as a
promising opportunity for new management contracts. Currently, approximately
one-third of all ART services are offered in a hospital setting. ART services
are highly specialized with unique resource requirements, which the Company can
make available to hospitals, such as, embryology services. The Company will
target hospital-based programs located in smaller markets which would typically
not be a target for the Company's physician group practice service model. The
Company's hospital-based ART program management model is financially attractive
as it requires limited capital investment and entails modest financial risk to
the Company.
Increasing Revenues at the Network Sites
The Company intends to increase revenues derived under its management
agreements by assisting the Medical Practices in (i) acquiring and merging
smaller physician group practices in existing markets to expand the revenue base
at existing Medical Practices; (ii) expanding service offerings at the Medical
Practices which have previously been outsourced, such as laboratory and ART
services, thereby increasing revenues per patient; (iii) increasing marketing
and sales efforts; and (iv) increasing the participation of the Medical
Practices in clinical trials of new drugs, medical devices and diagnostic
technologies under development.
Developing a Nationwide Integrated Information System
The Company will continue to develop and implement ARTWorks(TM), a suite of
fertility care information systems customized for the Company's network of RSCs.
ARTWorks is comprised of information technologies in six areas, four of which
are currently being implemented and further customized and the latter two of
which are currently being developed: (i) ARTWorks for Clinical Services is a
clinician focused, patient centered system that provides instant and universal
access to the entire medical record for managing patient cycles and a couple's
entire reproductive treatment spectrum from initial consultation through
retrieval, transfer, and pregnancy outcome; (ii) ARTWorks for Practice
Management utilizes a network accessible "Master Patient Index" which tracks
patient scheduling, registration, check- in/out, billing collections, referral
management, and analysis reporting for the Medical Practices; (iii) ARTWorks for
Sales and Marketing manages contacts and assists in developing an extensive
database of prospects, clients, and tracking of events. The package manages
calendars, communications, contact histories and direct mail programs; (iv)
ARTWorks for Customer Satisfaction is built on a standard mailed survey from
which numerous analysis reports may be generated providing a highly effective
tool for targeting service improvement opportunities; (v) ARTWorks for Decision
Support is a comprehensive query and report writing tool which will retrieve and
combine data from each ARTWorks system providing for management and clinical
decision making; and (vi) ARTWorks for Human Resources is a comprehensive human
resource administrative system which will offer support for maintenance of
employee information, benefit administration, license tracking, credentialing,
time management and performance reviews.
Management Services
The Company provides comprehensive management services to support the
Medical Practices. In particular, the Company provides (i) administrative
services, including accounting and finance, human resource functions, and
purchasing of supplies and equipment; (ii) access to capital; (iii) marketing
and sales; (iv) integrated information systems; (v) assistance in identifying
best clinical practices; and (vi) access to technology. These services allow
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physicians to devote a greater portion of their efforts and time to meeting the
medical needs of their patients, which the Company believes leads to improved
outcomes and greater patient satisfaction at lower costs.
Administrative Services
The Company provides all of the administrative services necessary for the
non-medical aspects of the Medical Practices, including (i) accounting and
finance services, such as billing and collections, accounts payable, payroll,
and financial reporting and planning; (ii) recruiting, hiring, training and
supervising all non-medical personnel; and (iii) purchasing of supplies,
pharmaceuticals, equipment, services and insurance. By providing the Medical
Practices relief from increasingly complex administrative burdens, the Company
enables physicians at the Medical Practices to devote their efforts on a
concentrated and continuous basis to the rendering of medical services.
Furthermore, the economies of scale inherent in a network system enable the
Company to reduce the operating costs of its affiliated Medical Practices by
centralizing certain management functions and by contracting for group
purchases.
Access to Capital
The Company provides the Medical Practices increased access to capital for
expansion and growth. The Company offers physician and hospital providers in its
network access to the latest technology and facilities in order for them to
provide a full spectrum of services and compete effectively for patients in the
marketplace. For example, the Company has built a new facility inclusive of an
embryology laboratory for certain Medical Practices, thereby enabling them to
expand their service offerings to include a number of service offerings which
had previously been outsourced, such as, laboratory and ART services. In other
cases, the Company has introduced a new laboratory technique to the Medical
Practice, such as intracytoplasmic sperm injection (ICSI) or blastocyst culture
and transfer. The Company believes that access to these facilities and
technologies has improved the ability of the Medical Practice to offer
comprehensive high quality services, expand the revenue base per patient, and
compete effectively.
Marketing and Sales
The Company's marketing and sales department specializes in the
development of sophisticated marketing and sales programs giving Medical
Practices access to business-building techniques to facilitate growth and
development. In today's highly competitive health care environment, marketing
and sales are essential for the growth and success of physician practices.
However, these marketing and sales efforts are often too expensive for many
physician practice groups. Affiliation with the Company's network provides
physicians access to significantly greater marketing and sales capabilities than
would otherwise be available. The Company's marketing services focus on revenue
and referral enhancement, relationships with local physicians, media and public
relations and managed care contracting.
The Company believes that participation in its network will assist Medical
Practices in establishing contracts with managed care organizations. The Company
believes that integrating infertility physicians with ART facilities produces a
full service Medical Practice that can compete more effectively for managed care
contracts.
Integrated Information System
The Company is in the process of utilizing its established base of RSCs to
develop a nationwide, integrated information system called ARTWorks to collect
and analyze clinical, patient, administrative (including billing and
collections), financial, marketing and human resource data. The Company believes
it will be able to use this data to control expenses, measure patient outcomes,
improve patient care, develop and manage utilization rates and maximize
reimbursements. The Company also believes this integrated information system
will allow the Medical Practices to more effectively compete for and price
managed care contracts, in large part because an information network can provide
these managed care organizations with access to patient outcomes and cost data.
Assistance in Identifying Best Clinical Practices
The Company assists Medical Practices in identifying best clinical
practices and implementing quality assurance and risk management programs in
order to improve patient care and clinical outcomes. For example, the Company
has instituted a Clinical Quality Improvement Program that focuses the
physicians and laboratory technicians on the principal elements necessary to
achieve successful outcomes and incorporates periodic quality review programs.
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The Company believes that this program has contributed to a greater than 50%
average improvement in pregnancy rates over the last three years at the RSCs. In
addition, the Company's structured Clinical Quality Improvement Program produces
a distinctive competitive advantage in the marketplace for the Company's network
of Medical Practices.
Access to Technology
By affiliating with the Company's network, Medical Practices gain access to
advanced technologies, as well as diagnostic and clinical procedures. For
example, through participation in clinical trials of new drugs under development
for major pharmaceutical companies, Medical Practices have the opportunity to
apply technologies developed in a research environment to the clinical setting.
Additionally, participation in clinical trials gives Medical Practices
preferential involvement in cutting edge therapies and provide these practices
with an additional source of revenue.
The Reproductive Science Centers
Each RSC consists of a location or locations where the Company has a
management agreement with a physician group or hospital (each a "Medical
Practice"), which in turn employs and/or contracts with the physicians.
Current Reproductive Science Centers
The Company currently has a nationwide network consisting of nine RSCs with
twenty-two locations in nine states and the District of Columbia and fifty-four
physicians and Ph.D. scientists, including physicians and Ph.D. scientists
employed and/or contracted by the Medical Practice, as well as physicians who
have arrangements to utilize the Company's facilities. The following table
describes in detail each RSC:
<TABLE>
<CAPTION>
Number of Initial
Number of Physicians and Management
Reproductive Science Centers State(s) Locations Ph.D. Scientists Contract Date
---------------------------- -------- -------------------------- -------------
<S> <C> <C> <C> <C>
Reproductive Science Center of Boston........ MA 3 7 July 1988
Reproductive Science Associates.............. NY 2 11 June 1990
Institute of Reproductive Medicine and
Science of Saint Barnabas Medical Center... NJ 1 5 December 1991
Reproductive Science Associates.............. MO 1 3 November 1995
Reproductive Science Center of Walter Reed
Army Medical Center........................ DC 1 5 December 1995
Reproductive Science Center of Dallas........ TX 1 1 May 1996
Reproductive Science Center of the Bay Area
Fertility and Gynecology Medical Group..... CA 1 4 January 1997
Fertility Centers of Illinois, S.C........... IL 8 11 August 1997
Shady Grove Fertility Centers................ MD, VA & DC 4 7 March 1998
</TABLE>
Recent Acquisitions
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the Fertility Centers of Illinois, S.C. ("FCI"), a
physician group practice comprised of six physicians and six locations in the
Chicago, Illinois area. The Company acquired certain assets of Advocate Medical
Group, S.C. ("AMG") and Advocate MSO, Inc. and acquired the right to manage
AMG's infertility practice conducted under the name Center for Reproductive
Medicine ("CFRM"). Simultaneous with closing on this transaction, the Company
amended its management agreement with FCI to include two of the three physicians
practicing under the name CFRM. The aggregate purchase price was approximately
$1.5 million, consisting of approximately $1.2 million in cash and 46,079 shares
of Common Stock. The majority of the purchase price was allocated to exclusive
management rights.
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In March 1998, the Company acquired the majority of the capital stock of
Shady Grove Fertility Centers, Inc. ("Shady Grove"), currently a Maryland
business corporation which provides management services, and formerly a Maryland
professional corporation engaged in providing infertility services. Prior to the
closing of the transaction, Shady Grove had entered into a twenty-year
management agreement with Levy, Sagoskin and Stillman, M.D., P.C. (the "Shady
Grove P.C."), an infertility physician group practice comprised of six
physicians and four locations surrounding the greater Washington, D.C. area. The
Company acquired the balance of the Shady Grove capital stock on January 5, 1999
(the "Second Closing Date"). The aggregate purchase price for all of the Shady
Grove capital stock was approximately $5.7 million, consisting of approximately
$2.8 million in cash, 185,756 shares of Common Stock, and $1.5 million in
promissory notes. The purchase price was allocated to the various assets and
liabilities assumed and the balance was allocated to exclusive management
rights.
In regard to the shares of Company Common Stock issued in the above
transactions, Gerardo Canet, President and Chief Executive Officer of the
Company, was granted a voting proxy with respect to (i) the election of
Directors or any amendment to the Company's Certificate of Incorporation
affecting Directors and (ii) any change in stock options for management and
directors for a two-year period from each transaction's respective closing date.
The Company is evaluating and is engaged in discussions with regard to
several potential acquisitions. However, the Company has no agreements relating
to any acquisitions and there can be no assurance that any definitive agreements
will be entered into by the Company or that any additional acquisitions will be
consummated.
Clinical and Medical Services
The RSCs offer conventional infertility and ART services and either have,
or subcontract with, a state-of-the-art laboratory providing the necessary
diagnostic and therapeutic services. Multi-disciplinary teams help infertile
couples identify and address distinct physical, emotional, psychological and
financial issues related to infertility. Following a consultation session, a
patient couple is advised as to the treatment that has the greatest probability
of success in light of the couple's specific infertility problem. At this point,
a couple may undergo conventional infertility treatment or, if appropriate, may
directly undergo ART treatment.
Infertility and ART Services
Conventional infertility procedures include diagnostic tests performed on
the female, such as endometrial biopsy, post-coital test, laparoscopy
examinations as well as hormone screens, and diagnostic tests performed on the
male, such as semen analysis and tests for sperm antibodies. Depending on the
results of the diagnostic tests performed, conventional services may include
fertility drug therapy, tubal surgery and intrauterine insemination ("IUI"). IUI
is a procedure utilized generally to address male factor or unexplained
infertility. Depending on the severity of the condition, the man's sperm is
processed to identify the most active sperm for insemination into the woman, who
must have a normal reproductive system for this procedure. Such conventional
infertility services are not classified as ART services and are traditionally
performed by infertility specialists.
Current types of ART services include in vitro fertilization ("IVF"),
gamete intrafallopian transfer ("GIFT"), zygote intrafallopian transfer
("ZIFT"), tubal embryo transfer ("TET"), frozen embryo transfer ("FET") and
donor egg and sperm programs. IVF is performed by combining an egg and sperm in
a laboratory and, if fertilization is successful, transferring the resulting
embryo into the woman's uterus. GIFT is performed by inserting an egg and sperm
directly into a woman's fallopian tube with a resulting embryo floating into the
uterus. ZIFT and TET are procedures in which an egg is fertilized in the
laboratory and the resulting embryo is then transferred to the woman's fallopian
tube. ZIFT and TET are identical except for the timing of the transfer of the
embryo. FET is a procedure whereby previously harvested embryos are transferred
to the woman's uterus. Women who are unable to produce eggs but who otherwise
have normal reproductive systems can use the donor egg program in which a donor
is recruited to provide eggs for fertilization that are transferred to the
recipient woman. Current techniques used in connection with ART services include
intra-cytoplasmic sperm injection, assisted hatching and cryopreservation of
embryos.
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Development of New Clinical Services
From 1989 through 1998, the Company sponsored research by Monash University
in Melbourne, Australia ("Monash") relating to the development of new ART
services and techniques. This research led to the world's first birth of a
healthy infant from immature oocyte (egg) technology in 1994. Immature oocyte
services involve using transvaginal ultrasound-guided aspiration to obtain
immature oocytes from a woman's ovaries, maturing and fertilizing of the oocytes
in vitro and transferring one or more of the resulting embryos into the woman's
uterus for development of a possible pregnancy. The Company anticipates that
this technology may, in certain circumstances, facilitate treatment of
infertility by stimulating follicular development without the use of drugs.
The Company also has sponsored research by Genzyme Genetics, a division of
Genzyme Corp., relating to preimplantation embryo genetic testing (the fusion of
advances in genetic testing and embryology). Pursuant to the terms of the
agreement, each party was required to fund certain costs relating to the
research projects as well as to contribute up to an aggregate of $300,000 to
fund the joint development program. This agreement terminated in December 1996.
The Company retains the right to technology developed prior to the termination.
The Company believes that preimplantation embryo genetic testing could
potentially offer infertile couples utilizing ART services a higher probability
of the birth of a healthy baby after fertilization, as well as offer fertile
couples at high risk of transmitting certain types of genetic disorders the
option to utilize ART services to achieve pregnancy with a higher degree of
certainty that the fetus will be free of the genetic disorder for which it was
tested.
Laboratory Services
All of the RSCs either have, or subcontract with, a state-of-the-art
laboratory for the Medical Practice to perform diagnostic endocrine and
andrology laboratory tests on patients receiving infertility and ART services.
Endocrine tests assess female hormone levels in blood samples, while andrology
tests analyze semen samples. These tests are often used by the physician to
determine an appropriate treatment plan. In addition, the majority of the RSCs
generate additional revenue by providing such endocrine and andrology laboratory
tests for non-affiliated physicians in the geographic area.
Network Site Agreements
In establishing a Network Site, the Company typically (i) acquires certain
assets of a Medical Practice, (ii) enters into a long-term management agreement
with the Medical Practice under which the Company provides comprehensive
management services to the Medical Practice and (iii) assumes the principal
administrative, financial and general management functions of the Medical
Practice. In addition, the Company typically requires (i) that the Medical
Practice enter into long-term employment agreements containing non-compete
provisions with the affiliated physicians and (ii) that each of the physician
shareholders of the Medical Practice enter into a personal responsibility
agreement with the Company. Typically, the Medical Practice contracting with the
Company is a professional corporation of which certain of or all of the
physicians are the sole shareholders.
Management Agreements
Typically, the management agreements obligate the Company to pay a fixed
sum for the exclusive right to manage the Medical Practice, a portion or all of
which is paid at the contract signing with any balance to be paid in future
annual installments. The agreements are typically for terms of ten to 25 years
and are generally subject to termination due to insolvency, bankruptcy or
material breach of contract. Generally, no shareholder of the Medical Practice
may assign his interest in the Medical Practice without the Company's prior
written consent.
The management agreements provide that all patient medical care at a
Network Site is provided by the physicians at the Medical Practice and that the
Company generally is responsible for the management and operation of all other
aspects of the Network Site. The Company provides the equipment, facilities and
support necessary to operate the Medical Practice and employs substantially all
such other non-physician personnel as are necessary to provide technical,
consultative and administrative support for the patient services at the Network
Site. Under certain management agreements, the Company is committed to provide a
clinical laboratory. Under the management agreements, the Company may also
advance funds to the Medical Practice to provide new services, utilize new
technologies, fund projects, purchase the net accounts receivable, provide
working capital or fund mergers with other physicians or physician groups.
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Under six of the agreements, including the revised management agreement for
the Boston Network Site, the Company receives as compensation for its management
services a three-part management fee comprised of: (i) a fixed percentage of net
revenues generally equal to 6%, (ii) reimbursed costs of services (costs
incurred in managing a Medical Practice and any costs paid on behalf of the
Medical Practice) and (iii) a fixed or variable percentage of earnings after
management fees which is currently generally equal to up to 20%, or an
additional variable percentage of net revenues generally ranging from 7.5% to
9.5%.
Under the revised management agreement for the Long Island Network Site, as
compensation for its management services, the Company receives a fixed fee
(currently equal to $540,000 per annum), plus reimbursed costs of services.
Two of the Company's Network Sites are affiliated with medical centers.
Under one of these management agreements, the Company primarily provides
endocrine testing and administrative and finance services for a fixed percentage
of revenues, equal to 15% of net revenues, and reimbursed costs of services.
Under the second of these management agreements, the Company's revenues are
derived from certain ART laboratory services performed; the Company directly
bills patients for these services, and out of these revenues, the Company pays
its direct costs.
All management fees are reported as "Revenues, net" by the Company. Direct
costs incurred by the Company in performing its management services and costs
incurred on behalf of the Medical Practices are recorded in operating expenses
incurred on behalf of Network Sites. The physicians receive as compensation all
remaining earnings after payment of the Company's management fee.
Prior to January 1, 1998, under another form of management agreement which
had been in use at the Long Island and Boston Network Sites, the Company
recorded all patient service revenues and, out of such revenues, the Company
paid the Medical Practices' expenses, physicians' and other medical
compensation, direct materials and certain hospital contract fees. Under these
agreements, the Company guaranteed a minimum physician compensation based on an
annual budget jointly determined by the Company and the physicians. The
Company's management fee was payable only out of remaining revenues, if any,
after the payment of physician compensation and all direct administrative
expenses of the Medical Practice which were recorded as costs of service. Under
these arrangements, the Company had been liable for payment of all liabilities
incurred by the Medical Practices and had been at risk for any losses incurred
in the operation thereof. Due to changes in the management agreements related to
the Long Island and Boston Network Sites, effective in October 1997 and January
1998, respectively, the Company no longer displays patient service revenues of
the Long Island and Boston Medical Practices which had been reflected in
"Revenues, net" in the Company's consolidated statement of operations. The
revised management agreements provide for the Company to receive a specific
management fee, as previously described, which the Company will report in
"Revenues, net" in its consolidated statement of operations. The revised
agreements provide for increased incentives and risk-sharing for the Company's
affiliated medical providers.
Physician Employment Agreements
Physician employment agreements between the Medical Practices and the
physicians generally provide for an initial term ranging from three to five
years, which may be automatically renewed for successive intervals unless the
physician or the Medical Practice elects not to renew or such agreement is
otherwise terminated for cause or the death or disability of a physician. The
physicians are paid based upon either the number of procedures performed or
other negotiated formulas agreed upon between the physicians and the Medical
Practices, and the Medical Practices provide the physicians with health, death
and disability insurance and other benefits. The Medical Practices are obligated
to obtain and maintain professional liability insurance coverage which is
procured on behalf of the physicians. Pursuant to the employment agreements, the
physicians agree not to compete with the Medical Practices with whom they have
contracted during the term of the agreement and for a certain period following
the termination of such employment agreement. In addition, the agreements
contain customary confidentiality provisions.
Personal Responsibility Agreements
Commencing with management agreements entered into during 1997, in order to
protect its investment and commitment of resources, the Company has entered into
a Personal Responsibility Agreement (a "PR Agreement") with each of the
physician shareholders of the Medical Practice. If the physician should cease to
practice medicine through the respective contracted Medical Practice during the
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first five years of the related management agreement, except as a result of
death or permanent disability, the PR Agreement obligates the physician to repay
a ratable portion of the fee paid by the Company to the Medical Practice for the
exclusive right to manage such Medical Practice. The PR Agreement also contains
covenants for the physician not to compete with the Company during the term of
his or her employment agreement with the Medical Practice and for a certain
period thereafter.
Affiliate Care/Satellite Service Agreements
Medical Practices at the Network Sites may also have affiliate care
agreements and satellite service agreements with physicians who are not employed
by the Medical Practices or the Company located in the geographic area of the
Network Sites. Under an affiliate care agreement, the Medical Practice contracts
with a physician for the Medical Practice to provide certain ART services for
the physician's patients. Under a satellite service agreement, the Medical
Practice contracts with a physician for such physician to provide specific
services for the Medical Practice's patients, such as ultrasound monitoring,
blood drawing and endocrine testing.
Reliance on Third-Party Vendors
The RSCs, as well as all other medical providers who deliver services
requiring fertility medication, are dependent on three third-party vendors that
produce such medications (including but not limited to: Lupron, Follistim,
Repronex, GonalF and Pregnyl) that are vital to the provision of infertility and
ART services. Should any of these vendors experience a supply shortage, it may
have an adverse impact on the operations of the RSCs. To date, the RSCs have not
experienced any such adverse impacts.
Competition
The business of providing health care services is intensely competitive, as
is the health care services management industry, and each is continuing to
evolve in response to pressures to find the most cost-effective method of
providing quality health care. The Company experiences competitive pressures for
the acquisition of the assets of, and the provision of management services to,
additional Medical Practices. Although the Company focuses on Medical Practices
that provide infertility and ART services, it competes for management contracts
with other health care services management companies, including those focused on
infertility and ART services, as well as hospitals and hospital- sponsored
management services organizations. If federal or state governments enact laws
that attract other health care providers to the managed care market, the Company
may encounter increased competition from other institutions seeking to increase
their presence in the managed care market and which have substantially greater
resources than the Company. There can be no assurance that the Company will be
able to compete effectively with its current competitors, that additional
competitors will not enter the market, or that such competition will not make it
more difficult to acquire the assets of, and provide management services for,
Medical Practices on terms beneficial to the Company.
The infertility industry is highly competitive and characterized by
technological improvements. New ART services and techniques may be developed
that may render obsolete the ART services and techniques currently employed at
the RSCs. Competition in the areas of infertility and ART services is largely
based on pregnancy rates and other patient outcomes. Accordingly, the ability of
a Medical Practice to compete is largely dependent on its ability to achieve
adequate pregnancy rates and patient satisfaction levels.
Effects of Third-Party Payor Contracts
Traditionally, ART services have been paid for directly by patients and
conventional infertility services have been largely covered by indemnity
insurance or managed care payors. Currently, there are several states that
mandate offering certain benefits of varying degrees for infertility and ART
services. In some cases, the mandate is limited to an obligation on the part of
the payor to offer the benefit to employers. In Massachusetts, Rhode Island,
Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage of
conventional infertility services as well as certain ART services.
Over the past few years much attention has been focused on clinical
outcomes in managed care. Infertility is a disorder which naturally lends itself
to developing a managed care plan. First, infertility has a clearly defined
endpoint: an infertile couple either conceives or does not conceive. Second, the
treatment regimens and protocols used for treating infertile couples have
predictable outcomes that make it possible to develop statistical tables for the
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probability of success. Third, it is possible to develop rational treatment
plans over a limited period of time for infertile couples. However, there can be
no assurance that third-party payors will increase reimbursement coverage for
ART services.
The Company has invested in information technology that takes into
consideration the cost structure of a full service practice, the probability of
achieving clinical success, and defined treatment plans which result in improved
outcomes and reduced costs. In 1998, the Company initiated a managed care
strategy which incorporates quality indicators in addition to price. As a result
of this strategy, several leading health plans in Massachusetts included quality
indicators in their contracting prices for the first time.
The Company estimates that the majority of the couples participating in
infertility and ART services at the RSCs, other than in California,
Massachusetts and Illinois, have greater than 50% of their costs reimbursed by
their health care insurance carrier. In California, the majority of the patient
costs are not reimbursed. In Massachusetts and Illinois, where comprehensive
infertility and ART services insurance reimbursement is mandated, virtually all
patient costs are reimbursed. Approximately 67% and 61% of the Company's
revenues, net for the years ended December 31, 1998 and 1997, respectively, were
derived from revenues received by the Medical Practices from third-party payors.
To date, the Company has not been significantly negatively impacted by existing
trends related to managed care contracts. As the Company's management fees for
managing such Medical Practices are based on revenues and/or earnings of the
respective Medical Practices, changes in managed care practices, including
changes in covered procedures or reimbursement rates could adversely affect the
Company's management fees in the future.
Government Regulation
As a participant in the health care industry, the Company's operations and
its relationships with the Medical Practices are subject to extensive and
increasing regulation by various governmental entities at the federal, state and
local levels. The Company believes its operations and those of the Medical
Practices are in material compliance with applicable health care laws.
Nevertheless, the laws and regulations in this area are extremely complex and
subject to changing interpretation and many aspects of the Company's business
and business opportunities have not been the subject of federal or state
regulatory review or interpretation. Accordingly, there is no assurance that the
Company's operations have been in compliance at all times with all such laws and
regulations. In addition, there is no assurance that a court or regulatory
authority will not determine that the Company's past, current or future
operations violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, there could
be a material adverse effect on the Company's business, financial condition and
operating results. There can be no assurance that such laws will be interpreted
in a manner consistent with the Company's practices. There can be no assurance
that a review of the Company or the Medical Practices by courts or regulatory
authorities will not result in a determination that would require the Company or
the Medical Practices to change their practices. There also can be no assurance
that the health care regulatory environment will not change so as to restrict
the Company's or the Medical Practices' existing operations or their expansions.
Any significant restructuring or restriction could have a material adverse
effect on the Company's business, financial condition and operating results.
Corporate Practice of Medicine Laws. The Company's operations in
Massachusetts, New York, New Jersey, Pennsylvania, District of Columbia, Texas,
California, Illinois, Maryland and Virginia may be subject to prohibitions
relating to the corporate practice of medicine. The laws of these states
prohibit corporations other than professional corporations or associations from
practicing medicine or exercising control over physicians, and prohibit
physicians from practicing medicine in partnership with, or as employees of, any
person not licensed to practice medicine and may prohibit a corporation other
than professional corporations or associations (or, in some states, limited
liability companies) from acquiring the goodwill of a medical practice. In the
context of management contracts between a corporation not authorized to practice
medicine and the physicians or their professional entity, the laws of most of
these states focus on the extent to which the corporation exercises control over
the physicians and on the ability of the physicians to use their own
professional judgment as to diagnosis and treatment. The Company believes its
operations are in material compliance with applicable state laws relating to the
corporate practice of medicine. The Company performs only non-medical
administrative services, and in certain circumstances, clinical laboratory
services. The Company does not represent to the public that it offers medical
services, and the Company does not exercise influence or control over the
practice of medicine by physicians with whom it contracts in these states. In
each of these states, the Medical Practice is the sole employer of the
physicians, and the Medical Practice retains the full authority to direct the
medical, professional and ethical aspects of its medical practice. However,
although the Company believes its operations are in material compliance with
applicable state corporate practice of medicine laws, the laws and their
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interpretations vary from state to state, and they are enforced by regulatory
authorities that have broad discretionary authority. There can be no assurance
that these laws will be interpreted in a manner consistent with the Company's
practices or that other laws or regulations will not be enacted in the future
that could have a material adverse effect on the Company's business, financial
condition and operating results. If a corporate practice of medicine law is
interpreted in a manner that is inconsistent with the Company's practices, the
Company would be required to restructure or terminate its relationship with the
applicable Medical Practice in order to bring its activities into compliance
with such law. The termination of, or failure of the Company to successfully
restructure, any such relationship could result in fines or a loss of revenue
that could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, expansion of the Company's
operations to new jurisdictions could require structural and organizational
modifications of the Company's relationships with the Medical Practices in order
to comply with additional state statutes.
Fee-Splitting Laws. The Company's operations in the states of New York,
California, Maryland and Illinois are subject to express fee-splitting
prohibitions. The laws of these states prohibit physicians from splitting
professional fees with non-physicians and health care professionals not
affiliated with the physician performing the services generating the fees. In
New York, this prohibition includes any fee the Company may receive from the
Medical Practices which is set in terms of a percentage of, or otherwise
dependent on, the income or receipts generated by the physicians. In certain
states, such as California and New York, any fees that a non-physician receives
in connection with the management of a physician practice must bear a reasonable
relationship to the services rendered, based upon the fair market value of such
services. Under Illinois law, the courts have broadly interpreted the
fee-splitting prohibition in that state to prohibit compensation arrangements
that include (i) fees that a management company may receive based on a
percentage of net profits generated by physicians, despite the performance of
legitimate management services, (ii) fees received by a management company
engaged in obtaining referrals for its physician where the fees are based on a
percentage of certain billings collected by the physician and (iii) purchase
price consideration to a seller of a medical practice based on a percentage of
the buyer's revenues following the acquisition. Several of the other states
where the Company has operations, such as Texas and New Jersey, do not expressly
prohibit fee-splitting but do have corporate practice of medicine prohibitions.
In these states, regulatory authorities frequently interpret the corporate
practice of medicine prohibition to encompass fee-splitting, particularly in
arrangements where the compensation charged by the management company is not
reasonably related to the services rendered. In addition, certain states
(including Virginia and the District of Columbia), have fee-splitting
prohibitions which have restrictions on splitting or dividing fees with persons
in exchange for professional referrals.
The Company believes that its current operations are in material compliance
with applicable state laws relating to fee-splitting prohibitions. However,
there can be no assurance that these laws will be interpreted in a manner
consistent with the Company's practices or that other laws or regulations will
not be enacted in the future that could have a material adverse effect on the
Company's business, financial condition and operating results. If a
fee-splitting law is interpreted in a manner that is inconsistent with the
Company's practices, the Company could be required to restructure or terminate
its relationship with the applicable Medical Practice in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could have a material
adverse effect on the Company's business, financial condition and operating
results. In addition, expansion of the Company's operations to new jurisdictions
could require structural and organizational modifications of the Company's
relationships with the Medical Practices in order to comply with additional
state statutes.
With respect to the Chicago and Shady Grove Network Sites, the management
agreement between the Company and the affiliated Medical Practice provides that
the Company will be paid a base fee equal to a fixed percentage of the revenues
at the Network Site and, as additional compensation, an additional variable
percentage of such revenues that declines to zero to the extent the costs
relating to the management of the Medical Practice increase as a percentage of
total revenues. The Company and the respective Medical Practices have agreed
that if such compensation arrangement were found to be illegal, unenforceable,
against public policy or forbidden by law, the management fee would be an annual
fixed fee to be mutually agreed upon, not less than $1.0 million per year,
retroactive to the effective date of the agreement. In such event, the
management fees derived from these Medical Practices may decrease. Because the
Company can not predict or guarantee the actions of regulatory authorities,
there is a risk that a regulatory authority may disagree with the compensation
arrangement and challenge the same. In the event of such challenge, the
compensation arrangement may not be upheld. Moreover, if a management agreement
was amended to provide for an annual fixed fee payable to the Company, the
contribution from the Network Site could be materially reduced.
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Federal Antikickback Law. The Company is subject to the laws and
regulations that govern reimbursement under the Medicare and Medicaid programs.
Currently less than 5% of the revenues of the Medical Practices are derived from
Medicare and none of such revenues are derived from Medicaid. Federal law (the
"Federal Antikickback Law") prohibits, with some exceptions, the solicitation or
receipt of remuneration in exchange for, or the offer or payment of remuneration
to induce, the referral of federal health care program beneficiaries, including
Medicare or Medicaid patients, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by Medicare,
Medicaid and other federal and state health programs.
With respect to the Federal Antikickback Law, the Office of the Inspector
General ("OIG") has promulgated regulatory "safe harbors" under the Federal
Antikickback Law that describe payment practices between health care providers
and referral sources that will not be subject to criminal prosecution and that
will not provide the basis for exclusion from the federal health care programs.
Relationships and arrangements that do not fall within the safe harbors are not
illegal per se, but will subject the activity to greater governmental scrutiny.
Many of the parties with whom the Company contracts refer, or are in a position
to refer, patients to the Company. Although the Company believes that it is in
material compliance with the Federal Antikickback Law, there can be no assurance
that such law or the safe harbor regulations promulgated thereunder will be
interpreted in a manner consistent with the Company's practices. The breadth of
the Federal Antikickback Law, the paucity of court decisions interpreting the
law and the safe harbor regulations, and the limited nature of regulatory
guidance regarding the safe harbor regulations have resulted in ambiguous and
varying interpretations of the Federal Antikickback Law. The OIG or the
Department of Justice ("DOJ") could determine that the Company's past or current
policies and practices regarding its contracts and relationships with the
Medical Practices violate the Federal Antikickback Law. In such event, no
assurance can be given that the Company's interpretation of these laws will
prevail. In addition, Congress has passed the Balanced Budget Act of 1997,
which, among other provisions, permits the imposition of civil monetary
penalties (in addition to existing criminal penalties) for violations of the
Antikickback Law. The failure of the Company's interpretation of the Federal
Antikickback Law to prevail, and the possibility of having civil monetary
penalties imposed as a result of a violation, could have a material adverse
effect on the Company's business, financial condition and operating results.
Federal Referral Laws. Federal law also prohibits, with some exceptions,
physicians from referring Medicare or Medicaid patients to entities for certain
enumerated "designated health services" with which the physician (or members of
his or her immediate family) has an ownership or investment relationship, and an
entity from filing a claim for reimbursement under the Medicare or Medicaid
programs for certain enumerated designated health services if the entity has a
financial relationship with the referring physician. Significant prohibitions
against physician referrals were enacted by the United States Congress in the
Omnibus Budget Reconciliation Act of 1993. These prohibitions, known as "Stark
II," amended prior physician self-referral legislation known as "Stark I" by
dramatically enlarging the field of physician-owned or physician-interested
entities to which the referral prohibitions apply. The designated health
services enumerated under Stark II include: clinical laboratory services,
radiology services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services.
Significantly, certain "in-office ancillary services" furnished by group
practices are excepted from the physician referral prohibitions of Stark II. The
Company believes that its practices either fit within this and other exceptions
contained in such statutes, or have been structured so as to not implicate the
statute in the first instance, and therefore, the Company believes it is in
compliance with such legislation. Nevertheless, future regulations or
interpretations of current regulations could require the Company to modify the
form of its relationships with the Medical Practices. Moreover, the violation of
Stark I or Stark II by the Medical Practices could result in significant fines,
loss of reimbursement and exclusion from the Medicare and Medicaid programs
which could have a material adverse effect on the Company.
Recently, Congress enacted the Health Insurance Portability and Accounting
Act of 1996, which includes an expansion of certain fraud and abuse provisions
(including the Federal Antikickback Law and Stark II) to other federal health
care programs and a separate criminal statute prohibiting "health care fraud."
Due to the breadth of the statutory provisions of the fraud and abuse laws and
the absence of definitive regulations or court decisions addressing the type of
arrangements by which the Company and its Medical Practices conduct and will
conduct their business, from time to time certain of their practices may be
subject to challenge under these laws.
False Claims. Under separate federal statutes, submission of claims for
payment that are "not provided as claimed" may lead to civil money penalties,
criminal fines and imprisonment and/or exclusion from participation in the
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Medicare, Medicaid and other federally-funded health care programs. These false
claims statutes include the Federal False Claims Act, which allows any person to
bring suit alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and to share in any amounts paid by the entity to the
government in fines or settlement. Such qui tam actions have increased
significantly in recent years and have increased the risk that a health care
company will have to defend a false claims action, pay fines or be excluded from
participation in the Medicare and/or Medicaid programs as a result of an
investigation arising out of such an action.
State Antikickback and Self-Referral Laws. The Company is also subject to
state statutes and regulations that prohibit kickbacks in return for the
referral of patients in each state in which the Company has operations. Several
of these laws apply to services reimbursed by all payors, not simply Medicare or
Medicaid. Violations of these laws may result in prohibition of payment for
services rendered, loss of licenses as well as fines and criminal penalties.
State statutes and regulations that prohibit payments intended to induce
the referrals of patients to health care providers range from statutes and
regulations that are substantially the same as the federal laws and the safe
harbor regulations to regulations regarding unprofessional conduct. These laws
and regulations vary significantly from state to state, are often vague, and, in
many cases, have not been interpreted by courts or regulatory agencies. Adverse
judicial or administrative interpretations of such laws could require the
Company to modify the form of its relationships with the Medical Practices or
could otherwise have a material adverse effect on the Company's business,
financial condition and operating results.
In addition, New York, New Jersey, California, Florida, Pennsylvania,
Illinois, Maryland and Virginia have enacted laws on self-referrals that apply
generally to the health care profession, and the Company believes it is likely
that more states will follow. These state self-referral laws include outright
prohibitions on self-referrals similar to Stark or a simple requirement that
physicians or other health care professionals disclose to patients any financial
relationship the physicians or health care professionals have with a health care
provider that is being recommended to the patients. The Company's operations in
New York, New Jersey, California and Illinois have laboratories which are
subject to prohibitions on referrals for services in which the referring
physician has a beneficial interest. However, New York, New Jersey, California
and Maryland have an exception for "in-office ancillary services" similar to the
federal exception and in Illinois, the self-referral laws do not apply to
services within the health care worker's office or group practice or to outside
services as long as the health care worker directly provides health services
within the entity and will be personally involved with the provision of care to
the referred patient. The Company believes that the laboratories in its
operations fit within exceptions contained in such statutes or are not subject
to the statute at all. Each of the laboratories in the states in which these
self-referral laws apply are owned by the Medical Practice in that state and are
located in the office of such Medical Practice. However, there can be no
assurance that these laws will be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in the
future that could have a material adverse effect on the Company's business,
financial condition or operating results. In addition, expansion of the
Company's operations to new jurisdictions could require structural and
organizational modifications of the Company's relationships with the Medical
Practices in order to comply with new or revised state statutes.
Antitrust Laws. In connection with corporate practice of medicine laws
referred to above, the Medical Practices with whom the Company is affiliated
necessarily are organized as separate legal entities. As such, the Medical
Practices may be deemed to be persons separate both from the Company and from
each other under the antitrust laws and, accordingly, subject to a wide range of
laws that prohibit anti-competitive conduct among separate legal entities. The
Company believes it is in compliance with these laws and intends to comply with
any state and federal laws that may affect its development of health care
networks. There can be no assurance, however, that a review of the Company's
business by courts or regulatory authorities would not have a material adverse
effect on the operation of the Company and the Medical Practices.
Government Regulation of ART Services. With the increased utilization of
ART services, government oversight of the ART industry has increased and
legislation has been adopted or is being considered in a number of states
regulating the storage, testing and distribution of sperm, eggs and embryos. The
Company believes it is currently in compliance with such legislation where
failure to comply would subject the Company to sanctions by regulatory
authorities, which could have a material adverse effect on the Company's
business, financial condition and operating results.
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Regulation of Clinical Laboratories. The Company's and the Medical
Practices' endocrine and embryology clinical laboratories are subject to
governmental regulations at the federal, state and local levels. The Company
and/or the Medical Practices at each Network Site have obtained, and from time
to time renew, federal and/or state licenses for the laboratories operated at
the Network Sites.
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA 88") extended
federal oversight to all clinical laboratories, including those that handle
biological matter, such as eggs, sperm and embryos, by requiring that all
laboratories be certified by the government, meet governmental quality and
personnel standards, undergo proficiency testing, be subject to biennial
inspections, and remit fees. For the first time, the federal government is
regulating all laboratories, including those operated by physicians in their
offices. Rather than focusing on location, size or type of laboratory, this
extended oversight is based on the complexity of the test the laboratories
perform. CLIA 88 and the 1992 implementing regulations established a more
stringent proficiency testing program for laboratories and increased the range
and severity of sanctions for violating the federal licensing requirements. A
laboratory that performs highly complex tests must meet more stringent
requirements, while those that perform only routine "waived" tests may apply for
a waiver from most requirements of CLIA 88.
The sanctions for failure to comply with CLIA and these regulations include
suspension, revocation or limitation of a laboratory's CLIA certificate
necessary to conduct business, significant fines or criminal penalties. The loss
of a license, imposition of a fine or future changes in such federal, state and
local laws and regulations (or in the interpretation of current laws and
regulations) could have a material adverse effect on the Company.
In addition, the Company's clinical laboratory activities are subject to
state regulation. CLIA 88 permits a state to require more stringent regulations
than the federal law. For example, state law may require that laboratory
personnel meet certain more stringent qualifications, specify certain quality
control standards, maintain certain records, and undergo additional proficiency
testing.
The Company believes it is in material compliance with the foregoing
standards.
Other Licensing Requirements. Every state imposes licensing requirements on
individual physicians, and some regulate facilities and services operated by
physicians. In addition, many states require regulatory approval, including
certificates of need, before establishing certain types of health care
facilities, offering certain services, or making certain capital expenditures in
excess of statutory thresholds for health care equipment, facilities or
services. To date, the Company has not been required to obtain certificates of
need or similar approvals for its activities. In connection with the expansion
of its operations into new markets and contracting with managed care
organizations, the Company and the Medical Practices may become subject to
compliance with additional federal and state regulations. Finally, the Company
and the Medical Practices are subject to federal, state and local laws dealing
with issues such as occupational safety, employment, medical leave, insurance
regulation, civil rights and discrimination, medical waste and other
environmental issues. Increasingly, federal, state and local governments are
expanding the regulatory requirements for businesses, including medical
practices. The imposition of these regulatory requirements may have the effect
of increasing operating costs and reducing the profitability of the Company's
operations.
Future Legislation and Regulation. As a result of the continued escalation
of health care costs and the inability of many individuals to obtain health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures relating to health care reform. There can
be no assurance as to the ultimate content, timing or effect of any health care
reform legislation, nor is it possible at this time to estimate the impact of
potential legislation, which may be material, on the Company.
Liability and Insurance
The provision of health care services entails the substantial risk of
potential claims of medical malpractice and similar claims. The Company does
not, itself, engage in the practice of medicine or assume responsibility for
compliance with regulatory requirements directly applicable to physicians and
requires associated Medical Practices to maintain medical malpractice insurance.
In general, the Company has established a program that provides the Medical
Practices with such required insurance. However, in the event that services
provided at the RSCs or any affiliated Medical Practice are alleged to have
resulted in injury or other adverse effects, the Company is likely to be named
as a party in a legal proceeding.
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Although the Company currently maintains liability insurance that it
believes is adequate as to both risk and amount, successful malpractice claims
could exceed the limits of the Company's insurance and could have a material
adverse effect on the Company's business, financial condition or operating
results. Moreover, there can be no assurance that the Company will be able to
obtain such insurance on commercially reasonable terms in the future or that any
such insurance will provide adequate coverage against potential claims. In
addition, a malpractice claim asserted against the Company could be costly to
defend, could consume management resources and could adversely affect the
Company's reputation and business, regardless of the merit or eventual outcome
of such claim. In addition, in connection with the acquisition of the assets of
certain Medical Practices, the Company may assume certain of the stated
liabilities of such practice. Therefore, claims may be asserted against the
Company for events related to such practice prior to the acquisition by the
Company. The Company maintains insurance coverage related to those risks that it
believes is adequate as to the risks and amounts, although there can be no
assurance that any successful claims will not exceed applicable policy limits.
There are inherent risks specific to the provision of ART services. For
example, the long-term effects of the administration of fertility medication,
integral to most infertility and ART services, on women and their children are
of concern to certain physicians and others who fear the medication may prove to
be carcinogenic or cause other medical problems. Currently, fertility medication
is critical to most ART services and a ban by the United States Food and Drug
Administration or any limitation on its use would have a material adverse effect
on the Company. Further, ART services increase the likelihood of multiple
births, which are often premature and may result in increased costs and
complications.
Employees
As of March 1, 1999, the Company had 414 employees, 382 are employed at the
Network Sites and 32 are employed at the Company's headquarters, including 6 of
whom are executive management. Of the Company's employees, 158 persons at the
Network Sites and 4 at the Company's headquarters are employed on a part-time
basis. The Company is not party to any collective bargaining agreement and
believes its employee relationships are good.
ITEM 2. Properties
The Company's headquarters and executive offices are in Purchase, New York,
where it occupies approximately 8,000 square feet under a lease expiring April
14, 2000 at a monthly rental of $15,339.
The Company leases, subleases, and/or occupies, pursuant to its management
agreements, each Network Site location from third-party landlords. Costs
associated with these agreements are included in "Cost of services rendered" and
are reimbursed to the Company as part of its management fee; reimbursed costs
are included in "Revenues, net".
The Company believes its executive offices and the space occupied by the
Network Sites are adequate.
ITEM 3. Legal Proceedings
On March 10, 1998, the Company had received notice from Reproductive
Sciences Medical Center, Inc. ("RSMC") claiming that the Company had materially
breached its management agreement with RSMC and demanded that alleged breaches
be remedied. Contrary to RSMC's allegations, the Company believed that it had
materially performed its obligations under the management agreement and that
RSMC had materially breached the management agreement. On September 1, 1998, the
Company and RSMC entered into a stipulation and settlement agreement, resolving
all claims against each other. The management agreement has been terminated,
RSMC will lease the Company's assets over a period of three years, and the
parties have entered into mutual consulting agreements.
On October 9, 1998, W.F. Howard, M.D., P.A., filed a lawsuit against the
Company in the District Court of Denton County, Texas, seeking to rescind the
management agreement related to the Dallas Network Site, or collect damages, on
the ground that its practice has not realized the degree of growth or increases
as allegedly projected by the Company. The complaint asserts alleged breaches of
contract, fiduciary duties and warranties, as well as a claim under the Texas
Deceptive Trade Practices Act, and claims lost profit damages as well as an
exemplary award under statute. The Company believes that this complaint is
without merit, denies the allegations, and intends to vigorously defend its
position. Litigation counsel has advised the Company that it is too early in the
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litigation to meaningfully assess the likelihood of success of this lawsuit.
Nonetheless, counsel believes that even an unfavorable result will not have a
material adverse effect on the Company. The management agreement remains in full
operation during the pendency of the lawsuit.
There are 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 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of the stockholders of IntegraMed America, Inc. held
on November 17, 1998 approval was obtained for the amendment to the Company's
Amended and Restated Certificate of Incorporation to effect a one-for- four
reverse stock split of the issued and outstanding shares of the Common Stock,
par value $.01 per share, of the Company. The respective vote tabulations were
as follows: 17,230,415 votes For; 1,169,134 votes Against; and 19,775
Abstentions.
17
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "INMD" since the Company's formal name change in May 1996 and
prior to the name change under the symbol "IVFA" since May 21, 1993. Prior
thereto, the Company's Common Stock had been trading on the Nasdaq Small Cap
Market since October 8, 1992. The following table sets forth the high and low
sales price for the Common Stock, as reported on the Nasdaq National Market. The
1998 and 1997 sales prices for the Common Stock reflect the Company's 1-for-4
reverse stock split effective November 17, 1998.
Common Stock
----------------
High Low
---- ---
1997
First Quarter...................................$10.00 $6.00
Second Quarter.................................. 7.75 5.00
Third Quarter................................... 10.12 5.50
Fourth Quarter.................................. 10.12 5.12
1998
First Quarter................................... $9.50 $5.38
Second Quarter.................................. 9.00 4.75
Third Quarter................................... 6.25 2.50
Fourth Quarter.................................. 5.19 2.25
On March 1, 1998, there were approximately 264 holders of record of the
Common Stock and approximately 1,600 beneficial owners of shares registered in
nominee or street name.
The Company currently anticipates that it will retain all available funds
for use in the operation of its business and for potential acquisitions, and
therefore, does not anticipate paying any cash dividends on its Common Stock for
the foreseeable future.
Dividends on the Convertible Preferred Stock are payable at the rate of
$0.80 per share per annum, quarterly on the fifteenth day of August, November,
February and May of each year commencing August 15, 1993. In May 1995, as a
result of the Company's Board of Directors suspending four quarterly dividend
payments, holders of the Convertible Preferred Stock became entitled to one vote
per share of Convertible Preferred Stock on all matters submitted to a vote of
stockholders, including election of directors; once in effect, such voting
rights are not terminated by the payment of all accrued dividends. In October
1998, the Company paid the aggregate Convertible Preferred Stock dividend
payments of $563,186 which had been in arrears. Currently, there are no
Convertible Preferred Stock dividend payments in arrears.
In November 1998, the Company issued unregistered warrants to acquire
40,625 shares of Common Stock (the "Boston Warrants") to the shareholders of the
Medical Practice associated with the Reproductive Science Center of Boston (the
"Boston Medical Practice") in consideration of extending the Company's
management agreement with the Boston Medical Practice from ten to twenty-five
years. Twenty percent of the Boston Warrants vested immediately and have an
exercise price of $4.12. The balance of the Boston Warrants vest in annual 20%
increments at an exercise price which increases annually by 20% commencing
November 18, 1999.
In January 1999, the Company issued unregistered warrants to acquire 5,000
shares of Common Stock at $5.125 per share to Robert J. Stillman, M.D. in
connection with the Second Closing Date of the Shady Grove acquisition.
18
<PAGE>
ITEM 6. Selected Financial Data
The following selected financial data are derived from the Company's
consolidated financial statements and should be read in conjunction with the
financial statements, related notes, and other financial information included
elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data (1):
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $38,590 $20,559 $14,906 $13,648 $13,754
Costs of services rendered................... 29,778 14,940 11,610 9,986 10,998
------- ------- ------- ------- -------
Network Sites' contribution.................. 8,812 5,619 3,296 3,662 2,756
------- ------- ------- ------- -------
General and administrative expenses.......... 5,316 4,192 4,662 3,680 3,447
Restructuring and other charges (2).......... 2,084 -- -- -- --
Total other (income) expenses
(including income taxes).................. 1,643 632 8 (88) 123
------- ------- ------- ------- -------
(Loss) income from continuing operations..... (231) 795 (1,374) 70 (814)
Loss from operation and disposal of
AWM Division (3).......................... 4,501 421 116 -- --
------- ------- ------- ------- -------
Net (loss) income............................ (4,732) 374 (1,490) 70 (814)
Less: Dividends paid and/or accrued on
Preferred Stock........................... 133 133 133 600 1,146
------- ------- ------- ------- -------
Net (loss) income applicable to Common
Stock (4)................................. $(4,865) $ 241 $(1,623) $ (530) $(1,960)
======= ======= ======= ======= =======
Basic and diluted (loss) earnings per share
of Common Stock (4):
Continuing operations..................... $ (0.07) $ 0.21 $ (0.79) $ (0.35) $ (1.29)
Discontinued operations................... (0.87) (0.13) (0.06) -- --
------- ------- ------- ------- -------
Net (loss) earnings....................... $ (0.94) $ 0.08 $ (0.85) $ (0.35) $ (1.29)
======= ======= ======= ======= =======
Weighted average shares-- basic.............. 5,202 3,101 1,900 1,522 1,520
======= ======= ======= ======= =======
Weighted average shares-- diluted............ 5,202 3,154 1,900 1,522 1,520
======= ======= ======= ======= =======
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital (5).......................... $ 7,661 $ 4,082 $ 7,092 $10,024 $ 11,621
Total assets (5)............................. 43,693 36,101 20,850 18,271 17,733
Total indebtedness........................... 7,381 2,928 2,553 1,889 356
Accumulated deficit.......................... (25,548) (20,816) (21,190) (19,700) (19,770)
Shareholders' equity......................... 27,383 25,993 14,478 12,931 13,819
</TABLE>
(1) Earnings (loss) per share and weighted average share amounts for each year
reflect the Company's 1-for-4 reverse stock split effective November 17,
1998.
(2) Refer to Note 6 - Restructuring and Other Charges to the Company's
Consolidated Financial Statements.
(3) The AWM Division operations were sold effective September 1, 1998. Refer to
Note 5 - Discontinued Operations to the Company's Consolidated Financial
Statements.
(4) Net loss per share in 1996 of $(0.85) excludes the effect of the Company's
Second Offer. Refer to Note 11 to the Company's Consolidated Financial
Statements regarding the impact of the Company's Second Offer on net loss
per share from continuing operations in 1996.
(5) Includes controlled assets of certain Medical Providers of $650,000,
$1,759,000, and $2,783,000 at December 31, 1996, 1995 and 1994,
respectively .
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 1998. It should
be read in conjunction with the Company's Consolidated Financial Statements, the
related notes thereto and other financial and operating information included in
this Form 10-K.
Overview
IntegraMed America, Inc. (the "Company") is a health services management
company specializing in fertility and assisted reproductive technology ("ART")
services. The Company provides comprehensive management services to a nationwide
network of medical providers currently consisting of nine sites (each, a
"Network Site" or "Reproductive Science Center(R)"). Each Network Site consists
of a location or locations where the Company has a management agreement with a
physician group or hospital (each, a "Medical Practice") which employs and/or
contracts the physicians. The current network of nine Reproductive Science
Centers ("RSCs") is comprised of twenty-two locations in nine states and the
District of Columbia and fifty-four physicians and Ph.D. scientists, including
physicians and Ph.D. scientists employed and/or contracted by the Medical
Practice, as well as, physicians who have arrangements to utilize the Company's
facilities.
The Company's objective is to develop, manage and integrate a nationwide
network of Medical Practices specializing in the provision of high quality, cost
effective fertility health care services. The primary elements of the Company's
strategy include: (i) establishing additional Network Sites; (ii) increasing
revenues at the Network Sites; and (iii) developing a nationwide integrated
information system.
During the first quarter of 1998, the Company completed an equity private
placement of $5.5 million with Morgan Stanley Venture Partners' affiliates. A
portion of these funds was used by the Company to purchase the capital stock of
Shady Grove Fertility Centers, Inc. ("Shady Grove") and the right to manage the
Levy, Sagoskin and Stillman , M.D., P.C. (the "Shady Grove P.C."), an
infertility physician group practice comprised of six physicians and four
locations in the greater Washington, D.C. area.
In September 1998, the Company obtained from Fleet Bank, N.A. a $13.0
million credit facility to fund acquisitions over approximately the next one to
two years, to provide working capital, and to refinance its existing bank debt.
In addition, the Company has and will continue to utilize a portion of the
proceeds of the term loan from its new credit facility to pay part of the
consideration to repurchase up to $2 million of the Company's outstanding shares
of Common Stock from time to time on the open market at prevailing market prices
or through privately negotiated transactions.
During 1998, the Company recorded restructuring and other charges of
approximately $2.1 million associated with its termination of its management
agreement with the Reproductive Science Center of Greater Philadelphia, a
single- physician Network Site, effective July 1, 1998, and exclusive management
right impairment losses related to two other single-physician Network Sites. In
addition, due to continued operating losses and the Company's decision to focus
exclusively on fertility services, the Company sold the Adult Women's Medical
Division ("AWM Division") operations effective September 1, 1998. In 1998, the
Company recorded an aggregate charge of approximately $4.5 million related to
the operating losses and the disposal of the AWM Division.
The Company effected a 1-for-4 reverse stock split on November 17, 1998.
The reverse stock split was intended to allow the Company to comply with the
minimum $1.00 bid price per share requirement for continued listing of the
Company's Common Stock on the Nasdaq National Market.
Since inception through December 31, 1997, the management agreements
related to the Long Island and Boston Network Sites have been incorporated in
the Company's consolidated financial statements via the display method as the
Company believed that these management agreements provided it with a "net
profits or equivalent interest" in the medical services furnished by the Medical
Practices at the Long Island and Boston Network Sites. Consequently, for the
Long Island and Boston Network Sites, the Company has historically presented the
Medical Practices' patient services revenue, less amounts retained by the
Medical Practices, or "Medical Practice retainage", as "Revenues after Medical
Practice retainage" in its consolidated statement of operations ("display
method"). Due to changes in the management agreements related to the Long Island
and Boston Network Sites effective in October 1997 and January 1998,
respectively, the Company no longer displays the patient services revenue and
20
<PAGE>
Medical Practice retainage related to these Network Sites in the accompanying
consolidated statement of operations for the periods prior to January 1, 1998.
The revised management agreements provide for the Company to receive a specific
management fee which the Company has reported in "Revenues, net" in the
accompanying consolidated statement of operations. The revised agreements
provide for increased incentives and risk-sharing for the Company's affiliated
Medical Practices.
The Medical Practices managed by the Company are parties to managed care
contracts. Approximately 67% and 61% of the Company's revenues, net for the
years ended December 31, 1998 and 1997, respectively, were derived from revenues
received by the Medical Practices from third-party payors. To date, the Company
has not been negatively impacted by existing trends related to managed care
contracts. As the Company's management fees for managing such Medical Practices
are based on revenues and/or earnings of the respective Medical Practices,
changes in managed care practices, including changes in covered procedures or
reimbursement rates could adversely affect the Company's management fees in the
future.
Results of Operations
The following table shows the percentage of net revenue represented by
various expense and other income items reflected in the Company's Consolidated
Statement of Operations for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues, net.......................................................... 100% 100% 100%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses........................ 38.3% 37.7% 37.8%
Direct materials.................................................. 12.6% 7.3% 7.6%
Occupancy costs................................................... 7.3% 8.7% 9.6%
Depreciation...................................................... 3.5% 3.9% 4.5%
Other expenses.................................................... 15.5% 15.1% 18.4%
---- ---- ----
Total costs of services......................................... 77.2% 72.7% 77.9%
Network Sites' contribution............................................ 22.8% 27.3% 22.1%
General and administrative expenses.................................... 13.8% 20.4% 31.3%
Amortization of intangible assets...................................... 2.5% 2.8% 1.7%
Interest income........................................................ (0.2)% (0.5)% (2.8)%
Interest expense....................................................... 1.1% 0.3% 0.2%
---- ---- ----
Total other expenses............................................ 17.2% 23.0% 30.4%
Restructuring and other charges........................................ 5.39% -- --
Income (loss) from continuing operations before income taxes........... 0.3% 4.3% (8.3)%
Provision for income taxes............................................. 0.9% 0.5% 0.9%
(Loss) income from continuing operations (a)........................... (0.6)% 3.8% (9.2)%
Discontinued operations loss........................................... (11.7)% (2.0)% (0.8)%
Net (loss) income...................................................... (12.3)% 1.8% (10.0)%
</TABLE>
(a) Excluding the effect of the restructuring and other charges in 1998, income
from continuing operations as a percent of revenues, net would have been
4.8% for the year ended December 31, 1998.
Calendar Year 1998 Compared to Calendar Year 1997
Revenues, net for 1998 were approximately $38.6 million as compared to
approximately $20.6 million for 1997, an increase of $18.0 million, or 87.7%.
The increase in revenues, excluding revenues related to the Philadelphia Network
Site agreement which was terminated effective July 1, 1998 and including
revenues related to the San Diego Network Site agreement which was terminated
effective September 1, 1998, was approximately 74.5% attributable to new
management agreements entered into during the first quarter of 1998 and the
second and third quarter of 1997 and approximately 25.5% attributable to same
market growth. Same market growth was principally achieved via new service
offerings, the expansion of ancillary services, and increases in patient volume.
21
<PAGE>
The aggregate increase in revenue was comprised of the following: (i) an
approximate $14.8 million increase in reimbursed costs of services; and (ii) an
approximate $3.2 million increase in the Company's management fees derived from
the managed Medical Practices' net revenue and/or earnings.
Total costs of services as a percentage of revenue increased by 4.5% to
77.2% in 1998 as compared to 72.7% in 1997. Employee compensation and related
expenses, direct materials, depreciation and other expenses as a percentage of
revenue increased primarily due to the factors attributable to increasing
revenues. Occupancy costs as a percentage of revenue decreased primarily due to
the significant increase in revenues.
Network Sites' contribution increased to $8.8 million in 1998 as compared
to $5.6 million in 1997 due to the factors attributable to increasing revenues.
The Network Sites' contribution margin decreased to 22.8% of revenues, net in
1998 from 27.3% in 1997 primarily due to reimbursed services accounting for a
higher percent of revenues.
General and administrative expenses for 1998 were approximately $5.3
million as compared to approximately $4.2 million in 1997, an increase of 26.8%,
primarily due to increases in staffing and travel expenses attributable to
recent acquisitions. As a percentage of revenues, general and administrative
expenses decreased to approximately 13.8% from approximately 20.4% primarily due
to the significant increase in revenues.
Amortization of intangible assets was $962,000 in 1998 as compared to
$577,000 in 1997. This increase was attributable to the Company's acquisitions
of new management agreements in the first quarter of 1998 and the second and
third quarters of 1997. This increase was partially offset by the elimination of
amortization of exclusive management rights associated with certain single
physician Network Sites. Impairment losses were recorded in the second quarter
of 1998 to writeoff unamortized management rights payments on these Network
Sites.
Interest income for 1998 decreased to $91,000 from $109,000 for 1997, due
to a lower invested cash balance. Interest expense for 1998 increased to
$432,000 from $60,000 in 1997, due to increases in bank borrowings principally
to finance working capital needs and in notes payable to Medical Providers for
exclusive management rights.
The provision for income taxes, which primarily reflected various state
income taxes, increased to $340,000 in 1998 from $104,000 in 1997 primarily due
to the fact that the last of the New Jersey State net operating loss
carryforwards were used in 1997 and to incremental state taxes related to the
FCI and Shady Grove Network Sites which were acquired in August 1997 and March
1998, respectively.
Restructuring and other charges were approximately $2.1 million for 1998.
Such charges included approximately $1.4 million associated with the Company's
termination of its management agreement with the Reproductive Science Center of
Greater Philadelphia, a single physician Network Site, effective July 1, 1998,
which primarily consisted of exclusive management right impairment and other
asset write-offs. Such charges also included approximately $700,000 for
exclusive management right impairment losses related to two other single
physician Network Sites. The latter impairment losses were recorded based upon
the Company's determination that the intangible asset balance was larger than
the respective Medical Practice's estimated future cashflow.
Income from continuing operations excluding restructuring and other charges
was approximately $1.9 million for 1998 as compared to $795,000 for 1997. The
increase was primarily due to the approximate $3.2 million increase in Network
Site contribution, which was partially offset by increases in general and
administrative expenses, amortization of intangible assets, interest and income
tax expense.
Effective September 1, 1998, the Company disposed of the AWM Division
operations via a sale of certain of its fixed assets to a third party and the
third party's assumption of the employees, building lease, research contracts,
and medical records. This disposal was classified as a discontinued operation
for which an aggregate charge of approximately $4.5 million was recorded in
1998, of which $923,000 represented loss from operations and approximately $3.6
million represented loss from the disposal of the AWM Division. The loss from
disposal of the AWM Division principally represented approximately $3.3 million
related to the write-off of goodwill and $243,000 for estimated operating losses
during June through September 1, 1998, the phase-out period. During the
eight-month period ended August 31, 1998 and the year ended December 31, 1997,
the AWM Division recorded revenues of approximately $1.0 million and $2.1
million, respectively, which are classified as discontinued operations.
22
<PAGE>
Calendar Year 1997 Compared to Calendar Year 1996
Revenues, net for 1997 were approximately $20.6 million as compared to
approximately $14.9 million for 1996, an increase of approximately $5.7 million,
or 37.9%. The increase in revenues was attributable to new management agreements
entered into in each of the first three quarters of 1997, partially offset by
the absence of revenue related to the Westchester and East Long Meadow, MA
Network Site agreements which were terminated in November 1996 and January 1997,
respectively. The aggregate increase in revenue was comprised of the following:
(i) an approximate $3.4 million increase in reimbursed costs of services; and
(ii) an approximate $2.3 million increase in the Company's management fees
derived from the managed Medical Practices' net revenue and/or earnings.
Total costs of services as a percentage of revenue decreased by 5.2% for
1997 as compared to 1996 due to the significant increase in revenues.
Network Sites' contribution increased by approximately 70.5% to $5.6
million for 1997 as compared to $3.3 million for 1996 due to the factors
attributable to increasing revenues.
General and administrative expenses for 1997 were approximately $4.2
million as compared to approximately $4.7 million for 1996, a decrease of 10.1%.
As a percentage of revenues, general and administrative expenses decreased to
approximately 20.4% from approximately 31.3% primarily due to the significant
increase in revenues.
Amortization of intangible assets was $577,000 for 1997 as compared to
$246,000 for 1996. This increase was attributable to the Company's acquisitions
of new management agreements in each of the first three quarters of 1997 and to
there being a full year of amortization related to the AWM Division which had
been established in June 1996.
Interest income for 1997 decreased to $109,000 from $415,000 for 1996, due
to a lower invested cash balance. Interest expense for 1997 increased to $60,000
from $36,000 for 1996, principally due to there being a full year of interest
related to the note payable issued to the Medical Provider of the AWM Division
which had been established in June 1996.
The provision for income taxes primarily reflected various state income
taxes in both 1997 and 1996.
Income from continuing operations was 795,000 for 1997 as compared to a
loss from continuing operations of approximately $1.4 million in 1996. This
increase was primarily due to the approximate $2.3 million increase in Network
Site contribution, which was partially offset by the increase in amortization of
intangible assets and the decrease in interest income.
Effective September 1, 1998, the Company disposed of the AWM Division which
had been established in June 1996. The AWM Division's operations were disposed
of via a sale of certain of its fixed assets to a third party and the third
party's assumption of the employees, building lease, research contracts, and
medical records. During the year ended December 31, 1997, and for the period
from June 7, 1996 through December 31, 1996 the AWM Division recorded revenues
of approximately $2.1 million and $757,000, respectively, which are classified
as discontinued operations.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. More recently, the Company has commenced using bank
financing for working capital and acquisition purposes. The Company anticipates
that its acquisition strategy will continue to require substantial capital
investment. Capital is needed not only for additional acquisitions, but also for
the effective integration, operation and expansion of the Company's existing
Network Sites. The Medical Practices may require capital for renovation and
expansion and for the addition of medical equipment and technology. In September
1998, the Company obtained from Fleet Bank, N. A. a $13.0 million credit
facility to fund acquisitions over approximately the next one to two years, to
provide working capital, and to refinance its existing bank debt. In addition,
the Company has and will continue to utilize a portion of the proceeds of the
term loan from its new credit facility to finance part of the consideration to
repurchase up to $2 million of the Company's outstanding shares of Common Stock
from time to time on the open market at prevailing market prices or through
privately negotiated transactions.
23
<PAGE>
During the first quarter of 1998, the Company completed an equity private
placement of $5.5 million with Morgan Stanley Venture Partners' affiliates
("Morgan Stanley") providing for the purchase of 808,824 shares of the Company's
Common Stock at a price of $6.80 per share and 60,000 warrants to purchase
shares of the Company's Common Stock, at a nominal exercise price. A portion of
these funds were used by the Company to purchase the capital stock of Shady
Grove and the right to manage the Shady Grove P.C.'s infertility medical
practice. The balance of these funds have been used for working capital
purposes.
At December 31, 1998, the Company had working capital of approximately $7.7
million, approximately $4.2 million of which consisted of cash and cash
equivalents, compared to working capital of approximately $4.1 million at
December 31, 1997, approximately $1.9 million of which consisted of cash and
cash equivalents. The net increase in working capital at December 31, 1998 was
principally due to the $5.5 million proceeds received from the equity private
placement with Morgan Stanley and $6.0 million in bank loan proceeds, partially
offset by approximately $3.2 million in payments for exclusive management
rights, approximately $2.9 million in debt repayments and an approximate $1.9
million increase in short-term debt related to the Shady Grove transaction.
During the first quarter of 1998, the Company completed its second
in-market merger with the addition of two physicians to the FCI practice and
entered into a new management agreement with the Shady Grove, P.C. The aggregate
purchase price of these transactions, exclusive of acquisition costs, was
approximately $7.2 million, consisting of approximately $4.0 million in cash,
$1.5 million in promissory notes, and 212,433 shares of the Company's Common
Stock. A portion of the aggregate purchase price of the Shady Grove transaction
was paid in January 1999 as follows:
(i) approximately $1.0 million in cash, (ii) approximately $200,000 in stock,
or 25,868 shares of Common Stock (based upon a floor price of $6.80), and (iii)
a $402,750 promissory note. The $402,750 promissory note issued in January 1999
is payable in two equal annual installments due on July 1, 1999 and April 1,
2000, respectively, and bears interest at an annual rate of 10.17%. The $1.1
million of promissory notes outstanding at December 31, 1998 are payable in two
equal annual installments due on April 1, 1999 and 2000, respectively, and bear
interest at an annual rate of 8.5%. In addition, in January 1999, the Company
issued unregistered warrants to acquire 5,000 shares of Common Stock at $5.125
per share to Robert J. Stillman, M.D. in connection with the Second Closing Date
of the Shady Grove acquisition.
As previously noted, in September 1998, the Company obtained from Fleet
Bank, N.A. ("Fleet") a $13.0 million credit facility (the "New Credit
Facility"). The New Credit Facility was subsequently amended in September 1998
to allow for the Company's repurchase of Common Stock noted below, and for the
repayment of dividends in arrears on the Company's Convertible Preferred Stock.
The New Credit Facility is comprised of a $4.0 million three-year working
capital revolver, a $5.0 million three-year acquisition revolver and a $4.0
million 5.5 year term loan. Each component of the New Credit Facility bears
interest by reference to Fleet's prime rate or LIBOR, at the option of the
Company, plus a margin ranging from 0.00% to 0.25% in the case of prime-based
loans or 2.75% to 3.00% in the case of LIBOR-based loans, which margins vary
based on a leverage test. Interest on the prime-based loans is payable monthly
and interest on LIBOR-based loans is payable on the last day of each interest
period applicable thereto provided that, in the case of interest periods in
excess of three months, interest is payable at three-month intervals during such
periods. Borrowings under the term loan will require only interest payments for
the first twenty months. Upon closing of the New Credit Facility, the Company
drew the entire $4.0 million available under the term loan to repay in full its
balance outstanding with First Union National Bank of $2,250,000 and for working
capital purposes. In addition, the Company has and will continue to utilize a
portion of the proceeds of the term loan component of the New Credit Facility to
finance a part of the consideration to repurchase up to $2 million of the
Company's outstanding shares of Common Stock from time to time on the open
market at prevailing market prices or through privately negotiated transactions.
As of March 3, 1999, the Company had repurchased 410,500 shares of its Common
Stock for an aggregate cost of approximately $1.3 million. Commencing on June 1,
2000, the principal amount of the term loan will be payable in sixteen
consecutive quarterly installments each in the amount of $250,000. As of
December 31, 1998, interest on the term loan was payable at a rate of 7.75%.
Unused amounts under the working capital and acquisition revolvers bear a
commitment fee of 0.25% and 0.20%, respectively. Availability of borrowings
under the working capital revolver are based on eligible accounts receivable as
defined. Availability of borrowings under the acquisition revolver will be based
on financial covenants and eligibility criteria with respect to each proposed
acquisition. As of December 31, 1998, under the working capital and acquisition
revolvers, there were no amounts outstanding and an aggregate amount of
approximately $5.8 million was available, exclusive of additional amounts which
may become available as a result of completing additional acquisitions. The New
Credit Facility is collateralized by all of the Company's assets.
24
<PAGE>
The Company effected a 1-for-4 reverse stock split on November 17, 1998.
The reverse stock split was intended to allow the Company to comply with the
minimum $1.00 bid price per share requirement for continued listing of the
Company's Common Stock on the Nasdaq National Market.
In October 1998, the Company paid approximately $563,000 of Convertible
Preferred Stock dividend payments which had been in arrears. As of December 31,
1998, there were no payments in arrears.
Year 2000 Issue
The Company's management has recognized the need to ensure that its
operations and relationships with its vendors and other third parties will not
be adversely impacted by software processing errors arising from calculations
using the year 2000 and beyond ("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 last three phases are being done in
parallel as opposed to sequential order.
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 the 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 way.
The Company is also highly dependent upon receiving payments from third
party payors for insurance reimbursement for claims submitted by the managed
Medical Practices, and as such, the ability of such payors to process claims
submitted by Medical Practices accurately and timely, constitutes a significant
risk to the Company's cash flow. Individual Network Sites have been or will be
in communication with these payors throughout the country to insure that these
payors will be 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.
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
$300,000 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 which would have ordinarily been spent elsewhere;
and (iii) approximately $30,000 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 $25,000 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.
25
<PAGE>
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.
New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(FAS 133). The Company does not believe that FAS No. 133 will have a material
effect on the Company's financial position or results of operations.
In 1998, the Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FAS No. 131 does not have a significant
impact on the Company as the Company currently operates under one segment.
Forward Looking Statements
This Form 10-K and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements 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 RSCs
managed by the Company, the Company's ability to transition sole practitioners
to group practices, increases in overhead due to expansion, the exclusion of
infertility and ART services from insurance coverage, government laws and
regulation regarding health care, changes in managed care contracting, the
timely development of and acceptance of new infertility, ART and/or genetic
technologies and techniques and the risks relating to the Y2K.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedules on page
F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
26
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to the executive officers and directors of the
Company is incorporated by reference from the Company's Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 25, 1999.
ITEM 11. Executive Compensation
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 25,
1999.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 25,
1999.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 25,
1999.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1.
(3) The exhibits that are listed on the Index to Exhibits
herein which are filed herewith as a management agreement
or compensatory plan or arrangement are: 10.98 (a) and
10.105 (b).
(b) Reports on Form 8-K.
None.
(c) Exhibits.
27
<PAGE>
The list of exhibits required to be filed with this Annual Report on
Form 10-K is set forth in the Index to Exhibits herein.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Item 8 and 14 (a)(1) and (2)
Contents
Page
INTEGRAMED AMERICA, INC.
Report of Independent Accountants....................................F-2
Consolidated Balance Sheet as of December 31, 1998 and 1997..........F-3
Consolidated Statement of Operations for the years ended
December 31, 1998, 1997 and 1996..................................F-4
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996.....................F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................F-6
Notes to Consolidated Financial Statements...........................F-7
FINANCIAL STATEMENT SCHEDULE
Report of Independent Accounts on Financial Statement Schedule II.....S-1
Valuation and Qualifying Accounts..................................S-2
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IntegraMed America, Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of IntegraMed
America, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 8, 1999
F-2
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all amounts in thousands)
<CAPTION>
December 31,
------------
1998 1997
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents....................................................... $ 4,241 $ 1,930
Patient accounts receivable, less allowance for doubtful accounts
of $526 and $180 in 1998 and 1997, respectively............................... 10,749 7,061
Management fees receivable, less allowance for doubtful accounts
of $305 and $214 in 1998 and 1997, respectively............................... 1,963 1,600
Other current assets............................................................ 1,736 1,757
------- -------
Total current assets........................................................ 18,689 12,348
------- -------
Fixed assets, net.................................................................. 5,116 4,742
Intangible assets, net............................................................. 19,269 18,445
Other assets....................................................................... 619 566
------- -------
Total assets................................................................ $43,693 $36,101
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 684 $ 1,475
Accrued liabilities............................................................. 3,480 2,260
Due to Medical Practices........................................................ 1,877 1,745
Dividends accrued on Preferred Stock............................................ -- 464
Current portion of long-term notes payable and other obligations................ 2,099 1,086
Patient deposits................................................................ 2,888 1,236
------- -------
Total current liabilities................................................... 11,028 8,266
------- -------
Long-term notes payable and other obligations...................................... 5,282 1,842
Commitments and Contingencies -- (see Note 15)...................................... -- --
Shareholders' equity:
Preferred Stock, $1.00 par value 3,165,644 shares authorized in 1998 and 1997--
2,500,000 undesignated; 665,644 shares designated as Series A Cumulative
Convertible of which 165,644 were issued and outstanding in 1998 and 1997,
respectively.................................................................. 166 166
Common Stock, $.01 par value-- 12,500,000 and 6,250,000 shares authorized in
1998 and 1997; 5,343,092 and 4,299,654 shares issued
in 1998 and 1997, respectively................................................ 53 43
Capital in excess of par........................................................ 53,712 46,600
Accumulated deficit............................................................. (25,548) (20,816)
Treasury Stock, at cost (340,500 shares)........................................ (1,000) --
------- -------
Total shareholders' equity.................................................. 27,383 25,993
------- -------
Total liabilities and shareholders' equity.................................. $43,693 $36,101
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C> <C>
Revenues, net (see Note 2)...................................................... $38,590 $20,559 $14,906
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses................................... 14,763 7,724 5,632
Direct materials............................................................. 4,864 1,509 1,135
Occupancy costs.............................................................. 2,814 1,794 1,438
Depreciation................................................................. 1,343 803 665
Other expenses............................................................... 5,994 3,110 2,740
-------- -------- -------
Total costs of services rendered........................................... 29,778 14,940 11,610
-------- -------- -------
Network Sites' contribution..................................................... 8,812 5,619 3,296
-------- -------- -------
General and administrative expenses............................................. 5,316 4,192 4,662
Amortization of intangible assets............................................... 962 577 246
Interest income................................................................. (91) (109) (415)
Interest expense................................................................ 432 60 36
-------- -------- -------
Total other expenses......................................................... 6,619 4,720 4,529
-------- -------- -------
Restructuring and other charges (see Note 6).................................... 2,084 -- --
Income (loss) from continuing operations before income taxes.................... 109 899 (1,233)
Provision for income taxes...................................................... 340 104 141
-------- -------- -------
(Loss) income from continuing operations........................................ (231) 795 (1,374)
Discontinued operations (see Note 5):
Loss from operations of discontinued AWM Division (less
applicable income taxes of $0)............................................. 923 421 116
Loss from disposal of AWM Division........................................... 3,578 -- --
-------- -------- -------
Net (loss) income............................................................... (4,732) 374 (1,490)
Less: Dividends paid and/or accrued on Preferred Stock.......................... 133 133 133
-------- -------- -------
Net (loss) income applicable to Common Stock.................................... $ (4,865) $ 241 $(1,623)
======== ========= =======
Basic and diluted net (loss) earnings per share of Common Stock before
consideration for induced conversion of Preferred Stock (see Note 11):
Continuing operations...................................................... $ (0.07) $ 0.21 $ (0.79)
Discontinued operations.................................................... (0.87) (0.13) (0.06)
Net (loss) earnings........................................................ $ (0.94) $ 0.08 $ (0.85)
======== ======== =========
Basic and diluted net (loss) earnings per share of Common Stock (see Note 11)... $ (0.94) $ 0.08 $ (2.59)
======== ======== =========
Weighted average shares - basic................................................. 5,202 3,101 1,900
======== ======== =========
Weighted average shares - diluted............................................... 5,202 3,154 1,900
======== ======== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(all amounts in thousands, except share amounts)
<CAPTION>
Cumulative
Convertible
Preferred Stock Common Stock Capital in Accumulated Treasury Stock
Amount Amount Excess of Par Deficit Shares Amount
--------------- ----------- ------------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ........... $ 785 $ 15 $ 31,831 $(19,700) -- $ --
Conversion of Preferred Stock to Common
Stock, net of issuance costs and the
reversal of accrued Preferred Stock
dividends .......................... (608) 6 1,317 -- -- --
Issuance of Common Stock
for acquisition .................... -- 2 2,498 -- -- --
Dividends accrued to preferred
shareholders ....................... -- -- (133) -- -- --
Purchase and retirement of
Preferred Stock .................... (11) -- (72) -- -- --
Exercise of Common Stock options ....... -- -- 38 --
Net loss ............................... -- -- -- (1,490) -- --
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 ........... 166 23 35,479 (21,190) -- --
Issuance of Common Stock, net of
issuance costs ..................... -- 16 8,277 -- -- --
Issuance of Common Stock
for acquisition .................... -- 4 2,870 -- -- --
Other issuances of Common Stock ........ -- -- 84 -- -- --
Dividends accrued to preferred
shareholders ....................... -- -- (133) -- -- --
Exercise of Common Stock options ....... -- -- 23 -- -- --
Net income ............................. -- -- -- 374 -- --
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 ........... 166 43 46,600 (20,816) -- --
Issuance of Common Stock, net of
issuance costs ..................... -- 8 5,418 -- -- --
Issuance of Common Stock
for acquisition .................... -- 2 1,512 -- -- --
Issuance of warrrants to purchase
Common Stock ....................... -- -- 216 -- -- --
Dividends paid to preferred
shareholders ....................... -- -- (133) -- -- --
Exercise of Common Stock options ....... -- -- 99 -- -- --
Purchase of Treasury Stock ............. -- -- -- -- 340,500 (1,000)
Net loss ............................... -- -- -- (4,732) -- --
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 ........... $ 166 $ 53 $ 53,712 $(25,548) 340,500 $ (1,000)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F 5
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
------- ------- ------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income............................................ $(4,732) $ 374 $(1,490)
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization.............................. 2,582 1,812 1,116
Writeoff of fixed and intangible assets.................... 5,541 95 --
Changes in assets and liabilities net of effects from
acquired businesses --
Increase in assets:
Patient accounts receivable................................ (2,608) (4,291) (1,318)
Management fees receivable................................. (1,253) (351) (124)
Other current assets....................................... (87) (628) (369)
Other assets............................................... (53) (333) (13)
Decrease in controlled assets of Medical Practices:
Patient accounts receivable................................ -- 459 990
Other current assets....................................... -- -- 14
Increase (decrease) in liabilities:
Accounts payable........................................... (1,091) 455 839
Accrued liabilities........................................ (263) 608 106
Due to Medical Practices................................... 132 1,419 (280)
Patient deposits........................................... 1,440 746 79
------- ------- -------
Net cash (used in) provided by operating activities.............. (392) 365 (450)
------- ------- -------
Cash flows (used in) provided by investing activities:
Purchase of short term investments........................... -- -- (500)
Proceeds from short term investments......................... -- 2,000 --
Payment for exclusive management rights and acquired
physician practices........................................ (3,164) (10,007) (984)
Purchase of net liabilities (assets) of acquired businesses.. 487 (661) (394)
Purchase of fixed assets and leasehold improvements.......... (1,668) (2,053) (1,498)
Proceeds from sale of fixed assets and leasehold
improvements............................................... 135 139 86
------- ------- -------
Net cash used in investing activities............................ (4,210) (10,582) (3,290)
------- ------- -------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock....................... 5,500 9,601 --
Used for stock issue costs................................... (74) (1,308) --
Proceeds from bank under Credit Facility..................... 6,000 250 --
Principal repayments on debt................................. (2,900) (235) (193)
Principal repayments under capital lease obligations......... (115) (136) (216)
Repurchase of Common Stock................................... (1,000) -- --
Repurchase of Convertible Preferred Stock.................... -- -- (83)
Dividends paid on Convertible Preferred Stock................ (597) -- --
Used for recapitalization costs.............................. -- -- (33)
Proceeds from exercise of Common Stock options............... 99 23 38
------- ------- -------
Net cash provided by (used in) financing activities.............. 6,913 8,195 (487)
------- ------- -------
Net increase (decrease) in cash.................................. 2,311 (2,022) (4,227)
Cash at beginning of period...................................... 1,930 3,952 8,179
------- ------- -------
Cash at end of period............................................ $ 4,241 $ 1,930 $ 3,952
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
IntegraMed America, Inc. (the "Company") is a health services management
company specializing in fertility and assisted reproductive technology ("ART")
services. The Company provides comprehensive management services to a nationwide
network of medical providers which consisted of nine sites (each, a "Network
Site" or "Reproductive Science Center(R)") as of December 31, 1998. Each Network
Site consists of a location or locations where the Company has a management
agreement with a physician group or hospital (each, a "Medical Practice") which
employs and/or contracts the physicians. As of December 31, 1998, the nine
Reproductive Science Centers ("RSCs") managed by the Company were comprised of
twenty-one locations in nine states and the District of Columbia and fifty-four
physicians and Ph.D. scientists, including physicians and Ph.D. scientists
employed and/or contracted by the Medical Practice, as well as, physicians who
have arrangements to utilize the Company's facilities.
On November 17, 1998, the Company effected a 1-for-4 reverse stock split of
its Common Stock. As a result of the reverse split, references in the
accompanying consolidated financial statements to the number of common shares
and per share amounts for the years ended December 31, 1998, 1997 and 1996 have
been restated.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation --
The consolidated financial statements comprise the accounts of IntegraMed
America, Inc. and its wholly owned subsidiaries, IVF America (NY), Inc., IVF
America (MA), Inc., IVF America (PA), Inc., IVF America (NJ), Inc., IVF America
(MI), Inc., IntegraMed America of Illinois, Inc., Shady Grove Fertility Centers,
Inc. (see Note 6) and the Adult Women's Medical Center, Inc. ("AWMC"). All
significant intercompany transactions have been eliminated. The Company derives
its revenues from management agreements and, with respect to one managed Network
Site and AWMC, from patient service revenues. The Company does not consolidate
the results of its managed Network Sites. Effective August 6, 1998, IVF America
(NY), Inc., IVF America (MA), Inc., IVF America (PA), Inc. and IVF America (MI),
Inc. were merged into IntegraMed America, Inc. Effective September 1, 1998, the
Company disposed of AWMC via a sale of its operations.
In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "EITF") issued EITF No. 97-2. The EITF reached a consensus
concerning certain matters relating to the physician practice management ("PPM")
industry with respect to the consolidation of professional corporation revenues
and the accounting for business corporations. As an interim step before the
consensus, the EITF allowed PPMs to display the revenues and expenses of managed
physician practices in the statement of operations (the "display method") if the
terms of the management agreement provided the PPM with a "net profits or
equivalent interest" in the medical services furnished by the respective medical
practices. It is the Company's understanding that the EITF did not and would not
object to the use of the display method in PPM financial statements for periods
ending before December 15, 1998. As the Company does not consolidate its managed
Network Sites, the adoption of EITF 97-2 in 1998 does not have a material impact
on the Company's financial position, cash flows or results of operations. As
discussed below, the Company has discontinued the display of revenues for its
Long Island and Boston Network Sites due to changes in the respective management
agreements.
Since inception through December 31, 1997, the management agreements
related to the Long Island and Boston Network Sites have been incorporated in
the Company's consolidated financial statements via the display method as the
Company believed that these management agreements provided it with a "net
profits or equivalent interest" in the medical services furnished by the Medical
Practices at the Long Island and Boston Network Sites. Consequently, for the
Long Island and Boston Network Sites, the Company has historically presented the
Medical Practices' patient services revenue, less amounts retained by the
Medical Practices, or "Medical Practice retainage", as "Revenues after Medical
Practice retainage" in its consolidated statement of operations ("display
method"). Due to changes in the management agreements related to the Long Island
and Boston Network Sites effective in October 1997 and January 1998,
respectively, the Company no longer displays the patient services revenue and
Medical Practice retainage related to these Network Sites in the accompanying
consolidated statement of operations for the periods prior to January 1, 1998.
F-7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The revised management agreements provide for the Company to receive a specific
management fee which the Company has reported in "Revenues, net" in the
accompanying consolidated statement of operations.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of management's
estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and cost recognition -
Reproductive Science Centers(R)
As of December 31, 1998, the Company provided comprehensive management
services under nine management agreements, including one which was acquired in
the first quarter of 1998. During the year ended December 31, 1998, the Company
had also provided management services under two management agreements which were
terminated effective June 1 and September 1, 1998, respectively.
Under six of the current agreements, including the revised management
agreement for the Boston Network Site, the Company receives as compensation for
its management services a three-part management fee comprised of: (i) a fixed
percentage of net revenues generally equal to 6%, (ii) reimbursed costs of
services (costs incurred in managing a Medical Practice and any costs paid on
behalf of the Medical Practice) and (iii) a fixed or variable percentage of
earnings after management fees which is currently generally equal to up to 20%,
or an additional variable percentage of net revenues generally ranging from 7.5%
to 9.5%.
Under the revised management agreement for the Long Island Network Site, as
compensation for its management services, the Company receives a fixed fee
(currently equal to $540,000 per annum), plus reimbursed costs of services.
Two of the Company's Network Sites are affiliated with medical centers.
Under one of these management agreements, the Company primarily provides
endocrine testing and administrative and finance services for a fixed percentage
of revenues, equal to 15% of net revenues, and reimbursed costs of services.
Under the second of these management agreements, the Company's revenues are
derived from certain ART laboratory services performed, and directly billed to
the patients by the Company; out of these patient service revenues, the Company
pays its direct costs and the remaining balance represents the Company's Network
Site contribution. All direct costs incurred by the Company are recorded as
costs of services.
All management fees are reported as "Revenues, net" by the Company. Direct
costs incurred by the Company in performing its management services and costs
incurred on behalf of the Medical Practices are recorded in "Costs of services
incurred on behalf of Network Sites". The physicians receive as compensation all
remaining earnings after payment of the Company's management fee.
Prior to January 1, 1998, under another form of management agreement which
had been in use at the Long Island and Boston Network Sites, the Company
recorded all patient service revenues and, out of such revenues, the Company
paid the Medical Practices' expenses, physicians' and other medical
compensation, direct materials and certain hospital contract fees. Under these
agreements, the Company guaranteed a minimum physician compensation based on an
annual budget jointly determined by the Company and the physicians. The
Company's management fee was payable only out of remaining revenues, if any,
after the payment of physician compensation and all direct administrative
expenses of the Medical Practice which were recorded as costs of service. Under
these arrangements, the Company had been liable for payment of all liabilities
incurred by the Medical Practices and had been at risk for any losses incurred
in the operation thereof. Due to changes in the management agreements related to
the Long Island and Boston Network Sites, effective in October 1997 and January
1998, respectively, the Company no longer displays patient service revenues of
the Long Island and Boston Medical Practices which had been reflected in
"Revenues, net" in the Company's consolidated statement of operations. The
revised management agreements provide for the Company to receive a specific
F-8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
management fee, as previously described, which the Company reports in "Revenues,
net" in its consolidated statement of operations. The revised agreements provide
for increased incentives and risk-sharing for the Company's affiliated medical
providers.
AWM Division
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division. On September 1, 1998 the Company disposed of the AWM Division
operations via a sale of certain of its fixed assets to a third party and the
third party's assumption of the employees, building lease, research contracts,
and medical records. The operating results of the AWM Division for the
eight-month period ended August 31, 1998, the year ended December 31, 1997, and
for the period from June 7, 1996 through December 31, 1996 and the charges
recorded by the Company related to its disposal are reflected under
"Discontinued Operations" in the accompanying Consolidated Statement of
Operations (See Note 5).
The AWM Division's operations had been comprised of one Network Site with
two locations which were directly owned by the Company and a 51% interest in the
National Menopause Foundation ("NMF"), a company which had developed
multifaceted educational programs regarding women's healthcare. The Network Site
had also been involved in clinical trials with major pharmaceutical companies.
The Company had billed and recorded all patient service revenues of the
Network Site and had recorded all direct costs incurred as costs of services.
The medical providers had received a fixed monthly draw which had been adjusted
quarterly by the Company based on the respective Network Site's actual operating
results.
Revenues in the AWM Division had also included amounts earned under
contracts relating to clinical trials between the Network Site and various
pharmaceutical companies. The Network Site had contracted with major
pharmaceutical companies (sponsors) to perform women's medical care research
mainly to determine the safety and efficacy of a medication. Research revenues
had been recognized pursuant to each respective contract in the period which the
medical services (as stipulated by the research study protocol) had been
performed and collection of such fees had been considered probable. Net
realization had been dependent upon final approval by the sponsor that
procedures were performed according to study protocol. Payments collected from
sponsors in advance for services are included in accrued liabilities, and costs
incurred in performing the research studies had been included in costs of
services rendered.
The Company's 51% interest in NMF had been included in the Company's
consolidated financial statements. The Company had recorded 100% of the patient
service revenues and costs of NMF and had reported 49% of any profits of NMF as
minority interest on the Company's consolidated balance sheet. Minority interest
at December 31, 1998 and 1997 was $0.
Cash and cash equivalents --
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Patient accounts receivable --
Patient accounts receivable represent receivables from patients for medical
services provided by the Medical Practices. Such amounts are recorded net of
contractual allowances and estimated bad debts. As of December 31, 1998 and
1997, of total patient accounts receivable of $10,749,000 and $7,061,000,
respectively, approximately $10,448,000 and $4,477,000 of patient accounts
receivable were a function of Network Site revenue (i.e., the Company purchased
the accounts receivable, net of contractual allowances, from the Medical
Practice (the "Purchased Receivables") and the remaining balances of $301,000
and $2,584,000, respectively, were a function of net revenues of the Company
(see -- "Revenue and cost recognition" above). Risk of loss in connection with
non-collectiblity of Purchased Receivables is partially borne by the Company in
an amount equal to the Company's proportionate share of revenues and/or earnings
which are paid to the Company from the Medical Practice as its management fee.
Risk of loss in connection with non-collectibility of patient accounts
receivable which are a function of net revenues of the Company is borne by the
Company.
F-9
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management fees receivable --
Management fees receivable represent fees owed to the Company primarily for
repayment of advances by the Company to certain of the Medical Practices
pursuant to the respective management agreements with these Medical Practices
(see -- "Revenue and cost recognition" above).
Fixed assets --
Fixed assets are valued at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, generally three to five years.
Leasehold improvements are amortized over the shorter of the asset life or the
remaining term of the lease. Assets under capital leases are amortized over the
term of the lease agreements. The Company periodically reviews the fair value of
long-lived assets, the results of which have had no material effect on the
Company's financial position or results of operations.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.
Intangible assets --
Intangible assets at December 31, 1998 and 1997 consisted of the following
(000's omitted):
1998 1997
------- -------
Exclusive management rights............. $20,389 $15,539
Goodwill................................ -- 3,890
Trademarks.............................. 398 395
------- -------
Total.............................. 20,787 19,824
Less-- accumulated amortization........ (1,518) (1,379)
------- -------
Total.............................. $19,269 $18,445
======= =======
Exclusive Management Rights, Goodwill and Other Intangible Assets --
Exclusive management rights, goodwill and other intangible assets represent
costs incurred by the Company for the right to manage and/or acquire certain
Network Sites and are valued at cost less accumulated amortization. During the
year ended December 31, 1998, the Company recorded a charge to earnings for the
writeoff of the entire unamortized portion of goodwill associated with the AWM
Division which was disposed of effective September 1, 1998 and recorded an
aggregate exclusive management right impairment charge of $1.4 million related
to certain of the managed single-physician practices (see Notes 5 and 6).
Trademarks --
Trademarks represent trademarks, service marks, trade names and logos
purchased by the Company and are valued at cost less accumulated amortization.
F-10
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization and recoverability --
The Company periodically reviews its intangible assets to assess
recoverability; any impairments would be recognized in the consolidated
statement of operations if a permanent impairment were determined to have
occurred. Recoverability of intangibles is determined based on undiscounted
expected earnings from the related business unit or activity over the remaining
amortization period. Exclusive management rights are amortized over the term of
the respective management agreement, usually ten to twenty-five years. Goodwill
and other intangibles had been amortized over periods ranging from three to
forty years. Trademarks are amortized over five to seven years. The fully
depreciated asset balances related to the AWM Division and to certain of the
managed single- physician practices were removed from the Company's records as
of September 30, 1998 (see Notes 5 and 6). As of December 31, 1998, accumulated
amortization of exclusive management rights and trademarks was $1,180,000 and
$338,000, respectively. As of December 31, 1997, accumulated amortization of
exclusive management rights, goodwill and trademarks was $802,000, $283,000 and
$294,000, respectively.
Due to Medical Practices --
Due to Medical Practices primarily represents amounts owed by the Company
to the Medical Practices for the medical providers' share of the respective
Medical Practice earnings net of the Company's advances to the Medical Practice,
if any. Due to Medical Practices excludes amounts owed by the Company to Medical
Practices for exclusive management rights (see Note 9).
Stock based employee compensation --
The Company adopted Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (FAS 123), on January 1, 1996. Under FAS 123,
companies can, but are not required to, elect to recognize compensation expense
for all stock based awards, using a fair value method. The Company has adopted
the disclosure only provisions, as permitted by FAS 123.
Concentrations of credit --
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's trade receivables are primarily from third party payors,
principally insurance companies and health maintenance organizations.
Income taxes --
The Company accounts for income taxes utilizing the asset and liability
approach.
Earnings per share --
The Company determines earnings (loss) per share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128) which the
Company adopted in December 1997. All historical earnings (loss) per share have
been presented in accordance with FAS 128.
NOTE 3 -- SIGNIFICANT MANAGEMENT CONTRACTS:
For the years ended December 31, 1998 and 1997, the Boston, New Jersey, FCI
(acquired in mid-August 1997), and Shady Grove (acquired in mid-March 1998)
Network Sites provided greater than 10% of the Company's Revenues, net and
Network Sites' contribution as follows:
F-11
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Percent of Company Percent of Network
Revenues, net Sites' contribution
-------------------------- -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Boston......................... 15.8 26.0 40.6 21.7 33.7 58.3
New Jersey..................... 12.2 17.9 20.0 28.3 38.1 57.1
FCI............................ 27.1 12.6 -- 25.7 14.1 --
Shady Grove.................... 15.0 -- -- 9.6 -- --
</TABLE>
NOTE 4 -- ACQUISITIONS AND MANAGEMENT AGREEMENTS:
The transactions detailed below were accounted for by the purchase method
and the purchase price has been allocated to the intangible assets acquired
based upon the estimated fair value at the date of acquisition and to the
tangible assets acquired and liabilities assumed based upon the book value at
the date of acquisition. The consolidated financial statements at and for the
year ended December 31, 1998 and 1997 include the results of these transactions
from their respective dates of acquisition.
On January 7, 1997, the Company acquired certain assets of the Bay Area
Fertility and Gynecology Medical Group, a California partnership (the
"Partnership"), and acquired the right to manage the Bay Area Fertility and
Gynecology Medical Group, Inc., a California professional corporation which is
the successor to the Partnership's medical practice ("Bay Area Fertility"). The
aggregate purchase price was approximately $2.0 million, consisting of $1.5
million in cash and $0.5 million in the form of the Company's Common Stock, or
83,333 shares of the Company's Common Stock. In addition to the exclusive right
to manage Bay Area Fertility, the Company acquired other assets which primarily
consisted of the name "Bay Area Fertility" and medical equipment and furniture
and fixtures which will continue to be used by Bay Area Fertility in the
provision of infertility and ART services.
In June 1997, the Company acquired certain assets of and the right to
manage Reproductive Science Medical Center, Inc. ("RSMC"), a California
professional corporation located near San Diego, CA (the "San Diego
Acquisition"). The aggregate purchase price for the San Diego Acquisition was
approximately $900,000, consisting of $50,000 in cash and 36,364 shares of
Common Stock payable at closing and $650,000 payable upon the achievement of
certain specified milestones, at RSMC's option, in cash or in shares of the
Company's Common Stock, based on the closing market price of the Common Stock on
the third business day prior to issuance. This management agreement was
terminated effective September 1, 1998. See Note 15 and Note 17.
In August 1997, the Company acquired certain fixed assets of and the right
to manage Fertility Centers of Illinois, S.C. ("FCI"), a physician group
practice comprised of six physicians and six locations in the Chicago, Illinois
area. The aggregate purchase price was approximately $8.6 million, consisting of
approximately $6.6 million in cash and 252,366 shares of Common Stock.
Approximately $8.0 million of the aggregate purchase price was allocated to
exclusive management rights and $559,000 was allocated to certain fixed assets.
Simultaneous with closing on the FCI transaction, the Company, on behalf of
FCI, completed its first in-market merger with the addition of Edward L. Marut,
MD to the FCI practice. The aggregate purchase price was $803,000 in cash, of
which $750,000 was allocated to exclusive management rights and $53,000 was
allocated to certain fixed assets.
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the FCI practice. The Company acquired certain
assets of Advocate Medical Group, S.C. ("AMG") and Advocate MSO, Inc. and
acquired the right to manage AMG's infertility practice conducted under the name
Center for Reproductive Medicine ("CFRM"). Simultaneous with the consummation of
this transaction, the Company amended its management agreement with FCI to
include two of the three physicians practicing under the name CFRM. The
aggregate purchase price was approximately $1.5 million, consisting of
approximately $1.2 million in cash and 46,079 shares of Common Stock. The
majority of the purchase price was allocated to exclusive management rights.
F-12
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 12, 1998, the Company acquired the majority of the capital stock
of Shady Grove Fertility Centers, Inc. ("Shady Grove"), currently a Maryland
business corporation which provides management services, and formerly a Maryland
professional corporation engaged in providing infertility services. Prior to the
consummation of the transaction, Shady Grove had entered into a twenty-five year
management agreement with Levy, Sagoskin and Stillman, M.D., P.C. (the " Shady
Grove P.C."), an infertility physician group practice comprised of six
physicians and four locations surrounding the greater Washington, D.C. area. The
Company acquired the balance of the Shady Grove capital stock on January 5,
1999. The aggregate purchase price for all of the Shady Grove capital stock was
$5.7 million, consisting of approximately $2.8 million in cash, approximately
$1.4 million in Common Stock, and approximately $1.5 million in promissory
notes. The purchase price was allocated to the various assets and liabilities
assumed and the balance was allocated to exclusive management rights. On March
12, 1998, the Closing Date, the following consideration was paid: (i)
approximately $1.8 million in cash, (ii) approximately $1.2 million in stock ,
or 159,888 shares of Common Stock, and (iii) approximately $1.1 million in
promissory notes. On January 5, 1999 , the Second Closing Date, the balance of
the purchase price was paid as follows: (i) approximately $1.0 million in cash,
(ii) approximately $200,000 in stock, or 25,868 shares of Common Stock (based
upon a floor price of $6.80), and (iii) a $402,750 promissory note. The $402,750
promissory note issued in January 1999 is payable in two equal annual
installments due on July 1, 1999 and April 1, 2000, respectively, and bears
interest at an annual rate of 10.17%. The $1.1 million of promissory notes
outstanding at December 31, 1998 are payable in two equal annual installments
due on April 1, 1999 and 2000, respectively, and bear interest at an annual rate
of 8.5%. In addition, in January 1999, the Company issued warrants to acquire
5,000 shares of Common Stock at $5.125 per share to Robert J. Stillman, M.D. in
connection with the Second Closing Date of the Shady Grove acquisition.
The following unaudited pro forma results of operations for the year ended
December 31, 1998 and 1997 have been prepared by management based on the
unaudited financial information for Shady Grove, the Maryland professional
corporation, which management arrangement was entered into in March 1998, and
Fertility Centers of Illinois, S.C. which management agreement was entered into
in August 1997, adjusted where necessary, with respect to pre-acquisition
periods, to the basis of accounting used in the historical financial statements
of the Company. Such adjustments include modifying the results to reflect
operations as if the Shady Grove management agreement had been consummated on
January 1, 1998 and 1997, respectively, and as if the FCI management agreement,
excluding the in-market mergers in 1997 and 1998, had been consummated on
January 1, 1997. Additional general corporate expenses which would have been
required to support the operations of the new Network Sites are not included in
the pro forma results. The unaudited pro forma results may not be indicative of
the results that would have occurred if the management agreement had been in
effect on the dates indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
For the year ended
December 31,
(000's omitted)
------------------
1998 1997
------- -------
<S> <C> <C>
Revenues, net............................................................. $40,096 $29,797
Net income (loss) from continuing operations (1).......................... $ (64) $ 1,956
Basic and diluted earnings (loss) per share of Common Stock
from continuing operations............................................. $ (0.04) $ 0.53
</TABLE>
(1) Pro forma income from continuing operations before restructuring and other
charges for the year ended December 31, 1998 was approximately $2.1
million, or $0.36 per share.
NOTE 5 -- DISCONTINUED OPERATIONS:
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division operations. On September 1, 1998 the Company disposed of the
AWM operations via a sale of certain of its fixed assets to a third party and
the third party's assumption of the employees, building lease, research
contracts, and medical records. As of December 31, 1998, the Company's
Consolidated Balance Sheet included $225,000 in notes payable related to the AWM
Division. During the year ended December 31, 1998, the Company reported a loss
F-13
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from the disposal of the AWM Division of approximately $3.6 million, which
principally represented approximately $3.3 million related to the write-off of
goodwill and $243,000 for estimated operating losses during the phase-out
period. During the eight-month period ended August 31, 1998, the year ended
December 31, 1997, and for the period from June 7, 1996 through December 31,
1996 the AWM Division recorded revenues of approximately $1.0 million, $2.1
million, and 757,000 respectively.
NOTE 6 -- RESTRUCTURING AND OTHER CHARGES:
The Company recorded approximately $2.1 million in restructuring and other
charges in the year ended December 31, 1998. Such charges included approximately
$1.4 million associated with its termination of its management agreement with
the Reproductive Science Center of Greater Philadelphia, a single physician
Network Site, effective July 1, 1998, which primarily consisted of exclusive
management right impairment and other asset write-offs. Such charges also
included approximately $700,000 for exclusive management right impairment losses
related to two other single physician Network Sites. The latter impairment
losses were recorded based upon the Company's determination that the intangible
asset balance was larger than the respective Medical Practice's estimated future
cashflow.
NOTE 7 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1998 and 1997 consisted of the following
(000's omitted):
1998 1997
------ ------
Furniture, office and computer equipment.... $4,064 $2,768
Medical equipment........................... 2,200 2,093
Leasehold improvements...................... 3,203 2,408
Assets under capital leases................. 956 1,234
------ ------
Total................................... 10,423 8,503
Less--Accumulated depreciation and
amortization............................ (5,307) (3,761)
------ ------
$5,116 $4,742
Assets under capital leases primarily consist of medical equipment.
Accumulated amortization relating to capital leases at December 31, 1998 and
1997 was $947,000 and $1,011,000, respectively.
NOTE 8 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1998 and 1997 consisted of the
following (000's omitted):
1998 1997
------- ------
Accrued insurance............................ $ 552 $ 483
Deferred compensation........................ 467 367
Accrued payroll and benefits................. 410 239
Accrued state taxes.......................... 397 198
Deferred rent................................ 317 432
Deferred research revenue.................... -- 223
Other........................................ 1,337 318
------ ------
Total accrued liabilities.................... $3,480 $2,260
====== ======
F-14
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
Debt at December 31, 1998 and 1997 consisted of the following (000's
omitted):
1998 1997
------ ------
Note payable to Bank............................. $4,000 $ 292
Acquisition notes payable........................ 1,353 595
Exclusive management rights obligations.......... 520 1,863
Acquisition obligation........................... 1,500 --
Obligations under capital lease.................. 8 178
------ ------
Total notes payable and other obligations........ 7,381 2,928
Less--Current portion............................ (2,099) (1,086)
------ ------
Long-term notes payable and other obligations.... $5,282 $1,842
====== ======
Note payable to Bank --
In September 1998, the Company obtained from Fleet Bank, N.A. ("Fleet") a
$13.0 million credit facility (the "New Credit Facility"). The New Credit
Facility was subsequently amended in September 1998 to allow for the Company's
repurchase of Common Stock noted below, and for the repayment of dividends in
arrears on the Company's Convertible Preferred Stock. The New Credit Facility is
comprised of a $4.0 million three-year working capital revolver, a $5.0 million
three-year acquisition revolver and a $4.0 million 5.5 year term loan. Each
component of the New Credit Facility bears interest by reference to Fleet's
prime rate or LIBOR, at the option of the Company, plus a margin ranging from
0.00% to 0.25% in the case of prime-based loans or 2.75% to 3.00% in the case of
LIBOR-based loans, which margins vary based on a leverage test. Interest on the
prime-based loans is payable monthly and interest on LIBOR-based loans is
payable on the last day of each interest period applicable thereto provided
that, in the case of interest periods in excess of three months, interest is
payable at three-month intervals during such periods. Borrowings under the term
loan will require only interest payments for the first twenty months. Upon
closing of the New Credit Facility, the Company drew the entire $4.0 million
available under the term loan to repay in full its balance outstanding with
First Union National Bank of $2,250,000 and for working capital purposes. In
addition, the Company has and will continue to utilize a portion of the proceeds
of the term loan component of the New Credit Facility to finance part of the
consideration to repurchase up to $2 million of the Company's outstanding shares
of Common Stock from time to time on the open market at prevailing market prices
or through privately negotiated transactions. As of December 31, 1998, the
Company had repurchased 340,500 shares of its Common Stock for an aggregate cost
of approximately $1.0 million. Commencing June 1, 2000, the principal amount of
the term loan will be payable in sixteen consecutive quarterly installments each
in the amount of $250,000. As of December 31, 1998, interest on the term loan
was payable at a rate of 7.75%. Unused amounts under the working capital and
acquisition revolvers bear a commitment fee of 0.25% and 0.20%, respectively.
Availability of borrowings under the working capital revolver are based on
eligible accounts receivable as defined. Availability of borrowings under the
acquisition revolver will be based on financial covenants and eligibility
criteria with respect to each proposed acquisition. As of December 31, 1998,
under the working capital and acquisition revolvers, there were no amounts
outstanding and an aggregate amount of approximately $5.8 million was available,
exclusive of additional amounts which may become available as a result of
completing additional acquisitions. The New Credit Facility is collateralized by
all of the Company's assets.
In November 1996, the Company obtained a $1.5 million revolving credit
facility (the "Credit Facility") issued by First Union National Bank (the
"Bank"). Borrowings under the Credit Facility beared interest at the Bank's
prime rate plus 0.75% per annum, which at December 31, 1997, was 9.25%. The
Credit Facility was collateralized by the Company's assets. On November 13,
1997, the Company entered into a $4.0 million non-restoring line of credit dated
November 13, 1997 with the Bank (the "Second Credit Facility"). Borrowings under
F-15
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Second Credit Facility beared interest at the Bank's prime rate plus 1% per
annum. Accrued interest only on borrowings was payable commencing December 1,
1997 and all principal and accrued interest was due and payable on April 30,
1999. The Second Credit Facility was cross collateralized and cross- defaulted
with the Credit Facility and was collateralized by the Company's assets. In
September 1998, the aggregate amount outstanding under the Credit Facility and
the Second Credit Facility of $2,250,000 was paid in full with borrowings from
the New Credit Facility, thereby terminating both the Credit Facility and the
Second Credit Facility. As of December 31, 1997, $250,000 and $0 were
outstanding under the Credit Facility and the Second Credit Facility,
respectively.
As of December 31, 1997, approximately $42,000 in bank debt acquired in the
WMDC acquisition in June 1996 was outstanding. This debt was paid in full during
1998.
Acquisition notes payable --
In March 1998, the Company issued $1,127,700 in promissory notes as part
consideration for the acquisition of the capital stock of Shady Grove Fertility
Centers, Inc. These promissory notes are payable in two equal annual
installments, due on April 1, 1999 and 2000, respectively, and bear interest at
an annual rate of 8.5%.
In June 1996, the Company purchased a 51% interest in NMF for a total
purchase price of $650,000, of which $50,000 was paid at closing and the balance
is to be paid in sixteen quarterly installments of $37,500 beginning September
1, 1996. Interest is payable quarterly at the rate of 4.16% (see Note 5). As of
December 31, 1998 and 1997, the note payable balance was $225,000 and $375,000,
respectively.
On December 30, 1996, the Company acquired North Central Florida Ob-Gyn
Associates which it then merged into WMDC. The total purchase price of the
acquisition was $320,000 of which $220,000 was to be paid in four equal
installments of $55,000 for each of the next four years commencing December 30,
1997. In January 1998, as part of a termination agreement, this note was
canceled.
Exclusive management rights obligations --
Exclusive management rights obligations represent the liability owed by the
Company to certain Medical Providers for the cost of acquiring the exclusive
right to manage the non-medical aspects of their single-physician infertility
practices. Exclusive management rights obligations as of December 31, 1998
related to two single-physician management agreements. Exclusive management
rights obligations as of December 31, 1997 related to four single-physician
management agreements two of which were terminated in 1998.
As of December 31, 1998, $263,333 and $257,500 were payable in quarterly
installments of $38,889 and $36,786, through October, 2004 and May, 2005,
respectively.
In connection with the Company's termination of its management agreement
with the Reproductive Science Center of Greater Philadelphia effective July 1,
1998, and due to this Network Site's historical operating losses, approximately
$583,000 of the Company's exclusive right to manage obligation to the physician
owner was applied against the Company's receivable from the physician owner
during the six-month period ended June 30, 1998.
In connection with the Company's termination of its management agreement
with the RSMC effective September 1, 1998, the Company was discharged from its
remaining exclusive management right obligation of $650,000.
Acquisition obligation --
The acquisition obligation at December 31, 1998 represented the amount owed
by the Company to acquire the balance of the capital stock of Shady Grove
Fertility Centers, Inc. This obligation 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,
F-16
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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%.
At December 31, 1998, aggregate notes payable and other obligation
payments, excluding capital lease obligation payments, in future years were as
follows (000's omitted):
1999........................................... $ 2,099
2000........................................... 1,651
2001........................................... 1,076
2002........................................... 1,076
2003........................................... 1,076
Thereafter..................................... 395
Total payments................................. $7,373
Obligations under capital lease --
Capital lease obligations relate primarily to furniture and medical
equipment for the Network Sites. The current portion of capital lease
obligations was approximately $6,000 and $131,000 at December 31, 1998 and 1997,
respectively.
The Company has operating leases for its corporate headquarters and for
medical office space relating to its managed Network Sites. The Company also has
operating leases for certain medical equipment. Aggregate rental expense under
operating leases was $1,750,000, $1,284,000 and $540,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, the minimum lease payments for assets under capital
and noncancelable operating leases in future years were as follows (000's
omitted):
Capital Operating
------- ---------
1999.......................................... $ 6 $1,952
2000.......................................... 3 1,632
2001.......................................... -- 1,459
2002.......................................... -- 1,328
2003.......................................... -- 1,473
Thereafter.................................... -- 3,192
---- -------
Total minimum lease payments.................. $ 9 $11,036
=======
Less-- Amount representing interest........... 1
----
Present value of minimum lease payments....... $ 8
====
NOTE 10 -- INCOME TAXES
The deferred tax provision was determined under the asset and liability
approach. Deferred tax assets and liabilities were recognized on differences
between the book and tax basis of assets and liabilities using presently enacted
tax rates. The provision for income taxes was the sum of the amount of income
tax paid or payable for the year as determined by applying the provisions of
enacted tax laws to the taxable income for that year and the net change during
the year in the Company's deferred tax assets and liabilities. The provision for
the years ended December 31, 1998, 1997 and 1996 of $340,000, $104,000 and
$141,000, respectively, was comprised of current state taxes payable.
The Company's deferred tax asset primarily represented the tax benefit of
operating loss carryforwards. However, such deferred tax asset was fully reduced
by a valuation allowance due to the uncertainty of its realization.
F-17
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the Company had operating loss carryforwards of
approximately $19.6 million which expire in 2002 through 2014. For tax purposes,
there is an annual limitation of approximately $2.0 million on the utilization
of net operating losses resulting from changes in ownership attributable to the
Company's May 1993 Preferred Stock Offering and the August 1997 Common Stock
Offering and FCI acquisition.
Significant components of the noncurrent deferred tax assets (liabilities)
at December 31, 1998 and 1997 were as follows (000's omitted):
December 31,
------------------
1998 1997
---- ----
Net operating loss carryforwards......... $7,450 $6,900
Other.................................... 375 500
Valuation allowance...................... (7,825) (7,250)
------ ------
Deferred tax assets...................... -- 150
Deferred tax liabilities................. -- (150)
------ ------
Net deferred taxes....................... $ -- $ --
====== ======
The financial statement income tax provision differed from income taxes
determined by applying the statutory Federal income tax rate to the financial
statement income or loss before income taxes for the year ended December 31,
1998, 1997 and 1996 as a result of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) at Federal statutory rate.......... $(1,537,000) $167,000 $(472,000)
State income taxes....................................... 340,000 104,000 141,000
Net operating loss or (profit) not providing (providing)
current year tax benefit............................... 1,537,000 (167,000) 472,000
----------- -------- ---------
Provision for income taxes............................... $ 340,000 $104,000 $ 141,000
=========== ======== =========
</TABLE>
NOTE 11 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 1998, 1997 and 1996 is
a follows (000's omitted, except for per share amounts):
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996(1)
-------- ------- -------
Numerator
<S> <C> <C> <C>
(Loss) income from continuing operations .......... $ (231) $ 795 $(1,374)
Less: Preferred stock dividends paid and/or accrued 133 133 133
------- ------- -------
(Loss) income from continuing operations
available to Common stockholders ................ $ (364) $ 662 $(1,507)
======= ======= =======
Denominator
Weighted average shares outstanding ............... 5,202 3,101 1,900
Effect of dilutive options and warrants ........... -- 53 --
------- ------- -------
Weighted average shares and dilutive potential
Common shares ................................... 5,202 3,154 1,900
======= ======= =======
Basic and diluted EPS from continuing operations(1) $ (0.07) $ 0.21 $ (0.79)
======= ======= =======
</TABLE>
F-18
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) For the year ended December 31, 1996, basic and diluted earnings per share
from continuing operations of $(0.79) excluded the effect of the induced
conversion of Preferred Stock in 1996. Net loss from continuing operations
applicable to Common Stock before consideration for induced conversion of
Preferred Stock of $1,623,000 would be increased by $3,292,000, the assumed
value of Common Stock issued to induce conversion of Preferred Stock, net of the
reversal of $973,000 of accrued Preferred Stock dividends, to arrive at the net
loss from continuing operations applicable to Common Stock after consideration
for induced conversion of Preferred Stock of $4,915,000. The assumed per share
value of the conversion inducement was $(1.74) bringing the basic and diluted
loss per share of Common Stock from continuing operations to $(2.53) after
induced conversion of Preferred Stock.
For the years ended December 31, 1998 and 1996, options to purchase
approximately 400,000 and 239,000 shares of Common Stock at exercise prices
ranging from $2.50 to $15.00 in each year and the assumed exercise of warrants
to purchase approximately 176,000 and 94,000 shares of Common Stock at exercise
prices ranging from $0.04 to $8.54 and from $5.00 to $53.88, respectively, and
approximately 131,000 and 62,000 shares of Common Stock from the assumed
conversion of Preferred Stock, were excluded in computing the diluted per share
amount as they were antidilutive due to the Company's net loss for these years.
For the year ended December 31, 1997, options to purchase approximately
298,000 shares of Common Stock and warrants to purchase approximately 61,000
shares of Common Stock at exercise prices ranging from $7.48 to $15.00 per share
and from $41.36 to $54.84 per share, respectively, were excluded in computing
the diluted per share amount as the exercise price of the options and warrants
equaled or exceeded the average market price of the Common Stock for the year.
For the year ended December 31, 1997, approximately 105,000 shares of Common
Stock from the assumed conversion of Preferred Stock were excluded in computing
the diluted earnings per share as the amount of the dividend declared for these
periods per share of Common Stock obtainable on conversion exceeded basic
earnings per share.
NOTE 12 -- SHAREHOLDERS' EQUITY:
The Board of Directors authorized a one- for- four reverse stock split of
its outstanding shares of Common Stock through an amendment to the Company's
Amended and Restated Certificate of Incorporation which was approved by the
Company's stockholders at a Special Meeting of Stockholders held on November 17,
1998. Effective November 17, 1998, every four shares of Common Stock were
converted into one share of Common Stock. The reverse stock split was intended
to allow the Company to comply with the minimum $1.00 bid price per share
requirement for continued listing of the Company's Common Stock on the Nasdaq
National Market (see Note 1).
The Board of Directors has authorized the repurchase of up to $2 million of
the Company's outstanding shares of Common Stock from time to time on the open
market at prevailing market prices or through privately negotiated transactions.
The Company has and will continue to utilize a portion of the proceeds of the
term loan component of the New Credit Facility to finance a portion of the price
of the stock repurchases. As of December 31, 1998, the Company had repurchased
340,500 shares of its Common Stock for an aggregate cost of approximately $1.0
million.
During the first quarter of 1998, the Company completed an equity private
placement of $5.5 million with Morgan Stanley Venture Partners' affiliates
providing for the purchase of 808,824 shares of the Company's Common Stock at a
price of $6.80 per share and 60,000 warrants to purchase shares of the Company's
Common Stock, at a nominal exercise price. The Company used a portion of these
funds to acquire the capital stock of Shady Grove Fertility Centers, Inc. (see
Note 4).
In March and April 1998, pursuant to amendments to the Bay Area, FCI and
Shady Grove management agreements, the Company issued immediately vested
warrants to purchase an aggregate of 37,500 shares of Common Stock, at a
weighted average exercise price of $7.08 per share to the shareholder physicians
of the respective medical practices in exchange for an extension of the term of
the Company's respective management agreements from twenty to twenty-five years.
In December 1998, the exercise price of each of these warrants was amended to
F-19
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$4.12 per share. In November 1998, pursuant to an amendment to the Boston
management agreement, the Company issued warrants to purchase an aggregate of
40,625 shares of Common Stock (the "Boston Warrants") to the shareholder
physicians of the respective medical practice in exchange for an extension of
the term of the Company's respective management agreements from ten to
twenty-five years. Twenty percent of the Boston Warrants vested immediately and
have an exercise price of $4.12. The balance of the Boston Warrants vest in
annual 20% increments at an exercise price which increases annually by 20%
commencing November 18, 1999. The aggregate fair value of warrants issued in
1998 of approximately $216,000 was capitalized and will be amortized over the
remaining life of the management agreements.
In August 1997, the Company consummated an offering of 1,600,000 shares of
Common Stock (the "Offering"). The Offering raised gross proceeds of $9.6
million and net proceeds of approximately $8.3 million. Approximately $6.6
million of the net proceeds was used for the asset purchase and right-to-manage
agreement with Fertility Centers of Illinois, S.C. The balance of the proceeds
of the Offering have been and will continue to be used for working capital and
other general corporate purposes, including possible future acquisitions of the
assets of, and the right to manage, additional physician practices. In
connection with the Offering, five-year warrants to purchase 19,907 shares of
Common Stock at $7.24 per share were issued to Vector Securities International,
Inc.
The anti-dilution rights of the Series A Cumulative Convertible Preferred
Stock (the "Convertible Preferred Stock") provide that the conversion rate of
the Convertible Preferred Stock is subject to increase as a result of the
issuance of the Common Stock pursuant to the Company's acquisitions and the
Offering. As of December 31, 1998, each share of Convertible Preferred Stock was
convertible into Common Stock at a conversion rate equal to approximately 0.79
shares of Common Stock for each share of Convertible Preferred Stock.
On June 6, 1996, the Company made its second conversion offer (the "Second
Offer") to the holders of the 773,878 outstanding shares of the Company's
Convertible Preferred Stock. Under the Second Offer, Preferred Stockholders
received one share of the Company's Common Stock (post-reverse stock split) upon
conversion of a share of Convertible Preferred Stock and respective accrued
dividends, subject to the terms and conditions set forth in the Second Offer.
The Second Offer was conditioned upon a minimum of 400,000 shares of Convertible
Preferred Stock being tendered; provided that the Company reserved the right to
accept fewer shares. Upon expiration of the Second Offer on July 17, 1996, the
Company accepted for conversion 608,234 shares, or 78.6% of the Convertible
Preferred Stock outstanding, constituting all the shares validly tendered.
Following the transaction, there were 165,644 shares of Convertible Preferred
Stock outstanding.
Under the Second Offer, Preferred Stockholders received one share of Common
Stock (post-reverse stock split) for each share of Convertible Preferred Stock
and respective accrued dividends converted. This Second Offer represented an
increase from the original terms of the Convertible Preferred Stock which
provided for 0.3625 shares of Common Stock (post-reverse stock split) for each
share of Convertible Preferred Stock (after adjustment for the failure of the
Company to pay eight dividends and after adjustment for the issuance of Common
Stock pursuant to its acquisition of WMDC and NMF). Since the Company issued an
additional 387,749 shares of Common Stock in the conversion offer compared to
the shares that would have been issued under the original terms of the
Convertible Preferred Stock, the Company was required, pursuant to a recently
enacted accounting pronouncement, to deduct the fair value of these additional
shares of approximately $4,265,000 from earnings available to Common
Stockholders. This non-cash charge, partially offset by the reversal of $973,000
accrued dividends attributable to the conversion, resulted in the increase in
net loss per share by approximately $(1.74) for the year ended December 31,
1996. While this charge was intended to show the cost of the inducement to the
owners of the Company's Common Stock immediately before the conversion offer,
management does not believe that it accurately reflects the impact of the
conversion offer on the Company's Common Stockholders. As a result of the
conversion, the Company reversed $973,000 in accrued dividends from its 1996
balance sheet and the conversion has saved the Company from accruing annual
dividends of $486,000 and the need to include these dividends in earnings per
share calculations. The conversion has eliminated a $6.1 million liquidation
preference related to the shares of Convertible Preferred Stock converted.
Dividends on the Convertible Preferred Stock are payable at the rate of
$.80 per share per annum, quarterly on the fifteenth day of August, November,
February and May of each year commencing August 15, 1993. In May 1995, as a
F-20
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
result of the Company's Board of Directors suspending four quarterly dividend
payments, holders of the Convertible Preferred Stock became entitled to one vote
per share of Convertible Preferred Stock on all matters submitted to a vote of
stockholders, including election of directors; once in effect, such voting
rights are not terminated by the payment of all accrued dividends. In October
1998, the Company paid all dividend payments which were in arrears, or
approximately $563,000 on the Convertible Preferred Stock. As of December 31,
1998, there were no dividend payments in arrears.
As of December 31, 1998, an aggregate of 175,738 warrants were outstanding
at a weighted average exercise price of $3.63.
NOTE 13 -- STOCK OPTIONS:
Under the 1988 Stock Option Plan (as amended), (the "1988 Plan") and the
1992 Stock Option Plan (as amended) (the "1992 Plan"), 40,407 and 500,000
shares, respectively, are reserved for issuance of incentive and non-incentive
stock options. Under both the 1988 and 1992 Plans, incentive stock options, as
defined in Section 422 of the Internal Revenue Code, may be granted only to
employees and non-incentive stock options may be granted to employees, directors
and such other persons as the Board of Directors (or a committee (the
"Committee") appointed by the Board) determines will contribute to the Company's
success at exercise prices equal to at least 100%, or 110% for a ten percent
shareholder, of the fair market value of the Common Stock on the date of grant
with respect to incentive stock options and at exercise prices determined by the
Board of Directors or the Committee with respect to non-incentive stock options.
The 1988 Plan provides for the payment of a cash bonus to eligible employees in
an amount equal to that required to exercise incentive stock options granted.
Stock options issued under the 1988 Plan are exercisable, subject to such
conditions and restrictions as determined by the Board of Directors or the
Committee, during a ten-year period, or a five-year period for incentive stock
options granted to a ten percent shareholder, following the date of grant;
however, the maturity of any incentive stock option may be accelerated at the
discretion of the Board of Directors or the Committee. Under the 1992 Plan, the
Board of Directors or the Committee determines the exercise dates of options
granted; however, in no event may incentive stock options be exercised prior to
one year from date of grant. Under both the 1988 and 1992 Plans, the Board of
Directors or the Committee selects the optionees, determines the number of
shares of Common Stock subject to each option and otherwise administers the
Plans. Under the 1988 Plan, options expire one month from the date of the
holder's termination of employment with the Company or six months in the event
of disability or death. Under the 1992 Plan, options expire three months from
the date of the holder's termination of employment with the Company or twelve
months in the event of disability or death.
Under the 1994 Outside Director Stock Purchase Plan ("Outside Director
Plan"), 31,250 shares of Common Stock are reserved for issuance. Under the
Outside Director Plan, directors who are not full-time employees of the Company
may elect to receive all or a part of their annual retainer fees, the fees
payable for attending meetings of the Board of Directors and the fees payable
for serving on Committees of the Board, in the form of shares of Common Stock
rather than cash, provided that any such election be made at least six months
prior to the date that the fees are to be paid. At December 31, 1998 and 1997,
there were no options outstanding under the Outside Director Plan.
F-21
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity, under the 1988 and 1992 Plans combined, is
summarized as follows:
Number of
shares of
ommon Stock
underlying Weighted Average
options exercise price
---------- ----------------
Options outstanding at December 31, 1995..... 210,800 $ 6.52
Granted
Option Price = Fair Market Value........ 29,875 $13.68
Option Price > Fair Market Value........ 56,250 $ 9.48
Exercised.................................... (11,011) $ 5.24
Canceled..................................... (19,210) $ 9.48
-------
Options outstanding at December 31, 1996..... 266,704 $ 7.68
Granted
Option Price = Fair Market Value........ 90,621 $ 8.32
Exercised.................................... (4,687) $ 4.80
Canceled..................................... (53,784) $ 9.52
-------
Options outstanding at December 31, 1997..... 298,854 $ 7.60
Granted
Option Price = Fair Market Value........ 143,813 $ 6.22
Option Price > Fair Market Value........ 307,596 $ 4.12
Exercised.................................... (28,649) $ 3.43
Canceled..................................... (359,967) $ 7.90
-------
Options outstanding at December 31, 1998..... 361,647 $ 4.16
Options exercisable at:
December 31, 1996....................... 101,742 $ 6.16
December 31, 1997....................... 145,974 $ 6.64
December 31, 1998....................... 141,032 $ 4.30
Effective August 31, 1998, the Board of Directors approved a resolution to
reprice certain stock option agreements held by each officer, director and
employee of the Company, under the 1992 Incentive and Non-Incentive Stock Option
Plan and/or the 1998 Stock Option Plan. Per the resolution, stock option
agreements where the exercise price per share was greater than $1.03 were
amended to provide for an exercise price per share of $1.03 ("New Options").
Except for the exercise price of the New Options, all other terms and conditions
of the agreements remained in full force and effect. Per the resolution, options
to purchase approximately 326,000 shares of Common Stock were repriced. The
options which were repriced are included in options that were canceled during
1998 and the New Options are included in options granted at an option price
greater than fair market value.
Included in options that were canceled during 1998, 1997 and 1996 were
forfeitures (representing canceled unvested options only) of 252,480, 155,580
and 56,710, with weighted average exercise prices of $7.71, $7.96 and $9.20,
respectively.
F-22
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998, options outstanding and exercisable by price range
were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------- ----------------------------------
Outstanding Weighted-Average Exercisable
Range of as of Remaining Weighted-Average as of Weighted-Average
Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
--------------- --------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$2.50 5,001 5.1 $2.50 5,001 $2.50
$3.13 - $4.12 317,896 8.0 $4.09 97,281 $4.12
$5.00 38,750 5.8 $5.00 38,750 $5.00
======== =======
361,647 7.8 $4.16 141,032 $4.30
</TABLE>
Pro forma information:
FAS 123 requires pro forma disclosures of net income and earnings per share
amounts as if compensation expense, using the fair value method, was recognized
for options granted after 1994. Using this approach, pro forma net loss and loss
per share for the year ended December 31, 1998 would be $1,324,879 and $0.25
higher, respectively, versus reported amounts. Pro forma net income and diluted
earnings per share would be $771,000 lower and $0.20, respectively, for the year
ended December 31, 1997. Pro forma net loss and loss per share for the year
ended December 31, 1996 would be $313,000 and $0.16 higher, respectively, versus
reported amounts. The weighted average fair value of options granted at prices
equal to fair market value during the years ended December 31, 1998, 1997 and
1996 was $3.31, $1.58 and $2.91, respectively. The weighted average fair value
for options granted at prices greater than fair market value during the years
ended December 31, 1998 and 1996 were $2.64 and $1.99, respectively. These
values, which were used as a basis for the pro forma disclosures, were estimated
using the Black-Scholes Options-Pricing Model with the following assumptions
used for grants in the years ended December 31, 1998, 1997 and 1996,
respectively; dividend yield of 0% in each year; volatility of 109.86%, 86.28%
and 108.72% in 1998, 1997 and 1996, respectively; risk-free interest rate of
5.14%, 6.3% and 6.7% in 1998, 1997 and 1996, respectively; and an expected term
of 5 years in 1998 and 6 years in 1997 and 1996.
These pro forma disclosures may not be representative of the effects for
future years since options vest over several years and options granted prior to
1995 are not considered in these disclosures. Also, additional awards generally
are made each year.
The Company recognizes compensation cost for stock-based employee
compensation plans over the vesting period based on the difference, if any,
between the quoted market price of the stock and the amount an employee must pay
to acquire the stock. Deferred employee compensation cost at December 31, 1998,
1997 and 1996 was $467,000, $367,000 and $357,000, respectively. As of December
31, 1998, deferred employee compensation cost included approximately $94,000
related to the Shady Grove acquisition. Total compensation cost recognized in
income for the years ended December 31, 1998, 1997 and 1996 was $6,000, $20,000
and $43,000, respectively.
F-23
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for continuing operations for 1998 and
1997 (in thousands, except per share data) appear below:
<TABLE>
<CAPTION>
Diluted
income (loss)
Network Sites' Income (loss) from per share from
Revenues, net contribution continuing operations continuing operations
------------- --------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter........ $ 8,341 $ 4,024 $1,901 $ 995 $ 498 $(81) $ .09 $(.05)
Second quarter (1)... 9,830 4,389 2,324 1,345 (1,585) 179 (.30) .06
Third quarter........ 9,756 4,956 2,237 1,478 422 308 .07 .08
Fourth quarter....... 10,663 7,190 2,350 1,801 434 389 .08 .08
Total year(1)..........$38,590 $20,559 $8,812 $5,619 $ (231) $795 $(.07) $0.21
</TABLE>
(1) The loss from continuing operations in 1998 includes approximately
$2.1 million in restructuring and other charges (See Note 6).
NOTE 15 -- COMMITMENTS AND CONTINGENCIES:
Clinical Services Development
From July 1, 1995 through June 30, 1998, the Company had a three-year
agreement with Monash University which provided for Monash to conduct research
in ART and human fertility which was funded by the Company with a minimum annual
payment of 220,000 Australian dollars paid in quarterly installments. The
Company expensed approximately $96,000, $144,000 and $189,000 under this
agreement for the years ended December 31, 1998, 1997 and 1996.
Under its contract for a joint development program for genetic testing with
Genzyme Genetics ("Genzyme"), the Company funded approximately $0 and $56,000 in
the years ended December 31, 1997 and 1996, respectively. The Company and
Genzyme mutually agreed to terminate this contract in December 1996; the Company
retained the right to use the technology developed under the contract through
this date.
Operating Leases --
Refer to Note 9 for a summary of lease commitments.
Reliance on Third Party Vendors --
The RSCs, as well as all other medical providers who deliver services
requiring fertility medication, are dependent on three third-party vendors that
produce such medications (including but not limited to: Lupron, Follistim,
Repronex, GonalF and Pregnyl) that are vital to the provision of infertility and
ART services. Should any of these vendors experience a supply shortage, it may
have an adverse impact on the operations of the RSCs. To date, the RSCs have not
experienced any such adverse impacts.
F-24
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employment Agreements --
The Company has entered into employment and change in control severance
agreements with certain of its management employees, which include, among other
terms, noncompetitive provisions and salary and benefits continuation. The
Company's minimum aggregate commitment under these agreements at December 31,
1998 was approximately $1.2 million.
Commitments to Medical Practices --
Pursuant to the majority of the Company's management agreements, the
Company is obligated to perform the following: (i) advance funds to the Network
Site to provide new services, utilize new technologies, fund projects, etc.; and
(ii) on or before the fifteenth business day of each month purchase the net
accounts receivable of the Network Site arising during the previous month and to
transfer or pay to the Network Site such amount of funds equal to the net
accounts receivable less any amounts owed to the Company for management fees
and/or advances. Any advances are to be repaid monthly and interest expense,
computed at the prime rate used by the Company's primary bank in effect at the
time of the advance, will be charged by the Company for funds advanced.
Litigation --
On March 10, 1998, the Company had received notice from Reproductive
Sciences Medical Center, Inc. ("RSMC") claiming that the Company had materially
breached its management agreement with RSMC and demanded that alleged breaches
be remedied. Contrary to RSMC's allegations, the Company believed that it had
materially performed its obligations under the management agreement and that
RSMC had materially breached the management agreement. On September 1, 1998, the
Company and RSMC entered into a stipulation and settlement agreement, resolving
all claims against each other. The management agreement has been terminated,
RSMC will lease the Company's assets over a period of three years, and the
parties have entered into mutual consulting agreements.
On October 9, 1998, W.F. Howard, M.D., P.A., filed a lawsuit against the
Company in the District Court of Denton County, Texas, seeking to rescind the
management agreement related to the Dallas Network Site, or collect damages, on
the ground that its practice has not realized the degree of growth or increases
as allegedly projected by the Company. The complaint asserts alleged breaches of
contract, fiduciary duties and warranties, as well as a claim under the Texas
Deceptive Trade Practices Act, and claims lost profit damages as well as an
exemplary award under statute. The Company believes that this complaint is
without merit, denies the allegations, and intends to vigorously defend its
position. Litigation counsel has advised the Company that it is too early in the
litigation to meaningfully assess the likelihood of success of this lawsuit.
Nonetheless, counsel believes that even an unfavorable result will not have a
material adverse effect on the Company. The management agreement remains in full
operation during the pendency of the lawsuit.
There are 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.
Insurance --
The Company and its affiliated Medical Practices are insured with respect
to medical malpractice risks on a claims made basis. Management believes it will
be able to obtain renewal coverage in the future. Management is not aware of any
claims against it or its affiliated Medical Practices which would expose the
Company or its affiliated Medical Practices to liabilities in excess of insured
amounts. Therefore, none of these claims is expected to have a material impact
on the Company's financial position, results of operations or cash flows.
F-25
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 -- RELATED PARTY TRANSACTIONS:
SDL Consultants, a company owned by Sarason D. Liebler, who became a
director of the Company in August, 1994, rendered consulting services to the
Company during 1998, 1997 and 1996 for aggregate fees of approximately $43,000,
$93,000 and $17,000, respectively.
Pursuant to the Company's management agreement with Shady Grove, Michael J.
Levy, M.D., an employed shareholder physician of the P.C., became a member of
the Company's Board of Directors effective March 12, 1998.
In connection with the Company's January 1998 equity private placement with
Morgan Stanley Venture Partners, M. Fazle Husain, General Partner, became a
member of the Company's Board of Directors.
Pursuant to the Company's management agreement with FCI, Aaron Lifchez,
M.D., an employed shareholder physician of FCI, became a member of the Company's
Board of Directors in August 1997.
Under its contract for a joint development program for genetic testing with
Genzyme, the Company funded approximately $56,000 in the years ended December
31, 1996. The Company and Genzyme mutually agreed to terminate this contract in
December 1996; the Company retained the right to use the technology developed
under the contract through such date.
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS:
In connection with the Company's termination of its management agreement
with the RSMC effective September 1, 1998, the Company was discharged from its
remaining exclusive management right obligation of $650,000 which had been
incurred in 1997.
In 1996, in connection with the Company's acquisition of certain assets of
and the right to manage the Reproductive Sciences Center of Greater Philadelphia
(the "Philadelphia Network Site"), the Company incurred a $1,000,000 obligation.
In connection with the Company's termination of its management agreement with
the Philadelphia Network Site and due to this Network Site's historical
operating losses, approximately $583,000 of the Company's exclusive right to
manage obligation to the physician owner was applied against the Company's
receivable from the physician owner during the six-month period ended June 30,
1998.
In connection with its acquisition of the exclusive right to manage CFRM in
January 1998, the Company issued 46,079 shares of Common Stock with an aggregate
fair market value equal to approximately $300,000.
In connection with its acquisition of the exclusive right to manage the
Shady Grove P.C., in March 1998, the Company issued 159,888 shares of Common
Stock with an aggregate fair value equal to approximately $1.2 million and
approximately $1.1 million in promissory notes. The Company also recorded an
additional aggregate obligation of approximately $1.6 million in the form of
cash, stock and a note to acquire the balance of the capital stock of Shady
Grove, which occurred in January 1999.
In 1997, in connection with the Company's acquisition of certain assets of
and the right to manage Bay Area Fertility, RSMC and FCI, the Company issued an
aggregate of 372,063 shares of Common Stock with an aggregate fair market value
equal to approximately $8.7 million.
F-26
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1998, pursuant to amendments to the Bay Area, FCI, Shady Grove and the
Boston management agreements, the Company issued warrants to purchase an
aggregate of 78,125 shares of Common Stock in exchange for an extension of the
term of the Company's respective management agreements from twenty to
twenty-five years.
In connection with the Company's acquisition of WMDC and NMF in June 1996,
the Company issued 166,666 shares of Common Stock, acquired tangible assets of
$469,000, assumed current liabilities of $245,000, and debt of $97,000, and
acquired $214,000 of intangible assets and $3,159,000 of goodwill. In connection
with this transaction, the Company also issued a note payable in the amount of
$600,000 with annual interest payable at 4.16%.
In May 1996, in connection with the Company's acquisition of certain assets
of and the right to manage W.F. Howard, M.D., P.A. located near Dallas, Texas,
the Company incurred a $550,000 obligation.
At December 31, 1997 and 1996 there were accrued dividends on Preferred
Stock outstanding of $464,000 and $331,000, respectively, (see Note 12).
Pursuant to the Second Offer (see Note 12), 608,234 shares of Preferred
Stock were converted into 608,234 shares of Common Stock during the year ended
December 31, 1996.
State taxes of $384,000, $93,000 and $119,000 were paid in the years ended
December 31, 1998, 1997 and 1996, respectively.
Interest paid in cash during the year ended December 31, 1998, 1997 and
1996, amounted to $331,000, $60,000 and $35,000, respectively. Interest received
during the years ended December 31, 1998, 1997 and 1996 amounted to
approximately $90,000, $179,000 and $412,000, respectively.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of IntegraMed America, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 8, 1999 appearing on page F-2 of the 1998 Annual Report to
Shareholders of IntegraMed America, Inc. also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 8, 1999
S-1
<PAGE>
SCHEDULE II
INTEGRAMED AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions-
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions (1) Period
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for
doubtful accounts......................... $394,000 $978,000 $541,000 $831,000
Year Ended December 31, 1997
Allowance for
doubtful accounts......................... $309,000 $470,000 $385,000 $394,000
Year Ended December 31, 1996
Allowance for
doubtful accounts......................... $ 89,000 $344,000 $124,000 $309,000
</TABLE>
- ----------------
(1) Uncollectible accounts written off.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
Dated: March 15, 1999
By: /s/EUGENE R. CURCIO
-------------------------
Eugene R. Curcio
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ GERARDO CANET
- -------------------------
Gerardo Canet President, March 15, 1999
Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ M. FAZLE HUSAIN
- -------------------------
M. Fazle Husain Director March 15, 1999
/s/ MICHAEL J. LEVY, M.D.
- -------------------------
Michael J. Levy, M.D. Director March 15, 1999
/s/ SARASON D. LIEBLER
- -------------------------
Sarason D. Liebler Director March 15, 1999
/s/ AARON LIFCHEZ, M.D.
- -------------------------
Aaron Lifchez, M.D. Director March 15, 1999
/s/ PATRICIA M. MCSHANE, M.D.
- -----------------------------
Patricia M. McShane, M.D. Director March 15, 1999
/s/ LAWRENCE J. STUESSER
- -------------------------
Lawrence J. Stuesser Director March 15, 1999
/s/ ELIZABETH TALLETT
- -------------------------
Elizabeth Tallett Director March 15, 1999
<PAGE>
INDEX TO EXHIBITS
Item 14(c)
Exhibit
Number Exhibit
3.1(a) -- Amended and Restated Certificate of Incorporation of Registrant
effecting, inter alia, reverse stock split (ii)
3.1(b) -- Amendment to Certificate of Incorporation of Registrant increasing
authorized capital stock by authorizing Preferred Stock (ii)
3.1(c) -- Certificate of Designations of Series A Cumulative Convertible
Preferred Stock (ii)
3.1(d) -- Certificate of Amendment to Amended and Restated Certificate of
Incorporation increasing authorized Common Stock to 50,000,000
shares (xxiv)
3.2 -- Copy of By-laws of Registrant (i)
3.2(a) -- Copy of By-laws of Registrant (As Amended and Restated on December
12, 1995) (xi)
3.2(b) -- Copy of By-laws of Registrant (As Amended and Restated on March 4,
1997) (xxi)
4.1 -- Warrant Agreement of Robert Todd Financial Corporation. (i)
4.2 -- Copy of Warrant, as amended, issued to IG Labs. (i)
4.3 -- RAS Securities Corp. and ABD Securities Corporation's Warrant
Agreement. (ii)
4.4 -- Form of Warrants issuable to Raymond James & Associates, Inc.
(vii)
4.6 -- Warrant issued to Morgan Stanley Venture Partners III, L.P.
(xviii)
4.7 -- Warrant issued to Morgan Stanley Venture Partners III, L.P.
(xviii)
4.8 -- Warrant issued to the Morgan Stanley Venture Partners Entrepreneur
Fund, L.P. (xxi)
4.9 (a) -- Warrant issued to Brian Kaplan, M.D. (xxii)
4.9 (b) -- Warrant issued to Aaron S. Lifchez, M.D. (xxii)
4.9 (c) -- Warrant issued to Jacob Moise, M.D. (xxii)
4.9 (d) -- Warrant issued to Jorge Valle, M.D. (xxii)
4.10(a) -- Warrant issued to Donald Galen, M.D. (xxii)
4.10(b) -- Warrant issued to Arnold Jacobson, M.D. (xxii)
4.10(c) -- Warrant issued to Louis Weckstein, M.D. (xxii)
4.11(a) -- Warrant issued to Michael J. Levy, M.D. (xxii)
4.11(b) -- Warrant issued to Arthur W. Sagoskin, M.D. (xxii)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
4.11 (c) -- Warrant issued to Robert J. Stillman, M.D. (xxii)
4.11 (d) -- Warrant issued to Robert J. Stillman, M.D. dated January 6, 1999
4.12 (a) -- Warrant issued to Patricia M. McShane, M.D. dated November 18,
1998
4.12 (b) -- Warrant issued to Samuel C. Pang, M.D. dated November 18, 1998
4.12 (c) -- Warrant issued to Issac Glatstein, M.D. dated November 18, 1998
4.13 -- Warrant issued to Vector Securities International, Inc.
10.1 -- Copy of Registrant's 1988 Stock Option Plan, including form of
option (i)
10.2 -- Copy of Registrant's 1992 Stock Option Plan, including form of
option (i)
10.2 (a) -- Copy of Amendment to Registrant's 1992 Stock Option Plan (xxii)
10.4 -- Severance arrangement between Registrant and Vicki L. Baldwin (i)
10.4(a) -- Copy of Change in Control Severance Agreement between Registrant
and Vicki L. Baldwin (vii)
10.5(a) -- Copy of Severance Agreement with Release between Registrant and
David J. Beames (iv)
10.6 -- Severance arrangement between Registrant and Donald S. Wood (i)
10.6(a) -- Copy of Executive Retention Agreement between Registrant and
Donald S. Wood, Ph.D. (viii)
10.7(a) -- Copy of lease for Registrant's executive offices relocated to
Purchase, New York (viii)
10.8 -- Copy of Lease Agreement for medical office in Mineola, New York
(i)
10.8(a) -- Copy of new 1994 Lease Agreement for medical office in Mineola,
New York (v)
10.8(b) -- Copy of Letter of Credit in favor of Mineola Pavilion Associates,
Inc. (viii)
10.9 -- Copy of Service Agreement for ambulatory surgery center in
Mineola, New York (i)
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York (i)
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
10.10(a) -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.11 -- Copy of Service Agreement with United Hospital (i)
10.12 -- Copy of Service Agreement with Waltham Weston Hospital and Medical
Center (i)
10.15(a) -- Copy of post-Dissolution Consulting Agreement between Registrant
and Allegheny General Hospital (vi)
10.18(a) -- Copy of post-Dissolution Consulting, Training and License
Agreement between Registrant and Henry Ford Health Care Systems
(iii)
10.19 -- Copy of Guarantee Agreement with Henry Ford Health System (i)
10.20 -- Copy of Service Agreement with Saint Barnabas Outpatient Centers
for center in Livingston, New Jersey (i)
10.21 -- Copy of Agreement with MPD Medical Associates, P.C. for center in
Livingston, New Jersey (i)
10.22 -- Copy of Lease Agreement for medical offices in Livingston, New
Jersey (i)
10.23 -- Form of Development Agreement between Registrant and IG
Laboratories, Inc. (i)
10.24 -- Copy of Research Agreement between Registrant and Monash
University (i)
10.24(a) -- Copy of Research Agreement between Registrant and Monash
University (ix)
10.28 -- Copy of Agreement with Massachusetts General Hospital to establish
the Vincent Center for Reproductive Biology and a Technical
Training Center (ii)
10.29 -- Copy of Agreement with General Electric Company relating to
Registrant's training program (ii)
10.30 -- Copy of Indemnification Agreement between Registrant and Philippe
L. Sommer (vii)
10.31 -- Copy of Employment Agreement between Registrant and Gerardo Canet
(vii)
10.31(a) -- Copy of Change in Control Severance Agreement between Registrant
and Gerardo Canet (vii)
10.31(b) -- Copy of the Amendment of Change in Control Severance Agreement
between Registrant and Gerardo Canet (viii)
10.33 -- Copy of Change in Control Severance Agreement between Registrant
and Dwight P. Ryan (vii)
10.35 -- Revised Form of Dealer Manager Agreement between Registrant and
Raymond James & Associates, Inc. (vii)
10.36 -- Copy of Agreement between MPD Medical Associates, P.C. and
Patricia Hughes, M.D. (vii)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.37 -- Copy of Agreement between IVF America (NJ) and Patricia Hughes,
M.D. (vii)
10.38 -- Copy of Management Agreement between Patricia M. McShane, M.D. and
IVF America (MA), Inc. (vii)
10.39 -- Copy of Sublease Agreement for medical office in North Tarrytown,
New York (viii)
10.40 -- Copy of Executive Retention Agreement between Registrant and
Patricia M. McShane, M.D. (viii)
10.41 -- Copy of Executive Retention Agreement between Registrant and Lois
Dugan (viii)
10.42 -- Copy of Executive Retention Agreement between Registrant and Jay
Higham (viii)
10.43 -- Copy of Service Agreement between Registrant and Saint Barnabas
Medical Center (ix)
10.44 -- Asset Purchase Agreement among Registrant, Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center,
Reproductive Diagnostics, Inc. and Abraham K. Munabi, M.D. (ix)
10.44(a) -- Management Agreement among Registrant and Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center and
Reproductive Diagnostics, Inc. (ix)
10.44(b) -- Physician Service Agreement between Assisted Reproductive
Technologies P.C. d/b/a Main Line Reproductive Science Center and
Abraham K. Munabi, M.D. (ix)
10.44(c) -- Stipulation of Settlement and Compromise of all Claims Among
IntegraMed America, Inc. and Assisted Reproductive Technologies,
P.C., d/b/a Mainline Reproductive Science Center, Reproductive
Diagnostics, Abraham Munabi, M.D., Reproductive Science Center of
Suburban Philadelphia (xxv)
10.45 -- Copy of Executive Retention Agreement between Registrant and
Stephen Comess (x)
10.46 -- Copy of Executive Retention Agreement between Registrant and Peter
Callan (x)
10.47 -- Management Agreement between Registrant and Robert Howe, M.D.,
P.C. (x)
10.47 (a) -- P.C. Funding Agreement between Registrant and Robert Howe, M.D.
(x)
10.48 -- Management Agreement among Registrant and Reproductive Endocrine &
Fertility Consultants, P.A. and Midwest Fertility Foundations &
Laboratory, Inc. (x)
10.48 (a) -- Asset Purchase Agreement among Registrant and Reproductive
Endocrine & Fertility Consultants, Inc. and Midwest Fertility
Foundations & Laboratory, Inc. (x)
10.48 (b) -- Amendment No. 2 to Management Agreement among IntegraMed America,
Inc. and Reproductive Endocrine & Fertility Consultants, P.A. and
Midwest Fertility Foundations & Laboratory, Inc. dated July 1,
1998 (xxiv)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.49 -- Copy of Sublease Agreement for office space in Kansas City,
Missouri (x)
10.50 -- Copy of Lease Agreement for office space in Charlotte, North
Carolina (x)
10.51 -- Copy of Contract Number DADA15-96-C-0009 as awarded to IVF America
by the Department of the Army, Walter Reed Army Medical Center for
In Vitro Fertilization Laboratory Services (xi)
10.52 -- Agreement and Plan of Merger By and Among IVF America, Inc., INMD
Acquisition Corp., The Climacteric Clinic, Inc., Midlife Centers
of America, Inc., Women's Research Centers, Inc., America National
Menopause Foundation, Inc. and Morris Notelovitz (xii)
10.52 (a) -- Agreement dated September 1, 1998 By and Among Women's Medical &
Diagnostic Center, Inc., IntegraMed America, Inc. and Florida
Medical and Research Institute, P.A. (xxv)
10.53 -- Employment Agreement between Morris Notelovitz, M.D., Ph.D. and
IVF America, Inc., d/b/a IntegraMed America (xii)
10.54 -- Physician Employment Agreement between Morris Notelovitz, M.D.,
Ph.D., and INMD Acquisition Corp. ("IAC"), a Florida corporation
and wholly owned subsidiary of IVF America, Inc. ("INMD") (xii)
10.55 -- Management Agreement between IVF America, Inc., d/b/a IntegraMed
America, Inc. and W.F. Howard, M.D., P.A. (xii)
10.56 -- Asset Purchase Agreement between IVF America, Inc., d/b/a/
IntegraMed America, Inc. and W.F. Howard M.D., P.A. (xii)
10.57 -- Business Purposes Promissory Note dated September 8, 1993 in the
amount of $100,000 (xiii)
10.58 -- Business Purposes Promissory Note dated November 18, 1994 in the
amount of $64,000 (xiii)
10.59 -- Guaranty Agreement (xiii)
10.60 -- Security Agreement (Equipment and Consumer Goods) (xiii)
10.61 -- Management Agreement dated January 7, 1997 by and between the
Registrant and Bay Area Fertility and Gynecology Medical Group,
Inc. (xiv)
10.61 (a) -- Amendment No. 1 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical Group,
Inc. (xxii)
10.62 -- Asset Purchase Agreement dated January 7, 1997 by and between the
Registrant and Bay Area Fertility and Gynecology Medical Group, a
California Partnership. (xiv)
10.63 -- Physician Employment Agreement between Robin E. Markle, M.D. and
Women's Medical & Diagnostic Center, Inc. (xv)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.64 -- Physician Employment Agreement between W. Banks Hinshaw, Jr., M.D.
and Women's Medical & Diagnostic Center, Inc. (xv)
10.65 -- Agreement between IntegraMed America, Inc., f/k/a IVF America
Inc.; Women's Medical & Diagnostic Center, Inc., f/k/a INMD
Acquisition Corp, and Morris Notelovitz, M.D. (xv)
10.66 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Donald I. Galen, M.D. (xv)
10.67 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Louis N. Weckstein, M.D. (xv)
10.68 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Arnold Jacobson, M.D. (xv)
10.69 -- Copy of Executive Retention Agreement between Registrant and Glenn
G. Watkins (xv)
10.70 -- Management Agreement between Registrant and Fertility Centers of
Illinois, S.C. dated February 28, 1997 (xvi)
10.71 -- Asset Purchase Agreement between Registrant and Fertility Centers
of Illinois, S.C. dated February 28, 1997 (xvi)
10.72 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.73 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
10.74 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
10.75 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
10.76 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.77 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
10.78 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
10.79 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.80 -- Amendment to Contract Number DADA15-96-C-009 between Registrant
and the Department of the Army, Walter Reed Army Medical Center
for In Vitro Fertilization Laboratory Services dated February 11,
1997 (xvi)
10.80 (a) -- Amendment Effective January 29, 1998 to Contract Number DADA
15-96-C-009 between INMD and the Department of the Army, Walter
Reed Army Medical Center for In Vitro Fertilization Laboratory
Services (xxii)
10.81 -- Management Agreement between Registrant and Reproductive Sciences
Medical Center, Inc. (xvii)
10.81 (a) -- Amendment Dated July 11, 1997 to Agreement with Reproductive
Sciences Medical Center, Inc. (xxiv)
10.81 (b) -- Stipulation of Settlement and Compromise of all Claims Among
IntegraMed America, Inc. and Reproductive Sciences Medical Center,
Inc. and Samuel H. Wood, M.D. (xxv)
10.82 -- Asset Purchase Agreement between Registrant and Samuel H. Wood,
M.D., Ph.D. (xvii)
10.83 -- Personal Responsibility Agreement between Registrant and Samual H.
Wood, M.D., Ph.D. (xvii)
10.84 -- Physician-Shareholder Employment Agreement between Reproductive
Sciences Medical Center, Inc. and Samuel H. Wood, M.D., Ph.D.
(xvii)
10.85 -- Physician-Shareholder Employment Agreement between Reproductive
Endocrine & Fertility Consultants, P.A. and Elwyn M. Grimes, M.D.
(xvii)
10.86 -- Amendment to Management Agreement between Registrant and
Reproductive Endocrine & Fertility Consultants, P.A. (xvii)
10.87 -- Amendment to Management Agreement between Registrant and Fertility
Centers of Illinois, S.C. dated May 2, 1997 (xvii)
10.88 -- Management Agreement between Registrant and MPD Medical
Associates, P.C. dated June 2, 1997 (xvii)
10.88 (a) -- Amendment to Management Agreement between IntegraMed America, Inc.
and MPD Medical Associates, P.C. dated as of January 1, 1998
(xxiv)
10.89 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates P.C. and Gabriel San Roman, M.D. (xvii)
10.90 -- Amendment No. 2 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated June 18, 1997 (xvii)
10.91 -- Commitment Letter dated June 30, 1997 between Registrant and First
Union National Bank (xvii)
10.92 -- Amendment No. 3 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated August 19, 1997 (xviii)
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.93 -- Amendment No. 4 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated January 9, 1998 (xx)
10.94 -- Investment Agreement between Registrant and Morgan Stanley Venture
Partners III, L.P.., Morgan Stanley Venture Investors III, L.P.
and the Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
(xix)
10.95 -- Amendment No. 5 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated March 5, 1998 (xxi).
10.96 -- Termination Agreement by and among Women's Medical & Diagnostic
Center, Inc., W. Banks Hinshaw, Jr., Ph.D., M.D., and Robin E.
Markle, M.D.
10.97 -- Loan Agreement between First Union National Bank and IntegraMed
America, Inc. dated November 13, 1997.
10.98 -- Management Agreement between IntegraMed America, Inc. and MPD
Medical Associates (MA), P.C. dated October 1, 1997 (xxi)
10.98 (a) -- Amendment No. 1 to Management Agreement between IntegraMed
America, Inc. and MPD Medical Associates (MA) P.C. and Patricia M.
McShane, M.D. dated November 11, 1998
10.99 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates (MA), P.C. and Patricia McShane, M.D. dated October 1,
1997 (xxi)
10.100 -- Asset Purchase and Sale Agreement by and among IntegraMed America,
Inc. and Fertility Centers of Illinois, S.C., Advocate Medical
Group, S.C. and Advocate MSO, Inc. dated January 9, 1998 (xxi)
10.101 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and Laurence A. Jacobs, M.D. dated January 9, 1998
(xxi)
10.102 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and John J. Rapisarda, M.D. dated January 9, 1998
(xxi)
10.103 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
John J. Rapisarda, M.D. dated January 9, 1998 (xxi)
10.104 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
Laurence A. Jacobs, M.D. dated January 9, 1998 (xxi)
10.105 -- Management Agreement between Shady Grove Fertility Centers, P.C.
and Levy, Sagoskin and Stillman, M.D., P.C. dated March 11, 1998
(xxi)
10.105 (a) -- Amendment No. 1 to Management Agreement between Shady Grove
Fertility Centers, Inc. and Levy Sagoskin and Stillman, M.D., P.C
(xxii)
10.105 (b) -- Amendment No. 2 to Management Agreement between Shady Grove
Fertility Centers, Inc. and Levy Sagoskin and Stillman, M.D., P.C.
dated May 6, 1998
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
10.106 -- Submanagement Agreement between Shady Grove Fertility Centers,
Inc. and IntegraMed America, Inc. dated March 12, 1998 (xxi)
10.107 -- Stock Purchase and Sale Agreement among IntegraMed America, Inc.
and Michael J. Levy, M.D., Robert J. Stillman, M.D. and Arthur W.
Sagoskin, M.D. dated March 12, 1998 (xxi)
10.108 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Arthur W. Sagoskin, M.D. dated March 12, 1998 (xxi)
10.109 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Michael J. Levy, M.D. dated March 12, 1998 (xxi)
10.110 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Michael J. Levy, M.D. dated March 11,
1998 (xxi)
10.111 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Arthur W. Sagoskin, M.D. dated March
11, 1998 (xxi)
10.112 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Robert J. Stillman, M.D. dated March
11, 1998 (xxi)
10.113 -- Commitment letter with Fleet Bank, National Association (xxiv)
10.113(a) -- Loan Agreement dated September 11, 1998 between IntegraMed
America, Inc. and Fleet Bank, National Association (xxv)
21 -- List of Subsidiaries
23.1 -- Consent of Price Waterhouse LLP
27 -- Financial Data Schedule
- -------------------------------------
(i) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-47046) and incorporated
herein by reference thereto.
(ii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-60038) and incorporated
herein by reference thereto.
(iii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994 and
incorporated herein by reference thereto.
(iv) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994 and
incorporated herein by reference thereto.
(v) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1994
and incorporated herein by reference thereto.
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
(vi) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form 10-K for the year ended December 31, 1993.
(vii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-4 (Registration No. 33- 82038) and incorporated
herein by reference thereto.
(viii) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(ix) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(x) Filed as Exhibit with identical number to Registrant's Annual Report
on Form 10-Q for the year ended September 30, 1995.
(xi) Filed as Exhibit with identical number to Registrant's Statement on
Form 10-K for the year ended December 31, 1995.
(xii)
Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated June 20, 1996.
(xiii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K/A dated August 20, 1996.
(xiv) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 20, 1997.
(xv) Filed as Exhibit with identical exhibit number to Statement on Form
10-K for the year ended December 31, 1996.
(xvi) Incorporated by Reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1
(registration No. 333-26551) filed with the Securities and Exchange
Commission on May 6, 1997.
(xvii) Incorporated by reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1
(Registration No. 333-26551) filed with the Securities and Exchange
Commission on June 20, 1997.
(xviii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997
and incorporated herein by reference thereto.
(xix) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 23, 1998.
(xx) Filed as Exhibit with identical exhibit number to Schedule 13D dated
February 11, 1998.
(xxi) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
(xxii) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1998.
<PAGE>
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
(xxiii) Incorporated by reference to the Registrant's Definitive Proxy
Statement filed on May 5, 1997.
(xxiv) Filed as Exhibit with identical number to Registrant's Quarterly
Report on form 10-Q for the period ended June 30, 1998.
(xxv) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.
THIS WARRANT AND THE SHARES OF COMMON STOCK INTO WHICH IT IS EXERCISABLE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN
CONNECTION WITH THE PROPOSED TRANSFER.
Warrant Number INMD 1014
VOID AFTER 5:00 P.M. NEW YORK TIME, ON JANUARY 5, 2004
WARRANT TO PURCHASE 5,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
INTEGRAMED AMERICA, INC.
This is to Certify That, FOR VALUE RECEIVED, ROBERT J.
STILLMAN, or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from IntegraMed America, Inc., a Delaware
corporation ("Company"), 5,000 fully paid, validly issued and nonassessable
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") at a price of $5.125 per share at any time or from time to time during
the period from January 6, 1999 to January 5, 2004, but not later than 5:00 p.m.
New York City Time, on January 5, 2004. The number of shares of Common Stock to
be received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price".
1
<PAGE>
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in
part at any time or from time to time on or after January 6, 1999 and until
January 5, 2004 (the "Exercise Period"); provided, however, that if such day is
a day on which banking institutions in the State of New York are authorized by
law to close, then on the next succeeding day which shall not be such a day.
This Warrant may be exercised by presentation and surrender hereof to the
Company at its principal office, or at the office of its stock transfer agent,
if any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of Warrant Shares specified in such
form. As soon as practicable after each such exercise of the warrants, but not
later than seven (7) days from the date of such exercise, the Company shall
issue and deliver to the Holder a certificate or certificate for the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
Small Cap Market, the current Market Value shall be the
average of the closing bid and asked prices for such day on
such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
2
<PAGE>
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant is not transferable (other than
by will or pursuant to the laws of descent and distribution). Upon surrender of
this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
3
<PAGE>
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above,
the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(3) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (3) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
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<PAGE>
(5) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (3), inclusive above.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
5
<PAGE>
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
INTEGRAMED AMERICA, INC.
By /s/Gerardo Canet
------------------------------
Gerardo Canet, President & CEO
Dated: January 5, 1999
Attest:
/s/Claude E. White
- -----------------------------
Claude E. White, Secretary
[Seal]
<PAGE>
PURCHASE FORM
Date: ________________________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _______ shares of Common Stock and
hereby makes payment of _______ in payment of the actual exercise price thereof.
----------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature _____________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers unto
Name _____________________________
(Please typewrite or print in block letters)
Address ____________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date:_____________________________
Signature _________________________
<PAGE>
************************************************************************
STOCK PURCHASE WARRANT
To Purchase Common Stock of
INTEGRAMED AMERICA, INC.
************************************************************************
THIS WARRANT AND THE SHARES OF COMMON STOCK INTO WHICH IT IS EXERCISABLE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN
CONNECTION WITH THE PROPOSED TRANSFER.
Warrant Number INMD 1003
VOID AFTER 5:00 P.M. NEW YORK TIME, ON NOVEMBER 17, 2003
WARRANT TO PURCHASE 15,625 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
INTEGRAMED AMERICA, INC.
This is to Certify That, FOR VALUE RECEIVED, PATRICIA MCSHANE
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from IntegraMed America, Inc., a Delaware corporation ("Company"), an aggregate
of 15,625 fully paid, validly issued and nonassessable shares of Common Stock,
par value $.01 per share, of the Company ("Common Stock") at a price of $4.12
per share ("Exercise Price") from time to time during the period from November
18, 1998 to November 17, 2003, but not later than 5:00 p.m. New York City Time,
on November 17, 2003 in accordance with the terms and conditions hereof. In
addition to any other adjustments to which the Exercise Price may be subject as
provided for herein, the Exercise Price shall be subject to a yearly adjustment
of 20% on November 18 of each year of this Warrant, which when so adjusted shall
become the adjusted exercise price ("Adjusted Exercise Price") for the
applicable 12-month period. The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
1
<PAGE>
to time, are hereinafter sometimes referred to as "Warrant Shares" and the
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price"
or "Adjusted Exercise Price".
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised from time to time
on or after November 18, 1998 and until November 17, 2003, subject to the
provisions of Sections (a)(2) through (a) (8) hereof; provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day. This Warrant may be exercised by presentation and surrender to the
Company at its principal office, the Purchase Form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of Warrant
Shares specified in such form. As soon as practicable after each such exercise
of the warrants, the Company shall cause its transfer agent to issue and deliver
to the Holder a certificate or certificate for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. Upon
receipt by the Company of the Purchase Form at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(2) Holder may acquire up to 3,125 shares of Common
Stock at the Exercise Price between November 18, 1998 and November 17, 1999
("First Exercise Period").
(3) Holder may acquire up to 3,125 shares of Common
Stock at the 1999 Adjusted Exercise Price between November 18, 1999 and November
17, 2000 ("Second Exercise Period").
(4) Holder may acquire up to 3,125 shares of Common
Stock at the 2000 Adjusted Exercise Price between November 18, 2000 and November
17, 2001 ("Third Exercise Period").
(5) Holder may acquire up to 3,125 shares of Common
Stock at the 2001 Adjusted Exercise Price between November 18, 2001 and November
17, 2002 ("Fourth Exercise Period").
(6) Holder may acquire up to 3,125 shares of Common
Stock at the 2002 Adjusted Exercise Price between November 18, 2002 and November
17, 2003 ("Fifth Exercise Period").
2
<PAGE>
(7) Holder must be an employee, in good-standing, of
REPRODUCTIVE SCIENCE CENTER(R) of Boston ("PC") at the time Holder acquires any
of the shares provided for iN this Warrant.
(8) In the event the Management Agreement, as amended
from time to time, dated as of October 1, 1997 between the Company and PC
terminates, this Warrant shall terminate effective on the same date and any
rights to acquire Common Stock of the Company not exercised as of that date
shall cease, be null and void and of no effect.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
Small Cap Market, the current Market Value shall be the
average of the closing bid and asked prices for such day on
such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
3
<PAGE>
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant is not transferable or
assignable (other than by will or pursuant to the laws of descent and
distribution). This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above,
the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
4
<PAGE>
(3) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (3) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (3), inclusive above.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
5
<PAGE>
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
6
<PAGE>
INTEGRAMED AMERICA, INC.
By /s/Gerardo Canet
------------------------------
Gerardo Canet, President & CEO
Date: November 18, 1998
Attest:
/s/Claude E. White
- -----------------------------
Claude E. White, Secretary
[Seal]
<PAGE>
PURCHASE FORM
Date: ________________________
The undersigned hereby irrevocably elects to exercise the
Warrant dated ___________________________to the extent of purchasing _______
shares of Common Stock and hereby makes payment of _______ in payment of the
actual exercise price thereof.
- --------------------------------------------
Signature
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature _____________________________
<PAGE>
************************************************************************
STOCK PURCHASE WARRANT
To Purchase Common Stock of
INTEGRAMED AMERICA, INC.
************************************************************************
THIS WARRANT AND THE SHARES OF COMMON STOCK INTO WHICH IT IS EXERCISABLE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN
CONNECTION WITH THE PROPOSED TRANSFER.
Warrant Number INMD 1002
VOID AFTER 5:00 P.M. NEW YORK TIME, ON NOVEMBER 17, 2003
WARRANT TO PURCHASE 12,500 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
INTEGRAMED AMERICA, INC.
This is to Certify That, FOR VALUE RECEIVED, SAMUEL C. PANG
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from IntegraMed America, Inc., a Delaware corporation ("Company"), an aggregate
of 12,500 fully paid, validly issued and nonassessable shares of Common Stock,
par value $.01 per share, of the Company ("Common Stock") at a price of $4.12
per share ("Exercise Price") from time to time during the period from November
18, 1998 to November 17, 2003, but not later than 5:00 p.m. New York City Time,
on November 17, 2003 in accordance with the terms and conditions hereof. In
addition to any other adjustments to which the Exercise Price may be subject as
provided for herein, the Exercise Price shall be subject to a yearly adjustment
of 20% on November 18 of each year of this Warrant, which when so adjusted shall
become the adjusted exercise price ("Adjusted Exercise Price") for the
applicable 12-month period. The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant
1
<PAGE>
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price" or "Adjusted Exercise Price".
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised from time to time
on or after November 18, 1998 and until November 17, 2003, subject to the
provisions of Sections (a)(2) through (a) (8) hereof; provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day. This Warrant may be exercised by presentation and surrender to the
Company at its principal office, the Purchase Form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of Warrant
Shares specified in such form. As soon as practicable after each such exercise
of the warrants, the Company shall cause its transfer agent to issue and deliver
to the Holder a certificate or certificate for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. Upon
receipt by the Company of the Purchase Form at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(2) Holder may acquire up to 2,500 shares of Common
Stock at the Exercise Price between November 18, 1998 and November 17, 1999
("First Exercise Period").
(3) Holder may acquire up to 2,500 shares of Common
Stock at the 1999 Adjusted Exercise Price between November 18, 1999 and November
17, 2000 ("Second Exercise Period").
(4) Holder may acquire up to 2,500 shares of Common
Stock at the 2000 Adjusted Exercise Price between November 18, 2000 and November
17, 2001 ("Third Exercise Period").
(5) Holder may acquire up to 2,500 shares of Common
Stock at the 2001 Adjusted Exercise Price between November 18, 2001 and November
17, 2002 ("Fourth Exercise Period").
(6) Holder may acquire up to 2,500 shares of Common
Stock at the 2002 Adjusted Exercise Price between November 18, 2002 and November
17, 2003 ("Fifth Exercise Period").
2
<PAGE>
(7) Holder must be an employee, in good-standing, of
REPRODUCTIVE SCIENCE CENTER(R) of Boston ("PC") at the time Holder acquires any
of the shares provided for iN this Warrant.
(8) In the event the Management Agreement, as
amended from time to time, dated as of October 1, 1997 between the Company and
PC terminates, this Warrant shall terminate effective on the same date and any
rights to acquire Common Stock of the Company not exercised as of that date
shall cease, be null and void and of no effect.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
Small Cap Market, the current Market Value shall be the
average of the closing bid and asked prices for such day on
such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
3
<PAGE>
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant is not transferable or
assignable (other than by will or pursuant to the laws of descent and
distribution). This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above,
the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
4
<PAGE>
(3) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (3) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (3), inclusive above.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
5
<PAGE>
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
6
<PAGE>
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
------------------------------
Gerardo Canet, President & CEO
Date: November 18, 1998
Attest:
/s/Claude White
- -----------------------------
Claude E. White, Secretary
[Seal]
<PAGE>
PURCHASE FORM
Date: ________________________
The undersigned hereby irrevocably elects to exercise the
Warrant dated ___________________________to the extent of purchasing _______
shares of Common Stock and hereby makes payment of _______ in payment of the
actual exercise price thereof.
--------------------------------------------
Signature
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature _____________________________
<PAGE>
************************************************************************
STOCK PURCHASE WARRANT
To Purchase Common Stock of
INTEGRAMED AMERICA, INC.
************************************************************************
THIS WARRANT AND THE SHARES OF COMMON STOCK INTO WHICH IT IS EXERCISABLE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN
CONNECTION WITH THE PROPOSED TRANSFER.
Warrant Number INMD 1001
VOID AFTER 5:00 P.M. NEW YORK TIME, ON NOVEMBER 17, 2003
WARRANT TO PURCHASE 12,500 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
INTEGRAMED AMERICA, INC.
This is to Certify That, FOR VALUE RECEIVED, ISAAC Z.
GLATSTEIN ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from IntegraMed America, Inc., a Delaware corporation ("Company"), an
aggregate of 12,500 fully paid, validly issued and nonassessable shares of
Common Stock, par value $.01 per share, of the Company ("Common Stock") at a
price of $4.12 per share ("Exercise Price") from time to time during the period
from November 18, 1998 to November 17, 2003, but not later than 5:00 p.m. New
York City Time, on November 17, 2003 in accordance with the terms and conditions
hereof. In addition to any other adjustments to which the Exercise Price may be
subject as provided for herein, the Exercise Price shall be subject to a yearly
adjustment of 20% on November 18 of each year of this Warrant, which when so
adjusted shall become the adjusted exercise price ("Adjusted Exercise Price")
for the applicable 12-month period. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
1
<PAGE>
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price" or "Adjusted Exercise Price".
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised from time to time
on or after November 18, 1998 and until November 17, 2003, subject to the
provisions of Sections (a)(2) through (a) (8) hereof; provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day. This Warrant may be exercised by presentation and surrender to the
Company at its principal office, the Purchase Form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of Warrant
Shares specified in such form. As soon as practicable after each such exercise
of the warrants, the Company shall cause its transfer agent to issue and deliver
to the Holder a certificate or certificate for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. Upon
receipt by the Company of the Purchase Form at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(2) Holder may acquire up to 2,500 shares of Common
Stock at the Exercise Price between November 18, 1998 and November 17, 1999
("First Exercise Period").
(3) Holder may acquire up to 2,500 shares of Common
Stock at the 1999 Adjusted Exercise Price between November 18, 1999 and November
17, 2000 ("Second Exercise Period").
(4) Holder may acquire up to 2,500 shares of Common
Stock at the 2000 Adjusted Exercise Price between November 18, 2000 and November
17, 2001 ("Third Exercise Period").
(5) Holder may acquire up to 2,500 shares of Common
Stock at the 2001 Adjusted Exercise Price between November 18, 2001 and November
17, 2002 ("Fourth Exercise Period").
(6) Holder may acquire up to 2,500 shares of Common
Stock at the 2002 Adjusted Exercise Price between November 18, 2002 and November
17, 2003 ("Fifth Exercise Period").
(7) Holder must be an employee, in good-standing, of
REPRODUCTIVE SCIENCE CENTER(R) of Boston ("PC") at the time Holder acquires any
of the shares provided for iN this Warrant.
2
<PAGE>
(8) In the event the Management Agreement, as
amended from time to time, dated as of October 1, 1997 between the Company and
PC terminates, this Warrant shall terminate effective on the same date and any
rights to acquire Common Stock of the Company not exercised as of that date
shall cease, be null and void and of no effect.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
Small Cap Market, the current Market Value shall be the
average of the closing bid and asked prices for such day on
such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant is not transferable or
assignable (other than by will or pursuant to the laws of descent and
distribution). This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
3
<PAGE>
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above,
the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
4
<PAGE>
(3) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (3) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (3), inclusive above.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
5
<PAGE>
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
6
<PAGE>
INTEGRAMED AMERICA, INC.
By: /s/Gerardo Canet
-----------------------------------
Gerardo Canet, President & CEO
Date: November 18, 1998
Attest:
/s/Claude White
- -----------------------------
Claude E. White, Secretary
[Seal]
<PAGE>
PURCHASE FORM
Date: ________________________
The undersigned hereby irrevocably elects to exercise the
Warrant dated ___________________________to the extent of purchasing _______
shares of Common Stock and hereby makes payment of _______ in payment of the
actual exercise price thereof.
--------------------------------------------
Signature
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature _____________________________
<PAGE>
************************************************************************
STOCK PURCHASE WARRANT
To Purchase Common Stock of
INTEGRAMED AMERICA, INC.
************************************************************************
INTEGRAMED AMERICA, INC.
Warrant for the Purchase of Shares of Common Stock
August 19, 1997
79,627 Shares
FOR $50.00 RECEIVED, INTEGRAMED AMERICA, INC., a Delaware corporation (the
"Company"), hereby certifies that VECTOR SECURITIES INTERNATIONAL, INC., or
permitted assigns thereof ("Vector"), is entitled to purchase from the Company,
at any time or from time to time prior to 5:00 p.m., New York City time, on that
date which is five (5) years from the date hereof, 79,627 fully paid and
nonassessable shares of the common stock, par value $.01 per share, of the
Company upon payment of the purchase price of $1.81 per share; each subject to
adjustment pursuant to the terms hereof.
Hereinafter, (i) the common stock referred to above, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Per Share Warrant Price," (v) this
Warrant, all identical warrants issued on the date hereof and all warrants
hereafter issued in exchange or substitution for this Warrant or such other
warrants are referred to as the "Warrants" and (vi) the holder of this Warrant
is referred to as the "Holder" and the holders of this Warrant and all other
Warrants are referred to as the "Holders".
The Per Share Warrant Price is subject to adjustment as hereinafter provided; in
the event of any such adjustment, the number of Warrant Shares shall be adjusted
by dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
1. Exercise of Warrant.
(a) This Warrant may be exercised, in whole at any time or in
part from time to time, prior to its expiration as set forth
above by the Holder by the surrender of this Warrant to the
Company (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9 hereof,
together with proper payment of the Aggregate Warrant Price,
or the proportionate part thereof if this Warrant is exercised
in part. Payment for Warrant Shares shall be made by cashier's
check or by wire transfer of funds. Upon any exercise of this
Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant
at the time of such exercise, to apply to the payment required
by this Section 1, such number of the shares of Common Stock
otherwise issuable to such Holder upon such exercise as shall
be specified in such notice, in which case an amount equal to
the excess of the Market Price of such specified number of
<PAGE>
shares on the date of the exercise over the portion of the
payment required by this Section 1 attributable to such shares
shall be deemed to have been paid to the Company and the
number of shares issuable upon such exercise shall be reduced
by such specified number. For the purpose of this warrant
agreement, the AMarket Price@ of a share of Common Stock or
other securities on any day shall mean the average closing
price of a share of Common Stock or other security for the 20
consecutive trading days preceding such day on the principal
national securities exchange on which the shares of Common
Stock or securities are listed or admitted to trading or, if
not listed or admitted to trading on any national securities
exchange, the average of the reported bid and asked prices
during such 30 trading-day period in the over-the-counter
market as furnished by the National Quotation Bureau, Inc.,
or, if such firm is not then engaged in the business of
reporting such prices, as furnished by any similar firm then
engaged in such business selected by the Company, or, if there
is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the
Company or, if the shares of Common Stock or securities are
not publicly traded, the Market Price for such day shall be
the fair market value thereof determined jointly by the
Company and the Holder of this Warrant; provided, however,
that if such parties are unable to reach agreement within a
reasonable period of time, the Market Price shall be
determined in good faith by the independent investment banking
firm selected jointly by the Company and the Holder of this
Warrant or, if that selection cannot be made within 15 days,
by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules,
with the expenses in each case being borne equally by the
Company and Vector.
If this Warrant is exercised in part, this
Warrant must be exercised for a number of whole shares of the
Common Stock, and the Holder is entitled to receive a new
Warrant covering the Warrant Shares which have not been
exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares.
Upon such surrender of this Warrant the Company will (a) issue
a certificate or certificates in the name of the Holder for
the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the
Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (b)
deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part
thereof if this Warrant is exercised in part, pursuant to the
provisions of this Warrant.
Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
business day on which this Warrant shall have been surrendered to the Company as
provided in this Section 1, and at such time the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise shall be deemed to have become the holder or holders
of record thereof.
(b) The Company will, at the time of each exercise of this
Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder all
rights (including, without limitation, any rights to
registration of the shares of Common Stock or other securities
issued upon such exercise) to which the Holder shall continue
to be entitled after such exercise in accordance with the
terms of this Warrant, provided that if the Holder shall fail
to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to
the Holder.
<PAGE>
2. Reservation of Warrant Shares; Listing.
The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times (a) have authorized and in
reserve, and will keep available, solely for issuance or delivery upon
the exercise of this Warrant, the shares of the Common Stock and other
securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on
sale or transfer and free and clear of all preemptive or similar
contractual rights, (b) use its best efforts to keep the shares of the
Common Stock receivable upon the exercise of this Warrant authorized
for quotation on the Nasdaq National Market ("NASDAQ") (or authorized
for listing on the national securities exchange upon which the Common
Stock is then listed) upon notice of issuance, and (c) take or refrain
from taking, as applicable, such actions as are required to protect and
preserve in good faith the value of this Warrant to the Holder.
3. Protection Against Dilution.
(a) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the
holders of shares of Common Stock evidences of its
indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a subdivision, combination
or reclassification, or dividend or distribution payable in
shares of Common Stock, referred to in Subsection 3(b), (any
such nonexcluded event being herein called a "Special
Dividend"), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price in effect immediately
prior to the determination of the shareholders entitled to
receive such distribution by a fraction, the numerator of
which shall be the then current Market Price of the Common
Stock on such record date less the fair market value (as
determined in good faith by the Company's Board of Directors)
of the evidences of indebtedness, securities or property, or
other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of
which shall be such then current Market Price per share of
Common Stock. An adjustment made pursuant to this Subsection
3(a) shall become effective immediately after the record date
of any such Special Dividend.
(b) In case the Company shall hereafter (i) declare a dividend
or make a distribution on its capital stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares or (iv) issue by reclassification of its Common Stock
any shares of capital stock of the Company, the Per Share
Warrant Price and the number and kind of shares of Common
Stock receivable upon exercise of this Warrant in effect at
the time of the record date for such dividend or of the
effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
Holder of any Warrant upon the exercise hereof shall be
entitled to receive the number and kind of shares of Common
Stock or other capital stock of the Company which the Holder
would have received had it exercised such Warrant immediately
prior thereto. An adjustment made pursuant to this Subsection
3(b) shall become effective immediately after the record date
in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of
<PAGE>
a subdivision, combination or reclassification. If, as a
result of an adjustment made pursuant to this Subsection 3(b),
the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes
of capital stock or shares of Common Stock and other capital
stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after
such adjustment) shall determine the allocation of the
adjusted Per Share Warrant Price between or among shares of
such classes of capital stock or shares of Common Stock and
other capital stock.
(c) Except as provided in Subsections 3(e) or 3(f), in case
the Company shall hereafter issue or sell any shares of Common
Stock for a consideration per share less than the Per Share
Warrant Price in effect on the date of such issuance or sale,
the Per Share Warrant Price shall be adjusted as of the date
of such issuance or sale so that the Per Share Warrant Price
shall equal the price determined by dividing (i) the sum of
(a) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the
Per Share Warrant Price plus (b) the consideration received by
the Company upon such issuance or sale by (ii) the total
number of shares of Common Stock outstanding after such
issuance or sale.
(d) Except as provided in Subsections 3(a), 3(e) and 3(f), in
case the Company shall hereafter issue or sell any rights,
options, warrants or securities convertible into Common Stock
entitling the holders thereof to purchase Common Stock or to
convert such securities into Common Stock at a price per share
(determined by dividing (i) the total amount, if any, received
or receivable by the Company in consideration of the issuance
or sale of such rights, options, warrants or convertible
securities plus the total consideration, if any, payable to
the Company upon exercise or conversion thereof (the "Total
Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such
securities) less than the then current Per Share Warrant Price
in effect on the date of such issuance or sale, the Per Share
Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price
determined by dividing (i) the sum of (a) the number of shares
of Common Stock outstanding on the date of such issuance or
sale multiplied by the Per Share Warrant Price plus (b) the
Total Consideration by (ii) the number of shares of Common
Stock outstanding on the date of such issuance or sale plus
the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities. Upon
the expiration of any such options, warrants or rights, the
termination of any such rights to convert or the expiration of
any options, warrants or rights related to such convertible
securities, the Per Share Warrant Price shall forthwith be
readjusted to the nearest cent to such Per Share Warrant Price
as would have been obtained had the adjustment which was made
upon the issuance of such options, warrants, rights or
securities or options, warrants or rights related to such
securities been made upon the basis of the issuance of only
the number of shares of Common Stock actually issued upon the
exercise of such options, warrants or rights, upon the
conversion of such securities or upon the exercise of the
options, warrants or rights related to such securities. No
readjustment shall have the effect of increasing the Per Share
Warrant Price by an amount greater than the original
adjustment.
<PAGE>
(e) In case the Company after the date hereof (a) shall
consolidate with or merge into any other entity and shall not
be the continuing or surviving corporation of such
consolidation or merger, or (b) shall permit any other entity
to consolidate with or merge into the Company and the Company
shall be the continuing or surviving entity but, in connection
with such consolidation or merger, the Common Stock shall be
changed into or exchanged for stock or other securities of any
other entity or cash or any other property, or (c) shall
transfer all or substantially all of its properties or assets
to any other entity, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or
other securities of the Company ((a) - (d) being collectively
referred to as ATransactions@), the Holder of this Warrant
shall have the right thereafter to convert such Warrant into
the kind and amount of securities, cash or other property
which he would have received or have been entitled to receive
immediately after such Transaction had this Warrant been
converted immediately prior to the effective date of such
Transaction and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions
set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder of this Warrant to the end
that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as
may be reasonable, in relation to any shares of stock or other
securities or, in relation to any shares of stock or other
securities or property thereafter deliverable on the exercise
of this Warrant. The above provisions of this Subsection 3(e)
shall similarly apply to successive Transactions. The issuer
of any shares of stock or other securities or property
thereafter deliverable on the exercise of this Warrant shall
be responsible for all of the agreements and obligations of
the Company hereunder. Notice of any such Transaction and of
said provisions so proposed to be made, shall be mailed to the
Holders of the Warrants not less than 30 days prior to such
event.
Notwithstanding the foregoing, if the Holder
so designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such Transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder if the
Holder had exercised this Warrant immediately prior to such Transaction.
(f) No adjustment in the Per Share Warrant Price shall be
required in the case of (i) the issuance of shares under or
grant by the Company of options to employees or directors
under any stock option plan or arrangement of the Company
approved by the shareholders of the Company, (ii) the issuance
of any and all shares of Common Stock upon exercise of such
options or upon the issuance of shares under any options,
warrants, or convertible securities outstanding as of the date
hereof or (iii) the issuance of shares of Common Stock in
connection with corporate collaborations and acquisitions. As
of the date hereof, there are options, warrants or convertible
securities outstanding which are exercisable for or
convertible into 2,284,250 shares of Common Stock.
(g) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% of the then existing Per Share Warrant
Price; provided, however, that any adjustments which by reason
of this Subsection 3(g) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment; provided further, however, that adjustments shall
be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(g)) not later than
such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or
Common Stock issuable upon exercise hereof. All calculations
under this Section 3 shall be made to the nearest cent or to
the nearest share, as the case may be. Anything in this
Section 3 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Per Share Warrant
Price, in addition to those required by this Section 3, as it
in its discretion shall deem to be advisable in order that any
stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
<PAGE>
(h) In case any event shall occur as to which the provisions
of this Section 3 are not strictly applicable but the failure
to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the
essential intent and principles of such sections, then, in
each such case, the Company shall appoint a firm of
independent certified public accountants of recognized
national standing (which may be the regular auditors of the
Company), which shall give their opinion upon the adjustment,
if any, on a basis consistent with the essential intent and
principles established in this Section 3, necessary to
preserve, without dilution, the purchase rights represented by
this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the holder of this Warrant and
shall make the adjustments described therein.
(i) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the
rights of a Holder of Warrants in accordance with this Section
3, the Company shall promptly provide a certificate of the
chief financial officer of the Company setting forth the Per
Share Warrant Price and the number of Warrant Shares after
such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause
copies of such certificate to be mailed to the Holders of the
Warrants.
(j) If the Board of Directors of the Company shall declare
any dividend or other distribution with respect to the Common
Stock, the Company shall mail notice thereof to the Holders of
the Warrants not less than 15 days prior to the record date
fixed for determining shareholders entitled to participate in
such dividend or other distribution.
4. Fully Paid Stock; Taxes.
The Company will take all such actions as may be necessary to
assure that the shares of the Common Stock represented by each and
every certificate for Warrant Shares delivered on the exercise of this
Warrant shall, at the time of such delivery, be validly issued and
outstanding, fully paid and nonassessable, and not subject to
preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state
stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share or certificate therefor.
<PAGE>
5. Registration under Securities Act of 1933.
(a) Demand Registration. Upon the written notice of holders of
Warrants or Warrant Shares representing a majority of the
Warrant Shares issuable upon exercise of this Warrant, the
Company agrees that the Company will file on one occasion, as
soon as practicable, but in no event more than 45 days after
such notice, under the Securities Act of 1933 (the "Act"), as
amended, a registration statement under the Act covering the
Warrant Shares issuable upon the exercise of this Warrant (the
"Registration Statement"). The Company will use its best
efforts to cause the Registration Statement to become
effective as of the soonest practicable date following the
date of filing and the Company will (i) take all other action
necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares to be sold
or otherwise disposed of, (ii) prepare and file with the
Securities and Exchange Commission such amendments and
supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep the
Registration Statement effective until the earliest of (A) the
sale of all Warrant Shares pursuant thereto, (B) 2 years after
effectiveness of such Registration Statement, and (C) seven
years from the date of this warrant agreement, and (iii)
maintain such compliance with each such Federal and state law
and regulation of any governmental authority for the period
necessary for the Holder or such Holders to effect the
proposed sale or other disposition.
(b) Incidental Registration. If the Company at any time
proposes to register any of its securities under the
Securities Act (other than by a registration on Form S-4 or
S-8 or any successor or similar forms and other than pursuant
to Section 5(a), whether or not for sale for its own account,
it will each such time for a period of 6 years from the date
of this warrant agreement, give prompt written notice to the
Holder or Holders of its intention to do so and of such Holder
s rights to register the Common Stock issuable upon exercise
of this Warrant (together with all other Common Stock pursuant
to which there are registration rights, the ARegistrable
Securities@) under this Section. Upon the written request of
any Holder made within 30 days after the receipt of any such
notice (which request shall specify the number of shares
intended to be disposed of by the Holder and the intended
method of disposition thereof), the Company will, subject to
the terms of this Agreement, effect the registration under the
Act of all Registrable Securities which the Company has been
so requested to register by the Holders thereof, to the extent
required to permit the disposition of such Registrable
Securities so to be registered, by inclusion of such
Registrable Securities in the Registration Statement which
covers the securities which the Company proposes to register,
provided that if, at any time after giving written notice of
its intention to register any securities and prior to the
effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason either not to register or to delay registration
of such securities, the Company may, at its election, give
written notice of such determination to each Holder and,
thereupon, (i) in the case of a determination not to register,
shall be relieved of its obligation to register any
Registrable Securities in connection with such registration
(but not from its obligation to pay the registration expenses
in connection therewith), without prejudice, however, to the
rights of any holder or holders of such Registrable Securities
entitled to do so to request that such registration be
effected as a registration under Section 5(a), and (ii) in the
case of determination to delay registering, shall be permitted
to delay registering any Registrable Securities of a Holder,
for the same period as the delay in registering the other
securities to be registered. No registration effected under
this Section 5(b) shall relieve the Company of its obligation
to effect any registration upon request under Section 5(a),
nor shall any such registration hereunder be deemed to have
been effected pursuant to Section 5(a).
<PAGE>
If a registration pursuant to this Section
5(b) involves an underwritten offering to be distributed by or
through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and if
the managing underwriter of such underwritten offering shall
inform the Company and Holders requesting registration by
letter of its belief that the distribution of all or a
specified number of such Registrable Securities concurrently
with the securities being distributed by such underwriters
would materially interfere with successful marketing of the
securities being distributed by such underwriters (such
writing to state the basis of such belief and the approximate
number of such Registrable Securities which may be distributed
without such effect), then the Company may, upon written
notice to all Holders of such Registrable Securities, reduce
pro rata (if and to the extent stated by such managing
underwriter to be necessary to eliminate such effect) the
number of such Registrable Securities the registration of
which shall have been requested by each Holder of Registrable
Securities so that the resultant aggregate number of such
Registrable Securities so included in such registration shall
be equal to the number of shares stated in such managing
underwriter=s letter.
(c) The Company shall, upon the filing of the Registration
Statement (i) furnish to each Holder of any Warrant Shares
(and to each underwriter, if any, of such Warrant Shares) such
number of copies of prospectuses and preliminary prospectuses
in conformity with the requirements of the Act and such other
documents as such Holder may reasonably request, in order to
facilitate the public sale or other disposition of all or any
of the Warrant Shares; provided, however, that the obligation
of the Company to deliver copies of prospectuses or
preliminary prospectuses to the Purchaser shall be subject to
the receipt by the Company of reasonable assurances from the
Holder that the Holder will comply with the applicable
provisions of the Act and of such other securities or blue sky
laws as may be applicable in connection with any use of such
prospectuses or preliminary prospectuses, (ii) use its best
efforts to register or qualify such Warrant Shares under the
blue sky laws (to the extent applicable) of such jurisdiction
or jurisdictions as the Holders of any such Warrant Shares and
each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as
may be reasonably necessary or advisable to enable such
Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which
such Holders shall have reasonably requested that the Warrant
Shares be sold.
(d) The Company shall pay all expenses incurred in connection
with any registration or other action pursuant to the
provisions of this Section 5, other than underwriting
discounts and commissions, and applicable transfer taxes
relating to the Warrant Shares.
<PAGE>
(e) The Company agrees to indemnify and hold harmless each
Holder, any holder of any of the Warrant Shares, each person
who participates as an underwriter in the offering or sale of
the Warrant Shares, their officers, directors, partners,
employees, agents, and counsel, and each person, if any, who
controls any such person within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any losses,
claims, damages, liabilities and expenses (which shall
include, for all purposes of this paragraph, but not be
limited to, reasonable attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which such persons
may become subject under the Act, or otherwise, insofar as
such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material
fact contained (a) in any registration statement, prospectus
subject to completion, or final prospectus (as from time to
time amended and supplemented), or any amendment or supplement
thereto, relating to the sale of any of the Warrant Shares or
(b) in any application or other document or communication (in
this paragraph collectively called an "application") executed
by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify any of the
Warrant Shares under the securities or blue sky laws thereof
or filed with the Securities and Exchange Commission or any
securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the
Company by such Holder or any holder of any of the Warrant
Shares expressly for inclusion in any registration statement,
prospectus subject to completion, or final prospectus, or any
amendment or supplement thereto, or in any application, as the
case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in
this Warrant. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have,
including liabilities arising under this Warrant.
If any action is brought against any Holder
or any holder of Warrant Shares or any of its officers,
directors, partners, employees, agents or counsel or any
controlling person of such person in respect of which
indemnity may be sought against the Company pursuant to the
foregoing paragraph ("indemnified party"), such indemnified
party or parties shall promptly notify the Company in writing
of the institution of such action (but the failure so to
notify shall not relieve the Company from any liability it may
have under the preceding paragraphs except to the extent that
the Company is actually prejudiced by such failure). In case
any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to
such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party
<PAGE>
shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified
parties which are different from or additional to those
available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election
so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified
party under this paragraph for any legal or other expenses,
other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to
the next preceding sentence (it being understood, however,
that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate
counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or
circumstances, representing the indemnified parties who are
parties to such action or actions) or (ii) the indemnifying
party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable
for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the
indemnifying party, unless such indemnifying party waived its
rights under this paragraph in which case the indemnified
party may effect such a settlement without such consent. No
indemnifying party shall, without the consent of the
indemnified party, consent to the settlement of any such
action which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified
party an unconditional release from all liability in respect
of such action.
The Holder agrees to indemnify and hold
harmless the Company, each director of the Company, each
officer of the Company who shall have signed any registration
statement covering Warrant holder's Securities held by the
Holder, and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act to the same extent as the foregoing
indemnity from the Company to the Holder as provided above,
but only with r spect to statements or omissions, if any, made
in any registration statement, prospectus subject to
completion, or final prospectus (as from time to time amended
and supplemented), or any amendment or supplement thereto, or
in any application, in each case in reliance upon and in
conformity with written information furnished to the Company
with respect to the Holder by or on behalf of the Holder
expressly for inclusion in any such registration statement,
prospectus subject to completion, or final prospectus, or any
amendment or supplement thereto, or in any application, as the
case may be. If any action shall be brought against the
Company or any other person so indemnified based on any such
registration statement, prospectus subject to completion, or
final prospectus, or any amendment or supplement thereto, or
in any application, and in respect of which indemnity may be
sought against the Holder pursuant to this paragraph, the
Holder shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall
have the rights and duties given to the indemnified parties,
by the provisions of the preceding paragraph.
<PAGE>
To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for
indemnification pursuant to the preceding paragraphs (subject
to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that
such indemnification may not be enforced in such case, even
though this Agreement expressly provides for indemnification
in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any director of the
Company, any officer of the Company who signed any such
registration statement, and any controlling person of the
Company), as one entity, and the Holder and any holder of any
of the Warrant Shares included in such registration in the
aggregate (including for this purpose any contribution by or
on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on
the basis of relevant equitable considerations such as the
relative fault of the Company and the Holder or any such
holder in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The
relative fault, in the case of an untrue statement, alleged
untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to
information supplied by the Company, by the Holder or by any
holder of Warrant Shares included in such registration, and
the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission.
The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and
the Holder for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities,
claims, damages, and expenses (even if the Holder and the
other indemnified parties were treated as one entity for such
purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this
paragraph. No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this
paragraph, each person, if any, who controls the Holder or any
holder of any of the Warrant Shares, within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent and counsel
of each such person, shall have the same rights to
contribution as such person and each person, if any, who
controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed any such registration statement,
each director of the Company, and its or their respective
counsel, shall have the same rights to contribution as the
Company, subject in each case to the provisions of this
paragraph. Anything in this paragraph to the contrary
notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected
without its written consent. This paragraph is intended to
supersede any right to contribution under the Act, the
Exchange Act, or otherwise.
<PAGE>
6. Loss, etc., of Warrant.
Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. Warrant Holder Not Shareholder
Except as otherwise provided herein, this Warrant does not
confer upon the Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a shareholder, prior to the exercise hereof.
8. Amendment.
These Warrants may be amended only by written mutual agreement
of the Company and the Holders of a majority of the then outstanding Warrants.
9. Communication.
No notice or other communication under this Warrant shall be
effective unless, but any notice or other communication shall be effective and
shall be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed as set forth below.
If to the Company: IntegraMed America, Inc.
One Manhattanville Road
Purchase, NY 10577-2100
Attn: Corporate Secretary
or such other address as the Company has designated in writing to the Holder.
If to the Holder: Vector Securities International, Inc.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Attention: Chairman and Chief Executive Officer
or such other address as the Holder has designated in writing to the Company.
10. Headings.
The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
<PAGE>
11. Applicable Law.
This Warrant shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to the principles
of conflicts of laws thereof.
12. Assignment
The Holder may assign or transfer this Warrant in whole or in
part by completing and delivering to the Company the applicable document of
assignment, duly executed, in the form attached hereto. Upon any such assignment
or transfer, the term AHolder@ shall be deemed to include any such assignee or
transferee of the original Holder.
13. Severability
If one or more provisions of this Warrant are held to be
unenforceable under applicable law, such provision shall be excluded from this
Warrant and the balance of the Warrant shall be interpreted as if such
provisions were so excluded and the balance shall be enforceable in accordance
with its terms.
IN WITNESS WHEREOF, IntegraMed America, Inc. has caused this Warrant to be
signed by its Chief Executive Officer and its corporate seal to be hereunto
affixed and attested by its Secretary this 19th day of August 1997.
/s/Gerardo Canet
---------------------------------------
Gerardo Canet
President and Chief Executive Officer
ATTEST:
/s/Claude White
- -------------------------------
Claude E. White
Legal Counsel
[Corporate Seal]
<PAGE>
SUBSCRIPTION
The undersigned,___________________, pursuant to the provisions of the foregoing
Warrant, hereby agrees to subscribe for and purchase __________ shares of the
Common Stock of IntegraMed America, Inc. covered by said Warrant, and makes
payment therefor in full at the price per share provided by said Warrant.
Dated: __________________ Signature: ___________________________________
Address: ___________________________________
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, ____________ hereby sells, assigns and transfers unto
_______________ the foregoing Warrant and all rights evidenced thereby, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
said Warrant on the books of IntegraMed America, Inc.
Dated: __________________ Signature: ___________________________________
Address: ___________________________________
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _______________ hereby assigns and transfers unto
_______________ the right to purchase _________ shares of the Common Stock of
IntegraMed America, Inc. by the foregoing Warrant, and a proportionate part of
said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint _____________________, attorney, to transfer that part of said
Warrant on the books of IntegraMed America, Inc.
Dated: __________________ Signature: ___________________________________
Address: ___________________________________
AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT
AMONG
INTEGRAMED AMERICA, INC.
AND
MPD MEDICAL ASSOCIATES (MA), P.C.
AND
PATRICIA MCSHANE, M.D.
THIS AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT ("Amendment No. 1"),
is dated as of November 18, 1998 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"), MPD Medical Associates
(MA), P.C., a Massachusetts professional corporation, with its principal place
of business at Deaconess-Waltham Hospital, Hope Avenue, Waltham, Massachusetts
02254 ("PC") and Patricia McShane, MD, the sole shareholder of PC, residing at
124 Washington Street, Wellesley, Massachusetts 02181 (hereinafter referred to
as "McShane" or "Shareholder").
RECITALS:
Management Company and PC entered into a management agreement dated as
of October 1, 1997 (the "Management Agreement") pursuant to which Management
Company agreed to provide certain management and administrative services;
Management Company is willing to grant to each of McShane, Isaac Z.
Glatstein, MD and Samuel Pang, MD, physician-employees of PC, warrants to
acquire shares of Management Company's Common Stock, based on McShane causing PC
to agree to this amendment so as to extend the term from 10 years to 25 years;
1
<PAGE>
PC, based on McShane's approval, is willing to extend the Management
Agreement for fifteen (15) years so as to expire twenty-five (25) years from the
Effective Date; and
Management Company and PC desire to, in addition to extending the term
of the Management Agreement, amend other provisions thereof.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the parties hereto
agree as follows:
1. Section 6.3.3 of the Management Agreement is hereby deleted in its
entirety and the following hereby substituted therefor, effective July 1, 1998:
"6.3.3 Commencing July 1, 1998, the outstanding Advances owed by PC to
Management Company from 1996 in the amount of $106,372.00 (One Hundred and Six
Thousand Three-Hundred and Seventy-Two Dollars) (the "Debt") will be repaid from
PDE available to PC in excess of the current $595,000 (Five-Hundred Ninety-Five
Thousand Dollars) aggregate salary draw of McShane, Samuel Pang, MD ("Pang") and
Isaac Glatstein, MD ("Glatstein") (the aggregate draw of McShane, Pang and
Glatstein is referred to as "Threshold PDE" and McShane, Pang and Glatstein are
jointly referred to as "Physicians"). PDE in excess of PC's Threshold PDE will
be distributed 50% to PC as additional PDE for Physicians, as determined by PC,
and 50% to Management Company as payment of the Debt.
2. Section 7.2 of the Management Agreement is hereby deleted in its
entirety and the following hereby substituted therefor, effective July 1, 1998:
"7.2 PDE shall be allocated between Management Company and PC, as
follows:
7.2.1 PDE between $0.00 (zero dollars) and $2.5 million
shall be allocated forty percent (40%) to PC and
sixty percent (60%) to Management Company.
2
<PAGE>
7.2.1 PDE in excess of $2.5 million shall be allocated
seventy-five percent (75%) to PC and twenty-five
percent (25%) to Management Company.
3. Section 7.3 of the Management Agreement is hereby deleted in its
entirety and the following hereby substituted therefor, effective July 1, 1998:
"7.3 Management Company shall provide certain funding to PC, for the
purpose of Physician draws against PDE, as follows:
7.3.1 During the period July 1, 1998 to June 30, 2002,
Management Company shall make Advances, as necessary, pursuant to Section 6.3 of
this Agreement, to enable PC to fund bi-weekly draws against PDE for (i) McShane
based on an aggregate annualized salary of not less than $110, 000, (ii) Pang
based on an aggregate annualized salary of not less than $110,000 and (iii)
Glatstein based on an aggregate annualized salary of not less than $110,000, so
long as each such Physician shall be employed by PC.
7.3.2 Commencing July 1, 2002 Management Company will not
provide any Advances to PC for the purpose of Physician draws against PDE."
4. A new Section 7.4 is added to the Management Agreement as follows:
"7.4 Dan Tulchinsky, MD ("Tulchinsky") , though eligible for
draws against PDE, will not be eligible to share in any excess PDE. Tulchinsky,
effective July 1, 1998, will be entitled to a salary draw of $125,000.
Additionally, based on specific Revenue-based milestones, Dr. Tulchinsky will be
eligible for an additional $50,000 annually, payable in $10,000 increments, as
more fully set forth in Tulchinsky's employment agreement with PC."
5. A new Section 7.5 is added to the Management Agreement as follows:
3
<PAGE>
"7.5 PC INCENTIVES.
7.5.1 Physicians will be given five (5)-year
warrants (the "Warrants") to purchase shares of Management Company's Common
Stock in accordance with the terms and provisions of the Warrants.
7.5.2 McShane agrees that in the event PC retains
a full-time Medical Director who commences employment with PC on or before July
1, 1999 ("Medical Director Milestone") and PC achieves PDE of $2.5 million for
PC's 1998 fiscal year ("PDE Milestone") or as an alternative, PC achieves PDE of
either, at least (A) $625,000 for the 4th quarter of 1998, $637,500 for the 1st
quarter of 1999 and $650,000 for the 2nd quarter 1999 ("First Substitute PDE
Milestone") or (B) $1,912,500 in the aggregate for the aforementioned
three-quarter period ("Second Substitute PDE Milestone"), McShane will grant
equity positions in PC to (i) the Medical Director equivalent to 20%, (ii)
Glatstein equivalent to 10% and (iii) Pang equivalent to 10%. McShane will
become a 60% equity owner as a result of such grants. Thereafter, in the event
the Medical Director Milestone and either the PDE Milestone, First Substitute
PDE Milestone or Second Substitute PDE Milestone are achieved, on July 1, 2000,
July 1, 2001 and July 1, 2002, an additional 3.33% of McShane's equity interest
in PC shall be granted to each of the Medical Director, Glatstein and Pang.
Effective, July 1, 2002, McShane will own a 30% equity interest in PC, the
Medical Director will own a 30% equity interest in PC, Glatstein will own a 20%
equity interest in PC and Pang will own a 20% equity interest in PC provided
that PC continues to achieve annual total PDE of $ 2.5 million or above."
7.5.3 The Medical Director will be eligible for an
initial 20% equity interest in PC irrespective of Glatstein and Pang.
7.5.4 In the event that the PC achieves either the
PDE Milestone, First Substitute PDE Milestone or Second Substitute PDE
Milestone, yet a Medical Director mutually acceptable to the PC and the
Management Company has not been hired, if both the PC and the Management Company
have used their reasonable best efforts in the search for a Medical Director,
4
<PAGE>
the Medical Director Milestone requirement referred to in 7.5.2 and 7.5.3 may be
waived upon mutual agreement of both the PC and the Management Company.
6. The first sentence of Section 8.1 of the Management Agreement is
deleted in its entirety and the following substituted therefor:
"8.1 The term of this Agreement shall begin October 1, 1997 ("Effective
Date") and shall expire twenty-five (25) years after such date unless earlier
terminated pursuant to Article 9 below."
7. All other provisions of the Management Agreement not in conflict
with this Amendment No. 1 remain in full force and effect.
8. This Amendment No. 1 may be executed in any number of separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Amendment No. 1 as the
date first above written.
INTEGRAMED AMERICA, INC. SHAREHOLDER:
By:/s/Gerardo Canet /s/Patricia McShane
------------------------ ------------------------
Gerardo Canet, President Patricia McShane, MD
MPD MEDICAL ASSOCIATES (MA), P.C.
By: /s/Patricia
-----------------------------
Patricia McShane, MD, President
5
AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT
BETWEEN
SHADY GROVE FERTILITY CENTERS, INC.
AND
LEVY, SAGOSKIN AND STILLMAN, M.D., P.C.
THIS AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT ("Amendment No. 2") is
dated as of May 6, 1998 by and among IntegraMed America, Inc., a Delaware
corporation, with its principal place of business at One Manhattanville Road,
Purchase, New York 10577("IntegraMed"), Shady Grove Fertility Centers, Inc., a
Maryland corporation, having a place of business at One Manhattanville Road,
Purchase, New York 10577 ("Shady Grove") and Levy, Sagoskin and Stillman, M.D.,
P.C., a Maryland professional corporation, with a place of business at 9707
Medical Center Drive, Suite 230, Rockville, Maryland 20850 ("PC").
RECITALS:
WHEREAS, Shady Grove and PC entered into a Management Agreement
("Management Agreement") dated March 11, 1998; and
WHEREAS, IntegraMed acquired the majority of the issued and outstanding
capital stock of Shady Grove on March 12, 1998; and
WHEREAS, Shady Grove and IntegraMed entered into a Submanagement
Agreement ("Submanagement Agreement"), with PC's consent, dated March 12, 1998,
pursuant to which IntegraMed agreed to perform certain duties and
responsibilities of Shady Grove under the Management Agreement; and
WHEREAS, the Management Agreement was amended by agreement dated April
16, 1998; and
WHEREAS, the parties desire to amend further the Management Agreement,
in pertinent part, to provide for a revised Additional Management Fee, as
defined in the Management Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and as contained in the Management and Submanagement
Agreements, IntegraMed, Shady Grove and PC agree as follows:
<PAGE>
1. Section 7.1.4 of the Management Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor, retroactive to March
11, 1998:
"7.1.4 an Additional Management Fee, paid monthly but reconciled
quarterly, in accordance with the following table:
Years 1 through 5 of this Agreement
-----------------------------------
Cost of Services plus the Base
Management Fee as a % of Revenues Additional Management Fee
--------------------------------- -------------------------
Below 76% 20% of PDE
76% to 81% 17.5% of PDE
81% or more 15% of PDE
Years 6 through 25 of this Agreement
------------------------------------
Below 76% 25% of PDE
76% to 81% 22.5% of PDE
81% or more 20% of PDE"
2. Section 7.4.2 of the Management Agreement is hereby deleted in its
entirety.
3.All other provisions of the Management Agreement, as amended, not
in conflict with this Amendment No. 2 remain in full force and effect.
4.This Amendment No. 2 may be executed in any number of separate
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Amendment No. 2 the date
first above written.
INTEGRAMED AMERICA, INC. LEVY, SAGOSKIN AN STILLMAN, M.D., P.C.
By: /s/Gerardo Canet By: /s/Michael Levy
------------------------ --------------------------
Gerardo Canet, President Michael J. Levy, President
SHADY GROVE FERTILITY CENTERS, INC.
By: /s/Gerardo Canet
------------------------
Gerardo Canet, President
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-77312) of IntegraMed America, Inc. of our report
dated February 8, 1999 appearing on page F-2 of this Form 10-K.
/s/PricewaterhouseCoopers
--------------------------
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 4,241
<SECURITIES> 0
<RECEIVABLES> 13,543
<ALLOWANCES> 831
<INVENTORY> 0
<CURRENT-ASSETS> 18,689
<PP&E> 5,116 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,693
<CURRENT-LIABILITIES> 11,028
<BONDS> 0
0
166
<COMMON> 53 <F3>
<OTHER-SE> 27,164
<TOTAL-LIABILITY-AND-EQUITY> 43,693
<SALES> 38,590
<TOTAL-REVENUES> 38,590
<CGS> 29,778
<TOTAL-COSTS> 29,778
<OTHER-EXPENSES> 2,084 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 109
<INCOME-TAX> 340
<INCOME-CONTINUING> (231)
<DISCONTINUED> 4,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,732)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.94)
<FN>
<F1>
PP&E is net of accumulated depreciation.
<F2>
Represents restructuring and other charges.
<F3>
The Company effected a 1-for-4 reverse stock split on November 17, 1998.
</FN>
</TABLE>
