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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
Commission File No. 1-11440
INTEGRAMED AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
One Manhattanville Road
Purchase, New York
(Address of principal executive offices)
06-1150326
(I.R.S. employer identification no.)
10577
(Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on August 10, 1999 was 4,862,860.
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<PAGE>
INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1999 (unaudited)
and December 31, 1998....................................... 3
Consolidated Statement of Operations for the three and
six-month periods ended June 30, 1999 and 1998 (unaudited)...4
Consolidated Statement of Cash Flows for the six-month
periods ended June 30, 1999 and 1998 (unaudited).............5
Notes to Consolidated Financial Statements (unaudited).......6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 2. Changes in Securities.......................................... 15
Item 3. Defaults upon Senior Securities................................ 15
Item 4. Submission of Matters to a Vote of Security Holders............ 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
SIGNATURES ............................................................... 16
INDEX TO EXHIBITS............................................................ 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all dollars in thousands)
ASSETS
<CAPTION>
June 30, December 31,
1999 1998
------- -----------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents .............................................................. $ 3,541 $ 4,241
Patient accounts receivable, less allowance for doubtful
accounts of $781 and $526 in 1999 and 1998, respectively.............................. 9,686 10,749
Management fees receivable, less allowance for doubtful accounts
of $0 and $305 in 1999 and 1998, respectively......................................... 1,553 1,963
Other current assets ................................................................... 1,203 1,736
------- -------
Total current assets................................................................ 15,983 18,689
------- -------
Fixed assets, net ...................................................................... 6,323 5,116
Intangible assets, net.................................................................. 19,656 19,269
Other assets............................................................................ 311 619
------- -------
Total assets........................................................................ $42,273 $43,693
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 854 $ 684
Accrued liabilities..................................................................... 3,958 3,480
Due to Medical Practices................................................................ 1,185 1,877
Current portion of long-term notes payable and other obligations........................ 1,617 2,099
Patient deposits ....................................................................... 2,011 2,888
------- -------
Total current liabilities........................................................... 9,625 11,028
------- -------
Long-term notes payable and other obligations............................................. 4,436 5,282
Commitments and Contingencies.............................................................
Shareholders' equity:
Preferred Stock, $1.00 par value - 3,165,644 shares authorized in 1999 and
1998, 2,500,000 undesignated; 665,644 shares designated as Series A
Cumulative Convertible of which 165,644 shares were issued and outstanding
in 1999 and
1998, respectively.................................................................... 166 166
Common Stock, $.01 par value - 50,000,000 shares authorized in 1999 and 1998;
and 5,368,960 and 5,343,092 shares issued in 1999 and 1998, respectively.............. 53 53
Capital in excess of par ............................................................... 54,210 53,712
Accumulated deficit .................................................................... (24,504) (25,548)
Treasury Stock, at cost - 506,100 and 340,500 shares in 1999 and 1998, respectively..... (1,713) (1,000)
------- -------
Total shareholders' equity ......................................................... 28,212 27,383
------- -------
Total liabilities and shareholders' equity.......................................... $42,273 $43,693
======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<CAPTION>
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------ ------- ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net ............................................................. $10,860 $ 9,830 $21,392 $18,171
Cost of services incurred on behalf of Network Sites:
Employee compensation and related expenses.............................. 3,878 3,363 7,600 6,519
Outside laboratory and clinical fees.................................... 582 896 1,151 1,403
Direct materials........................................................ 1,143 1,065 2,118 1,818
Occupancy costs......................................................... 687 723 1,362 1,395
Depreciation............................................................ 300 348 609 634
Other expenses.......................................................... 1,772 1,111 3,720 2,177
------- ------- ------- -------
Total cost of services rendered....................................... 8,362 7,506 16,560 13,946
------- ------- ------- -------
Network Sites' contribution................................................ 2,498 2,324 4,832 4,225
General and administrative expenses........................................ 1,513 1,358 2,893 2,471
Amortization of intangible assets.......................................... 261 266 505 447
Interest income............................................................ (18) (9) (41) (21)
Interest expense........................................................... 125 108 260 180
Restructuring and other charges............................................ -- 2,084 -- 2,084
------- ------- ------- -------
Income (loss) from continuing operations before income taxes............... 617 (1,483) 1,215 (936)
Provision for income taxes................................................. 91 102 171 151
------- ------- ------- -------
Income (loss) from continuing operations................................... 526 (1,585) 1,044 (1,087)
Loss from disposal of AWM Division, including actual and phase-out
period operating losses................................................. -- 4,563 -- 4,851
------- ------- ------- -------
Net income (loss).......................................................... $ 526 $(6,148) $ 1,044 $(5,938)
Less: Dividends paid and/or accrued on Preferred Stock..................... 33 33 66 66
------- ------- ------- -------
Net income (loss) applicable to Common Stock............................... $ 493 $(6,181) $ 978 $(6,004)
======= ======= ======= =======
Basic and diluted earnings (loss) per share of Common Stock:
Continuing operations................................................... $ 0.10 $ (0.30) $ 0.20 $ (0.22)
Discontinued operations................................................. -- (0.86) -- (0.94)
------- ------- ------- -------
Net earnings............................................................ $ 0.10 $ (1.16) $ 0.20 $ (1.16)
======= ======= ======= =======
Weighted average shares - basic............................................ 4,887 5,337 4,931 5,167
======= ======= ======= =======
Weighted average shares - diluted.......................................... 4,962 5,337 5,008 5,167
======= ======= ======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the
six-month period
ended June 30,
-----------------
1999 1998
------ ------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income (loss)........................................................................ $1,044 $(5,938)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................................... 1,264 1,306
Writeoff of fixed and other assets ................................................. -- 5,541
Changes in assets and liabilities net of effects from acquired businesses --
Decrease (increase) in assets:
Patient accounts receivable......................................................... 1,063 (3,324)
Management fees receivable.......................................................... (208) (675)
Other current assets................................................................ 533 (298)
Other assets........................................................................ 97 (9)
Increase (decrease) in liabilities:
Accounts payable................................................................... 170 (1,106)
Accrued liabilities................................................................ 540 915
Due to Medical Practices........................................................... (692) 271
Patient deposits................................................................... (877) 537
------ ------
Net cash provided by (used in) operating activities......................................... 2,934 (2,780)
------ ------
Cash flows (used in) provided by investing activities:
Payment for exclusive management rights and acquired physician practices............... -- (3,218)
Purchase of net liabilities of acquired businesses..................................... -- 487
Purchase of fixed assets and leasehold improvements.................................... (1,443) (802)
Proceeds from sale of fixed assets..................................................... -- 57
------ ------
Net cash used in investing activities....................................................... (1,443) (3,476)
------ ------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock................................................. -- 5,500
Used for stock issue costs............................................................. -- (74)
Proceeds from bank under Credit Facility............................................... -- 2,000
Proceeds from IVP Pharmaceutical Care, Inc............................................. 150 --
Principal repayments on debt........................................................... (1,540) (540)
Principal repayments under capital lease obligations................................... (22) (69)
Repurchase of Common Stock............................................................. (713) --
Dividends paid on Convertible Preferred Stock.......................................... (66) --
Proceeds from exercise of Common Stock options......................................... -- 62
------ ------
Net cash (used in) provided by financing activities......................................... (2,191) 6,879
------ ------
Net (decrease) increase in cash............................................................. (700) 623
Cash at beginning of period................................................................. 4,241 1,930
------ ------
Cash at end of period....................................................................... $3,541 $2,553
====== ======
See accompanying notes to the consolidated financial statements.
</TABLE>
5
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position at June 30, 1999, and the results of
operations and cash flows for the interim period presented. Operating results
for the interim period are not necessarily indicative of results that may be
expected for the year ending December 31, 1999. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
NOTE 2 -- SIGNIFICANT MANAGEMENT CONTRACTS:
For the three and six-month periods ended June 30, 1999 and 1998, the
Boston, FCI, New Jersey, and Shady Grove (acquired in mid-March 1998) Network
Sites provided greater than 10% of the Company's Revenues, net and Network
Sites' contribution as follows:
<TABLE>
<CAPTION>
Percent of Company Percent of Network Percent of Company Percent of Network
Revenues, net Sites' contribution Revenues, net Sites' contribution
for the three-month for the three-month for the six-month for the six-month
period ended June 30, period ended June 30, period ended June 30, period ended June 30,
--------------------- --------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston.......... 17.6 15.4 25.6 21.9 17.1 16.4 26.1 22.6
FCI............. 27.5 24.8 25.4 25.6 27.1 27.2 24.7 28.8
New Jersey...... 11.8 12.9 25.7 27.4 12.1 12.5 25.4 28.2
Shady Grove..... 18.7 16.3 13.0 11.1 18.3 10.7 13.0 7.2
</TABLE>
NOTE 3 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
The amount owed by the Company to acquire the balance of the capital stock
of Shady Grove Fertility Centers, Inc. was paid on January 5, 1999 as follows:
(i) $951,800 in cash, (ii) $175,900 in stock, or 25,868 shares of Common Stock,
and (iii) a $402,750 promissory note. The promissory note for $402,750 is
payable in two equal installments, one of which was paid on July 1, 1999 and the
second of which will be paid on April 1, 2000. The promissory note bears
interest at a rate of 10.17% per annum.
6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS from continuing operations computations for the three and six-month
periods ended June 30, 1999 and 1998 is as follows (000's omitted, except for
per share amounts):
<TABLE>
<CAPTION>
For the For the
three-month period six-month period
ended June 30, ended June
------------------ ------------- ---
1999 1998 1999 1998
------- ------- ------ ------
(unaudited) (unaudited)
Numerator
<S> <C> <C> <C> <C>
Income (loss) from continuing operations........................ $ 526 $(1,585) $1,044 $(1,087)
Less: Preferred Stock dividends accrued and/or paid............. 33 33 66 66
----- ------- ------ -------
Income (loss) from continuing operations
available to Common stockholders............................. 493 (1,618) 978 (1,153)
(Loss) from discontinued operations............................. -- (4,563) -- (4,851)
----- ------- ------ -------
Net income (loss) available to Common stockholders.............. $ 493 $(6,181) $ 978 $(6,004)
===== ======= ====== =======
Denominator
Weighted average shares outstanding............................. 4,887 5,337 4,931 5,167
Effect of dilutive options and warrants......................... 75 -- 77 --
----- ------- ------ -------
Weighted average shares and dilutive potential
Common shares................................................ 4,962 5,337 5,008 5,167
===== ======= ======= =======
Basic and diluted EPS:
Continuing operations........................................... $0.10 $ (0.30) $ 0.20 $ (0.22)
Discontinued operations......................................... -- (0.86) -- (0.94)
----- ------- ------ -------
Net earnings (loss)............................................. $0.10 $ (1.16) $ 0.20 $ (1.16)
===== ======= ====== =======
</TABLE>
For the three and six-month periods ended June 30, 1999, the effect of the
assumed exercise of options to purchase approximately 338,000 and 47,000 shares
of Common Stock at exercise prices ranging from $4.00 to $5.00 and from $4.63 to
$5.00, respectively, per share were excluded in computing the diluted per share
amount because the exercise prices of the options were greater than the average
market price of the shares of Common Stock, therefore causing these options to
be antidilutive. For the three and six-month periods ended June 30, 1999, the
effect of the assumed exercise of warrants to purchase approximately 121,000 and
75,000 shares of Common Stock at exercise prices ranging from $4.12 to $8.54 and
from $4.94 to $8.54, respectively, per share were excluded in computing the
diluted per share amount because the exercise prices of the warrants were
greater than the average market price of the shares of Common Stock, therefore
causing these warrants to be antidilutive.
For the three and six-month periods ended June 30, 1998, the effect of the
assumed exercise of options to purchase approximately 148,000 shares of Common
Stock and warrants to purchase approximately 135,000 shares of Common Stock at
exercise prices ranging from $2.50 to $7.24 per share and from $0.04 to $7.24
per share, respectively, were excluded in computing the diluted per share amount
as they were antidilutive due to the Company's net loss during these periods.
7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the three and six-month periods ended June 30, 1999 and 1998,
approximately 133,000 and 129,000 shares of Common Stock, respectively, from the
assumed conversion of Preferred Stock were excluded in computing the diluted per
share amount as they were antidilutive.
NOTE 5 -- NEW BUSINESS AND MANAGEMENT AGREEMENT
In April 1999, the Company formed a new wholly owned subsidiary, IntegraMed
Pharmaceutical Services, Inc. ("IPSI"). IPSI is based in Carrollton, Texas and
is a licensed pharmacy engaged in the retail distribution of drugs,
pharmaceuticals and products related to the treatment of human fertility
("Pharmaceutical Products") to customers of the Reproductive Science Centers.
IPSI was formed in conjunction with IVP Pharmaceutical Care, Inc., a licensed
pharmacy specializing in dispensing Pharmaceutical Products, which will provide
certain management services to IPSI.
Effective May 1, 1999, the Company entered into a new management agreement
with the Medical Practice at the Reproductive Science Associates Network Site
located in Kansas City, Missouri (the "Kansas City Medical Practice"). The new
agreement (the "Kansas City Agreement") contemplates that the Company will offer
other medical practices, via separate management agreements, use of the medical
offices and clinical space which are currently provided by the Company and
utilized by the Kansas City Medical Practice. The Kansas City Agreement also
provides for certain changes in the financial arrangements between the Company
and the Kansas City Medical Practice. In lieu of any payment to the Company in
connection with the Kansas City Agreement, the Company offset its payable to the
Kansas City Medical Practice against the receivable due from the Kansas City
Medical Practice. The balance of the Company's receivable due from the Kansas
City Medical Practice of approximately $835,000 has been deemed to be a further
investment by the Company in the Kansas City Medical Practice and was,
therefore, reclassed from management fees receivable to intangible assets in the
accompanying Consolidated Balance Sheet as of June 30, 1999. If the current
physician at the Kansas City Medical Practice should cease to perform
infertility services at the Kansas City Medical Practice any time prior to May
1, 2004, the Physician will be required to repay to the Company a portion of
this investment. The amount to be repaid will equal $835,000 less $167,000 for
each twelve-month period of services provided by the Physician after May 1,
1999.
NOTE 6 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
In lieu of any payment to the Company in connection with the Kansas City
Agreement, the Company offset its payable to the Kansas City Medical Practice
against the receivable due from the Kansas City Medical Practice. The balance of
the Company's receivable from the Kansas City Medical Practice of approximately
$835,000 was reclassified from management fees receivable to intangible assets
in the accompanying Consolidated Balance Sheet as of June 30, 1999. (Refer to
Note 5).
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Results of Operations
The following table shows the percentage of revenues represented by various
expense and other income items reflected in the Company's Consolidated Statement
of Operations.
<TABLE>
<CAPTION>
For the For the
Three-month period Six-month period
ended June 30, ended June 30,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net.............................................. 100% 100% 100% 100%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses............ 35.7 34.2 35.5 35.9
Outside laboratory and clinical expenses.............. 5.4 9.1 5.4 7.7
Direct materials...................................... 10.5 10.8 9.9 10.0
Occupancy costs....................................... 6.3 7.4 6.4 7.7
Depreciation.......................................... 2.8 3.5 2.8 3.5
Other expenses........................................ 16.3 11.4 17.4 11.9
----- ------ ----- -------
Total costs of services............................... 77.0 76.4 77.4 76.7
Network Sites' contribution................................ 23.0 23.6 22.6 23.3
General and administrative expenses........................ 13.9 13.8 13.5 13.6
Amortization of intangible assets.......................... 2.4 2.7 2.4 2.5
Interest income............................................ (0.2) (0.1) (0.2) (0.1)
Interest expense........................................... 1.2 1.1 1.2 1.0
----- ------ ----- -------
Total other expenses.................................. 17.3 17.5 16.9 17.0
Restructuring and other charges............................ -- 21.2 -- 11.5
Income from continuing operations before income taxes...... 5.7 (15.1) 5.7 (5.2)
Provision for income taxes................................. 0.9 1.0 0.8 0.8
----- ------ ----- -------
Income (loss) from continuing operations................... 4.8 (16.1) 4.9 (6.0)
Loss from discontinued operations.......................... -- (46.4) -- (26.7)
----- ------ ----- -------
Net income (loss).......................................... 4.8% (62.5)% 4.9% (32.7)%
===== ======= ===== =======
</TABLE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues for the three months ended June 30, 1999 (the "second quarter of
1999") were approximately $10.9 million as compared to approximately $9.8
million for the three months ended June 30, 1998 (the "second quarter of 1998"),
an increase of 10.5%. The increase in revenues was attributable to same-site
growth of 21.4% at the Network Site level which generated same-site revenue
growth of 19.3% for the Company. Same-site growth in revenues at the Network
Site level was principally attributable to increases in patient volume. The
aggregate increase in revenues was comprised of the following: (i) an
approximate $856,000 increase in reimbursed costs of services; and (ii) an
approximate $174,000 increase in the Company's management fees derived from the
managed Medical Practices' net revenue and/or earnings.
9
<PAGE>
Total costs of services as a percentage of revenues were 77.0 % in the
second quarter of 1999 as compared to 76.4% in the second quarter of 1998.
Employee compensation and related expenses increased as a percentage of revenues
primarily due to increased levels of compensation and new hires. Outside
laboratory and clinical expenses decreased as a percentage of revenues primarily
due to the Shady Grove Network Site utilizing its newly constructed
state-of-the-art laboratory to perform embryology services which had previously
been outsourced. Direct materials as a percentage of revenues remained
relatively constant. Occupancy costs and depreciation decreased as a percentage
of revenues primarily due to the increase in revenues. The increase in other
expenses as a percentage of revenues was primarily attributable to increases in
subcontracting payments to other providers at the FCI Network Site, provisions
for bad debt and consulting services.
Network Sites' contribution was approximately $2.5 million in the second
quarter of 1999 as compared to approximately $2.3 million in the second quarter
of 1998, an increase of approximately 7.5%. Such increase resulted from the
increase in revenues at existing Network Sites. As a percentage of revenues,
Network Sites' contribution decreased to 23.0% in the second quarter of 1999 as
compared to 23.6% in the second quarter of 1998, primarily due to the increase
in the reimbursed costs of service component of revenues.
General and administrative expenses for the second quarter of 1999 were
approximately $1.5 million as compared to approximately $1.4 million in the
second quarter of 1998, an increase of 11.4%. The increase was largely due to an
increase in staffing, consulting and other costs attributable to the
development, implementation and maintenance of the Company's proprietary
ARTWorks(TM) suite of fertility care information systems. As a percentage of
revenues, general and administrative expenses increased to approximately 13.9%
from approximately 13.8% due to the increase in expenses previously discussed.
Amortization of intangible assets was $261,000 in the second quarter of
1999 as compared to $266,000 in the second quarter of 1998. This decrease was
attributable to the elimination of amortization of exclusive management rights
associated with two single-physician Network Site management agreements which
were terminated and written off in 1998.
Interest income for the second quarter of 1999 increased to $18,000 from
$9,000 for the second quarter of 1998, due to a higher cash balance. Interest
expense for the second quarter of 1999 increased to $125,000 from $108,000 in
the second quarter of 1998, due to an increase in bank borrowings and in amounts
payable to Medical Providers for exclusive management rights.
The provision for income taxes primarily related to state taxes. The
provision for income taxes decreased to $91,000 in the second quarter of 1999
from $102,000 in the second quarter of 1998 due to a change in effective tax
rates.
Income from continuing operations was $526,000 in the second quarter of
1999 as compared to a loss of $1.6 million in the second quarter of 1998. The
income was primarily due to the absence of $2.1 million of restructuring costs
which were recorded in the second quarter of 1998.
Net income was $526,000 in the second quarter of 1999 as compared to a net
loss of $6.1 million in the second quarter of 1998. The net income was primarily
due to the absence of restructuring costs and the elimination of losses from the
Adult Women's Medical Division (the "AWM Division") which is classified as
discontinued operations and was sold in the third quarter of 1998.
Six months Ended June 30, 1999 Compared to Six months Ended June 30, 1998
Revenues for the six months ended June 30, 1999 (the "first half of 1999")
were approximately $21.4 million as compared to approximately $18.2 million for
the six months ended June 30, 1998 (the "first half of 1998"), an increase of
17.7%. The increase in revenues was attributable to there being a full six
months of revenues from the Shady Grove Network Site which was acquired in
mid-March 1998 and to same-site growth of 16.5% at the Network Site level which
generated same-site revenue growth of 18.2% for the Company. Same-site growth in
revenues at the Network Site level was principally attributable to increases in
10
<PAGE>
patient volume. The aggregate increase in revenues was comprised of the
following: (i) an approximate $2.6 million increase in reimbursed costs of
services; and (ii) an approximate $607,000 increase in the Company's management
fees derived from the managed Medical Practices' net revenue and/or earnings.
Total costs of services as a percentage of revenues were 77.4% in the first
half of 1999 as compared to 76.8% in the first half of 1998. Employee
compensation and related expenses decreased as a percentage of revenues
primarily due to the increase in revenues previously discussed. Outside
laboratory and clinical expenses decreased as a percentage of revenues primarily
due to the Shady Grove Network Site utilizing its newly constructed
state-of-the-art laboratory to perform embryology services which had previously
been outsourced. Direct materials as a percentage of revenues remained
relatively constant. Occupancy costs and depreciation decreased as a percentage
of revenues primarily due to the increase in revenues. The increase in other
expenses as a percentage of revenues was primarily attributable to increases in
subcontracting payments to other providers at the FCI Network Site, provisions
for bad debt, and consulting services.
Network Sites' contribution was approximately $4.8 million in the first
half of 1999 as compared to $4.2 million in the first half of 1998, an increase
of approximately 14.4%. Such increase resulted from there being a full six
months of Network Site contribution from the Shady Grove Network Site, which was
acquired late in the first quarter of 1998, and the increase in revenues at
existing Network Sites. As a percentage of revenues, Network Sites' contribution
decreased to 22.6% in the first half of 1999 as compared to 23.3% in the first
half of 1998, primarily due to the increase in the reimbursed costs of service
component of revenues.
General and administrative expenses for the first half of 1999 were
approximately $2.9 million as compared to approximately $2.5 million in the
first half of 1998, an increase of 17.1%. The increase was largely due to an
increase in staffing, consulting and other costs attributable to the
development, implementation and maintenance of the Company's proprietary
ARTWorks(TM) suite of fertility care information systems. As a percentage of
revenues, general and administrative expenses decreased to approximately 13.5%
from approximately 13.6% due to the increase in revenues previously discussed.
Amortization of intangible assets was $505,000 in the first half of 1999 as
compared to $447,000 in the first half of 1998. This increase was attributable
to the Company's acquisition of the Shady Grove Network Site late in the first
quarter of 1998. This increase was partially offset by the elimination of
amortization of exclusive management rights associated with two single-physician
Network Site management agreements which were terminated and written off in
1998.
Interest income for the first half of 1999 increased to $41,000 from
$21,000 for the first half of 1998, due to a higher cash balance. Interest
expense for the first half of 1999 increased to $260,000 from $180,000 in the
first half of 1998, due to an increase in bank borrowings and in amounts payable
to Medical Providers for exclusive management rights.
The provision for income taxes primarily related to state taxes. The
provision for income taxes increased to $171,000 in the first half of 1999 from
$151,000 in the first half of 1998 primarily due to higher income levels.
Income from continuing operations was $1.0 million in the first half of
1999 as compared to a loss of $1.1 million in the first half of 1998. The income
was primarily due to the absence of $2.1 million of restructuring costs which
were recorded in the second quarter of 1998.
Net income was $1.0 million in the first half of 1999 as compared to a net
loss of $5.9 million in the first half of 1998 due to the absence of
restructuring costs and the elimination of losses from the AWM Division which is
classified as discontinued operations and was sold in the third quarter of 1998.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. More recently, the Company has commenced using bank
financing for working capital and acquisition purposes. The Company anticipates
that its acquisition strategy will continue to require substantial capital
11
<PAGE>
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 facilities, equipment and technology.
At June 30, 1999, the Company had working capital of approximately $6.4
million, approximately $3.5 million of which consisted of cash and cash
equivalents, compared to working capital of approximately $7.7 million at
December 31, 1998, approximately $4.2 million of which consisted of cash and
cash equivalents. The net decrease in working capital at June 30, 1999 was
principally due to purchases of fixed assets and leasehold improvements of
approximately $1.4 million and to the repurchase of 165,600 shares of the
Company's Common Stock for an aggregate purchase price of $713,000, partially
offset by a decrease in patient deposits.
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
Year 2000 Issue
The Company's management has recognized the need to ensure that its
operations and relationships with its vendors and other third parties will not
be adversely impacted by software processing errors arising from calculations
using the year 2000 and beyond ("Y2K"). As such, the Company has appointed a Y2K
Task Force to identify and assess the risks associated with its information
systems and operations, and its interactions with vendors and third-party
insurance payors ("the Y2K Project"). The Y2K Project is comprised of five
phases as follows: 1) identification of risks, 2) assessment of risks, 3)
development of remediation and contingency plans, 4) implementation, and 5)
testing. The Company has identified the Y2K risks and is approximately 80%
complete in assessing these risks. The Company is currently working on the last
three phases of the Y2K Project.
The Company believes that the Y2K risks associated with its information
systems and certain medical equipment may be potentially significant. In nearly
all cases, the Company is relying on assurances from third party vendors that
certain information systems and medical equipment will be Y2K compliant. In
addition, in the normal course of business, the Company has made capital
investments in certain vendor supplied software applications and hardware
systems to address the financial and operational needs of its business. These
systems, which will improve the efficiencies and productivity of the replaced
systems, have been represented to be Y2K compliant by the vendors and have been
or will be installed by November 1999. The Company has tested, is currently
testing or will have tested such vendor supplied systems and equipment, but
cannot be sure that its tests will be adequate or that, if problems are
identified, they will be addressed in a timely and satisfactory manner.
The Company is also highly dependent upon receiving payments from third
party payors for insurance reimbursement for claims submitted by the managed
Medical Practices, and as such, the ability of such payors to process claims
submitted by Medical Practices accurately and timely, constitutes a significant
risk to the Company's cash flow. Individual Network Sites have been or will be
in communication with these payors throughout the country to insure that these
payors will be Y2K compliant and will be able to process the Medical Practices'
claims uninterrupted. In addition, the Company deals with numerous financial
institutions, all of whom have indicated that the Y2K compliance issue is being
addressed proactively and should not present a problem on or after January 1,
2000.
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
12
<PAGE>
$315,000 related to the Y2K Project as follows: (i) approximately $140,000
related to computer hardware and software and medical equipment replacements and
upgrades, of which approximately 90% will be capitalizable due to the added
value of such replacements and upgrades; (ii) approximately $130,000 of
non-incremental employee opportunity costs for time spent by information systems
and Y2K Task Force employees who would have ordinarily been spending their time
elsewhere; and (iii) approximately $45,000 in incremental staffing costs. By
accelerating the implementation of the new financial system at the FCI Network
Site, approximately $110,000 of capitalizable equipment and software costs and
approximately $50,000 of training costs will be incurred in 1999 instead of the
year 2000.
In the event any third parties cannot timely provide the Company with
information systems, equipment or services that meet the Y2K requirements, the
Company's ability and that of its managed Medical Practices to offer services
and to process sales, and the Company's cash flows, could be disrupted. In
addition, if the Company fails to satisfactorily resolve Y2K issues related to
its operations in a timely manner, it could be exposed to liability,
particularly to the managed Medical Practices and their patients. As developed
to date, the Company's contingency plan provides for the following: (i)
stockpiling higher than normal inventories of critical supplies; (ii) ensuring
an adequate line of bank credit if third party payor payments are disrupted; and
(iii) ensuring all critical staff are available or scheduled for work prior to,
during and immediately after December 31, 1999.
Management believes that the Company is taking reasonable and adequate
measures to address Y2K issues. However, there can be no assurance that the
Company's information systems, medical equipment and other non- information
technology systems will be Y2K compliant on or before December 31, 1999, or that
vendors and third-party insurance payors are, or will be, Y2K compliant, or that
the costs required to address the Y2K issue will not have a material adverse
effect on the Company's business, financial condition or results of operations.
Like virtually every company, and indeed every aspect of contemporary
society, the Company is at risk for the failure of major infrastructure
providers to adequately address potential Y2K problems. The Company is highly
dependent on a variety of public and private infrastructure providers to conduct
its business in numerous jurisdictions throughout the country. Failures of the
banking system, basic utility providers, telecommunication providers and other
services, as a result of Y2K problems, could have a material adverse effect on
the ability of the Company to conduct its business. While the Company is
cognizant of these risks, a complete assessment of all such risks is beyond the
scope of the Company's Y2K Project or ability of the Company to address. The
Company has focused its resources and attention on the most immediate and
controllable Y2K risks.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involve various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms,
variations of those terms or the negative of those terms. The Company's actual
results may differ materially from those described in these forward-looking
statements due to the following factors: the Company's ability to acquire
additional management agreements, including the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant management agreement(s), the profitability or lack thereof at
Reproductive Science Centers managed by the Company, the Company's ability to
transition sole practitioners to group practices, increases in overhead due to
expansion, the exclusion of infertility and ART services from insurance
coverage, government laws and regulations regarding health care, changes in
managed care contracting, the timely development of and acceptance of new
infertility, ART and/or genetic technologies and techniques and the risks
relating to Y2K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
13
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On October 9, 1998, W.F. Howard, M.D., P.A., filed a
lawsuit against the Company in the District Court of Denton
County, Texas, seeking to rescind the management agreement
(the "Management Agreement") related to the Dallas Network
Site, or collect damages, on the ground that its practice
has not realized the degree of growth or increases as
allegedly projected by the Company. The complaint asserts
alleged breaches of contract, fiduciary duties and
warranties, as well as a claim under the Texas Deceptive
Trade Practices Act, and claims lost profit damages as well
as an exemplary award under statute. The Company believes
that this complaint is without merit, denies the
allegations, and intends to vigorously defend its position.
Despite the filing of the suit, the Company continued to
perform its obligations under the Management Agreement.
On March 30, 1999, W.F. Howard, M.D., P.A., communicated
its intent to terminate the Management Agreement and no
longer allowed the Company to provide its management
services to the Dallas Network Site. The Company
immediately terminated the Management Agreement for cause,
and interposed several counterclaims, against the P.A., Dr.
W.F. Howard and two former Company employees of the Network
Site. These counterclaims allege breach of fiduciary
duties, interference with the Company's contractual
relations and conversion of assets. The Company also
sought, and was provided, return of its confidential and
proprietary business documents and the P.A.'s cessation of
use of the name "Reproductive Science Center". The Company
intends to vigorously pursue all counterclaims, both as
against the P.A. and the individuals named as parties to
the lawsuit. Litigation counsel has advised the Company
that it is too early in the litigation to meaningfully
assess the likelihood of success of this lawsuit.
Nonetheless, counsel believes that even an unfavorable
result will not have a material adverse effect on the
results of the Company's operations.
On May 4, 1999, the Court of Appeals of New York, in a
lawsuit encaptioned Karlin v. IVF America, et. al.,
determined that plaintiffs' claims could be heard under the
New York consumer protection statute, General Business Law
ss.ss. 349 and 350. The case was originally instituted in
New York Supreme Court, Westchester County, in 1995.
Plaintiffs originally denominated the case as a class
action, and their request for certification as a class was
denied by both the trial and appellate courts (Appellate
Division, Second Department). The Court of Appeals refused
to review the denial of class action status. The case now
represents a single individual claim. The action seeks
damages from the Company, United Hospital and Dr. John
Stangel, for pecuniary loss and personal injuries,
purportedly arising out of an alleged misstatement of
success rates at the in vitro fertilization program at
United Hospital which was managed by the Company at that
time. The complaint originally asserted multiple causes of
action; however, through motion practice, the defendants
have achieved dismissal of all causes of action except the
General Business Law claims which were reinstated by the
Court Appeals in May 1999. The Company intends to
vigorously defend the remaining cause. Litigation counsel
has advised the Company that its position is supported on
the merits and that the action, even if successful, would
not have a material adverse effect on the Company.
In July 1999, an action was filed (but not served) in
Middlesex Superior Court in Massachusetts against the
Company, the Reproductive Science Center of Boston (the
"Center"), an independent genetic testing laboratory, and
certain of their respective employees. The action, filed by
two former patients of the Center, arises out of
plaintiffs' participation during 1996 in an experimental
program of preimplantation genetic testing. The plaintiffs
allege professional negligence and breach of
contract/warranties resulting in the birth of their child
who suffers from cystic fibrosis. Plaintiffs seek damages
of an undisclosed amount. The Company has notified its
professional malpractice insurance carrier, which has
appointed Massachusetts counsel to represent the Company,
and is investigating the allegations in cooperation with
its co-defendants. The Company has been advised by counsel
that while it is too early to comment on the likely course
14
<PAGE>
of the litigation, such counsel currently believes that by
virtue of insurance coverage available to all the
defendants, the suit is not likely to have a material
adverse effect on the Company.
There are other minor legal proceedings to which the
Company is a party. In the Company's view, the claims
asserted and the outcome of these proceedings will not have
a material adverse effect on the financial position,
results of operations or the cash flows of the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
At an annual shareholders' meeting held on May 25, 1999,
the following matter was approved: 1) election of eight
directors.
The respective vote tabulations are detailed below:
Withhold
Proposal 1 - Directors For Authority
---------------------- --- ---------
Gerardo Canet 3,450,649 28,617
M. Fazle Husain 3,450,649 28,617
Michael J. Levy, M.D. 3,450,649 28,617
Sarason D. Liebler 3,450,649 28,617
Aaron S. Lifchez, M.D. 3,450,649 28,617
Patricia M. McShane, M.D. 3,450,399 28,867
Lawrence Stuesser 3,450,649 28,617
Elizabeth E. Tallett 3,450,649 28,617
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Index to Exhibits on page 17.
(b) Reports on Form 8-K
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: August 16, 1999 By: /s/John W. Hlywak, Jr.
---------------------------
John W. Hlywak, Jr.
Sr. Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.95a -- Amendment No. 6 to Management Agreement between IntegraMed
America, Inc. and Fertility Centers of Illinois, S.C. dated July
1, 1999.
10.115 -- Management Agreement between IntegraMed America, Inc. and David R.
Corley, M.D., P.C. dated July 1, 1999.
10.115(a) -- Personal Responsibility Agreement among Registrant and David R.
Corley, M.D.
10.116 -- Form of Retention Agreement between Registrant and Kathi Baginski,
Peter Cucchiara, Dan Desmarais, Anders Engen, Jay Higham, John
Hlywak, Jr., Mark Segal, Claude E. White, Donald S. Wood, Ph.D.
27 -- Financial Data Schedule
17
AMENDMENT NO. 6 TO MANAGEMENT AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
FERTILITY CENTERS OF ILLINOIS, S.C.
THIS AMENDMENT NO. 6 TO MANAGEMENT AGREEMENT is dated as of July 1,
1999 by and between IntegraMed America, Inc., a Delaware corporation, with its
principal place of business at One Manhattanville Road, Purchase, New York 10577
("INMD") and Fertility Centers of Illinois, S.C., an Illinois medical
corporation, with its principal place of business at 3000 North Halsted Street,
Suite 509, Chicago, Illinois 69657 ("FCI").
RECITALS:
INMD and FCI entered into a management agreement dated February 28,
1997, as amended, with an effective date of August 19, 1997 (the "Management
Agreement");
INMD and FCI desire to amend and restate certain financial terms and
conditions of the Management Agreement governing their relationship.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and as contained in the Management Agreement, INMD and FCI
agree as follows:
1. Section 1.1.4 of Article I is hereby deleted in its entirety and the
following is substituted therefor, effective July 1, 1999:
"1.1.4 "Costs of Services" shall mean all ordinary and
necessary expenses of FCI and all direct ordinary and
necessary operating expenses of INMD, without mark-up,
incurred in connection with the management of FCI's medical
practice, as more specifically described in Section 2.1;
provided, however, Costs of Services shall be adjusted for
Pass-Throughs."
2. Section 1.1.13 of Article I is hereby deleted in its entirety and
the following is substituted therefor, effective July 1, 1999:
"1.1.13 "Revenues" shall mean the sum of all Physician and
Other Professional Revenues, and FCI Management Fees;
provided, however, Revenues shall be adjusted for
Pass-Throughs."
3. Article I is hereby amended to add a new Section 1.1.15, effective
July 1, 1999, as follows:
<PAGE>
"1.1.15 " Pass Throughs" shall mean those amounts, under
capitation arrangements identified in certain managed care,
HMO, Preferred Provider or similar agreement, which FCI is
obligated to remit to third-party health care providers, for
goods or services, out of the capitation payment received by
FCI under such capitation arrangements. For any payment to a
third party to qualify as a Pass-Through the payment must (i)
be linked to a capitation contract (ii) further, be linked to
a subcapitation contract that transfers full risk to a
third-party health care provider for the provision of
specified goods and/or services, and (iii) have the prior
approval of INMD for the exclusion of the amounts from FCI's
Revenues."
4. Section 6.1.3 is hereby deleted in its entirety and the following
substituted therefor, effective July 1, 1999:
"6.1.3 during each year of this Agreement, a Base Management
Fee, paid monthly, of an amount equal to six percent (6%) of
the first $8.0 million of FCI's Revenues; five percent (5%) of
FCI's Revenues over $8.0, but less than $12 million; and four
percent (4%) of FCI's Revenues of $12 million and above."
5. Section 6.1.4 of the Management Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor, effective July 1,
1999:
"6.1.4 an Additional Management Fee in accordance with the
following table:
July 1, 1999 to August 19, 2002
-------------------------------
Cost of Services plus the Base
Management Fee as a % of Revenues Additional Management Fee
--------------------------------- -------------------------
55% and below 10.5% of Revenues
55.01% to 65% 8.5% of Revenues
65.01% to 75% 6.5% of Revenues
75.01% to 80% 4.5% of Revenues
80.01% or more 0% of Revenues
August 20, 2002 to August 19, 2022
----------------------------------
Cost of Services plus Base
Management Fee as a % of Revenues Additional Management Fee
--------------------------------- -------------------------
55% and below 12.5% of Revenues
55.01% to 65% 10.5% of Revenues
65.01% to 75% 8.5% of Revenues
75.01% to 80% 6.5% of Revenues
80.01% or more 0% of Revenues
<PAGE>
6. The second sentence of Section 6.1.5 of the Management Agreement is
hereby amended to read as follows:
"Said alternate Management Fee shall be an amount mutually
agree upon between INMD and FCI within thirty days time from
the Findings, but in no event shall be less than $2,313,000.00
per annum."
7. Article 6 is hereby amended to add a new Section 6.1.7, effective
July 1, 1999, as follows:
"6.1.7 The Additional Management Fee provided for in Section
6.1.4 shall be paid monthly to INMD; provided, however INMD
will, on a quarterly basis, reconcile the monthly Additional
Management Fee to the quarterly financial results of FCI's
operations ("Quarterly Reconciliation"). The Quarterly
Reconciliation shall be performed within 45 days after the end
of each calendar quarter. To the extent the aggregate monthly
Additional Management Fee paid to INMD for the applicable
quarter is less or greater than the amount to which INMD is
entitled for the applicable quarter, the amount previously
paid to INMD for the applicable quarterly shall be adjusted to
the Quarterly Reconciliation amount."
8. All other provisions of the Management Agreement, as amended, not in
conflict with this Amendment No. 6 remain in full force and effect.
9. This Amendment No. 6 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. 6 the
date first above written.
INTEGRAMED AMERICA, INC.
By:/s//Gerardo Canet
------------------------------
Gerardo Canet, President & CEO
FERTILITY CENTERS OF ILLINOIS, S.C.
By:/s/Aaron S. Lifchez
------------------------------
Aaron S. Lifchez, President
MANAGEMENT AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
DAVID R. CORLEY, MD, P.C.
THIS MANAGEMENT AGREEMENT ("Agreement"), dated as of July 1, 1999, by
and between IntegraMed America, Inc., a Delaware corporation, with its principal
place of business at One Manhattanville Road, Purchase, New York 10577
("Management Company") and David R. Corley, MD, P.C., a Missouri professional
corporation about to have a place of business at Two Brush Creek, Suite 500,
Kansas City, Missouri 64112 ("PC"). Management Company and PC are collectively
referred to herein as "Parties" and individually, as a "Party."
RECITALS:
PC is a medical practice ("Medical Practice") specializing in
gynecological services, treatment of human infertility encompassing the
provision of in vitro fertilization and other assisted reproductive services
("Infertility Services"). PC will provide Infertility Services through David R.
Corley ("Physician") who owns all the issued and outstanding capital stock of
PC. Physician has entered into an employment agreement with PC contemporaneous
with this Agreement.
Management Company is in the business of owning certain assets and
providing management and administrative services ("Management Services") to
medical practices specializing in the provision of Infertility Services, and
furnishing such medical practices with the necessary facilities, equipment,
personnel, supplies and support staff.
Management Company will provide Management Services and certain
Facilities, as defined herein, on the terms and conditions provided herein for
use by PC for conducting its Medical Practice, which Facilities and Management
Services will be provided contemporaneously to other medical practices providing
Infertility Services.
PC desires to utilize the services of Management Company to perform
management and administrative functions, on its behalf, to permit PC to devote
its efforts on a concentrated and continuous basis to the rendering of
Infertility Services to its patients.
NOW THEREFORE, in consideration of the above recitals which the parties
incorporate into this Agreement, the mutual covenants and agreements herein
contained and other good and
- 1 -
<PAGE>
valuable consideration , Management Company agrees to provide and PC agrees to
utilize the Management Services and the Facilities on the terms and conditions
provided herein.
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
1.1.1 "Assets" shall mean those fixed assets utilized in
connection with the operation of the Medical Practice , including, but
not limited to, fixed assets and leasehold improvements.
1.1.2 "Adjustments" shall mean adjustments for refunds,
discounts, contractual adjustments, professional courtesies and other
activities that do not generate a collectible fee as reasonably
determined by Management Company and PC.
1.1.3 "Facilities" shall mean the offices and clinical space
of Management Company provided for use by PC, including any satellite
locations, related businesses and all medical group business operations
of PC, which are utilized by PC.
1.1.4 "Fiscal Year" shall mean the 12-month period beginning
January 1 and ending December 31 of each year.
1.1.5 "Infertility Services" shall mean gynecological
services, treatment of human infertility encompassing the provision of
in vitro fertilization and other assisted reproductive services
provided by PC or any Physician Employee and Other Professional
Employee.
1.16 "Other Professional Employee" shall mean a non-physician
individual who provides services, including nurse anesthetists,
physician assistants, nurse practitioners, psychologists, and other
such professional employees who generate professional charges, but
shall not include Technical Employees.
1.1.7 "Physician-Employee" shall mean an individual, including
a stockholder, who is an employee of PC or is otherwise under contract
with PC to provide professional services to PC patients and is duly
licensed as a physician in the state of Missouri.
1.1.8 "Physician and Other Professional Revenues" shall mean
all fees, whether received or accrued, and actually recorded each month
(net of Adjustments) by or on behalf of PC as a result of professional
medical services personally furnished to patients by
Physician-Employees and Other Professional Employees and other fees or
income earned in their capacity as professionals, whether rendered in
an inpatient or outpatient setting, including but not limited to,
medical director fees or technical fees from medical ancillary
- 2 -
<PAGE>
services, consulting fees and ultrasound fees from businesses owned or
operated by Physician-Stockholders. Physician and Other Professional
Revenues shall not include (i) board attendance fees and other
compensation in connection with board memberships; provided, the
compensation for board related activities does not exceed $5,000 in the
aggregate, annually, per Physician-Stockholder and (ii) other services
where Physician does not provide professional medical services such as
testimony and consultation for litigation- related proceedings,
lectures, passive investments, fundraising, or writing ("Permitted
Services"), the compensation from which Permitted Services Physician
may retain without limit.
1.1.9 "Predistribution Earnings" ("PDE") shall mean (i)
Physician and Other Professional Revenues, less (ii) Cost of Services
and the Base Management Fee.
1.1.10 "Receivables" shall mean and include all rights to
payment for services rendered or goods sold, accounts, receivables,
contract rights, chattel paper, documents, instruments and other
evidence of patient indebtedness to PC, policies and certificates of
insurance relating to any of the foregoing, and all rights to payment,
reimbursement or settlement or insurance or other medical benefit
payments assigned to PC by patients or pursuant to any Preferred
Provider, HMO, capitated payment agreements or other agreements between
PC and a payer, recorded each month (net of Adjustments).
1.1.11 "Revenues" shall mean the sum of all Physician and
Other Professional Revenues.
1.1.12 "Technical Employees" shall mean technicians such as
embryologists and other laboratory personnel, ultrasonographers and
phlebotomists who provide services to PC.
ARTICLE 2
COST OF SERVICES
2.1 "Cost of Services" shall mean all ordinary and necessary expenses
of PC and all direct ordinary and necessary operating expenses of Management
Company incurred in connection with the management of PC including, without
limitation, the following costs and expenses, whether incurred by Management
Company or PC:
2.1.1 Salaries and fringe benefits of all employees of
Management Company working directly in the
management, operation or administration (including,
without limitation, Other Professional Employees and
Technical Employees) providing services at PC
Facilities, along with payroll taxes or all other
taxes and charges now or hereafter applicable to such
personnel, and services of independent contractors;
- 3 -
<PAGE>
2.1.2 Expenses incurred in the recruitment of additional
physicians for PC, including, but not limited to
employment agency fees, relocation and interviewing
expenses and any actual out-of-pocket expenses of
Management Company personnel in connection with such
recruitment effort;
2.1.3 Direct marketing expenses of PC, such as direct costs
of printing marketing materials prepared by
Management Company;
2.1.4 Any sales and use taxes assessed against PC related
to the operation of PC's medical practice;
2.1.5 Lease payments, depreciation expense (determined
according to GAAP), taxes and interest directly
relating to the Facilities and equipment, and other
expenses of the Facilities described in Section 3.2
below;
2.1.6 Legal fees paid by Management Company or PC to
outside counsel in connection with matters specific
to the operation of PC such as regulatory approvals
required as a result of the parties entering into
this Agreement; provided, however, legal fees
incurred by the parties relative to completion of
this Agreement or as a result of a dispute between
the parties under this Agreement shall not be
considered a Cost of Services;
2.1.7 Fringe benefits provided to Physician-Employees,
including long-term disability;
2.1.8 All insurance necessary to operate PC including fire,
theft, general liability and malpractice insurance
for Physician-Employees of the PC;
2.1.9 Professional licensure fees and board certification
fees of Physician- Employees, and Other Professional
Employees rendering Infertility Services on behalf of
PC;
2.1.10 Membership in professional associations and
continuing professional education for
Physician-Employees and Other Professional Employees;
2.1.11 Quality Improvement Program described in Section 3.8
herein;
2.1.12 Cost of filing fictitious name permits pursuant to
this Agreement;
2.1.13 Cost of supplies, medical and administrative, and all
direct general and administrative expenses;
2.1.14 $10,000 in the aggregate, annually, per physician for
travel and entertainment expenses, car allowances
(including car leases), dues and subscriptions,
cellular telephone and other business related
expenses relative to PC; and
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2.1.15 Such other costs and expenses directly incurred by
Management Company necessary for the management or
operation of PC.
2.2 Notwithstanding anything to the contrary contained herein, Cost of
Services shall not include costs of the following:
2.2.1 Costs or expenses not in the ordinary course of
business unless approved by PC;
2.2.2 Any federal or state income taxes of PC or Management
Company other than as provided above;
2.2.3 The Base Management Fee and the Additional Management
Fee; or
2.2.4 Any amount paid to any Physician-Employee, including
salary or draw (all of which come out of PDE).
ARTICLE 3
DUTIES AND RESPONSIBILITIES OF MANAGEMENT COMPANY
3.1 MANAGEMENT SERVICES AND ADMINISTRATION.
3.1.1 The PC acknowledges and agrees that the Management
Services and Facilities will be provided to PC and Physician on a
non-exclusive basis and that such Management Services and the
Facilities will be shared by other entities and/or medical practices
("Co-Occupants"). Management Company will allocate resources and its
personnels' time so as to meet reasonably the needs of PC, Physician
and the Co-Occupants. Notwithstanding anything herein to the contrary,
nothing herein shall obligate Management Company to devote all of its
personnel at the Facilities and Management Services to PC, Physician
and Co-Occupants, to the exclusion of anyone of them.
3.1.2 PC hereby appoints Management Company as PC's sole and
exclusive manager and administrator of all its day-to-day business
functions and grants Management Company all the necessary authority to
carry out, with PC's advice and consent, its duties and
responsibilities pursuant to the terms of this Agreement to provide the
Management Services on a non-exclusive basis. Physician-Employees and
only Physician-Employees will perform the medical functions of the
Medical Practice. Management Company will have no authority, directly
or indirectly, to perform, and will not perform, any medical function.
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3.1.3 Management Company will, on behalf of PC, bill patients
and collect professional fees for Infertility Services rendered by PC
at the Facilities, outside the Facilities for PC's hospitalized
patients, and for all other Infertility Services rendered by any
Physician- Employee or Other Professional Employee. PC hereby appoints
Management Company for the term hereof to be its true and lawful
attorney-in-fact, for the following purposes: (i) to bill patients in
PC's name and on its behalf; (ii) to collect Receivables resulting from
such billing in PC's name and on its behalf; (iii) to receive payments
from insurance companies, prepayments received from health care plans,
and all other third-party payors; (iv) to take possession of and
endorse in the name of PC (and/or in the name of any Physician-Employee
or Other Professional Employee rendering Infertility Services to
patients of PC) any notes, checks, money orders, and other instruments
received in payment of Receivables; and (v) to initiate the institution
of legal proceedings in the name of PC, with PC's advice and consent,
to collect any accounts and monies owed to PC, to enforce the rights of
PC as creditor under any contract or in connection with the rendering
of any service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors.
3.1.4 Management Company will provide the administrative
services function of supervising and maintaining (on behalf of PC) all
files and records relating to the operations of the Facilities,
including but not limited to accounting and billing records, including
for billing purposes, patient medical records, and collection records.
Patient medical records shall at all times be and remain the property
of PC and shall be located at the Facilities and be readily accessible
for patient care. Management Company's management of all files and
records shall comply with all applicable state and federal laws and
regulations, including without limitation, those pertaining to
confidentiality of patient records. The medical records of each patient
shall be expressly deemed confidential and shall not be made available
to any third party except in compliance with all applicable laws, rules
and regulations. Management Company shall have access to such records
in order to provide the Management Services hereunder, to perform
billing functions, and to prepare for the defense of any lawsuit in
which those records may be relevant. The obligation to maintain the
confidentiality of such records shall survive termination of this
Agreement. PC shall have unrestricted access to all of its records at
all times.
3.1.5 Management Company will supply to PC all reasonably
necessary clerical, accounting, bookkeeping and computer services,
printing, postage and duplication services, medical transcribing
services, and any other necessary or appropriate administrative
services reasonably necessary for the efficient operation of PC's
businesses at the Facilities.
3.1.6 Subject to PC's prior approval, Management Company shall
design and implement an appropriate marketing and public relations
program on behalf of PC, with appropriate emphasis on public awareness
of the availability of Infertility Services from PC. The public
relations program shall be conducted in compliance with applicable laws
and regulations governing advertising by the medical profession. PC
shall approve all advertising and marketing materials prior to use.
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3.1.7 Management Company, upon request of PC, will assist PC
in recruiting additional physicians, including such administrative
functions as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, PC
shall interview and make the ultimate decision as to the suitability of
any physician to become associated with PC. All physicians recruited by
Management Company and accepted by PC shall be employees of or
independent contractors to PC.
3.1.8 Management Company will assist PC in negotiating any
managed care contracts to which either Provider desires to become a
party. Management Company will provide administrative assistance to PC
in fulfilling their respective obligations under any such contract.
3.1.9 Management Company will arrange for legal and accounting
services as may be reasonably required in the ordinary course of PC's
operations, including the cost of enforcing any physician contract
containing restrictive covenants.
3.1.10 Management Company will negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Article 10.
3.1.11 Management Company will take such other reasonable
actions to collect fees and pay expenses of the Facilities in a timely
manner as are deemed reasonably necessary to facilitate the operations
of PC at the Facilities.
3.2 FACILITIES. Management Company will provide the Facilities, on a
non-exclusive basis, necessary for the operation of the Medical Practice as set
forth in Exhibit 3.2 hereto, including but not limited to, the use of the
Facilities, all furniture, equipment and furnishings necessary for the
Facilities, all repairs, maintenance and improvements thereto, utility
(telephone, electric, gas, water) services, customary janitorial services,
refuse disposal and all other services reasonably necessary in conducting the
Facilities' physical operations. Management Company will provide for the
cleanliness of the Facilities, and timely maintenance and cleanliness of the
equipment, furniture and furnishings located therein.
3.3 EXECUTIVE DIRECTOR AND OTHER PERSONNEL.
3.3.1 EXECUTIVE DIRECTOR. Management Company will hire and
appoint a manager, subject to the approval of the Joint Practices
Management Board, to manage and administer all of the day-to-day
business functions of the Facilities ("Executive Director/Manager").
Salary and fringe benefits paid to the Executive Director/Manager shall
be determined by Management Company. At the direction, supervision and
control of Management Company, the Executive Director/Manager, subject
to the terms of this Agreement, will implement the policies agreed upon
by the Joint Practices Management Board and will generally perform the
administrative duties assigned to the Executive Director/Manager by
Management Company.
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3.3.2 PERSONNEL. Management Company will provide Other
Professional Employees, Technical Employees, support and administrative
personnel, clerical, secretarial, bookkeeping and collection personnel
reasonably necessary for the efficient operation of the Medical
Practice and the Lab at the Facilities. Such personnel will be under
the direction, supervision and control of Management Company, with
Technical Employees and Other Professional Employees subject to the
professional supervision of PC. If PC is dissatisfied with the services
of any person delivering non-professional services, PC will consult
with Management Company. Management Company shall in good faith
determine whether the employment of that employee warrants termination.
Management Company's obligations to utilize non-professional personnel
will be governed by the overriding principle and goal of facilitating
the PC' provision of high quality medical care and laboratory services.
3.4 FINANCIAL PLANNING AND GOALS. Management Company will prepare, for
the approval of PC, an annual capital and operating budget (the "Budget")
reflecting the anticipated Revenues and Cost of Services, sources and uses of
capital for growth of PC's practice and for the provision of Infertility
Services at the Facilities. Management Company will present the Budget to PC for
approval at least thirty (30) days prior to the commencement of the Fiscal Year.
Management Company will indicate the targeted profit margin for PC which will be
reflected in the Budget. If the parties can not agree on the Budget for PC for
any Fiscal Year during the term of this Agreement, the Budget for the preceding
Fiscal Year will serve as the Budget until such time as the dispute can be
resolved.
3.5 FINANCIAL STATEMENTS. Management Company will prepare and deliver
annual financial statements for operations of PC at the Facilities within ninety
(90) days of the close of the Fiscal Year. Management Company shall prepare
monthly financial statements containing a balance sheet and statement of
operations, which shall be delivered to PC within thirty (30) days after the
close of each calendar month.
3.6 TAX PLANNING AND TAX RETURNS. Management Company will not be
responsible for any tax planning or tax return preparation for PC, but will
provide support documentation in connection with the same. Such support
documentation will not be destroyed without PC consent.
3.7 INVENTORY AND SUPPLIES. Management Company shall order and purchase
inventory and supplies, and such other materials which are requested by PC to
enable PC to deliver Infertility Services in a cost-effective quality manner.
3.8 QUALITY IMPROVEMENT. Management Company shall assist PC in
fulfilling its obligations to maintain a Quality Improvement Program and in
meeting the goals and standards of such program.
3.9 RISK MANAGEMENT. Management Company shall assist PC in the
development of a Risk Management Program and in meeting the standards of such
Program.
3.10 PERSONNEL POLICIES AND PROCEDURES. Management Company shall
develop personnel policies, procedures and guidelines, to govern office
behavior, protocol and procedures, designed to insure that the Facilities
observe all laws and guidelines related to employment and human resources
management.
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3.11 LICENSES AND PERMITS. Management Company shall, on behalf of PC,
coordinate and assist PC in its application for and efforts to obtain and
maintain all federal, state and local licenses, certifications and regulatory
permits required for or in connection with the operations of PC and the Lab, and
equipment located at the Facilities, other than those relating to the practice
of medicine or the administration of drugs by Physician-Employees.
ARTICLE 4
DUTIES AND RESPONSIBILITIES OF PC
4.1 PROFESSIONAL SERVICES.
4.1.1 PC shall cause its Physician-Employees to provide
Infertility Services to PC's patients in compliance at all times with ethical
standards, laws and regulations applying to the practice of medicine in the
applicable jurisdiction in which such Physician-Employee provides Infertility
Services on behalf of PC. PC shall ensure that each Physician-Employee, any
Other Professional Employee employed by PC, and any other professional provider
associated with PC is duly licensed to provide the Infertility Services being
rendered within the scope of such provider's practice. In addition, PC shall
require each Physician-Employee to maintain a DEA number and appropriate medical
staff privileges as determined by PC during the term of this Agreement. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any Physician- Stockholder, Physician-Employee or other professional
provider, PC shall promptly inform the Manager and provide the underlying facts
and circumstances of such action, and the proposed course of action to resolve
the matter. Periodic updates, but not less than monthly, shall be provided to
Management Company.
4.1.2 Each Physician-Employee shall be responsible for
ensuring that adequate coverage is in place during any periods of absences from
the PC for purposes of vacation, personal leave, continuing medical education
seminars or any other reason. Any physician providing such coverage must have
been previously screened by Management Company's credentialing process and any
costs of such coverage shall not be a Cost of Services, as defined herein, but
shall be borne by the applicable Physician-Employee.
4.2 MEDICAL PRACTICE. PC shall use and occupy the Facilities
exclusively for the purpose of providing Gynecology, Infertility Services, and
related services and shall comply with all applicable laws and regulations and
all applicable standards of medical care, including, but not limited to, those
established by the American Society of Reproductive Medicine. The Medical
Practice conducted at the Facilities by PC shall be conducted solely by
Physician, and Other Professional Employees employed by PC. No other physician
or medical practitioner shall be permitted to use or occupy the Facilities
without the prior written consent of Management Company, except in the case of a
medical emergency, in which event, notification shall be provided to Management
Company as soon after such use or occupancy as possible.
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4.3 EMPLOYMENT OF PHYSICIAN AND OTHER PROFESSIONAL EMPLOYEES. In the
event PC shall determine that additional physicians are necessary, PC shall
undertake and use its best efforts to locate physicians who, in PC's judgment,
possess the credentials and expertise necessary to enable such physician
candidates to become affiliated with PC for the purpose of providing Infertility
Services. PC shall cause each Physician-Employee to enter into an employment
agreement with PC substantially in the form attached hereto as Exhibit 4.3
("Physician- Employment"), or such other form as is mutually acceptable to PC
and Management Company. Except as otherwise provided in Sections 4.6.4 and 5.2.8
of this Agreement, PC shall have complete control of and responsibility for the
hiring, compensation, supervision, evaluation and termination of its
Physician-Employees, although at the request of PC, Management Company shall
consult with PC respecting such matters.
4.4 CONTINUING MEDICAL EDUCATION . PC shall require its
Physician-Employees to participate in such continuing medical education as PC
deems to be reasonably necessary for such physicians to remain current in the
provision of Infertility Services.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. PC shall cooperate with
Management Company in the obtaining and retaining of professional liability
insurance underwritten by Management Company's liability carrier. Such
cooperation shall include, but not be limited to, assuring that its
Physician-Employees and Other Professional Employees, if applicable, are
insurable and participating in an on-going Risk Management Program, under
Management Company's directions. PC's Physician-Employees and Other Professional
Employees shall be obligated to use Management Company's coverage unless PC is
able to obtain comparable coverage at substantially the same cost.
4.6 DIRECTION OF PRACTICE PC, as a continuing condition of Management
Company's obligations under this Agreement, shall at all time during the Term be
and remain legally organized and operated to provide Infertility Services in a
manner consistent with state and federal laws. In furtherance of which:
4.6.1 PC shall operate and maintain at the Facilities, on a
non-exclusive basis, a full-time practice of medicine specializing in
the provision of Infertility Services and shall maintain and enforce
the Physician-Stockholder Employment Agreements and the Physician-
Employee Employment Agreements (collectively referred to as "Physician
Employment Agreements") or in such other form as is mutually agreed to
by the PC and Management Company in writing. PC covenants that it shall
not employ any physician, or have any physician as a shareholder,
unless said physician shall sign the applicable Physician Employment
Agreement prior to assuming the status as employee and/or shareholder.
PC covenants that should a physician become a shareholder of the PC,
that a condition precedent to the issuance of the shares shall be the
ratification of this Management Agreement.
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4.6.2 PC shall not terminate the Employment Agreement(s) of
any Physician or Shareholder, except in accordance with the Employment
Agreement(s), or amend or modify the Employment Agreements in any
material manner, nor waive any material rights of the PC thereunder
without the prior written approval of Management Company, which
approval will not be unreasonably withheld; provided that PC may amend
or modify the Employment Agreements without Management Company's
consent in order to comply with applicable law. PC covenants to enforce
the terms of each Physician Employment Agreement, including but not
limited to any covenants not to compete and other terms confirming a
Physician-Employee's commitment to practice medicine solely through the
PC for a specified number of years. In addition, in the exercise of
Management Company's sole discretion, if the PC fails to pursue the
enforcement of its rights against a Physician-Employee, Management
Company shall have the right, but not the obligation, to direct,
initiate or join in a lawsuit to enforce the provisions of any
Physician Employment Agreement and PC shall assign its rights and
remedies against such Physician-Employee upon the request of Management
Company.
4.6.3 Recognizing that Management Company would not have
entered into this Agreement but for the PC's covenant to maintain and
enforce the Physician-Employment Agreements with any physician now
employed or physicians who may hereafter become employees of the PC,
and in reliance upon such Physician-Employee's observance and
performance of all of the obligations under the Physician Employment
Agreements, any damages, liquidated damages, compensation, payment or
settlement received by the PC from a physician whose employment is
terminated, shall be paid to Management Company in proportion to
Management Company's loss or damages.
4.6.4 PC shall retain that number of Physician-Employees as
are reasonably necessary and appropriate for the provision of
Infertility Services. However, PC agrees that it will not hire more
physicians than consented to by the Joint Practice Management Board
which shall not be unreasonable in giving its consent. Each
Physician-Employee shall hold and maintain a valid and unrestricted
license to practice medicine in the applicable jurisdiction where such
Physician-Employee provides Infertility Services on behalf of PC, and
shall be board eligible in the practice of gynecology, with training in
the subspecialty of infertility and assisted reproductive medicine. PC
shall be responsible for paying the compensation and benefits, as
applicable, for all Physician-Employees, and for withholding, as
required by law, any sums for income tax, unemployment insurance,
social security, or any other withholding required by applicable law.
Management Company may, on behalf of the PC, establish and administer
the compensation with respect to such Physician- Employees in
accordance with the written agreement between the PC and each Physician
Employee. Management Company shall neither control nor direct any
Physician in the performance of Infertility Services for patients, and
Management Company will not unreasonably interfere with the
employer-employee relationship between PC and its Physician-Employees.
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4.6.5 PC shall insure that Physician-Employees provide patient
care and clinical backup as required to insure the proper provision of
Infertility Services to patients of the PC at PC's Facilities set forth
in Exhibit 3.2, and/or such other location as shall be mutually agreed
to by PC and Management Company. PC shall insure that its
Physician-Employees devote substantially all of their professional
time, effort and ability to PC's practice, including the provision of
Infertility Services and the development of such practice. PC shall
insure that Physician-Employees timely (within 24 hours of rendering
services) note in all patient charts, any and all procedures performed
and services rendered so that proper billing of patients and
third-party payors can be performed by Management Company.
4.6.6 PC covenants to cooperate in obtaining necessary
licenses for operating clinical laboratory and tissue bank services in
accordance with all applicable laws and regulations.
4.6.7 PC acknowledges that it bears all medical obligations to
patients treated at the Facilities and covenants that it is responsible
for all tissue, specimens, embryos or biological material ("Biological
Materials") kept at the Facilities on behalf of the patients (or former
patients) of PC. In the event of a termination or dissolution of PC, or
the termination of this Agreement for any reason, PC and Physician will
have the obligation to account to patients and to arrange for the
storage or disposal of such Biological Materials in accordance with
patient consent and the ethical guidelines of the American Society of
Reproductive Medicine ("Relocation Program"). Management Company, in
such event, will, at the request of the PC, assist in the
administrative details of such a Relocation Program. These obligations
shall survive the termination of this Agreement.
4.6.8 Except for circumstances outside the control of PC or
Physician-Stockholders, PC covenants not to terminate or dissolve as a
professional services corporation except on six months prior written
notice to Management Company. PC covenants that such a restriction will
be contained either in PC's by-laws or shareholder agreement among PC's
shareholders. In the event that such termination or dissolution occurs,
for a reason other than the death or disability of all of the
shareholders, or any successor entity fails to continue the medical
practice of PC substantially in the form contemplated by this
Agreement, PC and its individual shareholders, shall indemnify
Management Company for: (a) the actual costs of maintaining the
Facilities and any reasonably necessary Other Professional Employees
during a Relocation Program (Section 4.6.7); (b) legal costs for
relicensing; (c) recruitment of other physicians to assume the
Practice; and (d) any damages, costs, liabilities, including reasonable
attorneys fees, arising from claims, suits, causes of action or
proceedings, brought by a patient of the PC having an interest in any
Biological Materials kept at the Facilities. These obligations shall
survive the termination of this Agreement.
4.7 PRACTICE DEVELOPMENT, COLLECTION EFFORTS AND NETWORK INVOLVEMENT.
PC agrees that during the term of this Agreement, PC covenants for itself and
will use its best efforts to cause its Physician-Employees to:
4.7.1 Execute such documents and take such steps reasonably
necessary to assist billing and collecting for patient services
rendered by PC and its Physician-Employees;
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4.7.2 Promote PC's medical practice and participate in
marketing efforts developed by Management Company; and
4.7.3 Participate in Management Company network activities and
programs.
4.8 PERSONNEL POLICIES PC covenants for itself and will cause its
Physician-Employees and any other employees to comply with reasonable personnel
policies and guidelines developed for the PC by Management Company and/or the
Joint Practice Management Board, which shall include administrative protocols
and policies designed to insure that the Facilities comply with all applicable
laws and regulations, federal, state and local.
ARTICLE 5
JOINT DUTIES AND RESPONSIBILITIES
5.1 FORMATION AND OPERATION OF JOINT PRACTICES MANAGEMENT BOARD.
Management Company, PC and Co-Occupants will establish a joint practices
management board ("Joint Practices Management Board") which will be responsible
for developing management and administrative policies for the overall operation
of the Facilities. The Joint Practices Management Board will consist of
designated management representatives from Management Company, one
representative from PC and one from each Co-Occupant, and the Executive
Director/ Manager. It is the intent and objective of Management Company and PC
that they agree on the overall operations of the Facilities. In the case of any
matter requiring a formal vote, PC shall have one (1) vote, each Co-Occupant
shall have one (1) vote, and Management Company shall have one (1) vote. The
desire is that Management Company, PC and Co-Occupants agree on matters of
operations and that, if they disagree, they will have to work cooperatively to
resolve any disagreement.
5.2 DUTIES AND RESPONSIBILITIES OF THE JOINT PRACTICES MANAGEMENT
Board. The Joint Practices Management Board shall have, among others, the
following duties and responsibilities:
5.2.1 ANNUAL BUDGETS AND PROFITABILITY. All annual capital and
operation budgets prepared by Management Company for the Facilities
shall be subject to the review, amendment, approval and disapproval of
the Joint Practices Management Board. PC covenants and agrees to use
its best efforts to assist the Joint Practices Management Board in
achieving the projected budgets, in place from time to time. PC and
Management Company agree that, recognizing changes in circumstances,
annual budgets and forecast are subject to revisions and, accordingly,
they will cause the Joint Practices Management Board to modify the
annual budgets, as needed, including without limitation, staff
reductions, to ensure that PC operates in a profitable mode.
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5.2.2 CAPITAL IMPROVEMENTS AND EXPANSION. Except as otherwise
provided herein, any renovation and expansion plans, and capital
equipment expenditures with respect to the Facilities shall be reviewed
and approved by the Joint Practices Management Board
and shall be based upon the best interests of all occupants, and shall
take into account capital priorities, economic feasibility, physician
support, productivity and then current market and regulatory
conditions.
5.2.3 ADVERTISING BUDGET. All annual advertising and other
marketing budgets for the Facilities prepared by Management Company
shall be subject to the review, amendment, approval and disapproval of
the Joint Practices Management Board.
5.2.4 PATIENT FEES. The Joint Practices Management Board shall
review the fee schedule for all physician and ancillary services
rendered at the Facilities prior to implementation of any such fee
schedule.
5.2.5 ANCILLARY SERVICES. The Joint Practices Management Board
shall approve ancillary services rendered at the Facilities.
5.2.6 PROVIDER AND PAYER RELATIONSHIPS. Decisions regarding
the establishment or maintenance of relationship with institutional
health care providers and payers shall be made by the Joint Practices
Management Board in consultation with PC and Co-Occupants; provided,
however, that the consent of PC designated member of the Joint
Practices Management Board shall be necessary to discontinue any PC
institutional relationship.
5.2.7 STRATEGIC PLANNING. The Joint Practices Management Board
shall develop long-term strategic plans, from time to time.
5.2.8 PHYSICIAN HIRING. The Joint Practices Management Board
shall, in conjunction with PC and Co-Occupants, determine, the number
and type of physicians required for the efficient operation of the
Facilities. In addition to any other approvals required under this
Agreement, the approval of the Joint Practices Management Board shall
be required for any modifications to the restrictive covenants
contained in any physician employment agreement.
5.2.9 PROVIDER CONTRACTS. The Joint Practices Management Board
shall approve, disapprove, or amend all managed care, PPO, HMO,
Medicare risk and other provider contracts negotiated by Management
Company.
5.2.10 EXECUTIVE DIRECTOR AND KEY PERSONNEL.
(a) The selection and retention of the Executive
Director/Manager pursuant to Section 3.3.1 by Management Company shall
be subject to the unanimous recommendation of the Joint Practices
Management Board. If PC is dissatisfied with the services provided by
the Executive Director, PC shall consult with Management Company and
Co-Occupants who shall, in good faith, determine whether the
performance of the Executive Director/Manager could be brought to
acceptable levels through counsel and assistance, or whether the
Executive Director/Manager should be terminated.
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(b) Management Company shall follow the unanimous
recommendations of the Joint Practices Management Board with respect to
the hiring, terminating or relocating of key personnel at the
Facilities, provided such recommendations do not cause Management
Company to violate any federal, state or local laws or regulations.
ARTICLE 6
LICENSE OF MANAGEMENT COMPANY NAME
6.1 GRANT OF LICENSE. Management Company hereby grants to PC a
revocable, non-exclusive and non-assignable license for the term of this
Agreement to use the name REPRODUCTIVE SCIENCE ASSOCIATES and a revocable,
non-exclusive and non-assignable license with respect to any other service
names, trademark names and logos of Management Company (the "Trade Names") in
conjunction with the provision of Infertility Services by PC at the Facilities.
6.2 FICTITIOUS NAME PERMIT. If necessary, PC shall file or cause to be
filed an original, amended or renewal application with an appropriate regulatory
agency to obtain a fictitious name permit which allows PC to practice at the
Facilities under the Trade Names and shall take any other actions reasonably
necessary to procure protection of or protect Management Company's rights to the
Trade Names. Management Company shall cooperate and assist PC in obtaining any
such original, amended or renewal fictitious name permit.
6.3 RIGHTS OF MANAGEMENT COMPANY. PC acknowledges Management Company's
exclusive right, ownership, title and interest in and to the Trade Names and
will not at any time do or cause to be done any act or thing contesting or in
any way impairing or tending to impair any part of such right, title and
interest. In connection with the use of the Trade Names, PC shall not in any
manner represent that it has any ownership interest in the Trade Names, and PC's
use shall not create in PC's favor any right, title, or interest in or to the
Trade Names other than the right of use granted hereunder, and all such uses by
PC shall inure to the benefit of Management Company. PC shall notify Management
Company immediately upon becoming aware of any claim, suit or other action
brought against it for use of the Trade Names or the unauthorized use of the
Trade Names by a third party. PC shall not take any other action to protect the
Trade Names without the prior written consent of Management Company. Management
Company, if it so desires, may commence or prosecute any claim or suit in its
own name or in the name of PC or join PC as a party thereto. PC shall not have
any rights against Management Company for damages or other remedy by reason of
any determination of Management Company not to act or by reason of any
settlement to which Management Company may agree with respect to any alleged
infringements, imitations or unauthorized use by others of the Trade Names, nor
shall any such determination of Management Company or such settlement by
Management Company affect the validity or enforceability of this Agreement.
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6.4 RIGHTS UPON TERMINATION.
6.4.1 Upon termination of this Agreement, PC shall: (i) within
30 days of the termination, cease using the Trade Names in all respects
and refrain from making any reference on its letterhead or other
publicly-disseminated information or material to its former
relationship with Management Company; and (ii) take any and all actions
required to make the Trade Names available for use by any other person
or entity designated by Management Company.
6.4.2 PC's failure (except as otherwise provided herein) to
cease using the Trade Names at the termination or expiration of this
Agreement will result in immediate and irreparable damage to Management
Company and to the rights of any licensee of Management Company. There
is no adequate remedy at law for such failure. In the event of such
failure, Management Company shall be entitled to equitable relief by
way of injunctive relief and such other relief as any court with
jurisdiction may deem just and proper. Additionally, pending such a
hearing and the decision on the application for such permanent
injunction, Management Company shall be entitled to a temporary
restraining order, without prejudice to any other remedy available to
Management Company. All such remedies hereunder shall be at the expense
of PC and shall not be a Cost of Services.
ARTICLE 7
FINANCIAL ARRANGEMENTS
7.1 COMPENSATION. The compensation set forth in this Article 7 is being
paid to Management Company in consideration of the substantial commitment made
and services to be rendered by Management Company hereunder and is fair and
reasonable. Management Company shall be paid the following amounts (collectively
"Compensation"):
7.1.1 For the first 12 months of this Agreement, $20,000 per
month for all Cost of Services (whether incurred by Management Company
or PC) paid or accrued by Management Company pursuant to the terms of
this Agreement; thereafter, this amount will be adjusted, on a
quarterly basis, to reflect PC's proportionate share of Cost of
Services as a function of PC's Revenues relative to the total Revenues
from Co-Occupants.
7.1.3. during each year of this Agreement, a Base Management
Fee, paid monthly but reconciled to annual Revenues, of an amount equal
to six percent (6%) of Revenues;
7.1.4 During each year of this Agreement, an Additional
Management Fee, paid monthly but reconciled to annual operating results
of PC, equal to 20 % of PDE; provided, however, the first $8,333.33 of
monthly PDE shall inure to PC;
7.1.5 In the event that Section 7.1.3 and/or Section 7.1.4 of
this Agreement is found to be illegal, unenforceable, against public
policy, or forbidden by law, by any local, state or federal agency or
department, or any court of competent jurisdiction ("Findings"), then
Sections 7.1.3 and/or 7.1.4 and the Base Management Fee and Additional
Service Fee shall be replaced, effective immediately and retroactive to
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the date of this Agreement, by afixed annual Management Fee, payable in
equal monthly installments ("Alternate Management Fee") on or before
the 15th business day of each month. Said Alternate Management Fee
shall be in an amount mutually agreed upon, within thirty days time
from the Findings, between Management Company and PC, but in no event
shall be less than $82,000 per annum. In the event of a Finding which
causes the Alternate Management Fee to become operative, the parties
shall, within sixty days of the Finding, account for all payments made
prior to the date of the Finding, and recalculate such amounts pursuant
to the formula provided in the Alternate Management Fee. Any
overpayment to Management Company resulting from the prior application
of Sections 7.1.3 and/or 7.1.4 shall be applied so as to satisfy 50% of
each future monthly Alternate Management Fee until the aggregate of
such overpayment is fully paid by Management Company. Any underpayment
to Management Company resulting from the prior application of Sections
7.1.3 and/or 7.1.4 shall be paid to Management Company commencing on
the first day of the next full month following the date of the Finding,
in eighteen (18) equally monthly installments.
7.1.6 The right of termination provided for in Section 9.1.3
of this Agreement, if based on the fact that Section 7.1.3 and Section
7.1.4 of this Agreement have been found to be illegal, unenforceable,
void, against public policy or forbidden by law, shall only be
exercisable in the event that both (i) Sections 7.1.3 and 7.1.4 and
(ii) the Alternate Management Fee have been so found by a local, state
or federal agency or department, or any court of competent
jurisdiction."
7.2 ACCOUNTS RECEIVABLE.
7.2.1 On or before the 15th business day of each month,
Management Company shall reconcile the Receivables of PC arising during the
previous calendar month. Subject to the terms and conditions of this Agreement,
PC hereby sells and assigns to Management Company as absolute owner, and
Management Company hereby purchases from PC all Receivables hereafter owned by
or arising in favor of PC on or before the 15th business day of each month. All
Receivables are sold on a full recourse basis. Management Company shall transfer
or pay such amount of funds to PC equal to the Receivable less Compensation due
Management Company pursuant to Section 7.1. PC shall cooperate with Management
Company and execute all necessary documents in connection with the purchase and
assignment of such Receivables to Management Company or at Management Company's
option, to its lenders. All collections in respect of such Receivables shall be
deposited in a bank account at a bank designated by Management Company. To the
extent PC comes into possession of any payments in respect of such Receivables,
PC shall direct such payments to Management Company for deposit in bank accounts
designated by Management Company.
7.2.2 Any Medicare or Medicaid Receivables due to PC shall be
excluded from the operation of Section 7.2.1 hereof. Any such
Receivables shall be subject to agreement of PC and Management Company
with respect to the collection thereof.
7.3 ADVANCES. Management Company agrees to advance funds to PC to meet
Cost of Services, provide working capital, relocate Facilities, acquire new
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equipment or fund mergerswith other physicians or physician groups into
PC, and during the first 12 months of this Agreement, to ensure that
Physician achieves a certain level of PDE ( each, referred to as an
"Advance"). Upon the request of PC, Management Company, in its sole
discretion, will determine whether to advance the requested funds;
provided, however, during the first 12 months of this Agreement, in the
event PC's share of PDE is less than $112,500, inclusive of $45,000 of
the Right to Manage Fee, at PC's request, Management Company will
advance the difference between $112,500, inclusive of $45,000 of the
Right to Manage Fee, and the actual PDE realized by PC. Any such
advance would be re-paid over 12 months, commencing with the 13th month
of this Agreement. All other Advances shall be re-paid in accordance
with Section 7.3.1.
7.3.1 Advances hereunder shall be a debt owed to Management
Company by PC and shall be repaid within 60 days after the Advance.
Upon request of PC, Management Company will consider repayment in
installments. To the extent PDE is available for distribution to
Physician-Stockholders for a particular month, Management Company is
authorized to deduct any outstanding Advance from the PDE prior to
distribution to the Physician-Stockholders. In the event there is
insufficient PDE to satisfy repayment of any Advance within the 60-day
period, the Physician-Stockholders shall be jointly and severally
liable to repay the Advance within the 60-day period and Management
Company shall be entitled to make demand for repayment. Failure to
repay any Advance within the specified time will be deemed a material
breach of this Agreement.
7.3.2 Interest expense will be charged on an Advance and will
be computed at the Prime Rate used by Management Company's primary bank
in effect at the time of the Advance. Advances shall be evidenced by a
security agreement in the form of Exhibit 7.3.2, giving Management
Company a collateral interest in all Receivables of PC and
distributions to PC Shareholders.
7.3.3 Notwithstanding Section 7.3.2, Management Company agrees
not to charge interest expense on Advances under certain limited
circumstances where Management Company, in its sole discretion,
determines an Advance relates to (i) funding a merger with other
physicians or physician groups which provides significant accretive
benefits to PC and Management Company or (ii) leasehold improvements
and permanent fixtures relative to a Facility build-out which provide
significant accretive benefits to PC and Management Company.
ARTICLE 8
EXCLUSIVE MANAGEMENT RIGHT AND TERM
8.1 PC grants to Management Company the exclusive right to manage PC
during the term of this Agreement (the "Exclusive Management Right") in exchange
for a right to manage fee in the amount of Two-Hundred Thousand Dollars
($200,000.00) ("Right to Manage Fee")paid as follows:
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8.1.1 Within five (5) days of being notified by Physician
that Physician has finalized negotiations with
Shawnee Mission Medical Center, an amount, not to
exceed $155,000, representing the buy-out of
Physician's employment agreement with Shawnee Mission
Medical Center ("Shawnee Buy-Out").
8.1.2 The difference between the Right to Manage Fee and
the Shawnee Buy-Out will be paid in two installments
of (i) $25,000 on the Closing Date and the balance 90
days after PC commences the Medical Practice at the
Facilities.
8.2. The term of this Agreement shall begin May 1, 1999 (the "Effective
Date") and shall expire ten (10)years thereafter unless earlier terminated
pursuant to Article 9, below. This Agreement may be renewed by either party, if
within the period of 180 days prior to the expiration date one party gives
notice to the other of its intention to continue this Agreement under the same
terms and conditions as set forth herein or under such different terms and
conditions as particularly set forth in the written notice and further providing
that the other party has 30 days from the date of notice to accept, reject or
modify the offer. If within 30 days, the other party does not respond or by
written notice accepts, this Agreement shall continue for an additional 5 years
under the terms and conditions as provided in the notice.
8.3 PC and Physician acknowledge and agree that they have been advised
by Management Company, that Management Company is currently negotiating with two
other parties that provide Infertility Services, the names of which have been
disclosed to them, that may result in one or both parties utilizing and having
access to the Facilities.
ARTICLE 9
TERMINATION OF THE AGREEMENT
9.1 TERMINATION BY EITHER PARTY. This Agreement may be terminated by
either party in the event of the following:
9.1.1 INSOLVENCY. If a receiver, liquidator or trustee of any
party shall be appointed by court order, or a petition to reorganize shall be
filed against any party under any bankruptcy, reorganization or insolvency law,
and shall not be dismissed within 90 days, or any party shall file a voluntary
petition in bankruptcy or make assignment for the benefit of creditors, then
either of the other parties may terminate this Agreement upon 10 days prior
written notice to the other parties.
9.1.2 MATERIAL BREACH. If either party shall materially breach
its obligations hereunder, then the other party may terminate this Agreement by
providing 30 days prior written notice to the breaching party detailing the
nature of the breach and providing the breaching party with the opportunity to
cure the breach. If the breach is not cured within such 30-day period, this
Agreement shall terminate, provided that if the breach is not curable within
such 30-day period and the breaching party is making diligent efforts to cure
the breach during such 30-day period, this Agreement shall not terminate. If
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after the exercise of diligent efforts, the breaching party shall be unable to
cure the breach within 60 days from the notice of breach from the non-breaching
party, the non-breaching party in its sole discretion may extend the time in
which to cure the breach, upon request of the breaching party. In the event the
non-breaching party does not extend the time in which to cue the breach, this
Agreement will terminate at the expiration of 60 days from the original notice
of breach from the non-breaching party.
9.1.3 ILLEGALITY. Any party may terminate this Agreement
immediately upon receipt of notification by any local, state or federal agency
or court of competent jurisdiction that the conduct contemplated by this
Agreement is forbidden by law; except that this Agreement shall not terminate
during such period of time as to any party which contests such notification in
good faith and the conduct contemplated by this Agreement is allowed to continue
during such contest. If any governing regulatory agency asserts that the
services provided by Management Company under this Agreement are unlawful or
that the practice of medicine by PC as contemplated by this Agreement requires a
certificate of need, and any such assertion is not contested (or if contested,
the agency's assertion is found to be correct by a court of competent
jurisdiction and no appeal is taken, or if any appeals are taken and the same
are unsuccessful), this Agreement shall thereupon terminate with the same force
as if such termination date was the date originally specified in this Agreement
as the date of final expiration of the terms of this Agreement.
9.2 TERMINATION BY MANAGEMENT COMPANY This Agreement may be terminated
by Management Company for the following reasons:
9.2.1 FOR PROFESSIONAL DISCIPLINARY ACTIONS. PC shall be
obligated to suspend a physician whose authorization to practice medicine is
suspended, revoked or not renewed. Management Company may terminate this
Agreement upon 10 days prior written notice to PC if a Physician's authorization
to practice medicine is suspended, revoked or not renewed and PC has failed to
suspend such physician; provided, however, such action may not be taken until PC
has been given 30 days to resolve such physician's authorization to practice
medicine. PC shall notify Management Company within five (5) days of a notice
that a physician's authorization to practice medicine is suspended, revoked or
not renewed or that formal disciplinary action has been taken against a
physician which could reasonably lead to a suspension, revocation or non-renewal
of a physician's license.
9.3 TERMINATION BY PC. This Agreement may be terminated by PC during
the first three years ("Three-Year Window") in the event PC, in good faith, is
unable to generate Revenues, as defined herein, during any year of the
Three-Year Window of $500,000 or more.
ARTICLE 10
INSURANCE
10.1 Management Company shall use its best efforts to cause PC to be
made an additional insured under Management Company's professional liability
coverage; provided, however, conditions for being made an additional insured
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shall be (i) PC utilizing patient informed consent forms supplied by Management
Company, provided such forms are consistent with applicable laws and any
guidelines issued by the American Society of Reproductive Medicine and (ii) PC
complying with requirements of Management Company's insurance company. In the
event Management Company is able to cause PC to be made an additional insured at
a cost comparable to coverage availabe to PC directly, PC shall be obligated to
to use Management Company's coverage in accordance with Section 4.5.
10.2 In the event that PC maintains its own professional liability
insurance in accordance with Section 4.5, PC shall carry professional liability
insurance, covering itself and its employees providing Infertility Services
under this Agreement in the minimum amount of $1 million per incident, $3
million in the aggregate. PC shall use its best efforts to cause Management
Company to be named an additional insured on such policies. Certificates of
Insurance evidencing such coverage shall be presented to Management Company upon
execution of this Agreement, which Certificates shall contain an affirmative
obligation that the insurer provide not less than 30 days' notice to Managment
Company of any reduction in coverage, non-renewal, cancellation or termination..
10.3 Management Company shall also carry a policy of public liability
and property damage insurance with respect to the Facilities under which the
insurer agrees to indemnify Management Company and PC against all cost, expense
and/or liability arising out of or based upon any and all claims, accidents,
injuries and damages customarily included within the coverage of such policies
of insurance available for Management Company. The minimum limits of liability
of such insurance shall be $1 million combined single limit covering bodily
injury and property damage. Certificates of Insurance evidencing such policies
and additional insured status shall be presented to PC within thirty (30) days
after such coverage is effected.
10.4 PC and Management Company shall provide written notice to the
other at least thirty (30) days in advance of the effective date of any
reduction, non-renewal, cancellation or termination of the insurance required to
be carried by each hereunder.
ARTICLE 11
MISCELLANEOUS
11.1 INDEPENDENT CONTRACTOR. Management Company and PC are independent
contracting parties. In this regard, the parties agree that:
11.1.1 The relationship between Management Company and PC is
that of an independent supplier of non-medical services and a medical
practice, respectively, and, unless otherwise provided herein, nothing
in this Agreement shall be construed to create a principal-agent,
employer-employee, or master-servant relationship between Management
Company and PC;
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11.1.2 Notwithstanding the authority granted to Management
Company herein, Management Company and PC agree that PC shall retain
the full authority to direct all of the medical, professional, and
ethical aspects of its medical practices;
11.1.3 Any powers of PC not specifically vested in Management
Company by the terms of this Agreement shall remain with PC;
11.1.4 PC shall, at all times, be the sole employer of the
Physician-Employees, the Other Professional Employees required by law
to be employees of PC and all other professional personnel engaged by
PC in connection with the operation of its medical practice at the
Facilities, and shall be solely responsible for the payment of all
applicable federal, state or local withholding or similar taxes and
provision of workers' compensation and disability insurance for such
professional personnel that are employees of PC;
11.1.5 No party shall have the right to participate in any
benefits, employment programs or plans sponsored by the other party on
behalf of the other party's employees, including, but not limited to,
workers' compensation, unemployment insurance, tax withholding, health
insurance, life insurance, pension plans or any profit sharing
arrangement;
11.1.6 In no event shall any party be liable for the debts or
obligations of any other party except as otherwise specifically
provided in this Agreement; and
11.1.7 Matters involving the internal agreements and finances
of PC, including but not limited to the distribution of professional
fee income among Physician Employees and, if applicable, Other
Professional Employees who are providing professional services to
patients of PC, and other employees of PC, disposition of PC property
and stock, accounting, tax preparation, tax planning, and pension and
investment planning (and expenses relating solely to these internal
business matters), hiring and firing of physicians, decisions and
contents of reports to regulatory authorities governing PC and
licensing, shall remain the sole responsibility of PC and the
individual Physician-Stockholder(s), except with respect to the number
of physicians the PC hires which will be based upon recommendations of
the Joint Practices Management Board.
11.2 FORCE MAJEURE. No party shall be liable to the other parties for
failure to perform any of the services required under this Agreement in the
event of a strike, lockout, calamity, act of God, unavailability of supplies, or
other event over which such party has no control, for so long as such event
continues and for a reasonable period of time thereafter, and in no event shall
such party be liable for consequential, indirect, incidental or like damages
caused thereby.
11.3 EQUITABLE RELIEF. Without limiting other possible remedies
available to a non- breaching party for the breach of the covenants contained
herein, including the right of Management Company to cause PC to enforce any and
all provisions of the Physician Employment Agreements described in Section 4.3
hereof, injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
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otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
11.4 PRIOR AGREEMENTS; AMENDMENTS. This Agreement supersedes all prior
agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of all
parties, and such amendment, alteration, change, termination or waiver shall in
no way affect the other terms and conditions of this Agreement, which in all
other respects shall remain in full force.
11.5 ASSIGNMENT; BINDING EFFECT. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
all of the parties, and any attempted assignment without such consent shall be
void and of no force and effect, except that Management Company may assign this
Agreement to any affiliate, which for purposes of this Agreement, shall include
any parent or subsidiary of Management Company, without the consent of PC. The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns.
11.6 WAIVER OF BREACH. The failure to insist upon strict compliance
with any of the terms, covenants or conditions herein shall not be deemed a
waiver of such terms, covenants or conditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver or
relinquishment of such right at any other time or times.
11.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, irrespective of the
principal place of business of the parties hereto. Any and all claims, disputes,
or controversies arising under, out of, or in connection with this Agreement or
any breach thereof, except for equitable relief sought pursuant to Section 6.4
or Section 11.3 hereof, shall be determined by binding arbitration in the State
of Missouri, City of Kansas City (hereinafter "Arbitration"). The party seeking
determination shall subject any such dispute, claim or controversy to either (i)
JAMS/Endispute or (ii) the American Arbitration Association, and the rules of
commercial arbitration of the selected entity shall govern. The Arbitration
shall be conducted and decided by three (3) arbitrators, unless the parties
mutually agree, in writing at the time of the Arbitration, to fewer arbitrators.
In reaching a decision, the arbitrators shall have no authority to change or
modify any provision of this Agreement, including any liquidated damages
provision. Each party shall bear its own expenses and one-half the expenses and
costs of the arbitrators. Any application to compel Arbitration, confirm or
vacate an arbitral award or otherwise enforce this Paragraph shall be brought in
the Courts of the State of Missouri or the United States District Court for the
District of Missouri, to whose jurisdiction for such purposes PC and Management
Company hereby irrevocably consent and submit.
11.8 SEPARABILITY. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
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which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement taken as a whole.
11.9 HEADINGS. Section and paragraph headings are not part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the contents thereof.
11.10 NOTICES. Any notice or other communication required by or which
may be given pursuant to this Agreement shall be in writing and mailed,
certified or registered mail, postage prepaid, return receipt requested, or
overnight delivery service, such as Fedex or Airborne Express, prepaid, and
shall be deemed given when received. Any such notice or communication shall be
sent to the address set forth below:
11.10.1 If for Management Company:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577
11.10.2 If for PC:
David R. Corley, MD, President
David R. Corley, MD, P.C.
Two Brush Creek
Suite 500
Kansas City, Missouri 64112
Any party hereto, by like notice to the other parties, may designate
such other address or addresses to which notice must be sent.
11.11 ENTIRE AGREEMENT. This Agreement and all attachments hereto
represent the entire understanding of the parties hereto with respect to the
subject matter hereof and thereof, and cancel and supersede all prior agreements
and understandings among the parties hereto, whether oral or written, with
respect to such subject matter.
11.12 NO MEDICAL PRACTICE BY MANAGEMENT COMPANY. Management Company
will not engage in any activity that constitutes the practice of medicine, and
nothing contained in this Agreement is intended to authorize Management Company
to engage in the practice of medicine or any other licensed profession.
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11.13 CONFIDENTIAL INFORMATION.
12.13.1 During the initial term and any renewal term(s) of
this Agreement, the parties may have access to or become acquainted
with each other's trade secrets and other confidential or proprietary
knowledge or information concerning the conduct and details of each
party's business ("Confidential Information"). At all times during and
after the termination of this Agreement, no party shall directly or
indirectly, communicate, disclose, divulge, publish or otherwise
express to any individual or governmental or non-governmental entity or
authority (individually and collectively referred to as "Person") or
use for its own benefit, except in connection with the performance or
enforcement of this Agreement, or the benefit of any Person any
Confidential Information, no matter how or when acquired, of another
party. Each party shall cause each of its employees to be advised of
the Confidential nature of such Confidential Information and to agree
to abide by the confidentiality terms of this Agreement. No party shall
photocopy or otherwise duplicate any Confidential Information of
another party without the prior express written consent of the such
other party except as is required to perform services under this
Agreement. All such Confidential Information shall remain the exclusive
property of the proprietor and shall be returned to the proprietor
immediately upon any termination of this Agreement.
12.13.2 Confidential Information shall not include information
which (i) is or becomes known through no fault of a party hereto; (ii)
is learned by a party from a third-party legally entitled to disclose
such information; or (iii) was already known to a party at the time of
disclosure by the disclosing party.
12.13.3 In order to minimize any misunderstanding regarding
what information is considered to be Confidential Information,
Management Company or PC will designate at each others request the
specific information which Management Company or PC considers to be
Confidential Information.
11.14 INDEMNIFICATION.
11.14.1 Management Company agrees to indemnify and hold
harmless PC, its directors, officers, employees and servants from any
suits, claims, actions, losses, liabilities or expenses (including
reasonable attorney's fees) arising out of or in connection with any
act or failure to act by Management Company related to the performance
of its duties and responsibilities under this Agreement. The
obligations contained in this Section 11.14.1 shall survive termination
of this Agreement.
11.14.2 PC agrees to indemnify and hold harmless Management
Company, its shareholders, directors, officers, employees and servants
from any suits, claims, actions, losses, liabilities or expenses
(including reasonable attorney's fees) arising out of or in connection
with any act or failure to act by PC related to the performance of its
duties and responsibilities under this Agreement. The obligations
contained in this Section 11.14.2 shall survive termination of this
Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
INTEGRAMED AMERICA, INC.
By: /s/Donald S. Wood, Ph.D.
-------------------------------------------
DONALD S. WOOD, PH.D., SENIOR VICE PRESIDENT
& CHIEF OPERATING OFFICER
DAVID R. CORLEY, M.D., P.C.
BY: /s/David R. Corley
-------------------------------------------
DAVID R. CORLEY, MD, PRESIDENT
<PAGE>
EXHIBIT 3.2
OFFICE AND FACILITIES
TO BE PROVIDED BY MANAGEMENT COMPANY TO PC AND LAB
Two Brush Creek, Suite 500, Kansas City, Missouri 64112
<PAGE>
EXHIBIT 4.3
PHYSICIAN-EMPLOYMENT AGREEMENT
(See Attached)
<PAGE>
Exhibt 7.3.2
SECURITY AGREEMENT
[See Attached]
PERSONAL RESPONSIBILITY AGREEMENT
DAVID R. CORLEY, M.D.
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated as
of July 1, 1999, is made and entered into by and among IntegraMed America, Inc.,
a Delaware corporation, with its principal place of business at One
Manhattanville Road, Purchase, New York 10577 ("IntegraMed"), David R. Corley,
M.D., P.C. a Missouri professional services corporation, about to have a place
of business at Two Brush Creek, Suite 500, Kansas City, Missouri 64112 ("PC")
and David R. Corley, M.D., residing at 14822 West 71st Terrace ("Corley").
RECITALS:
This Agreement is made with reference to a Management Agreement dated
as of July 1, 1999 ("Management Agreement") between IntegraMed and PC.
Corley is the sole shareholders of PC, the entity through Corley
intends exclusively to conduct his practice of medicine.
Pursuant to the Management Agreement, IntegraMed has paid or will pay
Corley directly or on his behalf, in the aggregate, $250,000 in cash.
The services Corley intends to offer through PC are unique in terms of
how these services are rendered and the relative unavailability of similar
services from other physicians, and in terms of Corley's reputation, and involve
medical, professional and technical services. Through IntegraMed's resources,
the parties intend to maintain and enhance the technology which Corley offers
through PC.
Corley intends that PC be the entity through which Corley henceforth
conduct his practice of medicine, and has entered into a Physician-Stockholder
Employment Agreement with PC as of July1, 1999 (the "Employment Agreement").
This Agreement is also made with reference to the Employment Agreement, which
defines Corley's rights and responsibilities with respect to PC and his medical
practices, including but not limited to compensation terms and a covenant not to
compete.
Corley recognizes that the success of PC and of IntegraMed's investment
in administrative and technologic resources depends on his commitment to
continue to practice medicine exclusively through PC. IntegraMed has made
substantial payments to Corley or on his behalf for the exclusive right to
manage PC in accordance with the Management Agreement ("Exclusive Management
Right") , and in reliance on Corley's commitment of his availability and
dedication to PC. Moreover, IntegraMed has made and plans to make a substantial
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<PAGE>
investment in equipment and other resources for PC in reliance on the ability to
amortize such investments based on such assurances from Corley.
The purpose of this Agreement is to assure IntegraMed that its payment
for the Exclusive Management Right, and other payments and commitment of
resources, is supported by the commitment of Corley to exert his best efforts to
support the operation of PC under its Management Agreement with IntegraMed.
Therefore, IntegraMed, PC, and Corley agree as follow:
1. Term and Termination. This Agreement shall commence on the date that
Management Company makes the first payment pursuant to Section 8.1 of the
Management Agreement and expire three (3) years thereafter (the "Term").
2. PC as Representative of Corley's Interests. Corley acknowledges that
IntegraMed has acquired the Exclusive Management Right, and as such has valued
the Exclusive Management Right based upon Corley's stipulation that PC
represents his entire medical practice and that Corley will devote substantially
all of his professional time, effort and ability to PC.
3. Payment to IntegraMed.
3.1 Pursuant to the Management Agreement, IntegraMed has paid,
or will pay Corley or on his behalf aggregate consideration of $250,000 (the
"Aggregate Consideration"). If, during the Term of this Agreement, Corley should
cease to practice medicine through PC, except as a result of death or "permanent
disability", as defined in the Employment Agreement, Corley shall be obligated
to forthwith pay to IntegraMed a prorata portion of the Aggregate Consideration
determined by deducting the Vested Amount (as hereinafter described) from the
Aggregate Consideration. The Vested Amount shall be determined by multiplying
the number of quarters this Agreement has been in effect, rounded to the nearest
quarter based on the number of days in the quarter, times $20,833.33 (the
product of which is the "Vested Amount"). Payments to IntegraMed under this
paragraph shall not entitle Corley to any interest in the assets of PC or
IntegraMed. The parties agree that this provision requires a repayment of
consideration as a penalty for breach of the representation that Corley would
remain employed by PC for a specified time, which induced IntegraMed to enter
into the Management Agreement.
3.2 The parties acknowledge that through an effective
transition plan, PC may add another physician to its practice so that Corley's
retirement or other reduction in his availability to PC does not adversely
affect IntegraMed revenues under the Management Agreement, but that there are no
assurances of such a transition's success. Corley may request IntegraMed to
waive or reduce his repayment obligation by submitting a written transition plan
to IntegraMed for its consideration. Corley shall submit such a transition plan
as soon as possible if he plans to reduce his availability to PC, but in no
event less than six months before the reduction in his availability. It is
expected that such a plan shall be modified as the result of discussions among
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Corley, PC, and IntegraMed, that
IntegraMed's acceptance of the plan shall be in accordance with the Management
Agreement, and that its agreement to waive or reduce Corley's repayment
obligation shall be mostly, if not wholly, contingent upon the economic results
of the implementation of the plan and shall be secured by sums owed Corley by
PC. Approval of the request shall be discretionary for IntegraMed, but shall not
be unreasonably withheld.
3.3 Corley may assign all or a portion of his payment
obligations under this Section to a new or an existing shareholder of PC who has
executed the agreements with PC and IntegraMed contemplated by this Agreement,
subject to IntegraMed's written consent, which shall not be unreasonably
withheld. Such assignment shall be reflected in the Personal Responsibility
Agreement signed by the new shareholder of PC and in an amendment to this
Agreement.
4. PC's Compliance with the Management Agreement. Corley agrees to
exert his best efforts to cause PC to fulfill each of its obligations under the
Management Agreement.
5. Physician-Shareholder Employment Agreement.
5.1 PC agrees to exert its best efforts to: (i) comply with
the terms of the Employment Agreement which, if PC does not comply, would excuse
Corley from complying with his covenant not to compete with PC, his assignment
of all Professional Revenues to PC and other terms confirming that Corley's
commitment to practicing medicine solely through PC for a period of not less
than five (5) years (the "Exclusive Practice Covenants") and thereafter not to
terminate his employment without cause on less than 180 days written notice and
(ii) enforce the Exclusive Practice Covenants, and Corley agrees to exert his
best efforts to cause PC to comply with each of the aforementioned obligations.
5.2 PC and Corley further agree that IntegraMed is a
third-party beneficiary of the Exclusive Practice Covenants with respect to
Corley and that the Exclusive Practice Covenants set forth in the Employment
Agreement, in the form that is then most recently approved by IntegraMed, are
hereby incorporated in this Agreement by reference and may be enforced by
IntegraMed or PC. PC and Corley further agree that the Exclusive Practice
Covenants and any other terms of the Employment Agreement may not be amended or
modified in a way which may adversely affect the interests of IntegraMed,
including without limitation, rights under the Management Agreement, without
thirty (30) days prior written notice to IntegraMed and the written consent of
IntegraMed, which consent shall not be unreasonably withheld. Moreover, Corley
acknowledges that PC and/or IntegraMed are entitled to damages in the event
Corley breaches the Exclusive Practice Covenants.
6. Scope of Covenant Not to Compete. Corley and PC agree that the scope
and term of Corley's covenant not to compete, insofar as it is for the benefit
of IntegraMed, shall be as follows:
6.1 The term of the covenant not to compete (the
"Non-Competition Period") shall be for a period of one (1) year after the
termination of Physician's employment in the event such termination occurs
during the initial term of the Employment Agreement. The Non-Competition
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Period shall not apply to any termination that occurs after the first 3 years of
employment.
6.2 The geographic scope of the covenant not to compete is
twenty-five (25) miles from any offices ("Non-Compete Area") maintained by PC
for the rendition of professional or other medical services to patients during
the last 12 months of Corley's employment by PC.
6.3 During the Non-Competition Period, Corley agrees that he
shall not advertise or market Infertility Services, engage in the practice of
medicine in which he provides Infertility Services, be an agent of, act as a
consultant for, allow his name to be used by, or have a proprietary interest in,
any Medical Practice providing Infertility Services within the Non-Compete Area.
6.4 For purposes of this Section, the following definitions
shall apply:
6.4.1 The term "Medical Practice" shall include any
form of organization in which Infertility Services are provided to
patients of the Medical Practice or of other physicians, including but
not limited to a sole proprietorship, a partnership, an association, a
professional corporation, a business corporation, or a limited
liability partnership or corporation, a laboratory, an outpatient
clinic, a practice management company or medical services organization
(or MSO). However, ownership of less than 5% of the outstanding
securities of any class of a medical management or managed care
organization traded on a national securities exchange or the NASDAQ
National Market System will not be deemed to be engaging, solely by
reason thereof, in the same business.
6.4.2 The term "Infertility Services" shall have the
same meaning as setforth in the Management Agreement, except that
Corley shall not be prohibited from providing obstetrics and general
gynecological services.
6.5 Separability. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section is
invalid or unenforceable, each Party agrees that the court making the
determination of invalidity or unenforceability will have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
will be enforceable as so modified after the expiration of time within which the
judgment may be appealed.
6.6 Clarification of Scope of Non-Competition Covenant. This
Agreement is not intended to prohibit the personal performance of medical care
by Corley on behalf of PC, provided those services are for patients of PC, nor
prohibit Corley from fulfilling his contract with PC, nor prohibit Corley from
holding any position on the medical staff of any acute care hospital or the
teaching staff of any university.
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6.7 Acknowledgments. PC, IntegraMed and Corley each
acknowledges that: (i) the terms set forth in this Section are necessary for the
reasonable and proper protection of the interests of PC and IntegraMed; (ii)
each and every covenant and restriction is reasonable with respect to such
matter, length of time and geographical area; (iii) this Agreement, and this
Section in particular, shall be enforceable notwithstanding any dispute as to
the sums and timing of payments to Corley or other disputes under this Agreement
or the Employment Agreement; and (iv) the PC and IntegraMed have been induced to
enter into this Agreement and their other respective agreements with Corley, in
part, due to the representation by Corley that he will abide by and be bound by
the aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Corley has agreed in the
Employment Agreement not to compete with PC during the initial term of his
employment by PC and for at least one (1) year thereafter should employment
terminate at or before the fifth anniversary of employment, and recognizes that
in the event that he should compete with PC, IntegraMed would suffer damages in
addition to the loss of Corley's unique services. Corley therefore agrees that
during the initial term of his Employment Agreement with PC, and during the
Non-Competition Period thereafter, he shall be obligated, with respect to each
month in which he renders services which earn Physician and Other Professional
Revenues, as defined in the Management Agreement, that are not assigned to and
collected by PC, or offers services or assists other persons in offering
services in the Service Area which are similar to any of those offered by PC
while he was still a director, officer or shareholder of PC or active in
providing services on behalf of PC, he shall owe IntegraMed management fees
equal to one-twelfth of:
7.1 the Cost of Services as defined in the Management
Agreement, which are incurred in the twelve months preceding the first
month in which IntegraMed, in the reasonable exercise of its
discretion, concludes that Corley was engaging in such competitive acts
so as to materially adversely affect PC's operations (the
"Pre-Competition Period").
7.2 the Base Management Fee which IntegraMed earned during the
Pre- Competition Period.
7.3 any other fees earned by IntegraMed under the Management
Agreement during the Pre-Competition Period.
7.4 any Advances or other payments owed by PC to IntegraMed at
the end of the Pre-Competition Period.
These fees shall be payable notwithstanding the dissolution,
insolvency, receivership or bankruptcy of PC and any breach of PC's contracts
with Corley occasioned by such dissolution, insolvency, receivership or
bankruptcy.
8. Force Majeure. No party shall be liable to the other party for
failure to perform any of the services required under this Agreement in the
event of a strike, lockout, calamity, act of God, unavailability of supplies, or
other event over which such party has no control, for so long as such
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event continues and for a reasonable period of time thereafter, and in no event
shall such party be liable for consequential, indirect, incidental or like
damages caused thereby.
9. Equitable Relief. Without limiting other possible remedies available
to a non- breaching party for the breach of the covenants contained herein,
injunctive or other equitable relief shall be available to enforce those
covenants, such relief to be without the necessity of posting bond, cash or
otherwise. If any restriction contained in said covenants is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and remaining restrictions therein shall be enforced independently of
each other.
10. Confidential Information. Corley acknowledges and agrees to
maintain the confidentiality of IntegraMed and PC Confidential Information as
defined in the Management Agreement and in any agreements he may have with PC,
and that any notice to IntegraMed that documents or other information, however
maintained, is Confidential Information, shall be deemed, for purposes of this
Agreement, to be notice to him that it is Confidential Information.
11. Prior Agreements; Amendments. This Agreement, together with the
Management Agreement and the other agreements referenced herein, supersedes all
prior agreements and understandings between the parties as to the subject matter
covered hereunder, and this Agreement may not be amended, altered, changed or
terminated orally. No amendment, alteration, change or attempted waiver of any
of the provisions hereof shall be binding without the written consent of the
parties, and such amendment, alteration, change, termination or waiver shall in
no way affect the other terms and conditions of this Agreement, which in all
other respects shall remain in full force.
12. Assignment; Binding Effect. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
the parties, and any attempted assignment without such consent shall be void and
of no force and effect, except that IntegraMed may assign this Agreement to any
subsidiary or affiliate of IntegraMed without the consent of Corley. The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties' respective heirs, legal representatives, successors and
permitted assigns.
13. Waiver of Breach. The failure to insist upon strict compliance with
any of the terms, covenants or conditions herein shall not be deemed a waiver of
such terms, covenants or conditions, nor shall any waiver or relinquishment of
any right at any one or more times be deemed a waiver or relinquishment of such
right at any other time or times.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York to the fullest extent
permitted by law, without regard to the application of conflict of law rules.
Any and all claims, disputes, or controversies arising under, out of, or in
connection with this Agreement or any breach thereof, shall be determined by
binding arbitration in the State of New York, Westchester County (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (I) JAMS/Endispute or (ii) the American
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Arbitration Association, and the rules of commercial arbitration of the selected
entity shall govern, except with regard to actions for injunctive relief. The
Arbitration shall be conducted and decided by three (3) arbitrators, unless the
parties mutually agree in writing at the time of the Arbitration, to fewer
arbitrators. In reaching a decision, the arbitrators shall have no authority to
change or modify any provision of this Agreement, including without limitation,
any liquidated damages provision. Each party shall bear its own expenses and
one-half the expenses and costs of the arbitrators. Any application to compel
Arbitration, confirm or vacate an arbitral award or otherwise enforce this
paragraph shall be brought either in the Courts of the State of Maryland or the
United States District Court for the District of New York, to whose jurisdiction
for such purposes the parties hereby irrevocably consent and submit.
15. Severability. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement taken as a whole.
16. Headings; Capitalized Terms. Section and paragraph headings are not
part of this Agreement and are included solely for convenience and are not
intended to be full or accurate descriptions of the contents thereof. The term
"Infertility Services" and any other capitalized term which is not defined in
this Agreement shall have the same definition it has in the Management
Agreement.
17. Notices. Any notice or other communication required by or which may
be given pursuant to this Agreement shall be in writing and mailed, certified or
registered mail, postage prepaid, return receipt requested, or overnight
delivery service such as Fedex or Airborne Express, prepaid, and shall be deemed
given when received. Any such notice or communication shall be sent to the
address set forth below:
If for IntegraMed at:
Gerardo Canet, President
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
With a copy to:
Claude E. White, General Counsel
IntegraMed America, Inc.
One Manhattanville Road
Purchase, New York 105277-2100
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If for Corley at:
David R. Corley, MD
14822 West 71st Terrace
Shawnee, Kansas 66216
If for PC at:
President
David R. Corley, M.D., P.C.
Two Brush Creek, Suite 500
Kansas City, Missouri 64112
Any party hereto, by like notice to the other party, may designate such
other address or addresses to which notice must be sent.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
DAVID R. CORLEY, M.D.
/s/ David R. Corley
- --------------------------------------
David R. Corley, M.D.
INTEGRAMED AMERICA, INC.
By: /s/Donald S. Wood, Ph.D.
---------------------------------------------
Donald S. Wood, Ph.D., Sr. Vice President and
Chief Operating Officer
DAVID R. CORLEY, M.D., P.C.
By: /s/David R. Corley, M.D.
-----------------------------------------------
David R. Corley, M.D., President
8
EMPLOYEE RETENTION AGREEMENT
BETWEEN
INTEGRAMED AMERICA, INC.
AND
[EMPLOYEE]
EMPLOYEE RETENTION AGREEMENT, dated ______________, between INTEGRAMED
AMERICA, INC., a Delaware corporation, having its principal office at One
Manhattanville Road, Purchase, New York 10577-2100 (the "Company"), and
___________________, residing at _______________________________("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a key employee of the Company and an integral part
of its management; and WHEREAS, the Company recognizes that the possibility of a
change in control of the Company may result in the departure or distraction of
management to the detriment of the Company and its stockholders; and
WHEREAS, in order to retain Employee and to minimize any such potential
distraction, the Company wishes to assure Employee of fair severance as provided
herein should Employee's employment terminate in specified circumstances
following a change in control of the Company.
NOW, THEREFORE, in consideration of Employee's continued employment
with the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
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1. Definitions. The following terms as used in this Agreement
shall have the following meanings:
1.1 "Base Salary" shall mean Employee's annual base salary,
exclusive of any bonus or other benefits which Employee may receive, at the rate
in effect either immediately prior to the Termination Date or the date of the
Change in Control, whichever is higher.
1.2 "Bonus" shall mean the most recent annual cash bonus, if
any, paid by the Company to Employee either prior to the Termination Date or the
date of the Change in Control, whichever is higher.
1.3 "Change in Control" shall mean one or more changes in the
aggregate composition of the Company's Board of Directors as a result of which
individuals, who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board"), subsequently cease for any reason to
constitute at least a majority of the Company's Board of Directors; provided,
however, that any individual becoming a director of the Company subsequent to
the date hereof, whose election, or nomination for election by the Company's
stockholders, shall have been approved by a vote of at least a majority of the
directors then constituting the Incumbent Board shall be considered as though
such individual is a member of the Incumbent Board, but excluding, as a member
of the Incumbent Board, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest relating to the
election of the directors of the Company (as such terms are used in Rule 14a-11
of Regulation 14A under the Securities Exchange Act of 1934, as amended).
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1.4 "For Cause" termination during a Standstill Period shall
mean that the Company terminates Employee's employment for any one or more of
the following grounds in accordance with the notice requirements of Section
7.1(a) hereof:
(a) if Employee is indicted for committing a felony or a
decision or determination is rendered by any court or governmental authority
that Employee has committed any act involving fraud, dishonesty, breach of trust
or moral turpitude;
(b) if Employee willfully breaches Employee's duty of loyalty
to, or commits an act of fraud or dishonesty upon, the Company;
(c) if Employee demonstrates gross negligence or willful
misconduct; (d) if, in the reasonable, good faith opinion of
the Company's President, Employee
engages in personal misconduct of such a material nature as to render Employee's
presence as a key employee of the Company detrimental to the Company or its
reputation;
(e) if Employee commits a material breach of or default under
any of Employee's employment duties, and Employee fails to cure such breach or
default within ten (10) days after prior written notice thereof from the
Company; or
(f) if Employee commits a material breach of, or default
under, any non-disclosure, confidentiality, non-competition, non-enticement of
Executives (including any non-solicitation, non- employment, non-retention or
non-engagement of Executives) or similar agreement, obligation or covenant
heretofore or hereafter entered into with or for the benefit of the Company.
1.5 "Good Reason" shall have the meaning set forth in Section
5 below.
1.6 "Incumbent Board" shall have the meaning set forth above
under the definition of the term "Change in Control".
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1.7 "ISOs" shall mean any and all incentive stock options of
Employee to purchase shares of Common Stock of the Company pursuant to the Stock
Option Agreement and the Stock Option Plan.
1.8 "Permanent Disability" shall have the meaning set forth in
the long-term disability insurance policy or policies then maintained by the
Company for the benefit of its Executives, or if no such policy shall then be in
effect, or if more than one such policy shall then be in effect in which the
term "permanent disability" shall be assigned different definitions, then the
term "Permanent Disability" shall be defined for purposes hereof to mean any
physical or mental disability or incapacity which renders Employee incapable of
fully performing the services required of Employee in accordance with Employee's
obligations to the Company for a period of 90 consecutive days or for shorter
periods aggregating 90 days during any twelve-month period.
1.9 "Qualifying Termination" shall have the meaning set forth
in Section 2.1 hereof.
1.10 "Severance" shall have the meaning set forth in Section
2.1 below.
1.11 "Standstill Period" shall mean the eighteen (18) month
period commencing on the date of a Change in Control.
1.12 "Stock Option Agreement" shall mean all Stock Option
Agreement or Stock Option Agreements, as the case may be, between the Company
and Employee.
1.13 "Stock Option Plan" shall mean the Company's 1992
Incentive and Non- Incentive Stock Option Plan.
1.14 "Stub Bonus Period" shall have the meaning set forth in
Section 2.1(b).
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1.15 "Termination Date" shall mean the date during the
Standstill Period on which Employee's employment is terminated.
1.16 "Without Cause" termination during a Standstill Period
shall mean that the Company terminates Employee's employment other than For
Cause (and other than for death or Permanent Disability) in accordance with the
notice requirements of Section 7.1(b) hereof.
2. Qualifying Termination of Employment.
2.1 In the event that (i) there is a Change in Control, and
(ii) during the Standstill Period either (1) the Company terminates Employee's
employment Without Cause, or (2) Employee terminates such employment for Good
Reason, then, and only then, such events (i) and (ii), collectively, shall be
deemed for purposes of this Agreement to constitute a "Qualifying Termination",
which, in turn, shall entitle Employee to be paid by the Company (or otherwise
receive from the Company, as the case may be) the severance payments and
benefits (collectively, the "Severance") set forth in, and in accordance with
the provisions of, Section 3 hereof, together with:
(a) An amount, to be paid in one lump sum within thirty (30)
days of the Termination Date, equal to the accrued but unpaid portion of
Employee's Base Salary through the Termination Date; and
(b) An amount, to be paid within thirty (30) days
after the earliest date
following the Termination Date that the same may reasonably be calculated, equal
to the greater of: (x) the pro-rata portion of the amount Employee would have
earned (notwithstanding the termination of Employee's employment) as Employee's
cash bonus, if any, for the fiscal year of the Company during which the
Qualifying Termination occurs, calculated from the commencement of such fiscal
year through the Termination Date (the "Stub Bonus Period"); or (y) the amount
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calculated by multiplying Employee's Bonus by a quotient, the numerator of which
is the number of days contained in the Stub Bonus Period, and the denominator of
which is 365.
2.2 Notwithstanding anything herein to the contrary, it is
understood and agreed that there shall not be deemed to be a Qualifying
Termination for purposes of this Agreement, nor shall Employee be entitled to
any Severance or other benefits provided for herein, in the event:
(a) the Company shall have terminated Employee's employment
For Cause, or if Employee's employment with the Company shall terminate by
reason of Employee's death or Permanent Disability; or
(b) Employee shall terminate Employee's employment and, at the
time of such termination, the Company shall be entitled to terminate such
employment For Cause and the Company shall have sent, or shall send, Employee,
within 10 days of the Company's receipt of Employee's notice of termination, a
notice of termination by the Company specifying the "For Cause" termination.
3. Severance. Upon a Qualifying Termination of Employee's
employment, Employee shall be entitled to the following Severance:
3.1 An amount, to be paid in one-lump sum within thirty (30)
days of the Termination Date, equal to the sum of: (a) an amount equal to
Employee's Base Salary; and (b) an amount equal to Employee's Bonus.
3.2 Until the earlier to occur of (i) one year after the
Termination Date, or (ii) the date on which Employee becomes eligible to be
covered by or otherwise receives, substantially comparable benefits from a
subsequent employer, the Company shall maintain in full force and effect
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for the continued benefit of Employee all medical insurance, dental insurance,
life insurance and long-term disability insurance policies in which Employee was
entitled to participate immediately prior to the Termination Date (or
substantially similar policies), provided that Employee's continued
participation is permitted under the general terms and conditions of such
policies. In the event that Employee is ineligible to participate in such
policies, the Company reasonably shall arrange, upon comparable terms, to
provide Employee with benefits substantially similar to those which Employee is
entitled to receive under such policies, or if not reasonably available, the
Company shall pay to Employee (in equal monthly in arrears installments) an
amount equal to the most recent direct monthly cost to the Company of providing
such former benefits to Employee. In furtherance of the foregoing, Employee
hereby agrees to notify the Company promptly if and when Employee commences
employment with another employer and if and when Employee becomes eligible to
participate in any insurance or other benefit plans, programs, policies or
arrangements of another employer.
3.3 The Company agrees to pay or reimburse Employee following
a Qualifying Termination for outplacement services in an aggregate amount up to,
but not to exceed, Three Thousand Dollars ($3,000.00), such payment or
reimbursement to be made promptly following the submission by Employee to the
Company of appropriate receipts therefor, it being understood, however, that the
Company shall have no obligation to procure or arrange for such outplacement
services.
4. Acceleration of Certain Stock Options.
4.1 In addition to the provisions of Section 3 above, upon a
Qualifying Termination of Employee's employment, any and all ISOs theretofore
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granted to Employee, but not yet exercisable, under and pursuant to the Stock
Option Agreement, shall accelerate and become exercisable as of the date of such
Qualifying Termination; provided , that in no event shall ISOs to purchase more
than the number of shares of the Company's Common Stock derived by dividing
$100,000 by the exercise price per share become exercisable in any one calendar
year. In the event the number of ISOs which would otherwise become accelerated
shall be limited by the foregoing, the exercise date of the ISO's affected by
such limitation shall be accelerated to the earliest date on which such ISO's
may be exercised under the Plan and so as to continue to qualify as "incentive
stock options" in conformity with Section 422 of the Tax Code and the rules and
regulations thereunder. 4.2 The provision of Section 4.1 shall be deemed an
amendment to the Stock Option Agreement, and in the event of any inconsistency
between the Stock Option Agreement and the provisions of Section 4.1, the
provisions of Section 4.1 shall be determinative and control. 5. Good Reason.
Termination by Employee for "Good Reason" shall mean the voluntary termination
by Employee of Employee's employment with the Company in accordance with the
notice requirements of Section 7.2 hereof which occurs both: (a) during a
Standstill Period; and (b) within sixty (60) days after the occurrence of any
one or more of the following events (any of which events itself must occur
during the Standstill Period) without Employee's prior written consent: 5.1 a
material reduction in Employee's duties or title, including, without limitation,
a reduction in Employee's management reporting responsibilities to a lower
reporting level (not arising from any disabling physical or mental disability
which Employee may sustain) which would be inconsistent with Employee's position
as a key employee of the Company;
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5.2 if Employee's total salary and cash bonus opportunities
for a fiscal year of the Company which includes any portion of a Standstill
Period are less than ninety percent (90%) of the total salary and cash bonus
compensation opportunities made available to Employee in the then most recently
completed fiscal year of the Company;
5.3 the failure of the Company to continue in effect any
material benefits or perquisites, or any pension, life insurance, medical
insurance, dental insurance or long-term disability insurance plan in which
Employee was participating immediately prior to a Standstill Period unless the
Company provides Employee with a plan or plans that provide(s) substantially
similar benefits, or the taking of any action by the Company that would
adversely affect Employee's participation in, or materially reduce Employee's
benefits under, any of such plans, or deprive Employee of any material fringe
benefit enjoyed by Employee immediately prior to a Standstill Period;
5.4 any material breach of or default by the Company under
this Agreement which is not cured by the Company within thirty (30) days after
its receipt of prior written notice thereof from Employee.
6. Expense Reimbursement. Nothing herein contained shall limit
the Company's obligations, if any, to reimburse Employee for any outstanding
ordinary, reasonable and documented business expenses incurred by Employee on
behalf of the Company during the period of Employee's employment with the
Company consistent with the Company's expense reporting policy (as such policy
may be modified from time to time).
7. Notice of Termination During a Standstill Period. During a
Standstill Period:
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7.1 any termination by the Company of Employee's employment
(other than by reason of Employee's Permanent Disability or death):
(a) if "For Cause", shall be made upon prior written notice to
Employee; or (b) if "Without Cause", shall be made upon
not less than 30 days'
prior written notice to Employee; any such notice from the Company to Employee
as described in Sections 7.1(a) and (b), shall mean "Company's Termination
Notice".
7.2 any permitted termination of Employee's employment by
Employee for Good Reason shall be made only upon ten (10) business days' prior
written notice to the Company.
8. Withholding. Anything herein to the contrary notwithstanding,
any and all payments required to be made hereunder by the Company to Employee
shall be subject to deductions and/or withholding for all FICA, federal, state,
local or other taxes which the Company determines are required or appropriate to
be deducted or withheld in accordance with applicable laws, statutes or
regulations from time to time in effect.
9. Mitigation; Setoff. Notwithstanding anything herein to the
contrary, and because Employee's Severance provided for hereunder shall be
considered severance pay in consideration of Employee's continued service from
the date of this Agreement:
9.1 Employee shall not have any obligation to the Company to
mitigate any Qualifying Termination of Employee's employment under such
provisions hereunder whereby Employee would be required by the Company promptly
to seek, procure or commence substitute employment; and
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9.2 In the event Employee does seek, procure or commence such
substitute employment, none of the income derived or to be derived by Employee
therefrom shall be setoff by the Company against the balance of any Severance,
if any, owing to Employee by the Company under this Agreement; provided,
however, that the foregoing shall not be construed to limit Employee's
obligations to the Company, or any of the Company's rights, under Section 3.2
(relating to medical insurance, dental insurance, life insurance and long-term
disability insurance policies).
10. Certain Legal Fees and Disbursements. The Company shall pay or
reimburse Employee for all reasonable legal fees and disbursements of counsel
incurred by Employee, if any, solely to the extent in successfully contesting
(a) that the termination of Employee's employment during a Standstill Period is
for the reasons provided in Section 2.1 of this Agreement, or (b) Employee's
right or entitlement to be paid or receive any material payment or benefit under
this Agreement.
11. This Agreement Not an Employment Agreement. The parties
understand and agree that this Agreement does not constitute, and shall not be
deemed to imply, create or constitute, an employment agreement between the
parties, but rather is intended to set forth certain circumstances under which
Employee may be entitled to receive certain compensation and benefits in the
event of a Change in Control of the Company and a related termination of
Employee's employment.
12. Ratification by Executive of Certain Obligations and
Covenants. Employee hereby reconfirms and ratifies any and all non-disclosure,
confidentiality, non-competition, non-enticement of Executives (including any
non-solicitation, non-employment, non-retention or non-engagement of Executives)
and similar agreements, obligations and covenants heretofore or hereafter
entered into with or for the benefit of the Company, any and all of which shall
remain in full force and effect and not be deemed amended, modified, terminated
or expired by virtue of or in connection with the execution, delivery or
performance of this Agreement.
11
<PAGE>
13. Miscellaneous.
13.1 Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been given at the time when delivered, and
shall be delivered in person, or sent by prepaid receipted overnight courier
service (such as Federal Express) or by registered or certified mail, return
receipt requested, postage prepaid, addressed to the party to whom or to which
notice is given, at the address of such party set forth at the beginning of this
Agreement or to such changed address as such party may have fixed by notice in
accordance herewith.
13.2 Entireties. This Agreement contains the entire agreement
and understanding between the parties relating to the subject matter hereof and
supersedes any and all prior understandings, agreements and representations,
written or oral, expressed or implied, with respect thereto. Notwithstanding any
other agreement or understanding between the parties, if any, whether written or
oral, in the event that there is a Change in Control and a Qualifying
Termination of or by Employee occurs pursuant to this Agreement, the only
severance, compensation, payments or other benefits to be paid or provided by
the Company to Employee shall be as provided in this Agreement (i.e., to the
exclusion, if otherwise applicable, of any amounts or benefits which otherwise
would or might have been payable to or for the benefit of Employee under any one
or more of any such other agreements or understandings).
13.3 Amendment. This Agreement may not be amended, modified,
altered or terminated except by an instrument in writing signed by both of the
parties hereto.
12
<PAGE>
13.4 Waiver. Any and all waivers of any one or more of a
party's rights hereunder shall be in a writing signed by such party. If either
party should waive any breach of any provision of this Agreement, such party
shall not thereby be deemed to have waived any prior or subsequent breach of the
same or any other provision of this Agreement.
13.5 Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors,
executors, administrators, legal representatives, heirs, distributees and
permitted assigns.
13.6 Assignment. Neither this Agreement nor any of the rights
or obligations of the parties hereunder may be assigned or delegated by either
party hereto without the prior written consent of the other party hereto, and
any attempted assignment or delegation in violation of the foregoing shall be
null and void and without effect
13.7 No Third Party Beneficiaries of Agreement. Except as
otherwise expressly provided in Section 13.5 hereof, this Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
13.8 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not limit, define or affect
in any way the meaning or interpretation of this Agreement or any portion or
portions hereof.
13.9 Severability. In case any one or more of the provisions
of this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected thereby.
13.10 Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New York
13
<PAGE>
applicable to contracts made and to be performed entirely therein (without
giving effect to the conflict of law rules thereof). Any and all claims,
disputes, or controversies arising under, out of, or in connection with this
Agreement or any breach thereof, except for equitable relief, shall be
determined by binding arbitration in the State of New York, City of White Plains
(hereinafter "Arbitration"). The party seeking determination shall subject any
such dispute, claim or controversy to either (i) JAMS/Endispute or (ii) the
American Arbitration Association, and the rules of commercial arbitration of the
selected entity shall govern. The Arbitration shall be conducted and decided by
three (3) arbitrators, unless the parties mutually agree, in writing at the time
of the Arbitration, to fewer arbitrators. In reaching a decision, the
arbitrators shall have no authority to change or modify any provision of this
Agreement. Each party shall bear its own expenses and one-half the expenses and
costs of the arbitrators. Any application to compel Arbitration, confirm or
vacate an arbitral award or otherwise enforce this Paragraph shall be brought in
the Courts of the State of New York.
13.11 Effectiveness. Notwithstanding anything herein to the
contrary, the effectiveness of this Agreement is contingent upon the mutual
execution and delivery of this Agreement by each of the Company and Employee.
13.12 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Employee Retention Agreement as of the date first above written.
INTEGRAMED AMERICA, INC.
By:/S/Gerardo Canet
---------------------------
Gerardo Canet, President
Employee:
- -----------------------------------
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 3,541
<SECURITIES> 0
<RECEIVABLES> 12,020
<ALLOWANCES> 781
<INVENTORY> 0
<CURRENT-ASSETS> 15,983
<PP&E> 6,323 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,273
<CURRENT-LIABILITIES> 9,625
<BONDS> 0
0
166
<COMMON> 53
<OTHER-SE> 27,993
<TOTAL-LIABILITY-AND-EQUITY> 42,273
<SALES> 21,392
<TOTAL-REVENUES> 21,392
<CGS> 16,560
<TOTAL-COSTS> 16,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260
<INCOME-PRETAX> 1,215
<INCOME-TAX> 171
<INCOME-CONTINUING> 1,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,044
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
<FN>
<F1>
PP&E is net of accumulated depreciation.
</FN>
</TABLE>
