PERSONAL RESPONSIBILITY AGREEMENT
THIS PERSONAL RESPONSIBILITY AGREEMENT ("Agreement"), dated June 6, 1997,
is made and entered into by and among IntegraMed America, Inc., a Delaware
corporation, with its principal place of business at Xxx Xxxxxxxxxxxxxx Xxxx,
Xxxxxxxx, Xxx Xxxx 00000 ("INMD"), Reproductive Sciences Medical Center, Inc., a
California professional corporation ("PC"), whose principal place of business is
0000 Xxxxxxx Xxxx Xxx, Xxxxx 000, Xx Xxxxx, Xxxxxxxxxx 00000, and Xxxxxx X.
Xxxx, M.D., Ph.D., an individual, having a post office address at X.X. Xxx 0000,
Xxxxxx Xxxxx Xx, Xxxxxxxxxx 00000 ("Physician").
This Agreement is made with reference to a Management Agreement of even
date herewith (the "Management Agreement") between INMD and PC, and with
reference to an Asset Purchase Agreement of even date herewith (the "Asset
Purchase Agreement") between INMD and PC.
A. Physician is the sole shareholder of PC, which owns all of the good will
of Physician's practice of medicine.
B. Pursuant to the Management Agreement and the Asset Purchase Agreement,
INMD will transfer to Physician cash or a combination of cash and stock in
excess of Nine-Hundred Thousand Dollars ($900,000).
C. The services Physician offers and 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 Physician's reputation,
and involve both medical professional and technical services. Through INMD's
resources, the parties intend to maintain and enhance the technology which
Physician will offer through PC.
D. Physician intends that PC be the entity through which Physician and his
future partners henceforth conduct their practice of medicine. Physician has
entered into a Shareholder-Physician Employment Agreement dated June 6, 1997,
between Physician and PC ("Physician-Shareholder Employment Agreement. This
Agreement is also made with reference to the Physician-Shareholder Employment
Agreement, which define Physician's rights and responsibilities with respect to
PC and his medical practices, including but not limited to compensation terms.
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E. While it is the objective of the parties to this Agreement and the
Physician-Shareholder Employment Agreement that PC expand its presence, hire
additional and replacement physicians, and otherwise seek to maintain and
establish good will apart from the continued full-time commitment of Physician
and each of his future partners, the parties also acknowledge that at present
the identity of PC is not institutional, but rather is co-extensive with
Physician's individual practice.
F. Physician recognizes that the success of PC and of INMD's investment in
administrative and technologic resources depends on his commitment to the
practice at PC, to his recruiting of one or more additional "partners" (meaning
physicians who are not less than 20% equity owners along with Physician in PC),
and the commitment of each of his other future partners to continue to practice
medicine exclusively through PC. INMD has made substantial payments to Physician
to assure his availability and dedication to PC and has made and plans to make a
substantial investment in equipment and other resources for PC in reliance on
the ability to amortize such investments based on such assurances from
Physician.
G. The purpose of this Agreement is to assure INMD that its payments and
commitment of resources is supported by the commitment of Physician to exerting
his best efforts to support the operation of PC under its Management Agreement
with INMD.
Therefore, INMD, PC, and Physician agree as follow:
1. Term and Termination. This Agreement shall have the same term as the
Management Agreement.
2. PC as Representative of Physician's Interests. Physician acknowledges
that INMD is entering into the Management Agreement with PC upon Physician's
stipulation that PC represents his entire medical practice. It is agreed,
therefore, that for purposes of assuring continuity of the commitments under the
Management Agreement, that PC is deemed the alter ego of Physician, with
specific rights and responsibilities existing between Physician and INMD, as set
forth herein. However, this Agreement shall not serve as evidence to justify a
claim by INMD that Physician is liable on an alter ego theory for sums owed by
P.C. under Section 9.1 of the Management Agreement
3. Repayment of Rateable Portion of Right to Manage Fee.
a. Pursuant to Article 7 of the Management Agreement, INMD has paid
PC, for the benefit of Physician, a Right to Manage Fee in the sum of $200,000
in INMD and pursuant to Article 2 of the Asset Purchase Agreement, INMD has paid
Physician $50,000 for certain assets (collectively referred to herein as the
"Payment at Closing"). INMD has also, pursuant to Article 7 of the Management
Agreement committed to make additional Right to Manage Fee payments in the
amount of $600,000 to PC for the benefit of Physician and an additional asset
purchase price amount of $50,000 in the event certain milestones are achieved by
PC within three
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(3) years of the signing of the Management Agreement ("Post Closing Payment").
If, during the first five (5) years of this Agreement, Physician should cease to
practice medicine through PC, except as a result of death or permanent
disability, Physician shall be obligated to forthwith pay to INMD those portions
of the Payment at Closing and the Post Closing Payment, calculated in accordance
with Section 9.1.3 of the Management Agreement that would be payable by PC if
the Management Agreement terminated as of the date Physician ceased to practice
medicine at PC's offices. Said repayment shall also be due in the event of a
substantial reduction in Physician's availability to provide the services that
he currently provides, e.g., if Physician reduced his medical office hours from
four-and-two-thirds days per week to three-and-two-thirds days per week the
additional multiplier would be twenty-one and four-tenths percent (21.4%), and
if he increases his vacation from 8 weeks per year to 9 weeks per year, the
additional multiplier would be eleven percent (11%), in each case multiplied by
the amount that would be paid had Physician totally ceased work for P.C. at that
time. Payments to INMD under this paragraph shall not entitle Physician to any
interest in the assets of PC or INMD.
b. The parties acknowledge that Physician shall make his best efforts
to have PC add one or more additional physicians to its practice who qualify for
shareholder status in PC, to enhance the revenues of both PC and INMD, and so
that Physician's permanent disability, retirement or other reduction in his
availability to PC does not adversely affect INMD revenues under the Management
Agreement, but that there are no assurances of the success of such recruiting.
Physician may request INMD to waive or reduce his repayment obligation by
submitting a written transition plan to INMD for its consideration. Physician
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 Physician, PC, and INMD, that INMD's
acceptance of the plan shall be in accordance with the Management Agreement, and
that its agreement to waive or reduce Physician'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 Physician by PC and
PC's shareholders. Approval of the request shall be discretionary for INMD, but
shall not be unreasonably withheld.
c. Physician 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 INMD contemplated by this Agreement, subject to
INMD's written consent, which shall not be unreasonably withheld. Such
assignment shall be reflected in the Personal Responsibility Agreement signed by
the new shareholder of PC and in an amendment to this Agreement.
4. PC's Compliance with the Management Agreement. Physician agrees to exert
his best efforts to cause PC to fulfill each of its obligations under the
Management Agreement.
5. Stock Purchase Agreement and Shareholders Employment Agreement.
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a. PC agrees to exert its best efforts to: (i) comply with the terms
of the Physician-Shareholder Employment Agreement which, if PC does not comply,
would excuse Physician or any of the other Physician or other physician
employees or shareholders of PC from complying with his covenant not to compete
with PC, his assignment of all Professional Revenues to PC and other terms
confirming that physician's commitment to practicing medicine solely through PC
for a period of not less than five (5) years and thereafter not to terminate his
employment without cause on less than 180 days written notice (the "Exclusive
Practice Covenants") and (ii) enforce with respect to Physician and each of the
other physician employees and shareholders of PC the Exclusive Practice
Covenants and Physician agrees to exert his best efforts to cause PC to comply
with each of the aforementioned obligations.
b. PC and Physician further agree that INMD is a third party
beneficiary of the Exclusive Practice Covenants with respect to Physician and
that the Exclusive Practice Covenants, in the form that is then most recently
approved by INMD, are hereby incorporated in this Agreement by reference and may
be enforced by INMD as well as by PC. PC and Physician further agree that the
Exclusive Practice Covenants and any other terms of the Physician-Shareholder
Employment Agreement may not be amended or modified in a way which may adversely
affect the interests of INMD, including without limitations its rights under the
Management Agreement, without thirty (30) days prior written notice to INMD and
the written consent of INMD, which consent shall not be unreasonably withheld.
6. Scope of Covenant Not to Compete. Physician and PC agree that the scope
and term of Physician's covenant not to compete, insofar as it is for the
benefit of INMD, shall be as follows:
a. The term of the covenant not to compete (the Non-Competition
Period") shall be not less than the greater of five (5) years of employment of
Physician by PC or three (3) years after the termination of the
Physician-Shareholder Employment Agreement, whichever is greater, but in no
event shall extend beyond the first ten (10) years of employment of Physician by
PC, that employment being deemed to have begun, for purposes of this Agreement,
on the initial effective date of this Agreement.
b. The geographic scope of the covenant not to compete (the "Service
Area") is San Diego County.
c. During the Non-Competition Period, Physician agrees that he shall
not advertize or market Infertility Services, engage in the practice of
medicine, or directly or indirectly, own, operate, be employed by, be an agent
of, act as a consultant for, allow his name to be used by, or have a proprietary
interest in, any Medical Practice which is competitive with PC, or would be
competitive with PC if PC continued to operate, including but not limited to a
Medical Practice which owns, operates, contracts with or manages Medical Offices
within the Service Area.
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d. For purposes of this Section, the following definitions shall
apply:
(1) The term "Medical Practice" shall include any form of
organization in which Infertility Services, gynecological services, or
other medical diagnostic, care or treatment 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 1% 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.
(2) The term "Medical Office" includes any location at which the
professional or technical component of Infertility Services are provided
and any other location which a Medical Practice maintains for patient
visits.
e. 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.
f. Clarification of Scope of Non-Competition Covenant. This Agreement
is not intended to prohibit the personal performance of medical care by
Physician on behalf of PC, provided those services are for patients of PC, nor
prohibit Physician from fulfilling his contract with PC, nor prohibit the
Physician from holding any position on the medical staff of any acute care
hospital or the teaching staff of any university.
g. Acknowledgments. PC, INMD and Physician each acknowledges that: (i)
the terms set forth in this Section are necessary for the reasonable and proper
protection of the interests of PC and INMD; (ii) each and every covenant and
restriction is reasonable with respect to such matter, length of time and
geographical area; (iii) this Agreement, and this Section in particular, shall
be enforceable notwithstanding any dispute as to the sums and timing of payments
to Physician or other disputes under this Agreement or the Physician-Shareholder
Employment Agreement; and (iv) the PC and INMD have been induced to enter into
this Agreement and their other respective agreements with Physician, in part,
due to the representation by Physician that he will abide by and be bound by the
aforesaid covenants and restraints.
7. Commitment to Pay Management Fees. Physician has agreed in the
Physician-
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Shareholder Employment Agreement not to compete with PC during the term of his
employment by PC and for at least three (3) years thereafter, and recognizes
that in the event that he should compete with PC, INMD would suffer damages in
addition to the loss of Physician's unique services. Physician therefore agrees
that during the term of his Physician-Shareholder 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 or planned to be 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 INMD management fees equal to one-twelfth of:
a. Physician's proportionate share, based on Physician's ownership
interest in PC, of the Cost of Services as defined in the Management
Agreement, which are incurred in the twelve months preceding the first
month in which INMD, in the reasonable exercise of its discretion,
concludes that Physician was engaging in such competitive acts so as to
materially adversely affect PC's operations (the "Pre-Competition Period").
b. Physician's proportionate share, based on Physician's ownership
interest in PC, of the Base Management Fee which INMD earned during the
Pre-Competition Period.
c. Physician's proportionate share, based on Physician's ownership
interest in PC, of any other fees earned by INMD under the Management
Agreement during the Pre-Competition Period.
d. Physician's proportionate share, based on Physician's ownership
interest in PC, of any advances or other payments owed by PC to INMD 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 Physician
occasioned by such dissolution, insolvency, receivership or bankruptcy.
8. New Shareholders. PC and Physician shall require each new Shareholder of
PC to enter into an agreement with INMD on substantially the same terms as this
Agreement. Any reallocation of responsibility for repayment under Section 1 of
this Agreement and the parallel provision in the Asset Purchase Agreement shall
be set forth in the new shareholder's Personal Responsibility Agreement and in
an amendment to this Agreement.
9. Force Majeure. No party shall be liable to the other party for failure
to perform any of the services required under this Agreement in the event of a
strike, lockout, calamity, act of God, unavailability of supplies, or other
event over which such party has no control, for so long as such event continues
and for a reasonable period of time thereafter, and in no event shall
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such party be liable for consequential, indirect, incidental or like damages
caused thereby.
10. 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.
11. Confidential Information. Physician acknowledges and agrees to maintain
the confidentiality of INMD and PC Confidential Information as defined in the
Management Agreement and in any agreements he may have with PC, and that any
notice to INMD that documents or other information, however maintained, is
Confidential Information, shall be deemed, for purposes of this Agreement, to be
notice to him that it is Confidential Information.
12. 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.
13. Assignment; Binding Effect. This Agreement and the rights and
obligations hereunder may not be assigned without the prior written consent of
the parties, and any attempted assignment without such consent shall be void and
of no force and effect, except that INMD may assign this Agreement to any
subsidiary or affiliate of INMD without the consent of Physician. The provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
parties' respective heirs, legal representatives, successors and permitted
assigns.
14. 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.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California 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 California, County of San Diego (hereinafter
"Arbitration"). The party seeking determination shall subject any such dispute,
claim or controversy to either (i) JAMS/Endispute or (ii) the American
Arbitration Association, and the rules of commercial
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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 California or the United States District Court for the Southern
District of California, to whose jurisdiction for such purposes the parties
hereby irrevocably consent and submit.
16. Separability. If any portion of the provisions hereof shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such portion or provisions in circumstances other than those in
which it is held invalid or unenforceable, shall not be affected thereby, and
each portion or provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law, but only to the extent the same continues to
reflect fairly the intent and understanding of the parties expressed by this
Agreement taken as a whole.
17. 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.
18. Notices. Any notice hereunder shall have been deemed to have been given
only if in writing and either delivered in hand or sent by registered or
certified mail, return receipt requested, postage prepaid, or by United States
Express Mail or other commercial expedited delivery service, with all postage
and delivery charges prepaid, to the addresses set forth below:
If for INMD, at:
IntegraMed America, Inc.
Xxx Xxxxxxxxxxxxxx Xxxx
Xxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxx, President
With a copy to:
IntegraMed America, Inc.
Xxx Xxxxxxxxxxxxxx Xxxx
Xxxxxxxx, XX 000000-0000
Attention: Xxxxxx Xxxxx, General Counsel
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If for PC, at:
Executive Director
Reproductive Sciences Medical Center, Inc.
0000 Xxxxxxx Xxxx Xxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
If to Physician, at:
Xxxxxx X. Xxxx, M.D., Ph.D.
X.X. Xxx 0000
Xxxxxx Xxxxx Xx, Xxxxxxxxxx 00000
With a copy to:
Xxxxx Gamma, Esq.
Xxxxxxx Xxxx & Associates
000 Xxxxxxxx Xxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
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.
INTEGRAMED AMERICA, INC.,
BY: /s/ Xxxxxx X. Xxxx
---------------------------------
XXXXXX X. XXXX, VICE PRESIDENT
XXXXXX X. XXXX, M.D., PH.D.
/s/ Xxxxxx X. Xxxx, M.D.
-------------------------------------
XXXXXX X. XXXX, M.D., PH.D.
REPRODUCTIVE SCIENCES MEDICAL CENTER, INC.
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By: /s/ Xxxxxx X. Xxxx, M.D.
-----------------------------------------
XXXXXX X. XXXX, M.D., PH.D., PRESIDENT
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