sv1
As
filed with the Securities and Exchange Commission on
October 2, 2009
Registration
No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
IntegraMed
America, Inc.
(Exact name of
registrant as specified in its charter)
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Delaware
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8011
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06-1150326
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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Two
Manhattanville Road
Purchase, New
York 10577
(914) 253-8000
(Address,
including zip code, and telephone number, including area code,
of registrants principal executive offices)
Jay
Higham
Chief Executive
Officer
Two
Manhattanville Road
Purchase, New
York 10577
(914) 253-8000
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
With copies
to:
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Steven Khadavi, Esq.
Dorsey & Whitney LLP
250 Park Avenue
New York, New York 10177
Telephone: (212) 415-9200
Facsimile: (212) 953-7201
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David B. Miller, Esq.
Michael K. Coddington, Esq.
Faegre & Benson LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Telephone: (612) 766-7000
Facsimile: (612) 766-1600
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Approximate date of commencement
of proposed sale to the
public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being
registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following
box. o
If this Form is filed to register
additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same
offering. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a
smaller reporting
company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of
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Amount to be
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Offering
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Aggregate Offering
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Amount of
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Securities to be
Registered
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Registered(1)
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Price Per
Share(2)
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Price(1)(2)
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Registration Fee
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Common stock, $0.01 par value per share
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4,600,000
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$
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9.22
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$
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42,412,000
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$
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2,367
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(1)
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Includes common stock issuable upon
exercise of the underwriters over-allotment option.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(c)
under the Securities Act of 1933 and based on the average of the
high and low sale prices for such common stock on
September 28, 2009, as reported on the Nasdaq Global Market.
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The registrant hereby amends
this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said
Section 8(a), may determine.
The information in
this prospectus is not complete and may be changed. We may not
sell these securities until the Securities and Exchange
Commission declares our registration statement effective. This
prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
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Subject to completion, dated
October 2, 2009
4,000,000 Shares
INTEGRAMED AMERICA,
INC.
Common Stock
$
per share
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IntegraMed America, Inc. is
offering shares.
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The last reported sale price of our common stock on
October 1, 2009 was $9.37 per share.
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Trading symbol: Nasdaq Global Market INMD
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This investment involves risk. See Risk Factors
beginning on page 10.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to IntegraMed America, Inc.
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$
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$
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The underwriters have a
30-day
option to purchase up to 600,000 additional shares of
common stock from us to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state
securities commission has approved of anyones investment
in these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
Piper Jaffray
Cowen and Company
The date of this prospectus
is ,
2009.
IntegraMed Partner Fertility Centers IntegraMed Affiliate Fertility Centers IntegraMed Vein Clinics
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TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different information,
you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus
is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.
SUMMARY
The items in the following summary are described in more
detail later in this prospectus. This summary does not contain
all the information you should consider before investing in our
common stock. You should carefully read the more detailed
information set out in this prospectus, especially the risks
related to our business and investing in our common stock that
we discuss under the heading Risk Factors, as well
as the consolidated financial statements and related notes
appearing elsewhere in this prospectus. References in this
prospectus to we, us, our,
the Company, our Company and
IntegraMed refer to IntegraMed America, Inc. and its
consolidated subsidiaries, unless the context requires
otherwise.
Our
Business
We manage highly specialized outpatient centers in emerging,
technology-based, niche medical markets. Currently, we are a
leading manager of fertility centers and vein clinics in the
United States. We believe our network of Partner fertility
centers is the largest managed network of fertility centers in
the United States, with 63 locations and 97 physicians
and PhD scientists, accounting for approximately 14% of the
total in vitro fertilization (IVF) procedures
performed in the United States in 2007, which is the latest
period for which third-party data are available. We also believe
our vein clinics are the single largest network of vein care
providers in the United States. We have a centralized corporate
infrastructure that provides clinical and financial information
systems, revenue cycle management, sales and marketing services,
group purchasing and other operational support functions to our
fertility centers and vein clinics. These services remove
administrative burdens from the physicians, allowing them more
time to practice medicine, which we believe results in increased
patient treatment volumes and improved patient care. We also
provide physicians access to capital to finance fertility center
and vein clinic operations, including access to current
technologies and facilities, which we believe aids in patient
and physician recruitment. We deliver these services through
three operating divisions: Fertility Centers, Consumer Services
and Vein Clinics.
Our Fertility Centers Division is comprised of 11 contracted
fertility centers, referred to as our Partner Program, serving
13 metropolitan markets across the United States. The centers
provide a wide range of fertility services to patients,
including diagnostic testing and fertility treatments such as
IVF, intrauterine insemination and surgical correction of
anatomical reproductive problems. We receive fees and cost
reimbursement from these fertility centers for providing the
technology, equipment, facilities, non-physician personnel and
support necessary to operate the fertility centers, but we do
not employ or control the physicians who provide or direct the
treatment of patients. For the six months ended June 30,
2009, our Fertility Centers Division generated approximately 68%
of our revenues and 54% of our contribution.
Our Consumer Services Division offers services directly to
fertility patients. The division offers a family of programs,
including our
Attaintm
IVF Refund Program and our recently introduced Attain IVF
Multi-Cycle Program, collectively referred to as our Attain IVF
programs, which are designed to help patients attain their goal
of starting a family. IVF treatments are typically paid for
out-of-pocket by the patient and a patient usually requires more
than one IVF treatment cycle. The average cost of one fresh IVF
cycle as of August 2009 was approximately $12,000 according to
Marketdata Enterprises, Inc. and, in 2007, the likelihood of a
live birth occurring after one fresh IVF cycle was 31% according
to the Society for Assisted Reproductive Technology. Our Attain
IVF Refund Program allows medically cleared patients to pay an
up-front deposit of approximately twice the average cost of a
fresh IVF cycle in return for up to six treatment cycles
(consisting of three fresh IVF cycles and three frozen embryo
transfers) with a specified percentage refund if treatment does
not result in a baby. Our Attain IVF Multi-Cycle Program allows
all patients, including those who are not medically cleared for
our Attain
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IVF Refund Program, to pay a single fee, which is slightly less
than the average cost of two fresh IVF cycles, in return for up
to four treatment cycles (consisting of two fresh IVF cycles and
two frozen embryo transfers). Our Attain IVF Multi-Cycle Program
offers a partial refund under certain circumstances. We provide
Attain IVF patients with the improved success rates associated
with multiple fertility treatment cycles, as well as increased
financial certainty for the IVF process. Additionally, we
provide Attain IVF patients with a roadmap for treatment,
including patient education, on-going case management and
treatment plan monitoring, which provide visibility and ease to
the process.
In addition to being offered to our Partner fertility centers,
the division offers our Attain IVF programs through a contracted
network that consisted of 25 independent fertility centers as of
September 30, 2009, referred to as our Affiliate Program.
Our Affiliate Program allows fertility centers to pay fees to
receive selected management and consumer services we provide.
The benefits that our fertility centers realize from offering
our Attain IVF programs include: allowing patients to commit to
multiple fertility treatments, which improves treatment volume
and revenues; insulating the centers from refund risk; managing
cash and administrative details associated with our Attain IVF
programs; and enabling physicians to maintain a traditional fee
for service arrangement without the appearance of conflicts of
interest that otherwise might arise from self administering a
refund program. We bind our Partner and Affiliate fertility
centers, which provide the IVF treatments, to abide by the terms
of the program through participation agreements that support our
packaged pricing model, but we do not employ or control the
physicians who provide or direct the treatment of patients. For
the six months ended June 30, 2009, our Consumer Services
Division generated approximately 9% of our revenues and 26% of
our contribution.
Our Vein Clinics Division began operations on August 8,
2007, with the purchase of Vein Clinics of America, Inc.
(VCA), a company that had been in business since
1981. Our Vein Clinics Division currently operates a network of
34 clinics located in 13 states. These vein clinics provide
specialized outpatient treatment for patients suffering from
vein diseases and other vein disorders. Our current treatment
options are alternatives to more invasive outpatient surgical
procedures and include Endovenous Laser Treatment
(ELT), a minimally invasive laser treatment, and
sclerotherapy, which involves injecting veins with a solution
designed to immediately shrink and then dissolve such veins over
a period of weeks. We offer business services and support to the
vein clinics and have a controlling financial interest in their
operations. Medical services or treatments are provided to vein
clinic patients by physicians who are employed by professional
corporations, whose financial condition, results of operations
and cash flows are consolidated with our consolidated financial
statements. For the six months ended June 30, 2009, our
Vein Clinics Division generated approximately 23% of our
revenues and 20% of our contribution.
Our
Industries
We are currently focused on the following industries:
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Reproductive Medicine. According to a recent
industry estimate, approximately 10% of U.S. couples have
trouble conceiving. In addition, women are increasingly delaying
starting families. In 2006, approximately one out of every 12
first births was to a woman age 35 or older, compared with
one out of every 100 first births in 1970, according to the
U.S. Centers for Disease Control and Prevention. There are
approximately 1,400 practicing reproductive endocrinologists
offering fertility services across 480 fertility centers in the
United States. Fertility services include diagnostic tests
performed on both the female and the male, as well as fertility
treatments. Treatment options may include fertility drug
therapy, artificial insemination, fertility surgeries to correct
anatomical problems and assisted reproduction technology
(ART) services. Current types of ART services
include IVF, frozen embryo
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transfers and donor egg programs, as well as more specialized
treatments. IVF treatments are the most frequently employed form
of ART, with 103,367 fresh IVF cycles performed in the United
States in 2007. Expenditures relating to fertility services in
the U.S. market are estimated at approximately
$4 billion for 2008, according to Marketdata Enterprises,
Inc.
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Vein Disease. Common venous diseases and their
symptoms can take many forms, including varicose veins, spider
veins and venous leg ulcers. We believe that approximately
25 million people are currently affected by vein disease in
the United States, but only approximately one million receive
treatment for such vein disease. Historically, the most common
treatment for vein disease was vein stripping, which is the
surgical removal of surface veins that is generally done as an
outpatient procedure while the patient is under general
anesthesia and which requires an extended recovery time. More
recently, minimally invasive alternatives such as ELT and
sclerotherapy have been growing as alternatives to invasive
surgical options. Annual expenditures related to vein care in
the United States are approximately $2 billion and
projected to grow 12% per year through 2010, according to our
estimates. The U.S. Food and Drug Administrations
approval of lasers for thermal ablation of veins and subsequent
establishment of an American Medical Association Current
Procedural Terminology code for reimbursement by the Centers for
Medicare and Medicaid Services has opened this market to rapid
growth and development over the last several years.
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Our
Strengths
We believe that our strengths include:
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Leading Network of Fertility Centers. We
believe our network of 11 Partner fertility centers is the
largest managed network of fertility centers in the United
States, with 63 locations and 97 physicians and PhD
scientists, accounting for approximately 14% of the total IVF
procedures performed in the United States in 2007, which is the
latest period for which third-party data are available.
Additionally, we are affiliated with four of the top five
fertility practices in the United States, based on volume of
procedures. Our centralized infrastructure and ability to
leverage economies of scale result in our Partner fertility
centers demonstrating faster growth than the industry average,
based on volume of procedures.
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Strong and Replicable Vein Clinic Model. We
believe our 34 vein clinics are the single largest network of
vein care providers in the United States. This network allows
for marketing, operational and revenue cycle efficiencies by
leveraging resources, knowledge and infrastructure as well as
providing a strong base and replicable model for new clinic
expansion.
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Attain IVF Programs. We created our family of
Attain IVF programs as innovative offerings for patients of our
Partner and Affiliate fertility networks. Marketing for our
Attain IVF programs facilitates recruitment and retention of
self-pay patients, which comprise the majority of the IVF
treatment market. We have developed a sophisticated statistical
model and case management program, which we believe allows us to
appropriately screen patients for our Attain IVF Refund Program
and reduce our financial risk. Our Attain IVF programs are
non-capital intensive and our Attain IVF Refund Program
generated operating margins of approximately 26% for the six
months ended June 30, 2009.
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State-of-the-Art Information Systems. We have
internally developed, integrated information systems that
collect and analyze clinical, patient, financial and marketing
data, which we believe allow us to more effectively control
expenses and improve cash collections at our
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Partner fertility centers and vein clinics. Our proprietary
ARTworks®
clinical software provides electronic medical records, treatment
plan and success rate research capabilities, decision support
functionality and clinical risk management services, which we
believe makes our physicians more efficient and improves quality
of care. We provide our vein clinics access to our proprietary
Virtual Physician Assistant information system, which is an
end-to-end patient and clinic operating system that provides
decision support and revenue cycle functions.
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Access to Capital. We provide our Partner
fertility centers and vein clinics with efficient access to
capital which allows them to obtain current technologies,
equipment and facilities that enable them to provide a full
spectrum of services to effectively compete for patients. We
believe this access to capital helps us to recruit Partner
practices.
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Sophisticated Sales and Marketing
Organization. Our sales and marketing department
specializes in the development of sophisticated programs that
give our Partner and Affiliate fertility centers and vein
clinics access to patient recruitment tools such as
direct-to-consumer marketing, physician referral development and
a vein care centralized call center. We believe these sales and
marketing efforts are often too expensive for many individual
physician practices, resulting in a competitive advantage to our
Partner and Affiliate fertility centers and vein clinics with
respect to patient recruitment.
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Experienced Management Team. Our senior
management has extensive industry experience with average health
care services experience of 25 years. This industry
experience, combined with extensive merger and acquisition and
financial expertise allows us to effectively execute our
strategy.
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Our
Strategy
Our mission is to strengthen our position as a leading manager
of fertility centers and vein clinics by increasing revenues and
improving profitability, as well as continuing to provide value
to patients and our physician network. Our strategy to achieve
our mission is outlined below.
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Make Selective Contract Acquisitions of Partner Fertility
Centers. The U.S. market for fertility
services is highly fragmented and we believe that it is ripe for
consolidation. We believe that our competitors ability to
compete with us for contract acquisitions is currently limited
due to our experience acquiring Partner center contracts, our
position as the manager of what we believe is the largest
network of fertility centers in the United States and our
developed infrastructure and experience in delivering valuable
services to support fertility center operations. Recruitment
into our Partner Program has traditionally focused on fertility
centers that first participate as Affiliates serviced by our
Consumer Services Division; as such, we had an established
pipeline of 25 fertility centers as of September 30,
2009. In addition to recruiting from Affiliate centers, we have
a development staff that targets leading physician groups with
established practices in selected metropolitan markets. These
candidates are then evaluated against our contract acquisition
criteria, which includes factors such as size of practice,
physician reputation and the physicians growth-oriented
outlook.
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Expand our Network of Affiliate Fertility
Centers. We intend to expand our network of
Affiliate fertility centers to other metropolitan markets across
the United States. Our development staff is focused on the top
100 largest metropolitan markets, where we expect the highest
demand for fertility centers to occur.
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Develop De Novo Vein Clinics. We intend to
develop new vein clinics in markets where we already have
existing clinics that have not fully penetrated their market and
to identify attractive contiguous markets to develop new
clinics. Our development staff focuses on locations where there
are attractive demographics, reasonable media costs and a
favorable reimbursement environment. We believe our vein clinic
model can be predictably and profitably replicated in these new
markets. De novo vein clinics require relatively little capital
investment, typically $300,000, and usually reach break-even in
nine months or less after opening of the clinic. Following the
acquisition of VCA, we made significant investments in physician
recruiting and training, regional managers, revenue cycle
management, sales and marketing, as well as new clinic
development staff, all of which is designed to allow us to open
new clinics at a more rapid and sustained pace utilizing a
replicable model.
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Increase the Total Number of Patients
Treated. We intend to work with our fertility
centers and vein clinics to increase the total number of
patients they treat. We expect future patient volume to be
driven by our sales program, centralized direct-to-consumer
advertising strategy, direct physician referrals and processes
designed to retain patients who make contact with our call
centers and receive an initial consultation. We intend to
continue providing products and services to centers and clinics
that help attract patients, including access to state-of-the-art
equipment, access to our Attain IVF programs and access to our
clinical and information technology applications.
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Increase Penetration of Our Attain IVF
Programs. For the six months ended June 30,
2009, approximately 11.5% of self-pay patients in our Partner
and Affiliate network utilized our Attain IVF Refund Program. We
formally introduced our Attain IVF Multi-Cycle Program in July
2009. We believe that the penetration of our Attain IVF programs
can be meaningfully increased by educating patients on the
improved success rates associated with multiple treatment cycles
and the packaged pricing features of our Attain IVF programs,
which allow for multiple treatment cycles and, in the case of
our Attain IVF Refund Program, a significant financial refund if
the treatments are unsuccessful. We also believe we can increase
overall market penetration of our Attain IVF programs by
demonstrating to physicians at potential Affiliate and Partner
practices the benefit of increased patient volume and retention
that we believe result from offering our Attain IVF programs. We
have demonstrated the ability to increase Attain IVF Refund
Program penetration because certain of our fertility centers had
Attain IVF Refund Program penetration rates in excess of 25%
during the six months ended June 30, 2009.
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Continue Improving Operating Efficiencies. We
continuously seek opportunities to lower costs and realize
operating efficiencies through the implementation of a
centralized infrastructure focused on improved accounts
receivable management, along with leveraging economies of scale
in support functions such as procurement, finance, information
technology, human resources, risk management and legal services.
We expect to further leverage our corporate infrastructure as we
expand our network of Partner fertility centers and vein clinics.
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Corporate
Information
We were incorporated in Delaware on June 4, 1985. Our
headquarters are located at Two Manhattanville Road, Purchase,
New York 10577. Our telephone number is
(914) 253-8000.
Our website address is www.integramed.com. The
information on our website is not incorporated as a part of this
prospectus.
5
The Offering
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Common stock offered by us |
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4,000,000 shares |
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4,600,000 shares if the underwriters exercise their
over-allotment option in full |
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Common stock outstanding immediately after this
offering(1) |
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12,774,994 shares |
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Use of proceeds |
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We estimate that the net proceeds to us from this offering will
be approximately $ million,
or approximately $ million if
the underwriters exercise their over-allotment option in full,
based on the assumed offering price and after deducting the
estimated underwriting discounts and commissions and offering
expenses payable by us related to this offering. |
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We intend to use the net proceeds of this offering for general
working capital and other corporate purposes, including funding
potential contract acquisitions of Partner fertility centers. |
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You should read the discussion in this prospectus under the
heading Use of Proceeds for more information. |
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Risk factors |
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See Risk Factors and all other information included
in this prospectus for a discussion of factors that you should
carefully consider before deciding to invest in shares of our
common stock. |
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Nasdaq Global Market symbol: |
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INMD |
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(1) |
Excludes shares issuable upon exercise of the underwriters
over-allotment option. The number of shares of our common stock
outstanding immediately after this offering is based on
8,774,994 shares outstanding as of June 30, 2009 and
excludes 215,841 shares of common stock issuable upon
exercise of outstanding stock options as of June 30, 2009
at a weighted average exercise price of $5.98 per share and
464,933 shares of common stock reserved for issuance under
our 2007 Long-Term Compensation Plan.
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The information in this prospectus assumes that none of our
outstanding stock options has been exercised or forfeited since
June 30, 2009. All information in this prospectus assumes
the issuance and sale of our common stock in this offering at an
offering price of $9.37 per share, the last reported sale
price for our common stock on October 1, 2009, as reported
by the Nasdaq Global Market.
6
Summary
Consolidated Financial Data
The following table sets forth our summary consolidated
financial data as of and for the periods presented. The summary
consolidated financial data as of December 31, 2007 and
2008 and for each of the years ended December 31, 2006,
2007 and 2008 have been derived from our audited annual
consolidated financial statements, which are included elsewhere
in this prospectus. The summary consolidated financial data as
of December 31, 2006 have been derived from our audited
annual consolidated financial statements, which have not been
included in this prospectus. The summary consolidated financial
data as of and for the six months ended June 30, 2008 and
2009 have been derived from our unaudited consolidated financial
statements, which are included elsewhere in this prospectus. In
the opinion of management, our unaudited consolidated financial
statements include all adjustments, consisting only of normal
recurring items, except as noted in the notes to the
consolidated financial statements, necessary for a fair
statement of interim periods. The financial information
presented for the interim periods has been prepared in a manner
consistent with our accounting policies described elsewhere in
this prospectus, and should be read in conjunction therewith.
Operating results for interim periods are not necessarily
indicative of the results that may be expected for a full year
period. You should read this data together with the consolidated
financial statements and related notes appearing elsewhere in
this prospectus, as well as Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the other financial information included
elsewhere in this prospectus. Historical results are not
necessarily indicative of future performance.
We prepare our consolidated financial statements in accordance
with U.S. generally accepted accounting principles
(GAAP), including Financial Accounting Standards
Board Interpretation No. 46 (revised December 2003)
(FIN No. 46R), Consolidation of
Variable Interest Entities. In accordance with
FIN No. 46R, we do not consolidate the results of the
fertility centers to which we provide services because we do not
have a controlling financial interest in such centers and we are
not the primary beneficiary or obligor of such centers
financial results. We do, however, have a controlling financial
interest in individual vein clinics where we are the primary
beneficiary and obligor of their financial results. As such, we
consolidate the financial condition, results of operations and
cash flows of those clinics operations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Off-Balance
Sheet Arrangements.
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Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands, except
per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
$
|
112,767
|
|
|
$
|
121,078
|
|
|
$
|
138,440
|
|
|
$
|
67,797
|
|
|
$
|
73,574
|
|
Consumer Services
|
|
|
13,051
|
|
|
|
15,804
|
|
|
|
19,013
|
|
|
|
8,635
|
|
|
|
10,229
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
14,284
|
|
|
|
39,950
|
|
|
|
18,904
|
|
|
|
24,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
125,818
|
|
|
|
151,166
|
|
|
|
197,403
|
|
|
|
95,336
|
|
|
|
108,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services and sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
104,357
|
|
|
|
111,059
|
|
|
|
128,224
|
|
|
|
62,923
|
|
|
|
67,875
|
|
Consumer Services
|
|
|
9,412
|
|
|
|
12,325
|
|
|
|
14,331
|
|
|
|
6,315
|
|
|
|
7,556
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
13,304
|
|
|
|
37,299
|
|
|
|
17,869
|
|
|
|
22,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of services and sales
|
|
|
113,769
|
|
|
|
136,688
|
|
|
|
179,854
|
|
|
|
87,107
|
|
|
|
98,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands, except
per share amounts)
|
|
|
Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
8,410
|
|
|
|
10,019
|
|
|
|
10,216
|
|
|
|
4,874
|
|
|
|
5,699
|
|
Consumer Services
|
|
|
3,639
|
|
|
|
3,479
|
|
|
|
4,682
|
|
|
|
2,320
|
|
|
|
2,673
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
980
|
|
|
|
2,651
|
|
|
|
1,035
|
|
|
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contribution
|
|
|
12,049
|
|
|
|
14,478
|
|
|
|
17,549
|
|
|
|
8,229
|
|
|
|
10,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
9,380
|
|
|
|
10,536
|
|
|
|
10,654
|
|
|
|
5,098
|
|
|
|
6,569
|
|
Interest income
|
|
|
(1,073
|
)
|
|
|
(1,256
|
)
|
|
|
(383
|
)
|
|
|
(273
|
)
|
|
|
(143
|
)
|
Interest expense
|
|
|
695
|
|
|
|
1,136
|
|
|
|
1,563
|
|
|
|
849
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
9,002
|
|
|
|
10,416
|
|
|
|
11,834
|
|
|
|
5,674
|
|
|
|
6,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,047
|
|
|
|
4,062
|
|
|
|
5,715
|
|
|
|
2,555
|
|
|
|
3,416
|
|
Income tax provision
|
|
|
1,084
|
|
|
|
1,391
|
|
|
|
2,226
|
|
|
|
1,030
|
|
|
|
1,382
|
|
Income tax benefit
|
|
|
(821
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,784
|
(4)
|
|
$
|
2,671
|
|
|
$
|
3,489
|
|
|
$
|
1,525
|
|
|
$
|
2,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
Diluted earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
Weighted average shares basic
|
|
|
8,090
|
|
|
|
8,310
|
|
|
|
8,618
|
|
|
|
8,570
|
|
|
|
8,767
|
|
Weighted average shares diluted
|
|
|
8,194
|
|
|
|
8,410
|
|
|
|
8,691
|
|
|
|
8,652
|
|
|
|
8,829
|
|
Balance Sheet
Data(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital(3)
|
|
$
|
10,973
|
|
|
$
|
(4,520
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(5,697
|
)
|
|
$
|
(5,258
|
)
|
Total assets
|
|
|
76,323
|
|
|
|
114,172
|
|
|
|
121,443
|
|
|
|
114,565
|
|
|
|
125,745
|
|
Total indebtedness
|
|
|
8,774
|
|
|
|
25,460
|
|
|
|
30,219
|
|
|
|
24,163
|
|
|
|
28,165
|
|
Accumulated deficit
|
|
|
(9,851
|
)
|
|
|
(7,180
|
)
|
|
|
(3,691
|
)
|
|
|
(5,655
|
)
|
|
|
(1,657
|
)
|
Shareholders equity
|
|
|
39,466
|
|
|
|
46,549
|
|
|
|
50,753
|
|
|
|
48,398
|
|
|
|
53,465
|
|
|
|
(1)
|
Our Vein Clinics Division began operations on August 8,
2007 with our purchase of VCA.
|
(2)
|
As of the last day of the reported period.
|
(3)
|
Represents current assets less current liabilities.
|
(4)
|
In December 2006, we determined that we no longer needed a
valuation allowance related to deferred tax assets generated by
net operating loss carry-forwards of prior years. As a result,
we recorded a tax benefit of $821,000 for the year ended
December 31, 2006.
|
8
Summary
Operating Data
The following table sets forth our summary operating data for
the years ended December 31, 2006, 2007 and 2008 and for
the six months ended June 30, 2008 and 2009. This summary
operating data is unaudited. Historical results are not
necessarily indicative of future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Summary operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner fertility
centers(1)
|
|
|
8 Partners
|
|
|
|
9 Partners
|
|
|
|
11 Partners
|
|
|
|
10 Partners
|
|
|
|
11 Partners
|
|
Fresh IVF cycles
|
|
|
11,142
|
|
|
|
12,483
|
|
|
|
13,553
|
|
|
|
6,650
|
|
|
|
7,210
|
|
Consumer Services
Affiliates(1)
|
|
|
22 Affiliates
|
|
|
|
20 Affiliates
|
|
|
|
23 Affiliates
|
|
|
|
22 Affiliates
|
|
|
|
23 Affiliates
|
|
Vein
clinics(1),(2)
|
|
|
N/A
|
|
|
|
26 clinics
|
|
|
|
32 clinics
|
|
|
|
30 clinics
|
|
|
|
34 clinics
|
|
Vein clinics
procedures(2),(3)
|
|
|
N/A
|
|
|
|
7,865
|
|
|
|
9,273
|
|
|
|
4,669
|
|
|
|
6,256
|
|
|
|
(1) |
As of the last day of the reported period.
|
(2)Our
Vein Clinics Division began operations on August 8, 2007
with our purchase of VCA.
(3)One
vein care procedure represents a corrective procedure performed
on a leg.
9
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Before you invest in our common stock, you should carefully
consider the various risks of the investment, including those
described below, together with all of the other information
included in this prospectus. Additional risks may also impair
our business operations and adversely affect our prospects. If
any of the following risks actually occur, our business,
financial condition or operating results could be adversely
affected. In that case, the trading price of our common stock
could decline and you could lose all or part of your
investment.
Risks
Related to Our Business
The loss
of one or more of our Partner fertility centers would lead to a
decline in our revenues and profit.
The contracts that we enter into with our Partner fertility
centers typically have terms that range from 10 to 25 years
and contain automatic renewal provisions. Some of these
agreements also contain provisions that allow the Partner
fertility center to terminate the agreement, upon
12 months prior notice, at any time after five years
from the agreements effective date. Our two largest
Partner fertility centers provided approximately 34% of our
Fertility Centers Division revenues for the year ended
December 31, 2008. If either of these Partner fertility
centers, or any of our other Partner fertility centers, were to
terminate its agreement with us, we would lose all of the
revenues associated with such Partner fertility center, but
would not experience any meaningful reduction in our
infrastructure costs.
We may
not be able to find suitable Partner candidates or successfully
integrate the operations of the fertility centers with which we
enter into Partner contracts.
A key part of our business strategy is to enter into additional
Partner contracts. We cannot assure you that we will be able to
find suitable Partner candidates or that the fertility centers
that we enter into Partner contracts with will be successful.
Even if suitable Partner candidates are identified, negotiation
over suitable terms and conditions may be protracted and
unsuccessful, and we may not be able to achieve planned
increases in the number of Partner centers. Further, achieving
the anticipated benefits of current and possible future Partner
contracts will depend in part upon whether we can integrate the
operations of those fertility centers with our operations in a
timely and cost-effective manner. The process of integrating the
operations of Partner fertility centers with our operations is
complex, expensive and time consuming and involves a number of
risks, including, but not limited to:
|
|
|
|
|
difficulties in integrating or retaining key medical providers
of the Partner fertility center;
|
|
|
|
difficulties in integrating the operations of the Partner
fertility center, such as information technology resources and
financial and operational data;
|
|
|
|
diversion of our managements attention; and
|
|
|
|
potential incompatibility of cultures.
|
We are
dependent on the medical providers in our fertility centers and
vein clinics to successfully execute our business
strategy.
Although we manage our fertility centers and vein clinics, the
medical providers at those centers and clinics provide medical
services directly to patients and we do not have control over
their medical activities. We cannot guarantee any medical
providers ability to generate positive patient outcomes,
build a positive reputation for their practice or to comply with
our expectations. If the medical providers in our fertility
centers and vein clinics act negligently or unethically, allow
their medical
10
practices to deteriorate or do not meet our growth expectations,
it could diminish the value of our brand and our results of
operations could be adversely affected.
We may
have difficulty attracting and retaining physicians for our
fertility centers and vein clinics.
A key part of our business strategy is to enter into additional
Partner contracts and open new vein clinics. The success of our
fertility centers is dependent upon our ability to retain the
key medical providers associated with those centers. If one or
more key medical providers were to depart from a fertility
center, our business could suffer. Our ability to open new vein
clinics is dependent upon identifying, recruiting and retaining
qualified physicians to perform procedures at these clinics. We
have had difficulties staffing new vein clinics because some
third-party payors require that the physicians performing
procedures at these clinics have certain specified credentials.
We will not be able to implement successfully our business
strategy if we are unable to properly staff our fertility
centers and vein clinics.
A
reduction in reimbursements or an inability to negotiate
attractive reimbursement rates from third-party payors for the
services that our Partner centers or vein clinics provide could
adversely affect our revenues and growth.
A significant portion of our fertility Partner and vein clinic
revenues depends on reimbursements to the underlying physician
practices from third-party payors. These third parties include
private health insurers and other organizations, such as health
maintenance organizations, as well as government authorities.
Third parties are systematically challenging prices charged for
medical treatment. A third-party payor may deny or reduce
reimbursement if it determines that a prescribed treatment is
not used in accordance with cost-effective treatment methods, as
determined by the payor, or is experimental, unnecessary or
inappropriate. In addition, although third parties may approve
reimbursement, such approvals may be under terms and conditions
that discourage use of our services, even if those services are
safer or more effective than alternative services. A reduction
in reimbursements from third-party payors, whether in the form
of changes to reimbursement contracts, such as by limiting
reimbursement for certain procedures to specialists, loss of
reimbursement contracts, solvency issues on the part of the
payors, or in the case of our vein clinics, changes in Medicare
reimbursement, would cause patients to reduce their treatments
or obtain services from other providers and could reduce our
revenues and profitability. Our ability to profitably open vein
clinics in new markets also significantly depends on our ability
to obtain attractive reimbursement rates from third-party payors
in those new markets. If we are unable to obtain satisfactory
reimbursement rates from third-party payors for vein clinics in
new markets, our growth would suffer.
In early 2009, one of our top fertility centers in the Midwest
terminated a reimbursement contract with an important
third-party payor. Contribution from this fertility center in
2008 was approximately $2.3 million and this third-party
payor represented approximately 20% of this contribution.
Health
care reform could impact the demand for our services.
There are currently numerous proposals on the federal and state
levels for comprehensive reforms relating to health care that
could affect payment and reimbursement for health care services
in the United States. The U.S. Congress is considering
legislation that could dramatically overhaul the health care
system, including the possibility of a government health care
plan. We cannot predict whether any such reforms will ultimately
be adopted or the impact that such reforms may have on the
demand or payment for our services. Because our Attain IVF
programs are self-pay programs for patients that do not have
insurance coverage for fertility treatments, health care reform
that increases insurance coverage for fertility treatments could
lead to a decrease in demand for our Attain IVF programs.
11
We face
competition from existing providers, as well as new providers
entering our markets.
Our business divisions operate in highly competitive areas. Our
fertility centers compete with national, regional and local
physician practice fertility centers, hospitals and university
medical centers, some of which have programs that compete with
our Attain IVF programs. Our fertility centers may also compete
with fertility centers located outside of the United States, due
to the self-pay nature of IVF treatment. Our vein clinics
compete with other vein care clinic providers, dermatologist and
surgical clinics that provide ELT and sclerotherapy as an
ancillary offering, vascular surgeons and interventional
radiologists. Barriers to entry in the vein care industry are
low. New health care providers that enter our markets impact our
market share, patient volume and growth rates. Increased
competitive pressures require us to commit resources to
marketing efforts, which impacts our margins and profitability.
There can be no assurance that our fertility centers or vein
clinics will be able to compete effectively with existing
providers in our markets or that new competitors will not enter
into our markets. These existing and new competitors may have
greater financial and other resources than we or our fertility
centers or vein clinics do. Increased competition could also
make it more difficult for us to expand our business by entering
into new contracts with fertility centers or opening new vein
clinics.
The
development of alternative treatments could diminish demand for
our services.
The fertility and vein care industries are dynamic, and new,
technologically intensive treatments are constantly under
development. New treatments that are more effective or provide
better reimbursement could decrease patient demand or
profitability for the treatments that our fertility centers or
vein clinics currently offer. If our fertility centers or vein
clinics do not adopt new treatments as they are developed,
patients could seek treatment elsewhere.
If we are
found not to be in compliance with applicable laws and
regulations, we could be subject to significant fines or
penalties, be forced to curtail certain of our operations or
rearrange material agreements to our detriment.
We, and each of our fertility centers and vein clinics, are
subject to numerous federal and state laws and regulations,
including, but not limited to, federal and state anti-kickback
laws, controlled substances laws, the federal Stark law and
state self-referral laws, false claims laws, the Health
Insurance Portability and Accountability Act of 1996
(HIPAA), Medicare and Medicaid regulations and laws
regulating the business of insurance. These laws and regulations
are extremely complex and could be subject to various
interpretations. Our fertility centers and vein clinics are also
subject to these statutes, but we do not oversee, nor are we
responsible for, their compliance with these laws. Many aspects
of our business, to date, have not been the subject of federal
or state regulatory review and we, and any of our fertility
centers or vein clinics, may not have been in compliance at all
times with all applicable laws and regulations. If we, or our
fertility centers or vein clinics, are found by a court or
regulatory authority to have violated any applicable laws or
regulations, we could be subject to significant fines or
penalties or be forced to curtail certain of our operations.
Further, the laws of many states prohibit physicians from
splitting fees with non-physicians, or other physicians, and
prohibit non-physician entities from practicing medicine. These
laws vary from state to state and are enforced by the courts and
by regulatory authorities with broad discretion. Many aspects of
our business, to date, have not been the subject of judicial or
regulatory interpretation; thus, a review of our business by
courts or regulatory authorities may result in determinations
that could adversely affect our operations. In addition, the
health care regulatory environment could change so as to
restrict our existing operations or their expansion. State
corporate practice of medicine laws may be interpreted as
prohibiting corporations or associations from exercising control
over physicians or employing nurse practitioners or physician
assistants and may prohibit physicians from practicing medicine
in partnership with, or as employees of, any person not licensed
to practice medicine.
12
State regulators may seek to challenge the arrangements that we
have with our fertility centers and vein clinics. A
determination in any state that we are engaged in the corporate
practice of medicine or any unlawful fee-splitting arrangement
could render any management agreement between us and a practice
located in such state unenforceable or subject to modification,
which could have an adverse effect on our financial condition
and results of operations. Regulatory authorities or other
parties may assert that we are or a practice is engaged in the
corporate practice of medicine or that the management fees paid
to us by the managed practices constitute unlawful fee-splitting
or the corporate practice of medicine. If such a claim were
asserted successfully, we could be subject to civil and criminal
penalties, managed physicians could have restrictions imposed
upon their licenses to practice medicine, parts or all of our
existing management agreements could be rendered unenforceable
and we could be required to restructure our contractual
arrangements with the managed practices, all of which could have
an adverse effect on our financial condition and results of
operations.
Our management agreement with our Partner fertility center in
Illinois provides that we will be paid a base fee equal to a
fixed percentage of the revenues of the fertility center that
declines to zero to the extent the costs relating to the
management of the fertility center increase as a percentage of
total revenues. There is a substantial risk that this
compensation arrangement, being based on a percentage of
revenues, would not be upheld if challenged under Illinois law.
To address this, our management agreement provides that if such
compensation arrangement is found to be illegal, unenforceable,
against public policy or forbidden by law, the management fee
will be an annual fixed fee to be mutually agreed upon, not less
than $1,000,000 per year, retroactive to the effective date of
the agreement, resulting in a reduction of our management fee.
In such event, there is likely to be a significant decrease in
the management fees derived from this fertility center as a
result of the new fee structure, as well as repayment of amounts
paid in excess of the prior management fee.
Although we view our Attain IVF programs as a guaranty or
warranty of our fertility centers performance, the Attain
IVF programs have several characteristics that are present in an
insurance contract. As such, an insurance regulator in a
particular state may find that we have been and are engaged in
the business of insurance without a license, which could subject
us to criminal and civil liabilities and would subject our
Attain IVF programs to substantial regulation in that state as
an insurance contract, including burdensome reserve
requirements. In addition, in states that prohibit physicians
from splitting professional fees with non-physicians, we could
be required to restructure our Attain IVF programs if a state
concluded that our Attain IVF programs constituted fee splitting
because we retain a portion of the payments patients pay
directly to us for their medical treatment by our fertility
centers. The imposition of any such liabilities and any such
changes in our method of doing business would likely reduce
revenues and contribution from our Consumer Services Division.
Additionally, our management agreements with our vein clinics
provide that the vein clinics will pay us a fee equal to 150% of
our expenses of operating and managing the vein clinics. These
fees have historically exceeded the operating margin generated
by any particular vein clinic prior to payment of the management
fee. Accordingly, each vein clinic only pays the portion of the
management fee that is equal to the amount of revenue generated
by the clinic annually up to the 150% amount. As a result, our
vein clinics do not generate any net profits at year end. A
state regulator could find that such a compensation model is
actually based on a percentage of the revenue of a particular
vein clinic or that our management fee is not commensurate with
the services we provide, in which case our management agreements
would be violating fee-splitting laws of certain states where we
operate vein clinics. We could be forced to restructure the fee
structure under the management agreements to our material
financial detriment or the providers affiliated with our vein
clinics who have been found to violate the fee-splitting
statutes or regulations may be subject to disciplinary action or
criminal sanctions, which could lead to the closure of one or
more of our vein clinics.
13
Our arrangements with our fertility centers and vein clinics may
trigger the application of federal and various state franchise
laws. We have never sought to comply with any such franchise
laws, nor have we ever sought any exemptions from such laws. The
U.S. Federal Trade Commission could bring an enforcement
action against us for failure to comply with federal franchise
laws and could impose significant fines against us, order us to
pay restitution to the fertility centers and vein clinics that
are found to be franchisees (and the physicians that own or
operate them)
and/or seek
criminal sanctions against us. Under the laws of certain of the
states in which we operate, the physicians that own or operate
our fertility centers and vein clinics may bring private causes
of actions against us for violating such laws. In many of these
jurisdictions, in addition to a judgment for actual damages, a
court could award the physicians rescission, attorneys
fees and costs and treble damages. Additionally, we could be
subject to fines and criminal sanctions. Even if we were to
comply with these federal and state franchise laws, we would
still be potentially liable for prior violations that occurred
prior to the time we came into compliance with such laws.
New or enhanced laws and regulations affecting the fertility
industry could increase our costs of compliance and force us to
alter certain of our operations.
A number of high profile events have occurred recently related
to ART and fertility practices generally, such as the
implantation of a greater than recommended number of embryos,
resulting in extraordinarily high-order multiple births, or the
implantation of incorrect patient embryos. Federal and state
regulators may more carefully scrutinize the fertility industry
as a result of these events, and may adopt more stringent laws
and regulations that could increase our compliance costs or
force us to alter certain of our operations.
We and
our Partner fertility centers and vein clinics may not have
sufficient liability insurance to cover potential
claims.
The medical procedures performed by physicians and other medical
personnel in our network of fertility centers and vein clinics
can involve significant complications, including genetically
defective births, embryo loss and patient death. We are likely
to be, and from time to time have been, named as a party in
legal proceedings involving medical malpractice or other
injuries that occur at one of our fertility centers or vein
clinics, particularly in those fertility centers where we
provide the services of a physician assistant or nurse
practitioner. A successful malpractice claim could exceed the
limits of insurance that we maintain, in which case we would
have to fund any settlement in excess of our insurance coverage.
We also maintain medical malpractice insurance coverage for our
Partner fertility centers and vein clinics, and a successful
malpractice claim against one of those centers or clinics in
excess of the coverage we maintain for them would adversely
affect the revenues we derive from those centers and clinics. In
addition, the captive insurance company that provides a portion
of our insurance coverage does not maintain reserves in amounts
that would be required of other, larger insurers, and therefore
may not have adequate capital to fund a claim against us or the
Partner fertility centers covered by the captive insurance
company. A malpractice claim, whether or not successful, could
be costly to defend, could consume management resources and
could adversely affect our reputation and business and the
reputations and businesses of our Partner fertility centers and
vein clinics. We also cannot assure you that we or our Partner
fertility centers or vein clinics will be able to obtain
insurance coverage in the future on commercially reasonable
terms, or at all.
Our
success depends on retaining key members of our management
team.
The success of our business strategy depends on the continued
contribution of key members of our management team. The loss of
key members of this team could disrupt our growth plans and our
ability to implement our business strategy.
14
We rely
on a limited number of third-party vendors for medicine and
supplies.
Our fertility centers and vein clinics rely on a limited number
of third-party vendors that produce medications and supplies
vital to patient treatment, such as AngioDynamics, Inc., which
provides the only U.S. Food and Drug Administration
approved solution used in sclerotherapy. If any of these vendors
were to experience a supply shortage or cease doing business,
and we were unable to find an alternative third-party vendor, we
might not be able to properly serve our patients.
Our
credit agreement contains covenants that impose restrictions on
us that may limit our operating flexibility, prevent us from
entering into extraordinary transactions that benefit our
stockholders and limit our growth.
Our credit agreement contains covenants that restrict our
flexibility to conduct business. These covenants prohibit or
limit, among other things:
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the payment of dividends to our stockholders;
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the incurrence of additional indebtedness;
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the making of certain types of restricted payments and
investments;
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sales of assets; and
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consolidations, mergers and transfers of all or substantially
all of our assets.
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The credit agreement also requires that we maintain certain
leverage and fixed charge ratios and minimum levels of earnings
before interest, taxes, depreciation and amortization. Our
failure to comply with any of these covenants could cause the
lenders to declare a default and accelerate amounts due to them
under the credit agreement.
In addition, our credit agreement places certain restrictions on
our ability to acquire the business, assets or capital stock of
fertility centers. For example, our credit agreement prevents us
from acquiring a fertility center for a purchase price in excess
of $5.5 million (increasing to $6.0 million after
August 31, 2010) without the prior written consent of
our lender. In addition, our credit agreement prevents us from
making acquisitions of fertility centers that aggregate in
excess of $11 million for the period from August 1,
2009 through July 31, 2010, or that exceed $12 million
for the period after August 1, 2010. If we identify
fertility centers that we want to acquire in excess of limits in
our credit agreement and do not obtain the consent of our lender
to those acquisitions, we may not be able to execute on our
strategy.
We may
not have adequate protection for our intellectual property
rights.
Trade secrets and other proprietary information not protected by
patents are critical to our business. Our sole means of
protecting this information is to utilize confidentiality
agreements with employees, third parties and consultants. If
these agreements are breached, another entity could obtain our
trade secrets and proprietary information and attempt to
replicate our business model, which could have an adverse effect
on our business.
15
Risks
Relating to an Investment in our Common Stock
The
trading price of our common stock could be subject to
volatility.
The average daily trading volume of our shares of common stock
on the Nasdaq Global Market for the nine months ended
September 30, 2009 was approximately 7,158 shares.
Because the shares of our common stock are lightly traded, they
are subject to volatile price fluctuations, which may make it
difficult for you to sell our common stock when you want or at
prices you find attractive. In the past, following periods of
volatility in the market price of a companys securities,
securities class action litigation has often been instituted. A
securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of
managements attention and resources, and could have a
material adverse effect on our financial condition.
Future
sales or the potential for future sales of our common stock may
cause the trading price of our common stock to
decline.
Sales of a substantial number of shares of our common stock by
our two largest stockholders, or by any of our other significant
stockholders, or the perception that these sales may occur,
could cause the market price of our common stock to decline.
Approximately 40% of our outstanding common stock is held by two
investor groups. If either of these groups, or any other
significant stockholders, were to attempt to sell all or part of
their positions in the public market, our stock price could fall
substantially.
In addition, our directors and executive officers, who held an
aggregate of 741,025 shares of our common stock as of
August 31, 2009, are subject to
lock-up
agreements that restrict their ability to transfer their shares
of our common stock for 90 days following the date of this
prospectus. The market price of shares of our common stock may
decrease if a significant number of these shares are sold when
the restrictions on their sale lapse.
We will
have broad discretion in applying the net proceeds of this
offering and may not use those proceeds in ways that will
enhance the market value of our common stock.
We have significant flexibility in applying the net proceeds we
will receive in this offering. We will use the proceeds that we
receive from the sale of common stock in this offering for
working capital and general corporate purposes. As part of your
investment decision, you will not be able to assess or direct
how we apply these net proceeds. If we do not apply these funds
effectively, we may lose significant business opportunities.
Furthermore, our stock price could decline if the market does
not view our use of the net proceeds from this offering
favorably.
You will
incur immediate and substantial dilution as a result of this
offering.
The public offering price per share of our common stock in this
offering is substantially higher than the net tangible book
value per share of our outstanding common stock. As a result,
you will incur immediate and substantial dilution of
$ per share, representing the
difference between the assumed public offering price of $9.37
per share and our tangible net book value per share as of
June 30, 2009.
Our
future capital needs could result in dilution of your
investment.
Our board of directors may determine from time to time that
there is a need to obtain additional capital through the
issuance of additional shares of our common stock or other
securities. These issuances would likely dilute the ownership
interests of the investors in this offering and may dilute the
net tangible book value per share of our common stock. Investors
in subsequent offerings may also have
16
rights, preferences and privileges senior to our current
stockholders which may adversely impact our current stockholders.
We do not
intend to pay cash dividends on our common stock for the
foreseeable future.
We have not paid cash dividends on our common stock during the
last two fiscal years, and we do not expect to pay cash
dividends on our common stock at any time in the foreseeable
future. The future payment of dividends directly depends upon
our future earnings, capital requirements, financial
requirements and other factors that our board of directors will
consider. In addition, our credit agreement prohibits us from
paying cash dividends on our common stock. Because we do not
anticipate paying cash dividends on our common stock in the
foreseeable future, the return on your investment on our common
stock will depend solely on a change, if any, in the market
value of our common stock.
Our
certificate of incorporation, by-laws and Delaware law could
limit another partys ability to acquire us, even if an
acquisition would be beneficial to our stockholders.
A number of provisions in our certificate of incorporation and
by-laws make it difficult for another company to acquire us,
even if doing so would benefit our stockholders. For example,
our certificate of incorporation authorizes our board of
directors to issue blank check preferred stock, the
terms of which may be established and shares of which may be
issued without stockholder approval. The rights of holders of
our common stock could be adversely affected by the terms of any
preferred stock that may be issued in the future. In addition,
our by-laws limit the ability of our stockholders to call
special meetings or fill vacancies on the board.
Also, Section 203 of the Delaware General Corporation Law
generally limits our ability to engage in any business
combination with certain persons who own 15% or more of our
outstanding voting stock or any of our associates or affiliates
who at any time in the past three years have owned 15% or more
of our outstanding voting stock. These provisions may have the
effect of entrenching our management team and may deprive you of
the opportunity to sell your shares to potential acquirers at a
premium over prevailing prices. This potential inability to
obtain a control premium could reduce the price of our common
stock.
17
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The information included in this prospectus contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), the attainment of which involves various risks and
uncertainties. All statements other than statements of
historical fact included in this prospectus are forward-looking
statements. 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.
These forward-looking statements are based on assumptions that
we have made in light of our experience in the industry in which
we operate, as well as our perceptions of historical trends,
current conditions, expected future developments and other
factors we believe are appropriate under the circumstances. As
you read and consider this prospectus, you should understand
that these statements are not guarantees of performance or
results. They involve risks, uncertainties (some of which are
beyond our control) and assumptions. Although we believe that
these forward-looking statements are based on reasonable
assumptions, you should be aware that many factors could affect
our actual financial condition or results of operations and
cause actual results to differ materially from those in the
forward-looking statements. These factors include, among other
things:
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termination of any of our Partner fertility center agreements
for any reason;
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an inability to identify attractive candidates for our Partner
Program, successfully negotiate contract acquisition terms with
Partner candidates or effectively integrate new Partners;
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an inability to recruit or retain suitable physicians to open
and operate our vein clinics;
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less than expected growth in the vein care market, especially
for minimally invasive procedures in which our vein clinics
specialize;
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termination or adverse changes to the terms of our reimbursement
arrangements with third-party payors;
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decreases in reimbursement rates from third-party payors, either
in markets where we and our Partner and Affiliate fertility
centers and vein clinics currently operate or into which we plan
to expand;
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adoption of new laws or regulations applicable to fertility
centers or vein clinics, either in markets where we and our
Partner and Affiliate fertility centers and vein clinics
currently operate or into which we plan to expand;
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changing patterns of enforcement or new interpretations of
existing laws and regulations;
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the occurrence of adverse medical outcomes at one or more of our
Partner or Affiliate fertility centers or vein clinics, or other
events that adversely affect the reputation of those centers or
clinics or the physicians who work at those centers or clinics;
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development of new technologies that our Partner or Affiliate
fertility centers or vein clinics do not adopt;
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an increase in litigation against us, our Partner fertility
centers or vein clinics or the physicians who work at those
centers and clinics;
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18
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an inability to obtain insurance on commercially reasonable
terms, the adequacy of insurance to address claims to which we,
or our Partner fertility centers or vein clinics, are subject,
or the inability of an insurer to pay amounts owed to us or our
Partner fertility centers or vein clinics for a claim;
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an increase in the competition that we and our Partners
fertility centers or vein clinics face; and
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other factors discussed under the headings Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations and
Business.
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Because of these factors, we caution that you should not place
undue reliance on any of our forward-looking statements.
Further, any forward-looking statement speaks only as of the
date on which it is made. New risks and uncertainties arise from
time to time, and it is impossible for us to predict these
events or how they may affect us. We are under no obligation to
update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
19
USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering will
be approximately $ million,
or approximately $ million if
the underwriters exercise their over-allotment option in full,
based on the assumed offering price and after deducting the
estimated underwriting discounts and commissions and offering
expenses payable by us related to this offering.
We intend to use the net proceeds of this offering for general
working capital and other corporate purposes, including funding
potential contract acquisitions of Partner fertility centers.
20
PRICE
RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq Global Market under the
symbol INMD. The following table sets forth, for the
periods indicated, the high and low closing sales prices per
share of our common stock, as reported on the Nasdaq Global
Market:
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High
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Low
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2009
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Fourth Quarter (through October 1, 2009)
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$
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9.37
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$
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9.37
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Third Quarter
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$
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10.25
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$
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7.03
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Second Quarter
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$
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7.99
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$
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5.81
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First Quarter
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$
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7.45
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$
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5.60
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2008
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Fourth Quarter
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$
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6.97
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$
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4.80
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Third Quarter
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$
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8.17
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$
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6.01
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Second Quarter
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$
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10.23
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$
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7.07
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First Quarter
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$
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11.95
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$
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8.50
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2007
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Fourth Quarter
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$
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14.20
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$
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11.32
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Third Quarter
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$
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12.43
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$
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10.06
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Second Quarter
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$
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13.05
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$
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10.70
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First Quarter
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$
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12.30
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$
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11.27
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On October 1, 2009, the closing sale price per share of our
common stock was $9.37, as reported on the Nasdaq Global Market.
On September 30, 2009, there were 103 holders of
record of our common stock. This figure does not include persons
or entities who hold their common stock in nominee or
street name.
DIVIDEND
POLICY
We have not paid cash dividends on our common stock during the
last two fiscal years, and we currently anticipate retaining all
available funds for use in the operation and expansion of our
business. In addition, our credit agreement prohibits us from
paying cash dividends on our common stock. Therefore, we do not
anticipate paying any cash dividends on our common stock in the
foreseeable future.
21
CAPITALIZATION
The following table describes our capitalization as of
June 30, 2009 on an actual basis and as adjusted to reflect
our sale of 4,000,000 shares of common stock in this
offering at an assumed offering price of $9.37 per share, the
last reported sale price for our common stock on October 1,
2009, as reported by the Nasdaq Global Market, after deducting
estimated underwriting discounts and commissions and offering
expenses payable by us related to this offering.
You should read this capitalization table together with the
consolidated financial statements and related notes appearing
elsewhere in this prospectus, as well as Use of
Proceeds, Managements Discussion and Analysis
of Financial Condition and Results of Operations and the
other financial information included elsewhere in this
prospectus.
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As of June 30,
2009
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Actual
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As
Adjusted(1)
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(unaudited)
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(in thousands, except share
data)
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Debt:
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Current portion of long-term notes payable and other obligations
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$
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11,329
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$
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Long-term notes payable and other obligations
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16,836
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Total notes payable and other
obligations(2)
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28,165
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Shareholders equity:
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Common stock, $0.01 par value; 15,000,000 shares
authorized, actual and as adjusted; 8,774,994 shares issued
and outstanding, actual; 12,774,994 shares issued and
outstanding as
adjusted(3)
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88
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Capital in excess of par
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55,702
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Other comprehensive loss
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(293
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Treasury stock, at cost; 46,408 shares, actual and as
adjusted
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(375
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Accumulated deficit
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(1,657
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Total shareholders equity
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53,465
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Total capitalization
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$
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81,630
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$
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(1)
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Assumes no exercise of the underwriters over-allotment
option.
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(2)
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As of June 30, 2009, we had $2,500,000 available under our line
of credit that was unused.
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(3)
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Excludes 215,841 shares of common stock issuable upon exercise
of outstanding stock options as of June 30, 2009 at a
weighted average exercise price of $5.98 per share and 464,933
shares of common stock reserved for issuance under our 2007
Long-Term Compensation Plan.
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22
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated
financial data as of and for the periods presented. The selected
consolidated financial data as of December 31, 2007 and
2008 and for each of the years ended December 31, 2006,
2007 and 2008 have been derived from our audited annual
consolidated financial statements, which are included elsewhere
in this prospectus. The selected consolidated financial data as
of December 31, 2004, 2005 and 2006 and for each of the
years ended December 31, 2004 and 2005 have been derived
from our audited annual consolidated financial statements, which
have not been included in this prospectus. The selected
consolidated financial data as of and for the six months ended
June 30, 2008 and 2009 have been derived from our unaudited
consolidated financial statements, which are included elsewhere
in this prospectus. In the opinion of management, our unaudited
consolidated financial statements include all adjustments,
consisting only of normal recurring items, except as noted in
the notes to the consolidated financial statements, necessary
for a fair statement of interim periods. The financial
information presented for the interim periods has been prepared
in a manner consistent with our accounting policies described
elsewhere in this prospectus, and should be read in conjunction
therewith. Operating results for interim periods are not
necessarily indicative of the results that may be expected for a
full year period. You should read this data together with the
consolidated financial statements and related notes appearing
elsewhere in this prospectus, as well as Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the other financial information included
elsewhere in this prospectus. Historical results are not
necessarily indicative of future performance.
We prepare our consolidated financial statements in accordance
with GAAP, including FIN No. 46R. In accordance with
FIN No. 46R, we do not consolidate the results of the
fertility centers to which we provide services because we do not
have a controlling financial interest in such centers and we are
not the primary beneficiary or obligor of such centers
financial results. We do, however, have a controlling financial
interest in individual vein clinics where we are the primary
beneficiary and obligor of their financial results. As such, we
consolidate the financial condition, results of operations and
cash flows of those clinics operations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Off-Balance
Sheet Arrangements.
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Year Ended
December 31,
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Six Months Ended
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands, except
per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
$
|
87,367
|
|
|
$
|
105,277
|
|
|
$
|
112,767
|
|
|
$
|
121,078
|
|
|
$
|
138,440
|
|
|
$
|
67,797
|
|
|
$
|
73,574
|
|
Consumer Services
|
|
|
19,937
|
|
|
|
22,938
|
|
|
|
13,051
|
|
|
|
15,804
|
|
|
|
19,013
|
|
|
|
8,635
|
|
|
|
10,229
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
14,284
|
|
|
|
39,950
|
|
|
|
18,904
|
|
|
|
24,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
107,304
|
|
|
|
128,215
|
|
|
|
125,818
|
|
|
|
151,166
|
|
|
|
197,403
|
|
|
|
95,336
|
|
|
|
108,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services and sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
78,823
|
|
|
|
95,900
|
|
|
|
104,357
|
|
|
|
111,059
|
|
|
|
128,224
|
|
|
|
62,923
|
|
|
|
67,875
|
|
Consumer Services
|
|
|
18,782
|
|
|
|
20,485
|
|
|
|
9,412
|
|
|
|
12,325
|
|
|
|
14,331
|
|
|
|
6,315
|
|
|
|
7,556
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13,304
|
|
|
|
37,299
|
|
|
|
17,869
|
|
|
|
22,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of services and sales
|
|
|
97,605
|
|
|
|
116,385
|
|
|
|
113,769
|
|
|
|
136,688
|
|
|
|
179,854
|
|
|
|
87,107
|
|
|
|
98,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
8,544
|
|
|
|
9,377
|
|
|
|
8,410
|
|
|
|
10,019
|
|
|
|
10,216
|
|
|
|
4,874
|
|
|
|
5,699
|
|
Consumer Services
|
|
|
1,155
|
|
|
|
2,453
|
|
|
|
3,639
|
|
|
|
3,479
|
|
|
|
4,682
|
|
|
|
2,320
|
|
|
|
2,673
|
|
Vein Clinics
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
980
|
|
|
|
2,651
|
|
|
|
1,035
|
|
|
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contribution
|
|
|
9,699
|
|
|
|
11,830
|
|
|
|
12,049
|
|
|
|
14,478
|
|
|
|
17,549
|
|
|
|
8,229
|
|
|
|
10,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007(1)
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands, except
per share amounts)
|
|
|
General and administrative expenses
|
|
|
8,065
|
|
|
|
9,973
|
|
|
|
9,380
|
|
|
|
10,536
|
|
|
|
10,654
|
|
|
|
5,098
|
|
|
|
6,569
|
|
Interest income
|
|
|
(259
|
)
|
|
|
(520
|
)
|
|
|
(1,073
|
)
|
|
|
(1,256
|
)
|
|
|
(383
|
)
|
|
|
(273
|
)
|
|
|
(143
|
)
|
Interest expense
|
|
|
295
|
|
|
|
328
|
|
|
|
695
|
|
|
|
1,136
|
|
|
|
1,563
|
|
|
|
849
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
8,101
|
|
|
|
9,781
|
|
|
|
9,002
|
|
|
|
10,416
|
|
|
|
11,834
|
|
|
|
5,674
|
|
|
|
6,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,598
|
|
|
|
2,049
|
|
|
|
3,047
|
|
|
|
4,062
|
|
|
|
5,715
|
|
|
|
2,555
|
|
|
|
3,416
|
|
Income tax provision
|
|
|
642
|
|
|
|
744
|
|
|
|
1,084
|
|
|
|
1,391
|
|
|
|
2,226
|
|
|
|
1,030
|
|
|
|
1,382
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(821
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
956
|
|
|
$
|
1,305
|
|
|
$
|
2,784
|
(4)
|
|
$
|
2,671
|
|
|
$
|
3,489
|
|
|
$
|
1,525
|
|
|
$
|
2,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
Diluted earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
Weighted average shares basic
|
|
|
7,219
|
|
|
|
7,561
|
|
|
|
8,090
|
|
|
|
8,310
|
|
|
|
8,618
|
|
|
|
8,570
|
|
|
|
8,767
|
|
Weighted average shares diluted
|
|
|
7,549
|
|
|
|
7,818
|
|
|
|
8,194
|
|
|
|
8,410
|
|
|
|
8,691
|
|
|
|
8,652
|
|
|
|
8,829
|
|
Balance Sheet
Data(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital(3)
|
|
$
|
1,157
|
|
|
$
|
5,721
|
|
|
$
|
10,973
|
|
|
$
|
(4,520
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(5,697
|
)
|
|
$
|
(5,258
|
)
|
Total assets
|
|
|
54,119
|
|
|
|
67,190
|
|
|
|
76,323
|
|
|
|
114,172
|
|
|
|
121,443
|
|
|
|
114,565
|
|
|
|
125,745
|
|
Total indebtedness
|
|
|
5,239
|
|
|
|
10,147
|
|
|
|
8,774
|
|
|
|
25,460
|
|
|
|
30,219
|
|
|
|
24,163
|
|
|
|
28,165
|
|
Accumulated deficit
|
|
|
(13,940
|
)
|
|
|
(12,636
|
)
|
|
|
(9,851
|
)
|
|
|
(7,180
|
)
|
|
|
(3,691
|
)
|
|
|
(5,655
|
)
|
|
|
(1,657
|
)
|
Shareholders equity
|
|
|
33,933
|
|
|
|
35,871
|
|
|
|
39,466
|
|
|
|
46,549
|
|
|
|
50,753
|
|
|
|
48,398
|
|
|
|
53,465
|
|
|
|
(1)
|
Our Vein Clinics Division began operations on August 8,
2007 with our purchase of VCA.
|
(2)
|
As of the last day of the reported period.
|
(3)
|
Represents current assets less current liabilities.
|
(4)
|
In December 2006, we determined that we no longer needed a
valuation allowance related to deferred tax assets generated by
net operating loss carry-forwards of prior years. As a result,
we recorded a tax benefit of $821,000 for the year ended
December 31, 2006.
|
24
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the historical consolidated financial
statements and related notes and the other financial information
appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results and timing of
events could differ materially from those anticipated in the
forward-looking statements as a result of many factors,
including those discussed under the caption Risk
Factors and elsewhere in this prospectus.
Overview
We manage highly specialized outpatient centers in emerging,
technology-based, niche medical markets. Currently, we are a
leading manager of fertility centers and vein clinics in the
United States. We provide services and products through our
three operating divisions (Fertility Centers, Consumer Services
and Vein Clinics) and shared support services for providers
through our corporate offices. Each of our operating divisions
is presented as a separate segment for financial reporting
purposes.
Our Fertility Centers Division is a provider network of 11
contracted fertility centers, referred to as our Partner
Program, serving 13 metropolitan markets across the United
States. We offer products and services to these providers
designed to support the fertility centers growth. All
fertility Partners also have full access to our Consumer
Services Division offerings. The division also sponsors a
Council of Physicians and Scientists for fertility providers.
Physicians affiliated with our Partner fertility centers obtain
a portion of their malpractice insurance through
ARTIC Assisted Reproductive Technology
Insurance Company, a captive insurance company which we helped
organize in 2005.
Our Consumer Services Division offers our Attain IVF programs to
fertility patients. The divisions Attain IVF programs are
designed to make the treatment process easier and more
affordable for patients. Currently, this division maintains a
contracted network of 25 independent fertility centers (23 as of
December 31, 2008) under its Affiliate Program, which
is designed to distribute the divisions products and
services to a wider group of patients than those serviced by our
Partner locations.
Our Vein Clinics Division began operations on August 8,
2007, with the purchase of Vein Clinics of America, Inc.
(VCA), a company that had been in business since
1981. The Vein Clinics Division currently manages a network of
34 clinics (32 as of December 31, 2008) located in
13 states, which specialize in the treatment of vein
disease and other vein disorders.
The primary elements of our business strategy include:
|
|
|
|
|
Making selective contract acquisitions of Partner fertility
centers;
|
|
|
|
Expanding our network of Affiliate fertility centers;
|
|
|
|
Developing de novo vein clinics;
|
|
|
|
Increasing the total number of patients treated;
|
|
|
|
Increasing the penetration of our Attain IVF programs; and
|
|
|
|
Continuing to improve operating efficiencies.
|
25
Major
Events Impacting Financial Condition and Results of
Operations
2009
On April 20, 2009, we announced the opening of a new vein
clinic in Cleveland, Ohio. This represents the 34th clinic
in our Vein Clinics Division, our entry into the Cleveland
market and the expansion of our presence in the State of Ohio.
On April 1, 2009, we elected to exercise the option
contained in our business service agreement with Arizona
Reproductive Medicine Specialists, based in Phoenix, Arizona,
and expand our service offerings from a limited range of
services to those offered to our other fertility Partners.
On January 20, 2009, we announced the opening of a new vein
clinic in Cincinnati, Ohio. This represents the 33rd clinic
in our Vein Clinics Division and our first entry into the State
of Ohio and the Cincinnati market.
2008
From June 2008 through March 2009, our 2007 annual and our 2008
periodic interim Securities and Exchange Commission reports were
the subject of a standard comment and review process by the
Staff of the Division of Corporation Finance of the Securities
and Exchange Commission. The application of generally accepted
accounting principles to our Attain IVF Refund Programs
(formerly our Shared Risk Refund Programs) multiple
element revenue arrangements is complex and managements
interpretation of the applicable authoritative literature
related to the timing of the recognition of the fair value of
revenues for the non-refundable portion of the Attain IVF Refund
Program fees differed from that of the Securities and Exchange
Commission, which caused us to re-evaluate our revenue
recognition policies. As a result, we restated our prior
financial statements with respect to the timing of revenue
recognition for our Attain IVF Refund Program within our
Consumer Services Division. Our previous revenue recognition
policy had generally recognized the non-refundable patient fees
(generally 30% of the contract amount) as revenues upon the
completion of the first treatment cycle. We now recognize the
non-refundable fees based on the relationship of the fair value
of each treatment to the total fair value of the treatment
package available to each patient. We also recognize a
warranty reserve representing the estimated cost of
services to be provided in the event a qualified patient
miscarries. This restatement does not impact our cash flows from
operations or the ultimate profits from our Attain IVF Refund
Program, only the timing of the revenue recognition for the
non-refundable portion of the Attain IVF Refund Program fees
paid by patients. See Note 2 of our consolidated financial
statements included elsewhere in this prospectus. The financial
data included in this prospectus reflects this restatement.
On December 17, 2008, we announced the opening of a new
vein clinic in Skokie, Illinois. This clinic represents our
ninth vein care clinic in the greater Chicago metropolitan area
and benefits from the operational and marketing leverage we have
developed in that market.
On December 8, 2008, we announced the opening of a new vein
clinic in Monroeville, Pennsylvania. This clinic is our first
vein clinic in Pennsylvania and is designed to provide
state-of-the-art
vein care to patients in the greater Pittsburgh area.
On July 9, 2008, we entered into a business services
agreement to provide discrete business services to Arizona
Reproductive Medicine Specialists, based in Phoenix, Arizona.
Under the terms of this
25-year
agreement, our service fees were initially comprised of a fixed
percentage of the fertility practices net revenues. We
also had the exclusive option, which we exercised on
April 1, 2009, at any point during
26
the life of the contract to expand our service offerings into a
complete range of business, marketing and financial services.
After we exercised the option on April 1, 2009, our fees
also included a fixed percentage of the fertility
practices earnings.
On June 23, 2008, we announced that we entered into a new
Affiliate services contract with the University of North
Carolina (UNC) School of Medicines Department
of Obstetrics and Gynecology in Chapel Hill, North Carolina. As
an Affiliate, UNC School of Medicines Department of
Obstetrics and Gynecology receives distribution rights to our
consumer products and services. In addition, UNC School of
Medicines Department of Obstetrics and Gynecology has
the right to receive other products and services uniquely
designed to support the business needs of successful,
high-growth fertility centers.
On June 5, 2008, we announced the opening of a new vein
clinic in Marietta, Georgia. This clinic was our fourth vein
clinic in Georgia.
On April 29, 2008, we announced the opening of a new vein
clinic in Alexandria, Virginia. This addition to our Vein
Clinics Division provides focused vein care treatment solutions
to the Washington, D.C. metropolitan area.
On April 24, 2008, we entered into a business service
agreement to supply a complete range of business, marketing and
facility services to Southeastern Fertility Centers, P.A.,
located in Mount Pleasant, South Carolina. Under the terms
of this
25-year
agreement, our service fees are comprised of reimbursed costs of
services, a tiered percentage of revenues and an additional
fixed percentage of the practices earnings. We also
committed up to $600,000 to fund any necessary capital needs of
the practice.
On April 1, 2008, we entered into an Affiliate services
contract with OU Physicians Reproductive Health in Oklahoma
City, Oklahoma. As a result of this agreement, OU Physicians
Reproductive Health provides another opportunity for our
Consumer Services Division to distribute its product offerings.
2007
On August 30, 2007, we entered into a business service
agreement to supply a complete range of business, marketing and
facility services to the Center for Reproductive Medicine in
Orlando, Florida. The Center for Reproductive Medicine is a
fertility practice comprised of four physicians. Under the terms
of this
25-year
agreement, our service fees are comprised of reimbursed costs of
services, a tiered percentage of revenues and an additional
fixed percentage of the Center for Reproductive Medicines
earnings. We also committed up to $1.0 million to fund any
necessary capital needs of the practice.
On August 8, 2007, we acquired all of the outstanding stock
of VCA for a total cost of approximately $29 million in
cash and common stock. The results of VCA are included in our
financial statements from the date of the acquisition.
Also on August 8, 2007, we entered into an amended credit
agreement with Bank of America, N.A. (Bank of
America). The new term loan under the amended credit
agreement is in the amount of $25 million (the proceeds of
which were applied to repay our original term loan and finance,
in part, the VCA transaction). Interest on the new term loan is,
at our option, at the prime rate less up to 0.50% or at LIBOR
plus 2.00% to 2.75%, depending upon the level of the ratio of
consolidated debt to earnings before interest, taxes
depreciation and amortization (EBITDA). The amended
credit agreement also contains provisions for a revolving line
of credit in the amount of $10 million. Interest on the
revolving line of credit is at the prime rate less up to 0.50%
or at LIBOR plus 1.5% to 2.5%, depending on the level of the
ratio of consolidated debt to EBITDA.
27
Effective July 1, 2007, we expanded our fertility center
Partner service arrangement with Shady Grove Fertility
Reproductive Science Center, P.C. (Shady Grove)
with the addition of the Fertility Center of the Greater
Baltimore Medical Center (the Center) in Baltimore,
Maryland, where we now provide a full range of business,
marketing and financial services. Under the terms of this
agreement, we purchased the assets of the Center from Greater
Baltimore Medical Center and have committed additional resources
to support further growth and development of the Center. Under
the terms of this agreement, we are paid service fees comprised
of reimbursed costs of services and a fixed percentage of
revenues, plus an additional fixed amount of the Centers
earnings.
On March 19, 2007, we declared a 25% common stock split
effected in the form of a common stock dividend for all holders
of record as of April 13, 2007. As a result of this
dividend, 1,628,907 new shares of common stock were issued on
the payment date of May 4, 2007. No fractional shares were
issued as all fractional amounts were rounded up to the next
whole share. All weighted average shares outstanding and
earnings per share calculations in this prospectus have been
restated to reflect this common stock dividend.
2006
In December 2006, we determined that we no longer needed a
valuation allowance related to deferred tax assets generated by
net operating loss carry-forwards of prior years. As a result,
we recorded a tax benefit of $821,000, which reduced our overall
tax provision and increased net income by the same amount while
adding $0.10 to earnings per share.
During October 2006, we provided notification that our financial
statements for 2005 and the first two quarters of 2006 could not
be relied on, and were restated due to an accounting error. The
restatements consisted of non-cash adjustments to deferred tax
and intangible balances and did not result in any changes to net
income or earnings per share for any period. All periods
affected by this error have been restated throughout this
prospectus.
On May 22, 2006, we declared a 25% common stock split
effected in the form of a common stock dividend for all holders
of record as of June 7, 2006. As a result of this dividend,
1,291,368 new shares of common stock were issued on the payment
date of June 21, 2006. No fractional shares were issued as
all fractional amounts were rounded up to the next whole share.
All weighted average shares outstanding and earnings per share
calculations in this prospectus have been restated to reflect
this common stock dividend.
Significant
Accounting Policies and Use of Estimates
Our significant accounting policies are described in Note 3
of our consolidated financial statements included elsewhere in
this prospectus.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States,
including our significant accounting policies, requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. On an ongoing basis, we evaluate
our estimates and assumptions, including those related to
revenue recognition, allowance for uncollectible accounts and
contractual allowance reserves, contingencies and income taxes.
We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the
circumstances. The results of our analysis form the basis for
making assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions, and the impact of such differences
may be material to our
28
consolidated financial statements. The most significant use of
estimates and assumptions in the preparation of our consolidated
financial statements relates to the determination of net
revenues and accounts receivable and reserves for estimated
refunds due to pregnancy losses in our Attain IVF Refund Program.
Contractual allowance and uncollectible reserve amounts are
determined based on historical collection performance data and
are reviewed and adjusted monthly as necessary. We make periodic
estimates for pregnancy loss based upon Company specific data.
Results
of Operations
The following table shows the percentage of net revenues
represented by various expenses and other income items reflected
in our statements of operations for the six months ended
June 30, 2009 and 2008 and the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Revenues, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
70.1
|
%
|
|
|
80.1
|
%
|
|
|
89.6
|
%
|
|
|
67.9
|
%
|
|
|
71.1
|
%
|
Consumer Services
|
|
|
9.6
|
%
|
|
|
10.5
|
%
|
|
|
10.4
|
%
|
|
|
9.4
|
%
|
|
|
9.1
|
%
|
Vein Clinics
|
|
|
20.3
|
%
|
|
|
9.4
|
%
|
|
|
N/A
|
|
|
|
22.7
|
%
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs of services incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
65.0
|
%
|
|
|
73.5
|
%
|
|
|
82.9
|
%
|
|
|
62.5
|
%
|
|
|
66.1
|
%
|
Consumer Services
|
|
|
7.2
|
%
|
|
|
8.1
|
%
|
|
|
7.5
|
%
|
|
|
7.0
|
%
|
|
|
6.6
|
%
|
Vein Clinics
|
|
|
18.9
|
%
|
|
|
8.8
|
%
|
|
|
N/A
|
|
|
|
20.9
|
%
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of services incurred
|
|
|
91.1
|
%
|
|
|
90.4
|
%
|
|
|
90.4
|
%
|
|
|
90.4
|
%
|
|
|
91.4
|
%
|
Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertility Centers
|
|
|
5.1
|
%
|
|
|
6.6
|
%
|
|
|
6.7
|
%
|
|
|
5.4
|
%
|
|
|
5.0
|
%
|
Consumer Services
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.9
|
%
|
|
|
2.4
|
%
|
|
|
2.5
|
%
|
Vein Clinics
|
|
|
1.4
|
%
|
|
|
0.6
|
%
|
|
|
N/A
|
|
|
|
1.8
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contribution
|
|
|
8.9
|
%
|
|
|
9.6
|
%
|
|
|
9.6
|
%
|
|
|
9.6
|
%
|
|
|
8.6
|
%
|
General and administrative expenses
|
|
|
5.4
|
%
|
|
|
7.0
|
%
|
|
|
7.5
|
%
|
|
|
6.0
|
%
|
|
|
5.3
|
%
|
Interest income
|
|
|
(0.2
|
)%
|
|
|
(0.8
|
)%
|
|
|
(0.9
|
)%
|
|
|
(0.1
|
)%
|
|
|
(0.3
|
)%
|
Interest expense
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
0.6
|
%
|
|
|
0.5
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
6.0
|
%
|
|
|
6.9
|
%
|
|
|
7.2
|
%
|
|
|
6.4
|
%
|
|
|
5.9
|
%
|
Income from operations before income taxes
|
|
|
2.9
|
%
|
|
|
2.7
|
%
|
|
|
2.4
|
%
|
|
|
3.2
|
%
|
|
|
2.7
|
%
|
Income tax provision
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
0.2
|
%(2)
|
|
|
1.3
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
2.2
|
%(2)
|
|
|
1.9
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Our Vein Clinics Division began operations on August 8,
2007 with our purchase of VCA.
|
|
(2)
|
In December 2006, we determined that we no longer needed a
valuation allowance related to deferred tax assets generated by
net operating loss carry-forwards of prior years. As a result,
we recorded a tax benefit of $821,000 for the year ended
December 31, 2006.
|
29
Revenues
For the six months ended June 30, 2009, total revenues of
$108.5 million increased approximately $13.1 million,
or 14%, from the same period in 2008. Approximately
$5.8 million of this increase was generated by our Vein
Clinics Division, $5.8 million from our Fertility Centers
Division and $1.5 million from our Consumer Services
Division. The two new vein clinics opened during the first
quarter of 2009 accounted for $1.1 million of our Vein
Clinics Divisions increase, with the remaining
$4.7 million generated by legacy clinics.
For the year ended December 31, 2008, total revenues of
$197.4 million increased approximately $46.2 million,
or 30.6%, from the year ended December 31, 2007. We
experienced
year-over-year
organic revenue increases in both of our fertility business
segments. Our Fertility Centers Division revenues increased as a
result of growth within our existing medical practices, as well
as the addition of two new Partner arrangements and the full
year of results of a Partner added in the third quarter of 2007.
Expansion continued in our Consumer Services Division, driven by
the continued expansion of our Attain IVF Refund Program. In
addition to growth in our two fertility segments, our
performance for the year ended December 31, 2008 included
full year results from our Vein Clinics Division which was
purchased on August 8, 2007.
For the year ended December 31, 2007, total revenues of
$151.2 million increased approximately $25.3 million,
or 20.1%, from the year ended December 31, 2006. Our
Fertility Centers Division revenues increased as a result of
growth within the underlying medical practices, the addition of
one new Partner arrangement and the expansion of the Shady Grove
contract. Expansion continued in our Consumer Services Division,
driven by the growth of our Attain IVF Refund Program. In
addition to growth within our two fertility segments, on
August 8, 2007, we acquired VCA. VCA, which we believe has
the single largest network of vein care providers in the United
States, became our third operating segment and contributed
$14.3 million to our 2007 revenues.
A
segment-by-segment
discussion is presented below.
Fertility
Centers Segment
In providing clinical care to patients, each of our Partner
fertility centers generates patient revenues which we do not
report in our financial statements. Although we do not
consolidate the Partner fertility center practice financials
with our own, these financials do directly affect our revenues.
The components of our revenues from each of the Partner
fertility centers are:
|
|
|
|
|
A base service fee calculated as a percentage of patient
revenues as reported by the Partner fertility center (this
percentage generally varies from 6% down to 3% depending on the
level of patient revenues);
|
|
|
|
Cost of services equal to reimbursement for the expenses which
we advanced to the Partner fertility center during the month
(representing substantially all of the expenses incurred by the
center); and
|
|
|
|
Our additional fees which represent our share of the net income
of the Partner fertility center (which varies from 10% to 20% or
a fixed amount depending on the underlying center, subject to
limits in some circumstances).
|
30
In addition to these revenues generated from our fertility
centers, we often receive miscellaneous other revenues related
to providing services to medical practices. From the total of
our revenues, we subtract the annual amortization of our
business service rights under most agreements, which are the
rights to provide business services to each of the centers.
During the first six months of 2009, Fertility Centers Division
revenues increased by $5.8 million, or 9%, relative to the
same period in the prior year. This increase was the result of a
5.0% rise in same-center revenues as well as $2.5 million
of revenues from the addition of two new Partner contracts in
April and July 2008. These increases are net of the reduction in
business at one of our top fertility centers in the Midwest as a
result of termination of a contract with one of the
centers third-party payors, as well as a slight moderation
in demand that we believe is attributable to the prolonged
recession. Contribution from this facility in 2008 was
approximately $2.3 million and this third-party payor
represented approximately 20% of this contribution.
Fertility Centers Division revenues in the year ended
December 31, 2008 increased by $17.4 million, or
14.3%, from the year ended December 31, 2007. This compares
to an increase of $8.3 million, or 7.4%, for the year ended
December 31, 2007 versus the year ended December 31,
2006. During 2008 and 2007, growth was largely attributable to
same center
year-over-year
growth in our network of underlying medical practices.
Influencing this growth is our focus on increasing patient
revenues through effective multi-faceted marketing programs, as
well as our continued focus on expense management, which drives
operational efficiency and higher contribution margins. Revenues
for the year ended December 31, 2008 also benefited from:
|
|
|
|
|
the inclusion of a new fertility Partner in Mount Pleasant,
South Carolina, which contributed $3.5 million to our net
revenues from its addition in April 2008 through
December 31, 2008;
|
|
|
|
full year results from our Orlando, Florida Partner added in
September 2007; and
|
|
|
|
the full year impact from the expansion of Shady Grove into the
Baltimore, Maryland market in July 2007.
|
In July 2008, we also entered into a
25-year
contract with Arizona Reproductive Medicine Specialists, based
in Phoenix, Arizona. Under the terms of this agreement, we
phased in the implementation of our full suite of Partner
services over time. Under this arrangement, our fees were
originally calculated as a fixed percentage of the centers
revenues with an option to expand into our standard three-tiered
fee structure, in line with expanded Partner services, based
upon the center meeting certain performance targets. We
exercised this option on April 1, 2009.
31
The table below illustrates the components of the Fertility
Centers Division revenues in relation to the Partner fertility
center practice financials for the six months ended
June 30, 2009 and 2008 and the years ended
December 31, 2008, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
Partner Fertility Center Financials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Patient revenues
|
|
$
|
192,380
|
|
|
$
|
168,653
|
|
|
$
|
152,632
|
|
|
$
|
99,887
|
|
|
$
|
92,264
|
|
(b) Cost of services
|
|
|
125,156
|
|
|
|
109,132
|
|
|
|
102,625
|
|
|
|
66,287
|
|
|
|
61,504
|
|
(c) Base service fee
|
|
|
8,798
|
|
|
|
7,791
|
|
|
|
7,170
|
|
|
|
4,686
|
|
|
|
4,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Practice contribution (a-b-c)
|
|
|
58,426
|
|
|
|
51,730
|
|
|
|
42,837
|
|
|
|
28,914
|
|
|
|
26,523
|
|
(e) Physician compensation
|
|
|
52,863
|
|
|
|
46,678
|
|
|
|
38,577
|
|
|
|
25,718
|
|
|
|
23,898
|
|
(f) IntegraMed additional fee
|
|
|
5,563
|
|
|
|
5,052
|
|
|
|
4,260
|
|
|
|
3,196
|
|
|
|
2,625
|
|
IntegraMed Financials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) IntegraMed gross revenues (b+c+f)
|
|
|
139,517
|
|
|
|
121,975
|
|
|
|
114,055
|
|
|
|
74,169
|
|
|
|
68,366
|
|
(h) Amortization of business service rights
|
|
|
(1,300
|
)
|
|
|
(1,343
|
)
|
|
|
(1,495
|
)
|
|
|
(648
|
)
|
|
|
(648
|
)
|
(i) Other
revenues(1)
|
|
|
223
|
|
|
|
446
|
|
|
|
207
|
|
|
|
53
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(j) IntegraMed fertility services revenues (g+h+i)
|
|
$
|
138,440
|
|
|
$
|
121,078
|
|
|
$
|
112,767
|
|
|
$
|
73,574
|
|
|
$
|
67,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other revenues includes administrative fees we receive from
ARTIC, the captive insurance company, fees from Arizona
Reproductive Medicine Specialists as well as other miscellaneous
fees.
|
The following summarized quarterly data for the six months ended
June 30, 2009 and the years ended December 31, 2008,
2007 and 2006 is presented for additional analysis and
demonstration of the slight seasonality of our Fertility Centers
Division. New patients visits are an indicator of initial
patient interest in fertility treatment and IVF cases completed
are an indicator of billable charges. IVF cases completed in the
fourth quarter of each year are typically lower, as many
patients do not wish to undergo the IVF procedure during the
year end holidays. Contributing to the lower number of IVF cases
completed are voluntary laboratory closures at year end at
several of our labs in order to undergo normal maintenance (in
thousands, except new patient visits and IVF cases completed).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, Net
|
|
|
Contribution
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
First quarter
|
|
$
|
36,284
|
|
|
$
|
32,746
|
|
|
$
|
29,092
|
|
|
$
|
27,497
|
|
|
$
|
2,642
|
|
|
$
|
2,304
|
|
|
$
|
2,315
|
|
|
$
|
2,059
|
|
Second quarter
|
|
|
37,290
|
|
|
|
35,051
|
|
|
|
29,728
|
|
|
|
28,648
|
|
|
|
3,057
|
|
|
|
2,570
|
|
|
|
2,526
|
|
|
|
2,031
|
|
Third quarter
|
|
|
N/A
|
|
|
|
36,505
|
|
|
|
31,046
|
|
|
|
28,256
|
|
|
|
N/A
|
|
|
|
2,743
|
|
|
|
2,714
|
|
|
|
2,174
|
|
Fourth quarter
|
|
|
N/A
|
|
|
|
34,138
|
|
|
|
31,212
|
|
|
|
28,366
|
|
|
|
N/A
|
|
|
|
2,599
|
|
|
|
2,464
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
$
|
73,574
|
|
|
$
|
138,440
|
|
|
$
|
121,078
|
|
|
$
|
112,767
|
|
|
$
|
5,699
|
|
|
$
|
10,216
|
|
|
$
|
10,019
|
|
|
$
|
8,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Patient Visits
|
|
|
IVF Cases Completed
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
First quarter
|
|
|
6,979
|
|
|
|
6,765
|
|
|
|
5,917
|
|
|
|
5,303
|
|
|
|
3,643
|
|
|
|
3,141
|
|
|
|
3,038
|
|
|
|
2,433
|
|
Second quarter
|
|
|
7,089
|
|
|
|
7,093
|
|
|
|
5,867
|
|
|
|
5,452
|
|
|
|
3,547
|
|
|
|
3,314
|
|
|
|
3,088
|
|
|
|
2,630
|
|
Third quarter
|
|
|
N/A
|
|
|
|
7,186
|
|
|
|
5,930
|
|
|
|
5,578
|
|
|
|
N/A
|
|
|
|
3,474
|
|
|
|
3,069
|
|
|
|
2,750
|
|
Fourth quarter
|
|
|
N/A
|
|
|
|
7,173
|
|
|
|
6,279
|
|
|
|
5,400
|
|
|
|
N/A
|
|
|
|
3,219
|
|
|
|
2,971
|
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
|
14,068
|
|
|
|
28,217
|
|
|
|
23,993
|
|
|
|
21,733
|
|
|
|
7,190
|
|
|
|
13,148
|
|
|
|
12,166
|
|
|
|
10,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Consumer
Services Segment
Revenues from our Consumer Services Division increased by 18.5%,
or $1.5 million, for the six months ended June 30,
2009 versus the same period in the prior year. Attain IVF Refund
Program revenues accounted for approximately 94% of the
divisions revenues during the first six months of 2009, up
from approximately 93% for the same period in 2008. Patients
enrolled in our Attain IVF Refund Program pay us an up-front fee
(deposit) in return for up to six treatment cycles (consisting
of three fresh IVF cycles and three frozen embryo transfers).
Any non-refundable portion of these fees is recognized as
revenues based on the relative fair value of each treatment
cycle completed relative to the total fair value of the
contracted treatment package available to the patient. The
refundable portion of the program contract amount is recognized
as revenue when the patient becomes pregnant. At the time of
pregnancy, we establish a reserve for future medical costs
should the patient miscarry and require additional contracted
treatment cycles. The two main factors that impact Attain IVF
Refund Program financial performance are:
|
|
|
|
|
the number of patients enrolled and receiving treatment, and
|
|
|
|
clinical pregnancy rates.
|
During the second quarter of 2009, the loss of a primary
third-party lender that provided financing programs for Attain
IVF patients and a general tightening of credit standards and
higher interest rates caused a decline in new patient
enrollments that adversely affected the program.
Our Affiliate Program generated revenues of $625,000 during the
first half of 2009, up slightly from $587,000 for the prior year
period. This increase in revenues is attributable to pricing
adjustments for the programs services. Although our
Affiliate Program produces revenues on a stand alone basis, the
primary value of the Affiliate Program is to serve as a
distribution channel for our Attain IVF programs and as an
introduction to our services for medical practices that may
become full fertility Partners. As of June 30, 2009, this
network was comprised of 23 independent fertility centers, one
more than the year earlier period.
Pharmaceutical revenues for the six months ended June 30,
2009 were $16,000 down from $68,000 for the same period in the
prior year. Our pharmaceutical revenues are comprised of
marketing support fees we earn based upon underlying product
margin as reported by a third-party pharmaceutical distributor.
Over the past several years we have seen flat or declining
revenues due to pharmaceutical cost increases which the
distributor has been unable to pass on to the consumer as a
result of competitive pressures. We view these pricing and
margin developments as longer-term structural elements within
the pharmaceutical market and do not expect significant
improvement during 2009. As such we did not renew our contract
with the third-party distributor when it expired on
June 30, 2009 and we anticipate no further revenues from
this source during the last half of 2009 and beyond.
For the year ended December 31, 2008, revenues of
$17.6 million from our Attain IVF Refund Program
represented approximately 92.6% of our Consumer Services
Division revenues. This compares to revenues of
$14.4 million, or slightly over 91.1%, of Consumer Services
Division revenues in 2007. Revenue growth in our Attain IVF
Refund Program of $3.2 million, or 22.2%, in 2008 compared
to 2007 was the result of enrolling more patients into the
program and increasing patient throughput by maintaining high
pregnancy success rates. Similarly, Attain IVF Refund Program
revenue growth of $2.9 million, or 25.2%, in 2007 versus
2006 was also attributable to expanded enrollments relative to
the earlier year, coupled with high pregnancy rates. From the
beginning of 2005 through the end of 2008, while pregnancy
success rates have either been maintained or increased,
enrollments in our Attain IVF Refund Program grew at a compound
annual rate of 32.8%. Because the patients in our Attain IVF
Refund Program prepay for their suite of services, and a
significant portion of the fees received by us
33
are not recognized until the patient achieves pregnancy, our
Attain IVF Refund Program deposits and deferred revenue balance
continues to grow each year the number of enrolled patients
grows.
Our Affiliate Program generated revenues of $1.2 million
for the year ended December 31, 2008, which is
approximately unchanged from the years ended December 31,
2007 and 2006. During 2008, four independent fertility centers
joined our Affiliate Program and two left in Partner related
transactions for a net increase of two centers. For the year
ended December 31, 2007, our Affiliate Program had a net
reduction of one center as one practice moved to our Partner
Program.
Pharmaceutical revenues of $200,000 for the year ended
December 31, 2008 were approximately equal to
pharmaceutical revenues for the year ended December 31,
2007, and down from $400,000 in 2006 due to the pharmaceutical
cost increases discussed above.
The following summarized Consumer Services Division quarterly
data for the six months ended June 30, 2009 and the years
ended December 31, 2008, 2007 and 2006 is presented for
additional analysis and demonstration of the fluctuations of
enrollments and pregnancies in our Attain IVF Refund Program (in
thousands, except enrollments and pregnancies).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, Net
|
|
|
Contribution
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
First quarter
|
|
$
|
5,225
|
|
|
$
|
4,024
|
|
|
$
|
3,084
|
|
|
$
|
2,904
|
|
|
$
|
1,512
|
|
|
$
|
1,066
|
|
|
$
|
603
|
|
|
$
|
635
|
|
Second quarter
|
|
|
5,004
|
|
|
|
4,611
|
|
|
|
4,059
|
|
|
|
2,991
|
|
|
|
1,161
|
|
|
|
1,254
|
|
|
|
1,007
|
|
|
|
1,132
|
|
Third quarter
|
|
|
N/A
|
|
|
|
5,152
|
|
|
|
4,365
|
|
|
|
3,379
|
|
|
|
N/A
|
|
|
|
1,145
|
|
|
|
982
|
|
|
|
950
|
|
Fourth quarter
|
|
|
N/A
|
|
|
|
5,226
|
|
|
|
4,296
|
|
|
|
3,777
|
|
|
|
N/A
|
|
|
|
1,217
|
|
|
|
887
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
$
|
10,229
|
|
|
$
|
19,013
|
|
|
$
|
15,804
|
|
|
$
|
13,051
|
|
|
$
|
2,673
|
|
|
$
|
4,682
|
|
|
$
|
3,479
|
|
|
$
|
3,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enrollments
|
|
|
Pregnancies
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
First quarter
|
|
|
253
|
|
|
|
212
|
|
|
|
250
|
|
|
|
159
|
|
|
|
219
|
|
|
|
167
|
|
|
|
114
|
|
|
|
111
|
|
Second quarter
|
|
|
239
|
|
|
|
280
|
|
|
|
241
|
|
|
|
194
|
|
|
|
203
|
|
|
|
189
|
|
|
|
167
|
|
|
|
113
|
|
Third quarter
|
|
|
N/A
|
|
|
|
307
|
|
|
|
247
|
|
|
|
227
|
|
|
|
N/A
|
|
|
|
217
|
|
|
|
173
|
|
|
|
134
|
|
Fourth quarter
|
|
|
N/A
|
|
|
|
250
|
|
|
|
222
|
|
|
|
207
|
|
|
|
N/A
|
|
|
|
205
|
|
|
|
183
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
|
492
|
|
|
|
1,049
|
|
|
|
960
|
|
|
|
787
|
|
|
|
422
|
|
|
|
778
|
|
|
|
637
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vein
Clinics Segment
Revenues in this segment are generated from direct billings to
patients or their insurer for vein disease treatment services
and these revenues are consolidated directly into our financials.
Revenues for the six months ended June 30, 2009 were
$24.7 million, up 30.5%, or $5.8 million from the
comparable period in 2008. During the first six months of 2009,
we opened new vein clinic locations in Cincinnati and Cleveland,
marking our entry into the State of Ohio and these two markets.
These additional clinics brought our total number of vein
clinics to 34, or three new clinics since the end of the second
quarter of 2008. These three clinics accounted for
$1.1 million of the growth in revenues for the six months
ended June 30, 2009, with the remaining $4.7 million
generated by legacy clinics.
34
Revenues for the year ended December 31, 2008 were
approximately $40.0 million versus partial year revenues of
$14.3 million in 2007. Revenues for the year ended
December 31, 2007 represent operating results only since
VCA was purchased on August 8, 2007.
We continue to target the opening of two additional new vein
clinics in locations across the United States during the
remainder of 2009, however this pace could be affected by
challenges in physician recruitment. To address this issue we
have assembled a physician recruitment task force to develop a
strategy and plan to raise the profile of the vein care career
opportunity to high-quality physicians across the United States.
New consultations, which are an indication of patient interest
in vein care treatment, rose 43% for the first six months of
2009 versus the year earlier period. First leg starts, which
signify the beginning of a billable treatment cycle, rose 32%
for the first six months of 2009 versus the year earlier period.
We have included the results of VCA in our financial statements
since the date of its acquisition on August 8, 2007. Vein
Clinics Division quarterly data for the six months ended
June 30, 2009 and the years ended December 31, 2008
and 2007 appear below (in thousands, except first leg starts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, Net
|
|
|
Contribution
|
|
|
First Leg Starts
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
First quarter
|
|
$
|
10,846
|
|
|
$
|
8,842
|
|
|
|
N/A
|
|
|
$
|
754
|
|
|
$
|
322
|
|
|
|
N/A
|
|
|
|
1,574
|
|
|
|
1,208
|
|
|
|
N/A
|
|
Second quarter
|
|
|
13,821
|
|
|
|
10,062
|
|
|
|
N/A
|
|
|
|
1,282
|
|
|
|
713
|
|
|
|
N/A
|
|
|
|
2,086
|
|
|
|
1,572
|
|
|
|
N/A
|
|
Third quarter
|
|
|
N/A
|
|
|
|
10,360
|
|
|
$
|
4,580
|
|
|
|
N/A
|
|
|
|
892
|
|
|
$
|
542
|
|
|
|
N/A
|
|
|
|
1,500
|
|
|
|
1,266
|
(1)
|
Fourth quarter
|
|
|
N/A
|
|
|
|
10,686
|
|
|
|
9,704
|
|
|
|
N/A
|
|
|
|
724
|
|
|
|
438
|
|
|
|
N/A
|
|
|
|
1,187
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
$
|
24,667
|
|
|
$
|
39,950
|
|
|
$
|
14,284
|
|
|
$
|
2,036
|
|
|
$
|
2,651
|
|
|
$
|
980
|
|
|
|
3,660
|
|
|
|
5,467
|
|
|
|
2,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes the period from July 1, 2007 through
August 7, 2007, which is prior to the VCA acquisition.
|
Our Vein Clinics Division managed 34 clinics as of June 30,
2009, 32 clinics as of December 31, 2008 and 28 clinics as
of December 31, 2007.
Contribution
For the first six months of 2009, contribution increased from
$8.2 million in the comparable period for 2008 to
$10.4 million in the 2009 period, or an increase of 26%,
driven by growth in all three of our business segments.
For the year ended December 31, 2008, total contribution of
$17.5 million was up approximately $3.1 million, or
21.2%, from the year ended December 31, 2007. Increased
contribution in our Fertility Centers Division in 2008 was the
result of increased profitability in our platform of existing
centers as well as the addition of contract acquisition related
results. The continued growth of our Attain IVF Refund Program
and full year results from our Vein Clinics Division were also
major contributors to the improvement.
For the year ended December 31, 2007, contribution growth
was $2.4 million, or 20.2%, versus the year ended
December 31, 2006. The increase in contribution in 2007,
versus 2006, was fueled mainly by organic growth in our
Fertility Centers Division coupled with partial year results
from our Vein Clinics Division acquired in August 2007.
Contribution results for our Consumer Services Division in 2007
were essentially even with 2006, as growth in our Attain IVF
Refund Program was offset by declining fees from pharmaceutical
sales.
35
A
segment-by-segment
discussion is presented below.
Fertility
Centers Segment
Fertility Centers Division contribution for the first six months
of 2009 rose $800,000, or 17%, from the prior year period based
on a 9% rise in revenues. During the first six months of 2009,
$300,000 of contribution was attributable to our new Partners
and $600,000 was attributable to our legacy centers, which were
offset slightly by a $100,000 rise in division administrative
overhead. The rise in contribution, along with improved
operating margins, are the result of division wide cost control
measures implemented early in 2009.
Fertility Centers Division contribution of $10.2 million
for the year ended December 31, 2008 increased
approximately $200,000, or 2.0%, from prior year levels.
Although this segment experienced revenue growth of 14.3% in
2008, versus the prior year, margin growth was tempered by
additional division level infrastructure investments. These
investments, which totaled $1.2 million during 2008, were
designed to support continuing growth and new contract
acquisitions within this segment.
Fertility Centers Division contribution for 2007 increased
approximately $1.6 million, or 19.1%, from 2006. This
increase was primarily attributable to the continued revenue and
margin growth of our existing fertility centers, and entry into
new fertility markets in Baltimore, Maryland and Orlando,
Florida. Contribution growth rates for our existing Partners
averaged 14.9% in 2007, versus the prior year. The new markets
entered into during the second half of 2007 generated
contribution of more than $400,000 during that year.
Consumer
Services Segment
Contribution from our Consumer Services Division for the six
months ended June 30, 2009 was $2.7 million versus
$2.3 million in the year earlier period. This increase is
the result of a 10% increase in pregnancies from our Attain IVF
Refund Program during the first six months of 2009 versus the
same period in 2008, coupled with a 5% increase in pregnancy
success rates during the same period.
Contribution from our Consumer Services Division grew by
$1.2 million to $4.7 million for the year ended
December 31, 2008 versus a contribution of
$3.5 million in the year ended December 31, 2007. This
growth was driven by our Attain IVF Refund Program in which the
two key profitability metrics, the number of patients receiving
treatment and pregnancy success rates, showed
year-over-year
improvement in 2008 versus 2007.
Contribution from both our Affiliate and pharmaceutical programs
in 2008 were on par with results in 2007. Although our Affiliate
Program grew by a net of two fertility centers during 2008, the
underlying value of this program is to serve as a distribution
channel for our Attain IVF programs, as well as a source of
future Partner fertility centers. Also, the market for
pharmaceutical products in which we participate has been subject
to external pricing pressures which have restricted revenues and
profitability.
For the year ended December 31, 2007, contribution of
$3.5 million from our Consumer Services Division was down
slightly from the $3.6 million earned in the prior year.
While enrollments in our Attain IVF Refund Program grew in 2007
versus 2006, pregnancy rates during 2007 were at the low end of
our expected range and impacted the amount of revenues
recognized as we record the bulk of our revenues at the time of
pregnancy.
36
In 2007, contribution from our pharmaceutical line was down
$400,000, or 71.3%, from 2006 due to the previously mentioned
unfavorable pricing and reimbursement environment.
Vein
Clinics Segment
For the first six months of 2009, Vein Clinics Division
contribution of $2.0 million, or 8.3% of Vein Clinics
Division revenues, compared to contribution of
$1.0 million, or 5.5% of Vein Clinics Division revenues,
for the first six months of 2008. The improved performance for
the six-month period is largely attributable to the additional
operational and marketing infrastructure put in place during
2008. This infrastructure allowed the division to conduct
ongoing
direct-to-consumer
marketing initiatives and provided the resources necessary to
service the resulting increase in patient flow.
For the year ended December 31, 2008, contribution from our
Vein Clinics Division of $2.7 million was up
$1.7 million from 2007. Year versus year comparisons for
this segment are not directly comparable as 2007 results only
include contribution generated since we acquired this segment in
August 2007.
General
and Administrative Expenses
General and administrative expenses are comprised of salaries
and benefits, administrative, regulatory compliance and
operational support costs defined as our Shared Services group,
which are not specifically related to individual center or
clinic operations or other product offerings.
General and administrative expenses totaled $6.6 million
for the first six months of 2009, an increase from the
$5.1 million recorded in the same period of the prior year.
The increased general and administrative expenses in the
six-month period is attributable to higher service and
infrastructure activities designed to provide operational
support to our three growing business segments. We measure our
performance in part by relating general and administrative
expenses to operating contribution. For the six months ended
June 30, 2009, general and administrative expenses were
63.1% of contribution compared to a ratio of 62.0% for the six
months ended June 30, 2008.
General and administrative expenses totaled $10.7 million
in 2008, $10.5 million in 2007 and $9.4 million in
2006. For the year ended December 31, 2008, general and
administrative expenses were 60.7% of contribution which
compares favorably to ratios of 72.7% and 77.8% in 2007 and
2006, respectively. We continue to actively manage general and
administrative expenses in an effort to leverage our Shared
Services group and extract economies of scale as those
opportunities arise.
Interest
Net interest expense was $423,000 for the first six months of
2009 as compared to net interest expense of $576,000 for the
first six months of 2008. The reduction in net interest expense
for the six-month period is the result of scheduled debt
repayments which reduced our outstanding loan balances coupled
with lower market interest rates on certain portions of the
remaining balances.
Net interest expense for the year ended December 31, 2008
totaled $1.2 million, compared to net interest income of
$100,000 for the year ended December 31, 2007, and net
interest income of $400,000 for the year ended December 31,
2006. The change in net interest income/expense for the three
years ended December 31, 2008 is primarily the result of
utilizing cash on hand and additional borrowings as the
principal means of financing our acquisition of VCA in August
2007. This acquisition used approximately $14 million of
cash from our balance sheet in addition to $17 million of
new borrowings.
37
Coupled with this cash outlay is a reduction in the general
level of interest rates as well as a slow-down in various credit
markets which has resulted in restrictions on the interest
income we are able to earn on our cash balances. Subject to
interest rate fluctuations, we anticipate interest expense to
decrease gradually in the coming quarters as scheduled debt
repayments reduce our outstanding principal balances.
Interest income of $400,000 for the year ended December 31,
2008 was below that of the prior year by $900,000, or a
reduction of 69.5%, primarily as a result of lower market
interest rates and conditions in the credit markets which
limited investment opportunities. Interest expense of
$1.6 million for the year ended December 31, 2008
exceeded that of the prior year by $400,000, or 37.5%, primarily
due to interest charges on new borrowings done in August 2007,
associated with the VCA acquisition.
For the year ended December 31, 2007, interest income
increased $200,000, or 17.1%, from the year ended
December 31, 2006, as a result of earnings on idle cash
balances during the first seven months of 2007. Interest expense
of $1.1 million for the year ended December 31, 2007
increased by $400,000 from the year ended December 31, 2006
as a result of mid-year borrowings associated with the VCA
acquisition.
Income
Tax Provision
Our provision for income tax was approximately $1.4 million
for the six months ended June 30, 2009, or 40.5% of pre-tax
income. This compared to $1.0 million, or 40.3% of pre-tax
income, for the six months ended June 30, 2008. Our
effective tax rates for 2009 and 2008 reflect provisions for
both current and deferred federal and state income taxes. The
effective tax rates for the six months ended June 30, 2009
and 2008 include additional interest for tax exposure items. We
expect the effective tax rate to approximate 40% for the full
year ending December 31, 2009.
Our provision for income tax was approximately
$2.2 million, $1.4 million and $300,000 for the three
years ended December 31, 2008, 2007 and 2006, respectively,
or 39.0%, 34.2% and 8.6% of pre-tax income, respectively. Our
effective tax rates for all periods reflect provisions for both
federal and state income taxes. The low effective tax rate of
8.6% for the year ended December 31, 2006 was mainly due to
an $821,000 tax benefit related to the elimination of the
valuation allowance on deferred tax assets. The lower effective
tax rate of 34.2% for the year ended December 31, 2007 was
mainly due to benefits received from tax-exempt interest income.
Effective January 1, 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48
(FIN No. 48), Accounting for
Uncertainty in Income Taxes, which clarifies the
accounting and disclosure for uncertainty in income taxes. The
adoption of FIN No. 48 did not have a material impact
on our financial statements. As of June 30, 2009, our total
gross unrecognized tax benefits were approximately $271,000 and
our total unrecognized tax benefits, net of federal effect, were
approximately $191,000, all of which would impact our effective
tax rate if recognized. Interest on unrecognized tax benefits as
of June 30, 2009 was approximately $39,000. We do not
anticipate that any of our net unrecognized tax benefits will
become recognized over the next year due to expirations in the
statute of limitations.
We file income tax returns in the U.S. federal jurisdiction
and various states. For federal income tax purposes, our 2007
and 2008 tax years remain open for examination by the tax
authorities under the normal three year statute of limitations.
A federal income tax examination for tax years through 2006 was
completed during 2008 resulting in no adjustment to our income
tax liability. For state tax purposes, our 2004 through 2008 tax
years remain open for examination.
38
Off-Balance
Sheet Arrangements
FASB Interpretation No. 46 (revised 2003)
(FIN No. 46R), Consolidation of
Variable Interest Entities addresses how a business
enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. For all
periods subsequent to August 8, 2007, as a result of our
acquisition of VCA, we have controlling financial interests in
individual vein clinics where we are the primary beneficiary and
obligor of their financial results. As such, we have
consolidated these vein clinic operations in our financial
statements in accordance with the provisions of
FIN No. 46R. Because we do not have a controlling
financial interest in individual fertility centers and we are
not the primary beneficiary or obligor of their financial
results, we do not consolidate the results of the fertility
centers in our accounts. Also, since we do not have a
controlling interest in the captive insurance company, and we
are not the primary beneficiary or obligor of the captive
insurance companys financial results, we do not
consolidate the results of the captive insurance company in our
accounts.
Liquidity
and Capital Resources
As of June 30, 2009, we had approximately
$31.5 million in cash and cash equivalents on hand as
compared to $28.3 million as of December 31, 2008. We
had a working capital deficit of approximately $5.3 million
as of June 30, 2009, versus a working capital deficit of
$4.0 million as of December 31, 2008. This decrease in
working capital from December 31, 2008 levels was primarily
due to fixed asset purchases of $3.7 million and scheduled
debt payments of $1.9 million during the first six months
of 2009, net of operating cash flows.
Attain IVF Refund Program patient deposits and other patient
deposits, which are reflected as a current liability, represent
funds received from patients in advance of treatment cycles and
are an indication of future Consumer Services Division revenues.
These deposits totaled approximately $13.0 million and
$13.9 million as of June 30, 2009 and
December 31, 2008, respectively. The decrease in deposits
is a direct result of increased patient treatments, and the
realization of the associated revenue, during the first six
months of 2009. These deposits are a significant source of cash
flow and represent interest-free financing for us.
As of both June 30, 2009 and December 31, 2008, we did
not have any significant contractual commitments for the
acquisition of fixed assets or construction of leasehold
improvements. However, we anticipate capital expenditures of
approximately $5.7 million in 2009, of which
$3.6 million was incurred during the first six months of
2009. These expenditures are primarily related to medical
equipment, information system infrastructure and leasehold
improvements.
We believe that working capital, specifically cash and cash
equivalents, remains at adequate levels to fund our operations
and our commitments for fixed asset acquisitions. We also
believe that the cash flows from our operations plus our
available revolving line of credit will be sufficient to provide
for our future liquidity needs over the next 12 months.
In August 2007, as part of our acquisition of VCA, we entered
into a new financing arrangement with Bank of America and
secured a $25 million five-year variable interest rate term
loan. Our previous term loan of $7.7 million was paid off
in its entirety as part of entering into our new financing
arrangement. After deducting the previous loan amount, interest
and fees, our net funding from Bank of America was
$17.0 million. In order to mitigate the interest rate risk
associated with this term loan, we also entered into an interest
rate swap agreement on 50% of the principal amount. This swap
transaction acts as an effective hedge fixing the interest rate
on half of our term loan at 5.39% plus the applicable margin for
the life of the loan. Other features of this credit facility
include a $10 million five-year revolving line of credit.
39
Each component of our amended credit facility bears interest by
reference, at our option, to Bank of Americas prime rate
minus a margin or to LIBOR plus a margin. The margin is
dependent upon a leverage test, ranging from 2.00% to 2.75% in
the case of LIBOR-based term loans and 0.00% to 0.50% in the
case of prime-based term loans. Interest on the revolving line
of credit is at the prime rate less up to 0.50% or at LIBOR plus
1.50% to 2.50%, depending on a leverage test. Interest on the
prime-based loans became payable quarterly beginning on
November 8, 2007 and interest on LIBOR-based loans is
payable on the last day of each applicable interest period. As
of June 30, 2009 and December 31, 2008, interest on
the term loan was payable at a rate of approximately 2.57% and
2.71%, respectively. Unused amounts under the revolving line of
credit bear a commitment fee of 0.25% and are payable quarterly.
Availability of borrowings under the revolving line of credit is
based on eligible accounts receivable, as defined in the amended
credit facility. As of both June 30, 2009 and
December 31, 2008, under the revolving line of credit, the
full amount of $10.0 million was available, of which
$7.5 million was outstanding.
Our amended credit facility with Bank of America is
collateralized by substantially all of our assets. As of both
June 30, 2009 and December 31, 2008, we were in full
compliance with all applicable debt covenants under our amended
credit facility. We also continuously review our credit
agreements and may renew, revise or enter into new agreements
from time to time as deemed necessary.
Significant
Contractual Obligations and Other Commercial
Commitments
The following summarizes our contractual obligations and other
commercial commitments at December 31, 2008, and the effect
such obligations are expected to have on our liquidity and cash
flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1
3 Years
|
|
|
4
5 Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
|
Notes payable
|
|
$
|
22,418
|
|
|
$
|
3,768
|
|
|
$
|
18,650
|
|
|
$
|
|
|
|
$
|
|
|
Line of credit outstanding
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
301
|
|
|
|
83
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
Interest on debt
|
|
|
2,972
|
|
|
|
1,067
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
60,353
|
|
|
|
4,708
|
|
|
|
17,793
|
|
|
|
15,425
|
|
|
|
22,427
|
|
Fertility Partners capital and other obligations
|
|
|
5,747
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
99,291
|
|
|
$
|
22,873
|
|
|
$
|
38,556
|
|
|
$
|
15,425
|
|
|
$
|
22,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration
Per Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1
3 Years
|
|
|
4
5 Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
|
Unused lines of credit
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
We also have commitments to provide working capital financing to
member centers in our Fertility Centers Division that are not
included in the above table. A significant portion of these
commitments relate to our transactions with the medical
practices themselves. Our responsibilities to the these medical
practices are to provide financing for their accounts receivable
and to hold patient deposits on their behalf, as well as
undistributed physician earnings. Disbursements to the medical
practices generally occur monthly. The medical practices
repayment hierarchy consists of the following:
|
|
|
|
|
We provide a cash credit to the practice for billings to
patients and insurance companies;
|
|
|
|
We reduce the cash credit for center expenses that we have
incurred on behalf of the practice;
|
|
|
|
We reduce the cash credit for the base portion of our service
fee which relates to the Partner revenues;
|
|
|
|
We reduce the cash credit for the variable portion of our
service fee which relates to the Partner earnings; and
|
|
|
|
We disburse to the medical practice the remaining cash amount
which represents the physicians undistributed earnings.
|
We are also responsible for the collection of the Partner
accounts receivables. We continuously fund these needs from our
cash flows from operations, the collection of prior months
receivables and deposits from patients in advance of treatment.
If delays in repayment are incurred, which have not as yet been
encountered, we could draw on our existing revolving line of
credit. We also make payments on behalf of the Partner for which
we are reimbursed in the short-term. Other than these payments,
as a general course, we do not make other advances to the
medical practices. We have no other funding commitments to the
Partner centers.
Quantitative
and Qualitative Disclosures About Market Risk
In the normal course of business our interest income and expense
items are sensitive to changes in the general level of interest
rates. During the third quarter of 2007 we entered into an
interest rate swap agreement designed to hedge 50% of our
$25 million variable interest rate term loan maturing in
2012. As a result of this swap transaction we have partially
shielded ourselves from a portion of the interest rate risks
associated with that portion of the term loan, as the swap
transaction essentially converts that portion of the term loan
to a fixed rate instrument at 5.39% plus the applicable margin.
We are currently subject to interest rate risks associated with
the remaining 50% of our term loan, as well as our short term
investments and certain advances to our fertility centers, all
of which are tied to either short term interest rates, LIBOR or
the prime rate. As of both December 31, 2008 and
June 30, 2009, a 1% change in interest rates would have
impacted our pre-tax income by approximately $100,000 annually.
Recently
Issued Accounting Pronouncements
Please see Note 3 (under the subheading Recently
Issued Accounting Pronouncements) of the notes to our
consolidated financial statements included elsewhere in this
prospectus for a discussion on recently issued accounting
pronouncements.
41
BUSINESS
We manage highly specialized outpatient centers in emerging,
technology-based, niche medical markets. Currently, we are a
leading manager of fertility centers and vein clinics in the
United States. We provide services and products through our
three operating divisions (Fertility Centers, Consumer Services
and Vein Clinics) and shared support services for providers
through our corporate offices. We provide our fertility centers
and vein clinics with administrative services such as finance,
accounting, human resources, risk management, legal and
purchasing support; marketing and sales support; internet
marketing and website support; access to integrated information
systems; in some instances, non-physician practitioners; and
access to capital for financing clinic operations and expansion.
Fertility
Centers Division
Our Fertility Centers Division provides business and management
services to a network of 11 contracted fertility centers in
our Partner Program, serving 13 metropolitan markets across the
United States. We believe these 11 Partner centers are the
largest managed network of fertility centers in the United
States, with 63 locations and 97 physicians and PhD
scientists, accounting for approximately 14% of the total
in vitro fertilization (IVF) procedures
performed in the United States in 2007, which is the latest
period for which third-party data are available. The division
supports fertility centers operations and growth by
providing access to information systems such as our proprietary
ARTworks electronic medical records software as well as medical
equipment and facilities, non-physician personnel and marketing
and financial support services. All fertility Partners have full
access to our Attain IVF programs, which are described below. We
do not employ or control the physicians who provide or direct
the treatment of patients.
Our fertility centers offer a range of diagnostic and fertility
treatment options to patients. The fertility centers
physicians perform diagnostic tests on both women and men to
determine the cause of infertility and each fertility center has
an endocrine and andrology laboratory on site in order to
perform and expedite infertility analyses. Once the cause of
infertility is identified, several treatment options are offered
to patients, including IVF treatment, frozen embryo transfer,
intrauterine insemination and minimally invasive surgery to
correct anatomical reproductive problems. All of our fertility
centers have
on-site IVF
laboratories in order to maintain the integrity of the IVF
processes. Fertility centers are typically staffed by six to
seven physicians, a scientist, embryologists, nurses, support
staff and ultrasound technicians.
Insurance and managed care payors, depending on the plan under
which a patient is covered, reimburse certain services that our
Partners provide, such as diagnostic testing, surgeries and, in
certain circumstances, fertility treatments. However, the
charges for assisted reproduction technology (ART)
services our Partners primarily provide are often paid directly
by patients, including through programs such as our Attain IVF
programs. Several states mandate offering certain benefits of
varying degrees for ART services. For example, in Massachusetts,
Rhode Island, Maryland and Illinois, the mandate requires
coverage for many, but not necessarily all, ART services
provided by our Partners. Approximately 50.3% of our Partner
centers payments were derived from third-party payors for
the first six months of 2009, all of which was provided by
private payors. Contractual arrangements with third-party payors
typically are for a term of one year, may be terminated by
either party upon 90 days notice any time after the
initial one-year term and contain automatic annual renewal
provisions. Contractual arrangements with third-party payors
also typically include payment terms and schedules of rates,
although those payment terms and schedules of rates are subject
to renegotiation after the initial term of the contract. During
the first six months of 2009, in accordance with the terms of
our contractual arrangements with them, third-party payors paid
approximately 51.2% of the charges billed to them by our Partner
Centers. We are unaware of efforts to expand mandated coverage
to additional states. If in
42
the future mandates are enacted by additional states, we expect
the impact on our Partner fertility centers to be neutral to
positive, as such mandates would likely increase the market for
fertility center services, but at payment rates that are lower
than the amounts typically paid directly by patients.
When establishing a Partner relationship, we typically acquire
the assets of a fertility center, enter into a long-term
comprehensive business service agreement with the center and
assume most administrative and financial functions of the
center. The acquisition of a Partner agreement generally
obligates us to pay a fixed sum for the exclusive right to
service the fertility center. These agreements are typically for
terms of 10 to 25 years and contain automatic renewal
provisions. Some of these agreements also contain provisions
that allow the Partner fertility center to terminate the
agreement, upon 12 months prior notice, at any time
after five years from the agreements effective date.
Partners typically have obligations upon termination in certain
circumstances, such as purchasing the assets used in operating
the fertility center and making payments based on recent
revenues. Partners also agree to promote their practices by,
among other things, participating in marketing programs we
develop for them. Typically, the fertility center contracting
with us is a professional corporation in which the key
physicians are the shareholders. Generally, no shareholder of a
Partner fertility center may assign his or her interest in the
Partner fertility center without our written consent.
We require each professional corporation operating in our
Partner fertility centers to enter into employment agreements
with all key physicians at that center. These employment
agreements typically have five-year terms and contain provisions
prohibiting the key physicians from practicing reproductive
endocrinology, infertility medicine or assisted reproductive
technology in competition with us, within a specified area, for
the term of the agreement and for 12 to 24 months
thereafter. Although it is unclear whether these non-competition
provisions would be enforceable if challenged, we have not
experienced significant competition from physicians who formerly
practiced at our Partner centers. We also usually enter into a
personal responsibility agreement directly with each physician
shareholder of the practice. The personal responsibility
agreement obligates a physician shareholder to repay us a
proportionate amount of the exclusive right to service fee
payment received by that physician shareholder if he or she
leaves the practice sooner than five years after the payment.
Under all 11 current Partner agreements, as compensation for our
services we receive a three-part fee comprised of: a tiered
percentage of net revenues, generally between 3% and 6%;
reimbursed costs of services (costs incurred in providing
services to a fertility center and any costs paid on behalf of
the fertility center); and either a fixed amount or a percentage
of the centers earnings, which currently ranges from 10%
to 20%, but may be subject to limits.
Our Fertility Centers Division also supports a Council of
Physicians and Scientists (the Council) for leading
fertility providers, which we established 14 years ago. The
Council is comprised mostly of representatives from our
fertility network and brings together leaders in reproductive
medicine and embryology with the goal of promoting a high
quality clinical environment throughout our fertility center
network. The Council meets regularly and conducts bi-monthly
teleconferences on topics related to improving infertility
diagnosis, treatment and success rates. Additionally, the
Council helps to establish the principles of our culture of
safety. We believe our centers follow the Practice and Ethics
Guidelines for clinical practice set forth by the American
Society for Reproductive Medicine. We have also achieved
accreditation from the American Association for Ambulatory
Healthcare and the College of American Pathologists, which
demonstrates our commitment to compliance with nationally
recognized standards for laboratory services, patient safety and
quality patient care.
We assisted in the organization of, and obtained a minority
equity interest in, an offshore captive insurance company called
Assisted Reproductive Technology Insurance Company
(ARTIC), which is
43
designed to moderate the cost of malpractice insurance to
members of our fertility network. Most of the equity of ARTIC is
owned by various physician practices that are members of our
fertility network, and we have no future obligations to provide
additional funding to ARTIC. On January 1, 2005, ARTIC
began providing malpractice insurance coverage to the majority
of physicians within our Partner fertility network.
Consumer
Services Division
Our Consumer Services Division offers a family of programs,
including our Attain IVF Refund Program and our recently
introduced Attain IVF Multi-Cycle Program, collectively referred
to as our Attain IVF programs, which are designed to help
patients attain their goal of starting a family. We offer our
Attain IVF programs directly to fertility patients, including
patients of our Partner centers and patients of the
divisions contracted network of independent medical
providers under its Affiliate Program.
Our Affiliate Program allows fertility centers to pay fees to
receive selected management services we provide to our Partners,
such as internet marketing and access to the Council. We also
provide our Affiliates with access to our Attain IVF programs.
Historically, we provided services to our Affiliates on an
exclusive basis in the area in which the Affiliate operates, but
Affiliates access to our Attain IVF programs is generally
subject to achievement of certain benchmarks, including with
respect to Attain IVF Refund Program enrollments; however, in
July 2009 we began allowing access to our Attain IVF programs on
a non-exclusive basis in new markets. As of September 30,
2009, we had contracted with 25 Affiliate fertility centers.
During 2007, our Affiliate fertility centers collectively
provided 8% of the total IVF procedures in the United States.
Our Consumer Services Division does not provide, nor is it
responsible for providing, medical services or treatments to
patients.
Our Consumer Services Division re-launched its Shared Risk
Refund Program under the name Attain IVF in late
2008. This re-branding was done to reflect advantages offered by
the program beyond its packaged pricing features and to position
the program in a leadership role among smaller, similar programs
offered by other providers.
Beginning in July 2009, we began referring to this program as
our Attain IVF Refund Program to differentiate it from our
Attain IVF Multi-Cycle Program. As described in more detail
below, our Attain IVF Refund Program is an offer of packaged
pricing for a set of fertility treatments with a refund, equal
to 70% of the contract amount for patients using their own eggs,
if treatment does not result in a baby. Under circumstances
where a patient uses donor eggs, 100% of the contract amount is
refunded if treatment does not result in a baby. For the six
months ended June 30, 2009, approximately 20% of the
patients in our Attain IVF Refund Program used donor eggs.
Patients enrolling in our Attain IVF programs can select from
various treatment and financing options which are designed to
appeal to patients at different stages of their reproductive
lives and with different financial needs and resources. The
average cost of one fresh IVF cycle as of August 2009 was
approximately $12,000 according to Marketdata Enterprises, Inc.
According to our estimates, the average cost of a frozen embryo
transfer is approximately $3,000. The Attain IVF Refund Program
allows medically cleared patients to pay an up-front deposit of
approximately twice the average cost of a fresh IVF cycle in
return for up to six treatment cycles (consisting of three fresh
IVF cycles and three frozen embryo transfers) with a refund if
treatment does not result in a baby. The refund is equal to 70%
of the contract amount for patients using their own eggs and
100% of the contract amount if the patient uses donor eggs. The
Attain IVF Multi-Cycle Program allows all patients, including
those who are not medically cleared for our Attain IVF Refund
Program, to pay a single fee, which is slightly less than the
average cost of two fresh IVF cycles, in return for up to four
treatment cycles (consisting of two fresh IVF cycles and two
frozen embryo transfers). Our Attain IVF Multi-Cycle Program
offers a refund ranging from 10% to 85% of the contract amount
depending on where in the process either we
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or the patient elects to terminate the program, as long as
termination is prior to a second fresh IVF cycle. The fertility
treatment cycles are provided to patients by fertility centers
with which we contract for participation in the program. The
benefits of our Attain IVF programs to our fertility centers
include: allowing for patients to commit to multiple fertility
treatments which improves treatment volume and revenues;
insulating the centers from refund risk; managing cash and
administrative details associated with our Attain IVF programs;
and enabling physicians to maintain a traditional fee for
service arrangement without the appearance of conflicts of
interest that otherwise might arise from self administering a
refund program. The benefits of our Attain IVF programs to
patients include: improved success rates associated with
multiple fertility treatment cycles; increased financial
certainty relating to the cost of the fertility treatment
process; and, in the case of our Attain IVF Refund Program, a
significant financial refund should the treatments be
unsuccessful.
Our Attain IVF programs serve as patient recruitment and case
management vehicles where the patient contracts with us to
provide the program services described below. We bind our
Partners and Affiliates to abide by the terms of the program
through participation agreements that support our packaged
pricing. These programs are designed to make the fertility
treatment process easier for patients by providing a continuum
of services over an extended period, if necessary. Our Attain
IVF programs achieve this objective by offering the following
services:
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Patient recruitment via internet web portals and search engines,
in-clinic educational materials, in-clinic contact with
fertility specialists and on-line contact with patient service
specialists;
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Educating patients as to the benefits of various treatment
options offered by our network of contracted medical providers
which have been tailored to appeal to patients at various stages
of their reproductive lives and with various medical conditions;
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Explaining the financial costs and patient responsibilities of
the various treatment options;
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Educating patients as to the various financing options offered
by our Attain IVF programs and referring them to sources of
third-party financing when requested;
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Coordinating an initial medical assessment required for entry
into our Attain IVF programs;
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Arranging treatment with an Affiliate or a Partner center for
all treatment cycles used by the patient; and
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Providing on-going case management, treatment plan monitoring
and evaluation services.
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We receive payment directly from patients who participate in our
Attain IVF programs. By contract, 30% of the Attain IVF Refund
Program contract amount is non-refundable (for the non-donor egg
option) and is recognized ratably (on a fair value basis) as
revenues over the course of the patients treatment cycles.
If the patient achieves pregnancy prior to the completion of the
last available treatment cycle, then the remaining unamortized
portion of the non-refundable fee is immediately recognized as
income. The remaining 70% of revenues are recorded upon the
patient becoming pregnant and achieving a fetal heartbeat. For
the donor egg option, for which 100% of the contract amount is
refundable, all revenues are recorded upon the patient becoming
pregnant and achieving a fetal heartbeat. We are able to record
income at the time of pregnancy for our Attain IVF Refund
Program, as we have substantially completed our fertility
obligation to the patient and we can accurately estimate the
amount of expenses or refunds that will become due if there is a
pregnancy loss. We are able to make these estimates for
pregnancy loss based upon reliable Company specific data with
respect to the large homogeneous population we have served for
more than seven years. Expenses prior to pregnancy
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related to the program are recorded as incurred. All of the
amounts shown on the balance sheets in our consolidated
financial statements included elsewhere in this prospectus as
Attain IVF Refund Program deferred revenues and other patient
deposits consist of unrecognized program enrollment/service fees
and potentially refundable contract amounts for enrolled
patients who have not had a successful pregnancy outcome and
deposits received from patients who have not yet commenced
treatment under the program.
Due to the characteristics of our Attain IVF programs, we pay
for a patients treatment costs in excess of their contract
amount should the initial treatment cycles be unsuccessful. In
order to moderate and manage the likelihood that we will need to
pay for these treatment costs, we have developed a sophisticated
statistical model and case management program in which Attain
IVF Refund Program patients are pre-approved prior to enrollment
in the program. We also continuously review patients
clinical criteria as they undergo treatment. If, while
undergoing treatment, a patients clinical response falls
outside our criteria for participation in Attain IVF programs,
we have the right to remove that individual from the program,
with an applicable refund to the patient. To date, our case
management process has been effective in managing the risks
associated with our Attain IVF Refund Program within expected
limits. A patient has the right to withdraw from our Attain IVF
Refund Program at any time and will be issued an applicable
refund.
Vein
Clinics Division
Our Vein Clinics Division was formed on August 8, 2007,
with the purchase of Vein Clinics of America, Inc.
(VCA), a company that had been in business since
1981. Our Vein Clinics Division provides business and management
services to a network of 34 vein clinics located in
13 states. We believe our vein clinics network is the
largest single network of vein care providers in the United
States. These clinics provide specialized treatment for patients
suffering from vein diseases and other vein disorders, such as
varicose veins, spider veins and venous ulcers.
We offer vein clinics services and support, including training
for physicians, clinical and financial information systems,
revenue cycle management, yield management, sales and marketing
services, group purchasing, non-physician personnel, facilities,
site selection and development and other operational functions
to support the clinic. The division supports vein clinics
operations and growth by providing access to information systems
such as our proprietary Virtual Physician Assistant
(VPA) information system, which is an end-to-end
patient and clinic operating system that provides decision
support and revenue cycle functions. A typical vein clinic
averages 2,400 square feet and is located in an affluent,
growing community. Each clinic has a standardized operational
structure composed of a phlebologist, nurse, ultrasound
technologist, office manager and assistant. Medical services or
treatments are provided to vein clinic patients by physicians
who are employed by professional corporations, whose financial
condition, results of operations and cash flows are consolidated
with our consolidated financial statements.
Our Vein Clinics Divisions philosophy of patient care is
based on complete disease management, from initial screening to
treatment to follow up. Our vein clinics view each step in this
process as critical to the patients successful outcome.
Our clinics currently use Endovenous Laser Treatment
(ELT) as well as sclerotherapy to treat varicose and
spider veins. Our vein clinics use extensive and sophisticated
ultrasound mapping prior to treatment, which we believe results
in a more effective treatment plan. Rigorous post-treatment
follow up is meant to identify any residual or emerging issues
so that they can be quickly managed before the disease worsens.
Our Vein Clinics Division depends upon third-party payors,
including governmental and private insurance programs, to pay
for most treatments provided to patients. For the first six
months of 2009,
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56% of payments received by our Vein Clinics Division were from
managed care programs, 20% were from commercial insurers, 14%
were from Medicare and 10% were directly from patients.
The private third-party payors providing reimbursement to our
vein clinics include standard indemnity insurance programs as
well as managed care programs, such as preferred provider
organizations and health maintenance organizations. These
third-party payors provide reimbursement to our vein clinics at
negotiated rates, which approximate 50% of the billed charges,
for medically necessary treatments. Most ELT treatments for
varicose veins and venous leg ulcers provided at our vein
clinics are reimbursed by third-party payors. However,
third-party payors generally do not cover sclerotherapy or
treatments they determine are not medically necessary, such as
the cosmetic treatment of spider veins. In some cases,
third-party payors require prior authorization of varicose vein
treatment to provide reimbursement. Contractual arrangements
with third-party payors typically are for a term of one year,
may be terminated by either party upon 60 to 90 days
notice after the initial term and contain automatic annual
renewal provisions. Contractual arrangements with third-party
payors also typically include payment terms and schedules of
rates that are subject to change by the third-party payor upon
as little as 30 days notice. Payments from Medicare
are paid in accordance with a set fee schedule and are subject
to change or review by governmental authorities.
Once our Vein Clinics Division has facilitated a vein
clinics establishment, we enter into a contract with the
professional corporation operating in our clinic. Unlike our
Partner fertility centers, the physicians who are employed at
our vein clinics typically do not have an ownership interest in
the medical practice. A friendly physician model is
often used for ownership, pursuant to which we are the primary
beneficiary and obligor of the vein clinics operations;
however, we also own and operate vein clinics through
subsidiaries in two states where we are not prohibited from
doing so under applicable corporate practice of medicine laws.
Under the terms of our contracts with the vein clinics, we have
sole and exclusive responsibility to manage the non-medical
operations of the practice and the physicians have sole
responsibility for the medical and clinical aspects of the
practice. Our contracts with the vein clinics provide that we
are responsible for the leasing of space, obtaining all
equipment and services needed, providing all billing and
collections functions, arranging for and supervising all
non-physician personnel and providing services so they can
market their own practices. In exchange for our services, our
contracts with the vein clinics provide that the vein clinics
pay us a fee equal to 150% of our expenses of operating and
managing the vein clinics. These fees have historically exceeded
the operating margin generated by any particular vein clinic
prior to payment of the management fee. Accordingly, each vein
clinic only pays the portion of the management fee that is equal
to the amount of revenue generated by the clinic annually up to
the 150% amount. As a result, our vein clinics do not generate
any net profits at year end. Our contracts with the vein clinics
are typically for 25 years with renewal rights. In the
event of early termination, any accrued obligations remain
outstanding until satisfied. We also have the right at any time
to cause the friendly physician to transfer his or
her ownership in a vein clinic to another physician designated
by us.
We require each professional corporation operating in our vein
clinics to enter into an employment agreement with the physician
practicing at that clinic. The employment agreement typically
has a term of one year and automatically renews for additional
one-year periods unless terminated by either party. The
physician generally is required to pay the clinic either $75,000
or $50,000 if the agreement is terminated prior to three years
from the physicians first employment with the clinic, with
the amount due depending on the time of termination. This
requirement helps defray the training expenses we incur when we
assist the physician in establishing a practice. The physician
also usually covenants not to compete with the clinic or provide
medical services in the treatment of varicose veins or other
venous diseases, within a specified area, during the
agreements term and for two years thereafter. Although it
is unclear whether these non-competition provisions would be
enforceable if challenged, we have not experienced significant
competition from physicians who formerly practiced at our vein
clinics.
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Since our acquisition of VCA in August 2007, we have made
significant investments in this divisions infrastructure,
which have been designed to allow us to open new clinics at a
more rapid and sustained pace utilizing a replicable model.
These investments include:
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Physician recruiting and training. The business
model for our Vein Clinics Division depends on being able to
identify, recruit and train new physicians to staff new clinics.
We have invested in additional professional personnel as well as
other recruiting and training assets to support scaled growth in
the future.
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Regional management. We have established a
regional management infrastructure to manage the day-to-day
operations of the expanding Vein Clinics Division clinical
network and anticipate continued investment in regional
management talent as our clinic base expands.
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Revenue cycle management. Over the past several
years, the market for vein care has undergone a shift from
private out of pocket payment by patients to an environment
where most treatment is covered by insurance. This shift has
caused us to make heavy investments in physician credentialing,
working capital and improved billing and collections personnel,
systems and procedures. These investments will continue as the
business grows.
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New clinic development. With our planned roll-out
of new clinic openings, we are making investments in personnel
and procedures for identifying opportunities and opening new
clinics in existing and new markets.
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Marketing and sales. We have established more
formal, direct-to-consumer and physician referral marketing
programs.
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Shared
Services Group
Through our Shared Services group, we provide the following
support to our Fertility Centers, Consumer Services and Vein
Clinics Divisions:
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Administrative Services. Our Shared
Services group provides our contracted fertility centers and
vein clinics with administrative services, including: accounting
and financial services, such as accounts payable, payroll and
financial reporting; human resources administration; legal
services; risk management; insurance; information systems and
services; and strategic planning.
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Access to Capital. We believe we
provide our Partner fertility centers and vein clinics with a
competitive advantage through access to capital for funding
accounts receivable, expansion and growth. We provide our
Partner fertility centers and vein clinics with efficient access
to capital which allows them to obtain current technologies,
equipment and facilities that enable them to provide a full
spectrum of services to effectively compete for patients. For
example, we have built new clinical facilities housing
state-of-the-art fertility laboratories for several Partners,
which enable them to expand their offerings to include a number
of services that they had previously outsourced, and have
acquired state-of-the-art ultrasound and laser technology for
our vein clinics. We believe this access to capital helps us to
recruit Partner practices.
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Integrated Information Systems. Using
our established base of treatment providers, we are continuously
developing integrated information systems to collect and analyze
clinical, patient, financial and marketing data, which we
believe allow us to more effectively
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control expenses and improve cash collections at our Partner
fertility centers and vein clinics. Our proprietary ARTworks
clinical software provides electronic medical records, treatment
plan and success rate research capabilities, decision support
functionality and clinical risk management services, which we
believe makes our physicians more efficient and improves quality
of care. We provide our vein clinics access to our proprietary
VPA information system, which is an end-to-end patient and
clinic operating system that provides decision support and
revenue cycle functions.
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Human Resources. Our Shared Services
group provides our contracted fertility centers and vein clinics
with human resources services, including: policies and
procedures; arranging for comprehensive benefits and managing
the implementation of those benefits; wage and hour
administration; performance reviews; job descriptions; and
overall human capital management.
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Our
Industries
Reproductive
Medicine
Reproductive medicine encompasses the medical discipline that
focuses on male and female reproductive systems and processes.
According to a recent industry estimate, approximately 10% of
U.S. couples have trouble conceiving. There are many
reasons why couples have difficulty conceiving, and accurate
identification of a specific cause of infertility can be time
consuming, expensive and requires access to specialized
diagnostic and treatment services. Reproductive endocrinologists
are specialized physicians who perform these more sophisticated
medical and surgical fertility diagnoses and treatments.
Reproductive endocrinologists generally have completed a minimum
of four years of residency training in obstetrics and gynecology
and have at least two years of additional training in an
approved subspecialty fellowship program. There are
approximately 1,400 practicing reproductive endocrinologists
offering fertility services across 480 fertility centers in the
United States. According to Marketdata Enterprises, Inc.,
expenditures relating to fertility services in the U.S. market
were estimated at approximately $4 billion for 2008. The
fertility services market is highly fragmented among providers
in each major local market as well as on a national basis.
Fertility services include diagnostic tests performed on both
the female and male. Depending on the results of the diagnostic
tests performed, treatment options may include, among others,
fertility drug therapy, artificial insemination and fertility
surgeries to correct anatomical problems. Procedures that
require gametes (sperm and eggs) to be handled in vitro
(outside the body) are classified as ART services. Current types
of ART services include IVF, frozen embryo transfers, donor egg
programs as well as other more specialized treatments. IVF
treatments are the most frequently employed form of ART, with
103,367 fresh IVF cycles performed in the United States in 2007.
Current techniques used in connection with IVF services include
intracytoplasmic sperm injection, assisted hatching,
cryopreservation of embryos, pre-implantation genetic diagnosis
and blastocyst culture and transfer.
Although demand for advanced reproductive medicine and treatment
is highly correlated with larger demographic trends, we believe
the market will continue to grow in the future for the following
reasons:
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The quality of treatment is improving, increasing pregnancy
success rates;
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Improvements in embryo culture media and implantation rates are
leading to the capability of reducing high order multiple
births, which is one of the greatest risk factors in this
industry;
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With improving pregnancy rates, the cost of treatment is
decreasing thereby making these services more affordable;
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Demand for reproductive medical services is increasing through
greater public awareness and acceptance of these
treatments; and
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Couples are delaying child birth until later in life. In 2006,
approximately one out of every 12 first births was to a woman
age 35 or older, compared with one out of every 100 first
births in 1970, according to the U.S. Centers for Disease
Control and Prevention.
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While fertility market growth has moderated recently, in line
with a demographic trough of couples of family-bearing age, we
believe that we are well positioned to increase our share of the
fertility market due to the following factors:
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The benefits arising from consolidation, including the economies
of scale that can be realized by leveraging a corporate
infrastructure like ours to minimize general and administrative
expenses as a percentage of fertility center revenues;
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The need for greater efficiencies to offset rising costs and
decreases in revenue growth;
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The barriers to establishing new fertility centers, including
the capital-intensive nature of acquiring and maintaining
state-of-the-art medical equipment, laboratory and clinical
facilities and the need to develop and maintain specialized
information systems to meet the demands of patients and
third-party payors;
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The need for support services like those we provide to address
the need for
seven-days-a-week
service to respond to patient demands and to optimize the
outcomes of patient treatments;
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The increased need for marketing services like those we provide
to address increasing competition among medical providers
specializing in fertility treatment; and
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Our track record of growing contracted fertility center Partners
two to three times faster than fertility centers that are not a
part of our network, based on the number of fresh IVF cycles
performed.
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Vein
Disease
Phlebology is the medical specialty concerned with the treatment
of vein diseases. Common vein diseases and their symptoms can
take many forms, including:
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Varicose veins which are caused when small valves
designed to allow blood to flow in only one direction fail or
leak. This causes blood to flow backwards under the force of
gravity and pool inside the vein;
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Spider veins which are very small varicose veins.
They are thin, threadlike veins that lie close to the
skins surface and are commonly red or purple in
appearance. Spider veins can be hormonally induced and are often
associated with pregnancy and menstruation;
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Venous Leg Ulcers which are non-healing open wounds
that are caused by venous pump failure. It usually occurs near
the inside of the ankle, but can be found anywhere below the
knee. It can occur with or without visible varicose veins;
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Klippel-Trenaunay Syndrome which is a rare,
congenital disorder in which patients usually have one
hypertrophied leg, a port wine stain and large varicose veins on
the lateral aspect of the leg; and
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Restless Leg Syndrome which may occur when valves
fail, causing blood to reflux, or flow backwards, causing it to
pool and stagnate in the veins, leading to aching, throbbing,
cramping and fatigue in the legs.
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Although there are both surgical as well as minimally invasive
treatment protocols for vein disease, we specialize in minimally
invasive care. Conventional vein care treatment under both
protocols usually begins with an ultrasound assisted mapping to
determine the extent of the disease, generally followed by a
surgical or minimally invasive treatment protocol. Historically,
the most common surgical treatment has been a procedure referred
to as vein stripping, which is the surgical removal of surface
veins. Vein stripping is generally done as an outpatient
procedure and is performed while the patient is under general
anesthesia. Vein stripping may leave scarring and require an
extended recovery time. More recent minimally invasive
treatments include ELT and sclerotherapy, which are the
treatments offered by our clinics. ELT is a laser treatment
which does not involve hospitalization, general surgery or the
potential for significant scarring that is associated with vein
stripping. With ELT, after local anesthesia is administered, a
small optical fiber is inserted through a needle into the
varicose vein under ultrasound guidance. The laser is activated
and, as the optic fiber is removed from the vein, it heats and
closes the vein. Once the vein is closed, the blood that was
circulating through the vein is naturally rerouted to other
healthy veins. Over time, the varicose vein is absorbed by the
body. Sclerotherapy involves injecting abnormal veins with a
solution called a sclerosant. This immediately shrinks the vein
and causes it to dissolve over a period of weeks, allowing the
body to naturally redirect the blood flow to healthy veins. A
typical sclerotherapy treatment may last for 15 to 20 minutes
and consists of multiple microinjections.
Various demographic trends are contributing to the growth in
demand for vein care. Annual expenditures related to vein care
in the United States are approximately $2 billion and are
projected to grow 12% per year through 2010, according to our
estimates. The U.S. Food and Drug Administrations
approval of lasers for thermal ablation of veins and subsequent
establishment of an American Medical Association Current
Procedural Terminology code for reimbursement by the Centers for
Medicare and Medicaid Services has opened this market to rapid
growth and development over the last several years. We also
believe that the market for vein care will continue to grow in
the future as awareness of minimally invasive treatment
protocols grows among people with vein disease and as additional
third-party payors recognize the medical necessity of treating
vein disease. We believe that approximately 25 million
people are currently affected by vein disease in the United
States, but only approximately one million receive treatment for
such vein disease.
We believe numerous market conditions in this industry produce
business opportunities for us, including:
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The level of specialized skills required for comprehensive
patient treatment;
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Favorable sociological trends including a growing demographic
wave from an aging population;
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The need to develop and maintain specialized management
information systems to meet the increasing demands of patient
billing and third-party payors;
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The current fragmented nature of the market, which is comprised
of numerous smaller, independent providers, allowing the
opportunity for market consolidation;
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New laser and medical technologies that make access to treatment
less painful and disfiguring, coupled with insurance company
reimbursement for these new technologies;
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The large number of people affected by vein disease in the
United States in relation to the relatively low percentage of
people who actually receive treatment for such vein
disease; and
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Our experience recruiting and training physicians in treating
varicose veins and the ability to produce opportunities we
believe are financially attractive to physicians practicing in
other areas, such as general practice or emergency medicine.
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Our
Strategy
Make
Selective Contract Acquisitions of Partner Fertility
Centers
The U.S. market for fertility services is highly fragmented
and we believe that it is ripe for consolidation. Recruitment
into our Partner Program has traditionally focused on fertility
centers that first participate as Affiliates serviced by our
Consumer Services Division; as such, we had an established
pipeline of 25 fertility centers as of September 30, 2009.
Affiliate practices have the opportunity to become familiar with
the offerings we provide and our commitment to customer service,
which allows the Affiliate practices to see our value
proposition first hand. We, in turn, have a chance to assess a
practices commitment to growth and utilization of our
services without making a significant up-front financial
commitment. In addition to recruiting from Affiliate centers, we
have a development staff that targets leading physician groups
with established practices in selected metropolitan markets.
These candidates are then evaluated against our contract
acquisition criteria, which includes factors such as size of
practice, physician reputation and the physicians
growth-oriented outlook. We believe that our competitors
ability to compete with us for contract acquisitions is
currently limited due to our experience acquiring Partner center
contracts, our position as the manager of what we believe is the
largest network of fertility centers in the United States and
our developed infrastructure and experience in delivering
valuable services to support fertility center operations.
Expand
our Network of Affiliate Fertility Centers
As of September 30, 2009, we had Affiliates in 24
metropolitan markets and intend to expand our network of
Affiliate fertility centers to other metropolitan markets across
the United States. We primarily focus our network development
activities on metropolitan markets with populations in excess of
500,000. Because of the relatively low percentage of the
population that seeks fertility treatment, a large population
base is required to support a sophisticated fertility center.
Our fertility centers are capable of drawing consumers from a
large geographic area and, as such, our development staff is
focused on the top 100 largest metropolitan markets, where we
expect the highest demand for fertility centers to occur.
Develop
De Novo Vein Clinics
We intend to develop new vein clinics in targeted markets. Our
past experience suggests that the vein clinics business can
generally support one clinic per one million population in
metropolitan markets. Our new clinic development staff focuses
on the following:
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Developing new clinics in markets where we already have existing
clinics that have not fully penetrated their market to take
advantage of existing investments in regional management,
managed care contracts, personnel and marketing capabilities;
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Identifying attractive new markets in states that already have a
vein clinic location and states contiguous to existing vein
clinic locations to leverage regional management, personnel and
other infrastructure assets; and
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Identifying locations where we believe there are attractive
demographics, reasonable media costs and a favorable
reimbursement environment.
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We believe our vein clinic model can be predictably and
profitably replicated in new markets. Our ability to develop de
novo vein clinics is demonstrated by the five new vein clinics
we opened during 2008 and the new vein clinics we opened in
Cincinnati and Cleveland, Ohio in 2009. We currently expect to
open two additional vein clinics by the end of 2009 and
accelerate and increase the number of de novo vein clinics
opened in 2010, however this pace could be affected by
challenges in physician recruitment. De novo vein clinics offer
an attractive return on capital as they require relatively
little capital investment, typically $300,000, and usually reach
break-even in nine months or less after opening of the clinic.
Increase
the Total Number of Patients Treated
We intend to work with our fertility centers and vein clinics to
increase the total number of patients they treat. To achieve
this objective we intend to:
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Offer products and services to centers and clinics that help
them attract patients, including access to state-of-the-art
equipment, access to our Attain IVF programs and access to our
clinical and information technology applications;
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Enable fertility centers to enhance their ability to provide
superior care through use of our proprietary ARTworks software,
which provides electronic medical records, treatment plan and
success rate research capabilities, decision support
functionality and clinical risk management auditing services;
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Enable vein clinics to enhance their ability to provide superior
care through use of our proprietary VPA information system,
which is an end-to-end patient and clinic operating system that
provides decision support and revenue cycle functions;
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Help our fertility centers and vein clinics drive additional
patient volume through our sales and marketing efforts,
including our direct-to-consumer advertising, internet
marketing, physician referral development and providing
marketing materials and programs to our fertility centers and
vein clinics for their use; and
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Convert initial potential patient contacts into patients treated
at our centers and clinics. We believe we can accomplish this
through the protocols we established for our call center
professionals and contact follow up procedures our center and
clinic staff employ to ensure patients attend their consultation
and all scheduled treatments.
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Increase
Penetration of Our Attain IVF Programs
Currently, many third-party payors provide limited coverage for
the diagnosis and treatment of infertility. Our Attain IVF
programs, which are offered directly to patients, have been
designed to offer attractive financial options to prospective
patients. For the six months ended June 30, 2009,
approximately 11.5% of self-pay patients in our Partner and
Affiliate network utilized our Attain IVF Refund Program. We
formally introduced our Attain IVF Multi-Cycle Program in July
2009. We believe that the penetration of our Attain IVF programs
can be meaningfully increased by educating patients on the
improved success rates associated with multiple treatment cycles
and the packaged pricing features of
53
our Attain IVF programs, which allow for multiple treatment
cycles and, in the case of our Attain IVF Refund Program, a
significant financial refund if the treatments are unsuccessful.
We also believe we can increase overall market penetration of
our Attain IVF programs by demonstrating to physicians at
potential Affiliate and Partner practices the benefit of
increased patient volume and retention that we believe result
from offering our Attain IVF programs. We have demonstrated the
ability to increase Attain IVF Refund Program penetration
because certain of our fertility centers had Attain IVF Refund
Program penetration rates in excess of 25% during the six months
ended June 30, 2009.
Continue
Improving Operating Efficiencies
We continuously seek opportunities to lower costs and realize
operating efficiencies through the implementation of a
centralized infrastructure focused on improved accounts
receivable management, along with leveraging economies of scale
in support functions such as procurement, finance, information
technology, human resources, risk management and legal services.
We expect to further leverage our corporate infrastructure as we
expand our network of Partner fertility centers and vein clinics.
Sales and
Marketing
The marketing departments for our Fertility Centers, Consumer
Services and Vein Clinics Divisions specialize in the
development of sophisticated marketing and sales programs that
give contracted fertility centers and vein clinics access to
business-building techniques designed to facilitate growth and
development. Although we believe these marketing and sales
efforts are often too expensive for many individual physician
practices, affiliation with us provides access to greater
marketing and sales capabilities than would otherwise be
available. In addition, our Consumer Services Division is
focused on direct-to-consumer marketing, which we believe
represents a competitive advantage over non-affiliated fertility
centers. Our marketing services focus on referral enhancement,
relationships with local physicians, media and public relations.
We operate web portals that: allow visitors access to
educational material concerning infertility and vein care
issues; provide links to our fertility Partner and Affiliate
practices; provide links to our vein clinics; allow prospective
patients to request fertility and vein care appointments or
follow up contact; and allow prospective patients to request
information on our Attain IVF programs and apply for treatment
financing.
Competition
Our business divisions operate in highly competitive areas. Our
fertility centers compete with national, regional and local
physician practice fertility centers, hospitals and university
medical centers, some of which have programs that compete with
our Attain IVF programs. Our fertility centers may also compete
with fertility centers located outside of the United States, due
to the self-pay nature of IVF treatment. Our vein clinics
compete with other vein care clinic providers, dermatologist and
surgical clinics that provide ELT and sclerotherapy as an
ancillary offering, vascular surgeons and interventional
radiologists. Barriers to entry in the vein care industry are
low. We do not believe that we currently face significant
competition providing managerial services to fertility centers
and vein clinics. We believe that the fertility centers and vein
clinics we work with are well positioned to compete in our
markets based on the reputations of the physicians providing
services at those centers and clinics; however, there can be no
assurance that these centers and clinics will be able to compete
effectively with existing providers in our markets or that new
competitors will not enter into our markets. These existing and
new competitors may have greater financial and other resources
than we or our fertility centers or vein clinics do. See
Risk Factors We face increased competition
from existing providers, as well as new providers entering our
markets.
54
Health
Care Regulation
The health care industry is highly regulated. Our ability to
operate profitably will depend in part upon our ability, and the
ability of our affiliated physicians and physician practice
groups, to obtain and maintain all licenses and other approvals
necessary to comply with applicable health care regulations. We
believe that health care regulations will continue to change.
Therefore, we monitor developments in health care law, and we
are likely to be required to modify our operations from time to
time as our business and the regulatory environment changes.
Many aspects of our current and anticipated business operations
have not been the subject of specific judicial or regulatory
interpretation. A review of our business by courts or regulatory
authorities may result in a determination that could adversely
affect our operations. In addition, the health care regulatory
environment may change in a way that restricts our operations.
Future changes in health care regulation are difficult to
predict and may constrain or require us to restructure our
operations, which could negatively impact our business and
operating results.
Physician
Licensure Laws
The practice of medicine is subject to state licensure laws,
regulations and approvals. We have established a system designed
to ensure that the physicians at our fertility centers and vein
clinics are appropriately licensed under applicable state law.
If physicians at the centers or clinics fail to renew their
licenses on an annual basis or fail to maintain an unrestricted
license, our business, financial condition and results of
operations may be negatively impacted.
Corporate
Practice of Medicine
Some states have laws that prevent business entities like us
from practicing medicine, employing physicians and other
individuals licensed in the healing arts or other learned
profession and exercising control over their decisions, also
known, collectively, as the corporate practice of medicine. In
some states these prohibitions are expressly stated in a statute
or regulation, whereas in other states the prohibition is a
matter of judicial or regulatory interpretation. Additionally,
in those states which apply such prohibitions to individuals
licensed in the healing arts or other learned profession, it is
not clear whether physician assistants or nurse practitioners
would be subject to such prohibitions.
In states that prohibit the corporate practice of medicine, we
operate by maintaining long-term management contracts with
affiliated medical practices, which are each owned and operated
by physicians and which employ or contract with additional
physicians. Under such an arrangement, the laws of most states
focus on the extent to which the corporation exercises control
over the physicians and on the ability of the physicians to use
their own professional judgment as to diagnosis and treatment.
We do not represent to the public that we offer medical
services, and we do not exercise influence or control over the
practice of medicine by physicians or by their affiliated
medical practices. In each of these states, the affiliated
fertility center or vein clinic is the sole employer of the
physicians, and the affiliated fertility center or vein clinic
retains the full authority to direct the medical, professional
and ethical aspects of its medical practice. Our fertility
centers and vein clinics are duly licensed or qualified as a
medical practice or foreign corporation in the states where such
license or qualification is required.
Corporate practice of medicine laws and their interpretations
are continually evolving and may change in the future. Moreover,
these laws and their interpretations are generally enforced by
state courts and regulatory agencies that have broad discretion
in their enforcement. Although we neither employ physicians nor
provide medical services in those states that prohibit the
corporate practice of medicine, a state court or enforcement
agency may conclude that we are engaged in the corporate
practice of medicine in those states where we employ nurse
practitioners and physician assistants who work under the
supervision of the physicians at our fertility centers and vein
clinics or because we provide services
55
to physicians in connection with their performance of
professional medical services through our management contracts.
Although we have not received notification from any state
regulatory or similar authority asserting that we are engaged in
the corporate practice of medicine, to the extent any act or
service to be performed by us is construed by a court or
enforcement agency as constituting the practice of medicine in a
particular jurisdiction, we cannot be sure that such court or
enforcement agency would not construe our arrangements as
violating that jurisdictions corporate practice of
medicine doctrine. If such a claim were successful, we could be
subject to civil and criminal penalties, could be required to
restructure or terminate our applicable contractual arrangements
and managed physicians could have restrictions imposed upon
their licenses to practice medicine. Additionally, a physician
shareholder of a managed practice might successfully avoid
restrictions on the practices ability to operate
independent of our management on the grounds that the managed
practices management arrangement with us violates the
states prohibition on the corporate practice of medicine.
Such results or the inability of us or the managed practices to
restructure our relationships to comply with such prohibitions
could have an adverse effect on our business, financial
condition and results of operations.
Fee
Splitting
The laws of some states prohibit physicians from splitting with
anyone, other than providers who are part of the same group
practice, any professional fee, commission, rebate or other form
of compensation for any services not actually and personally
rendered. The precise language and judicial interpretation of
fee-splitting prohibitions varies from state to state.
Courts in a number of states, including Illinois, have
interpreted fee-splitting statutes as prohibiting all percentage
of gross revenue and percentage of net profit management fee
arrangements, despite the performance of legitimate management
services. Our management agreement with our Partner fertility
center in Illinois provides that we will be paid a base fee
equal to a fixed percentage of the revenues of the fertility
center that declines to zero to the extent the costs relating to
the management of the fertility center increase as a percentage
of total revenues. There is a substantial risk that the
compensation arrangement, being based on a percentage of
revenues, would not be upheld if challenged under Illinois law.
To address this, our management agreement provides that if such
compensation arrangement is found to be illegal, unenforceable,
against public policy or forbidden by law, the management fee
will be an annual fixed fee to be mutually agreed upon, not less
than $1,000,000 per year, retroactive to the effective date of
the agreement, resulting in a reduction of our management fee.
In such event, there is likely to be a decrease in the
management fees derived from this fertility center as a result
of the new fee structure, as well as repayment of amounts paid
in excess of the prior management fee.
Fee-splitting laws and their interpretations vary from state to
state and are enforced by state courts and regulatory
authorities that have broad discretion in their enforcement. For
example, our Attain IVF Refund Program could be interpreted by
one or more state regulators as a prohibited fee split to the
extent that we retain a portion of the payments patients pay
directly to us for their medical treatment by our fertility
centers. There can be no assurance that these laws will be
interpreted in a manner consistent with our practices or that
other laws or regulations will not be enacted in the future that
could have a material adverse effect on our business, financial
condition and operating results. Penalties for violating
fee-splitting statutes or regulations may include the medical
license revocation, suspension, probation or other disciplinary
action of the providers affiliated with our fertility centers or
vein clinics who have been found to violate the fee-splitting
statutes or regulations.
In addition, courts have refused to enforce contracts found to
violate state fee-splitting prohibitions. To the extent any of
our contractual arrangements are construed by a court or
enforcement agency as violating a jurisdictions
fee-splitting laws, there is a possibility that some provisions
of our agreements
56
may not be enforceable. For example, a physician shareholder of
a managed practice might successfully avoid payment of a
management fee on the grounds that the management arrangement
violates the states fee-splitting prohibition. We also may
be required to redesign or terminate our arrangements, including
our Attain IVF programs, and our relationships with our
fertility centers or vein clinics in order to bring their
activities into compliance with such laws. The termination of,
or our failure to, successfully restructure, any such
relationship could have a material adverse affect on our
business, financial condition and operating results. In
particular, a forced restructuring of our management fee could
have a material impact on us. In addition, expansion of our
operations to new jurisdictions could require structural and
organizational modifications of our relationships with our
fertility centers in order to comply with additional statutes.
Further, although our management agreements with our vein
clinics provide that each vein clinic pay us a fee equal to 150%
of our expenses of operating and managing the vein clinic, these
fees have historically exceeded the operating margin generated
by any particular vein clinic prior to payment of the management
fee. Accordingly, each vein clinic only pays the portion of the
management fee that is equal to the amount of revenue generated
by the clinic annually up to the 150% amount. As a result, our
vein clinics do not generate any net profits at year end. In
those states that have interpreted fee-splitting statutes as
prohibiting a percentage of net revenue management fee
arrangements where we have vein clinics, there is material risk
that a regulator could recharacterize our management fee as 100%
of net revenue in violation of such states fee-splitting
statutes which would subject physicians affiliated with our vein
clinics to disciplinary actions or civil penalties.
Courts in other states, including Maryland, where we have two
vein clinics, have interpreted their fee-splitting statutes to
prohibit non-physicians from receiving fees in connection with
the management of a physician practice that do not bear a
reasonable relationship to the services being rendered based on
the fair market value of such services. A state regulator could
conclude that 150% of our expenses does not bear a reasonable
relationship to the services being rendered because none of our
vein clinics generate sufficient revenues to pay the full
management fee. If our management fee were to be challenged in a
state such as Maryland, there is substantial risk that this
compensation method would not be upheld, which could subject the
providers who are affiliated with the vein clinics in Maryland
to disciplinary action as well as civil penalties. We also have
vein clinics in Wisconsin, Tennessee and Kansas which have a
similar requirement that the management fee reflect the fair
market value of the services being rendered and impose
disciplinary actions, civil penalties and criminal penalties on
the physicians who are affiliated with our vein clinics in those
locations if such fee does not reflect the fair market value of
the services being rendered.
Other state statutes only prohibit fee splitting in return for
referrals or certain practice expansion or marketing activities.
Although we provide technical assistance to help our fertility
centers and vein clinics expand their practice and engage in
marketing, such practice expansion or marketing activities are
conducted by our fertility centers and vein clinics and not by
us.
Federal
and State Anti-Kickback Prohibitions
Various federal and state laws govern financial arrangements
among health care providers. The federal anti-kickback law
prohibits the knowing and willful offer, payment, solicitation
or receipt of any form of remuneration in return for, or with
the purpose to induce, the referral of Medicare, Medicaid or
other federal health care program patients, or in return for, or
with the purpose to induce, the purchase, lease or order of
items or services that are covered by Medicare, Medicaid or
other federal health care programs. Similarly, many state laws
prohibit the solicitation, payment or receipt of remuneration in
return for, or to induce, the referral of patients to private as
well as government programs in violation of these statutes.
57
Federal and state anti-kickback statutes are very broad and it
is possible that a court could conclude that the marketing
services we offer in exchange for a management fee based on a
percentage of net profits constitutes a payment in violation of
these statutes. Our fertility centers and vein clinics are also
subject to these statutes, but we do not oversee and are not
responsible for their compliance with these laws.
Violations of these anti-kickback laws may result in substantial
civil or criminal penalties for individuals or entities. These
laws may be enforced by the government or by private individual
whistleblowers. If we or our fertility centers or vein clinics
are found to have violated federal or state anti-kickback laws,
our business, operations or financial condition could be
adversely affected.
Physician
Self-Referral Prohibitions
The federal physician self-referral statute, known as the
Stark statute, prohibits a physician from making a
referral for certain designated health services to any entity
with which the physician has a financial relationship, unless
there is an exception in the statute that allows the referral.
The entity that receives a prohibited referral from a physician
may not submit a bill to Medicare for that service. Federal
courts have ruled that a violation of the Stark statute, as well
as a violation of the federal anti-kickback law described above,
can serve as the basis for a Federal False Claims Act suit. Many
state laws prohibit physician referrals to entities with which
the physician has a financial interest, or require that the
physician provide the patient notice of the physicians
financial relationship before making the referral. Violation of
the Stark statute and state laws prohibiting physician referrals
can result in substantial civil penalties for both the referring
physician and any entity that submits a claim for a health care
service made pursuant to a prohibited referral. Although we have
structured our arrangements with our fertility centers and vein
clinics to comply with the Stark statute and state laws
prohibiting certain physician referrals, because of the
complexity of these laws, these laws could be interpreted in a
manner inconsistent with our operations. In addition, our
fertility centers and vein clinics are themselves subject to
these laws, but we do not oversee and are not responsible for
their compliance with these laws. Federal or state self-referral
regulation could adversely impact our arrangements with certain
customers, and our ability to market our services directly to
physicians in a position to refer patients to our fertility
centers and vein clinics.
False
Claims
Under separate federal statutes, submission of false or
fraudulent claims to government payors may lead to civil
monetary penalties, criminal fines and imprisonment
and/or
exclusion from participation in the Medicare, Medicaid and other
federally-funded health care programs. These false claims
statutes include the Federal False Claims Act, which allows any
person to bring suit alleging false or fraudulent Medicare or
Medicaid claims or other violations of the statute and to share
in any amounts paid by the entity to the government in fines or
settlement. In some jurisdictions, even claims that were
accurately submitted for medically necessary health care
services have been held by courts to be false where
the provider was not in compliance with federal anti-kickback or
Stark laws, or applicable Medicare regulations. These private
actions have increased significantly in recent years and have
increased the risk that we or our vein clinics will have to
defend a false claims action, pay fines or be excluded from
participation in the Medicare
and/or
Medicaid programs as a result of an investigation involving our
fertility centers or vein clinics arising out of such an action.
Business
of Insurance
Laws and regulatory approaches to insurance are state specific
and vary widely from state to state. Although most states supply
statutory definitions of insurance, these
definitions are subject to disparate interpretation by state
courts, attorney generals and regulators. Our Attain IVF
programs have
58
several characteristics that are present in an insurance
contract. We view our Attain IVF programs as guaranties or
warranties of our fertility centers performance; however,
it is possible that an insurance regulator in a state where we
conduct business could take the position that our Attain IVF
programs are insurance and should be regulated as such by the
state. If we are found to have engaged in the business of
insurance without a license, we could be subject to criminal and
civil penalties or be forced to comply with burdensome reserve
requirements or restructure the programs.
Health
Insurance Portability and Accountability Act of
1996
Health care providers, health care clearinghouses and operators
of health plans (collectively, covered entities) are
significantly affected by certain health information
requirements contained in HIPAA. HIPAA and its implementing
regulations established national standards for, among other
things, certain electronic health care transactions, the use and
disclosure of certain individually identifiable patient health
information and the security of the electronic systems
maintaining this information. These are commonly known as the
HIPAA transaction and code set standards, privacy standards and
security standards, respectively.
HIPAA allows covered entities to disclose protected health
information to business associates if the covered
entities obtain satisfactory assurances that the business
associate will use the information only for the purposes for
which it was engaged by the covered entity, will safeguard the
information from misuse and will help the covered entity comply
with some of the covered entitys duties under HIPAA. We
are a business associate under HIPAA because we
perform services for or on behalf of covered entities, such as
our fertility centers or vein clinics, that involve the use or
disclosure of protected health information. We enter into
business associate agreements with covered entities and are
contractually obligated to comply with the requirements of those
agreements.
The American Recovery and Reinvestment Act of 2009, specifically
the portion known as the Health Information Technology for
Economic and Clinical Health Act (the HITECH Act),
expanded the scope and application of HIPAA, including, among
other things, applying the security and certain privacy
provisions of HIPAA directly to business associates. Application
of these rules to business associates is a significant change.
Previously, liability under HIPAA rested exclusively with the
covered entity. Under the HITECH Act, the business associate now
has responsibility and liability directly for a breach.
Beginning on February 17, 2010, certain administrative,
physical and technical safeguards and policy, procedure, and
documentation requirements of the security standards under HIPAA
will apply to a business associate in the same manner that they
apply to a covered entity. For example, breaches of the security
of electronic health records may require disclosure to affected
individuals, news media and the Secretary of the
U.S. Department of Health and Human Services. Such
requirements must be incorporated into the business associate
agreement between the business associate and the covered entity.
Under the HITECH Act, business associates will face criminal and
civil liabilities for failure to comply with HIPAA. Criminal
penalties may be imposed against persons who obtain or disclose
protected health information without authorization. In addition,
a states attorney general can bring civil actions against
a person on behalf of residents of the state that are adversely
affected by violations of either HIPAA or the HITECH Act. The
attorney general can either seek to enjoin further violations or
obtain money damages on behalf of the residents harmed. The
U.S. Department of Health and Human Services is also
beginning to perform periodic audits of health care providers to
ensure that required policies under the HITECH Act are in place.
In addition, individuals harmed by violations will be able to
recover a percentage of monetary penalties or a monetary
settlement based upon methods established by the
U.S. Department of Health and Human Services for this
private recovery. HIPAA also authorizes the imposition of civil
monetary penalties against entities that employ or enter into
contracts with
59
individuals or entities that have been excluded from
participation in the Medicare or Medicaid programs, which means
that we could be subject to penalties if our fertility centers,
vein clinics or employees are excluded from participation in the
Medicare or Medicaid programs. Any failure to comply with these
laws could have an adverse impact on our business, operations or
financial condition.
Antitrust
Laws
In connection with the corporate practice of medicine laws
referred to above, our fertility centers and vein clinics are
organized as separate legal entities. As such, our fertility
centers and vein clinics may be deemed to be persons separate
from both us and each other under antitrust laws and,
accordingly, subject to a wide range of laws that prohibit
anti-competitive conduct among separate legal entities. There
can be no assurance that a review of our business by courts or
regulatory authorities would not have a material adverse effect
on our operation or the operation of our fertility centers or
vein clinics.
Future
Legislation and Regulation
Health care providers are subject to federal, state and local
laws and regulations, and sanctions imposed under or changes to
such laws or regulations could adversely affect our operations
or financial results. The federal fiscal year 2010 budget
establishes a reserve fund of more than $630 billion over
the next 10 years to finance fundamental reform of the
United States health care system, in an effort to reduce
costs and expand health care coverage. The fund will be paid for
by a combination of tax revenue and reductions in Medicare and
Medicaid spending.
In addition, the White House announced in July 2009 that it had
reached agreement with leading hospital groups, including the
American Hospital Association, to cut federal payments under
Medicare and Medicaid by $155 billion over 10 years as
part of a plan to offset a portion of the cost of a national
health insurance and health reform proposal. Much of these
savings are reported to be derived from across-the-board cuts in
Medicare hospital payments, with at least $50 billion in
the cuts linked directly to increases in the number of uninsured
who would be provided coverage under the proposed national
health insurance proposal.
There are currently numerous proposals on the federal and state
levels for comprehensive reforms relating to health care that
could affect payment and reimbursement for health care services
in the United States. The U.S. Congress is considering
legislation that could dramatically overhaul the health care
system, including the possibility of a government health care
plan. If national reform legislation is enacted, we may benefit
from certain provisions thereof, and, conversely, may be
adversely affected by other provisions. For example, because our
Attain IVF programs are self-pay programs for patients that do
not have insurance coverage for fertility treatments, health
care reform that increases insurance coverage for fertility
treatments could lead to a decrease in demand for our Attain IVF
programs. We cannot predict whether any such reforms will
ultimately be adopted or the impact that such reforms may have
on the demand or payment for our services.
Employees
As of June 30, 2009, we had 1,301 employees. Of these,
1,055 were employed by our Fertility Centers Division, 14 by our
Consumer Services Division, 194 by our Vein Clinics Division and
38 were employed at our corporate headquarters, including 8 who
were executive management. Of the 1,301 employees, 135 were
employed on a part-time basis and 95 were employed on a per diem
basis. We are not a party to any collective bargaining agreement
and we believe that our employee relationships are good.
60
Our
Fertility Centers and Vein Clinics
For the years ended December 31, 2008, 2007 and 2006 and
the six months ended June 30, 2009, the following
contracted fertility centers each individually provided greater
than 10% of our Fertility Centers Division revenues, net
and/or
contribution as follows:
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Percent of Revenues,
Net
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Percent of
Contribution
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Six Months Ended
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Year Ended
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Six Months Ended
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Year Ended
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June 30,
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December 31,
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June 30,
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December 31,
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2009
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2008
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2007
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2006
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2009
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2008
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2007
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2006
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RSC of New England
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7.1
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7.2
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9.0
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10.7
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9.1
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9.1
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11.0
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12.2
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Fertility Centers of Illinois, S.C. (FCI)
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13.9
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16.1
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19.0
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22.0
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13.2
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13.3
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15.3
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16.3
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Shady Grove Fertility Reproductive Science Center, P.C.
(Shady Grove)
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18.3
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17.9
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21.2
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22.7
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16.7
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16.1
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20.3
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19.0
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Under all of our fertility Partner agreements, we receive as
compensation for our services a three-part fee comprised of: a
tiered percentage of the fertility centers net revenues;
reimbursed costs of services (costs incurred in servicing a
fertility center and any costs paid on behalf of the fertility
center); and either a fixed percentage, or a fixed dollar
amount, of the fertility centers earnings after services
fees, which may be subject to further limits.
The third tier of our fee structure under these significant
Partner agreements is as follows:
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|
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RSC of New England a fixed annual percentage of the
centers earnings.
|
|
|
|
FCI a fixed percentage of the centers earnings
subject to a fixed dollar amount, $1,865,000, as an upper
boundary and a fixed dollar amount, $932,000. as a lower
boundary subject to a fixed percentage of the centers
earnings limitation.
|
|
|
|
Shady Grove a fixed dollar amount of the
centers earnings subject to a fixed percentage of the
centers earnings limitation. The upper boundary of the
calculation is $1,071,000 and the lower boundary of the
calculation is $540,000.
|
A complete listing of our fertility Partner agreements and vein
clinic locations is presented below.
61
Fertility
Partner Agreements
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|
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|
|
|
|
|
|
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|
|
|
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|
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|
|
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Remaining
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|
|
|
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Year Contract
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Contract
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No. of
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No. of
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Name
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State
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Acquired
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Years
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M.D.s
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PhDs
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Arizona Reproductive Medicine Specialists, Ltd.
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AZ
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July 2008
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24
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4
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1
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Southeastern Fertility Centers, P.A.
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SC
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April 2008
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24
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3
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1
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Center for Reproductive Medicine, P.A.
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FL
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August 2007
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23
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4
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1
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Reproductive Partners Medical Group, Inc.
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CA
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January 2005
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21
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9
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0
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Seattle Reproductive Medicine, Inc., P.S.
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WA
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January 2004
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9
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|
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7
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1
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Reproductive Endocrine Associates of Charlotte, P.C.
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NC
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September 2003
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9
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6
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1
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Northwest Center for Infertility & Reproductive
Endocrinology
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FL
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April 2002
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8
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7
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1
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Shady Grove Fertility Reproductive Science
Center, P.C.
|
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MD, VA & DC
|
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March 1998
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14
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|
|
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21
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2
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Fertility Centers of Illinois, S.C.
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IL
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February 1997
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13
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11
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2
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Bay Area Fertility & Gynecology Medical Group,
Inc.
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CA
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January 1997
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13
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6
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1
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MPD Medical Associates (MA), P.C. (doing business as RSC of
New England)
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MA, NH & RI
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July 1988
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3
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7
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1
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62
Vein
Clinic Locations
|
|
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Location
|
|
Date Clinic Opened
|
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Cleveland, OH
|
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April 2009
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Cincinnati, OH
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January 2009
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Pittsburgh, PA
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December 2008
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Skokie, IL
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December 2008
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Marietta, GA
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June 2008
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Alexandria, VA
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April 2008
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Boca Raton, FL
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February 2008
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Sterling, VA
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December 2007
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Ft. Lauderdale, FL
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July 2007
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St. Louis, MO
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January 2007
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Merrillville, IN
|
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August 2006
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Kansas City, MO
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June 2006
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West Palm Beach, FL
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December 2005
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Alpharetta, GA
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October 2005
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Gurnee, IL
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|
September 2005
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Naperville, IL
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September 2004
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Lawrenceville, GA
|
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September 2001
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Indianapolis, IN
|
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April 2001
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Knoxville, TN
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March 2001
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Raleigh, NC
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March 2000
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Greensboro, NC
|
|
January 2000
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Madison, WI
|
|
March 1999
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Rockville, MD
|
|
November 1998
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Milwaukee, WI
|
|
March 1998
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Charlotte, NC
|
|
February 1998
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Orland Park, IL
|
|
November 1996
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Fairfax, VA
|
|
March 1992
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Overland Park, KS
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April 1991
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Owings Mills, MD
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July 1990
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Buffalo Grove, IL
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August 1989
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Atlanta, GA
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June 1988
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Oak Brook, IL
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Pre-1985
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Chicago, IL
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Pre-1985
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Schaumburg, IL
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Pre-1985
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Properties
Our headquarters and executive offices are located at Two
Manhattanville Road in Purchase, New York, where we occupy
approximately 18,500 square feet under a lease expiring in
2012. Future lease payments for our headquarters and executive
offices will approximate $51,100 per month.
We also lease or sublease the locations set forth in the two
preceding tables for our Partner fertility centers and vein
clinics. Costs associated with our Partner fertility centers are
reimbursed to us as part of our fee agreement with the
applicable center, whereas costs associated with vein clinic
locations are not reimbursed.
We believe that our executive offices and the space occupied by
our fertility centers and vein clinics are adequate for our
operations.
63
Legal
Proceedings and Insurance
From time to time, we and our Partner fertility centers and vein
clinics and their physicians are parties to legal proceedings in
the ordinary course of business. We are exposed to claims of
professional negligence based on services performed by our
employees, including physician assistants and nurse
practitioners, as well as based on our relationships with
physicians providing treatments at our Partner fertility centers
and vein clinics. None of these proceedings is expected to have
a material adverse effect on our financial position, results of
operations or cash flow. We maintain medical malpractice
insurance with limits of $1 million per claim, regardless
of the number of the covered defendants, and $10 million
per year in the aggregate, with respect to our Partner fertility
centers, and with limits generally equal to $1 million per
physician and $10 million per year in the aggregate, with
respect to our vein clinics. Our Partner fertility centers, vein
clinics and their physicians are additional named insureds under
our policies. All of our insurance policies are subject to
deductibles or a self-insured retention. A portion of the
insurance we maintain for certain of our fertility centers is
provided by ARTIC.
64
MANAGEMENT
Directors
and Executive Officers
The following table sets forth information regarding our
principal executive officers and directors, including their ages:
|
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|
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Name
|
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Age
|
|
Position
|
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Jay Higham
|
|
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50
|
|
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President, Chief Executive Officer and Director
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John W. Hlywak, Jr.
|
|
|
62
|
|
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Executive Vice President and Chief Financial Officer
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Daniel P. Doman
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|
|
48
|
|
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President of Vein Clinics Division
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Angela Gizinski
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60
|
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Vice President, Human Resources
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Vijay Reddy
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43
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Vice President, Information Systems
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Pamela Schumann
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|
|
43
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President of Consumer Services Division
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Scott Soifer
|
|
|
46
|
|
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Executive Vice President, Operations and Administration
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Joseph J. Travia, Jr.
|
|
|
57
|
|
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President of Fertility Centers Division
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Claude E. White
|
|
|
60
|
|
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Vice President, General Counsel and Secretary
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Gerardo Canet
|
|
|
64
|
|
|
Chairman of the Board of Directors
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Kush K. Agarwal
|
|
|
61
|
|
|
Director
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Wayne R.
Moon(1)(2)(3)(4)(5)
|
|
|
69
|
|
|
Director
|
Lawrence J.
Stuesser(1)(2)(3)(5)(6)
|
|
|
67
|
|
|
Director
|
Elizabeth E.
Tallett(1)(2)(3)(5)
|
|
|
60
|
|
|
Director
|
Yvonne S. Thornton, M.D.,
M.P.H.(1)(2)(3)(5)(7)
|
|
|
61
|
|
|
Director
|
|
|
(1)
|
Member of the audit committee.
|
(2)
|
Member of the compensation committee.
|
(3)
|
Member of the nominating and governance committee.
|
(4)
|
Chairperson of the nominating and governance committee.
|
(5)
|
Independent director.
|
(6)
|
Chairperson of the audit committee.
|
(7)
|
Chairperson of the compensation committee.
|
JAY HIGHAM became our President and Chief Executive Officer,
effective January 1, 2006, and had been our President and
Chief Operating Officer since June 2004. He was appointed as a
director, effective January 24, 2006. In October 1994,
Mr. Higham joined us as Vice President of Marketing and
Development and, in January 1999, was promoted to Senior Vice
President of Marketing and Development. He earned a B.S. in
Psychology from the University of Rochester and an M.H.S.A. from
George Washington University.
JOHN W. HLYWAK, JR. joined us in July 1999 as our Senior Vice
President and Chief Financial Officer and was named Executive
Vice President and Chief Financial Officer in March 2006.
Mr. Hlywak is a certified public accountant and has a B.S.
in Accounting from Widener University.
DANIEL P. DOMAN joined us in August of 2007 with the acquisition
of VCA. Since May 2008, he has served as President of our Vein
Clinics Division. Previously, Mr. Doman was the Chief
Financial Officer of VCA. Prior to joining VCA in April 2006, he
was a Managing Director at Health Dimensions Group, a national,
integrated senior living and health care management consulting
firm, from April 2003 to March 2006. Prior to that,
Mr. Doman was a Partner with BDO Seidman, LLP, an
accounting and consulting firm, from July 1998 to March 2003. He
has a Bachelors degree in Accounting and Finance from
Loyola University of Chicago.
65
ANGELA GIZINSKI joined us in April 2006 as our Vice President,
Human Resources. For more than three years prior to joining us,
Ms. Gizinski was Director, Human Resources with Sara Lee
Branded Apparel, now known as Hanesbrands, Inc.
Ms. Gizinski has an Associates Degree from Bay Path Junior
College and a B.A. in Human Resource Management from Fairfield
University.
VIJAY REDDY serves as our Vice President, Information Systems.
Before joining us in 2003 as Manager of Technical Operations,
Mr. Reddy was Director of Infrastructure &
Technology for Lifetime Television in New York. He also has held
management positions in information systems with Martha Stewart
Living Omnimedia, Conde Nast Publications, Viacom and
Schlumberger. Mr. Reddy has a Bachelors degree in
Computer Science from St. Johns University, and he is a
certified Institute of Electrical and Electronics Engineers
Computer Systems Engineer.
PAMELA SCHUMANN was appointed President of our Consumer Services
Division in September 2007. Prior to that, she served as our
Vice President, Consumer Services. She joined us in 2001 to help
launch our consumer services initiative. Ms. Schumann
received her B.A. in Marketing from the University of
Marylands Robert H. Smith School of Business.
SCOTT SOIFER joined us in January 2005 as our Vice President,
Marketing and Development and was promoted to Executive Vice
President, Operations and Administration in July 2008. For more
than 12 years prior to joining us, Mr. Soifer was an
Associate Partner at Accenture (formerly Andersen Consulting),
specializing in health care strategy, focused primarily on the
health insurance sector. Mr. Soifer has a Bachelors
degree in Computer Science from the University of California at
Santa Barbara and an M.B.A. from the Kellogg School of
Management at Northwestern University.
JOSEPH J. TRAVIA, JR. was appointed President of our Fertility
Centers Division in September 2007. Prior to that, he served as
our Senior Vice President, Operations, Eastern Region. He joined
us in 2000 as Vice President and Executive Director of our
Reproductive Science Center in New England. Mr. Travia is a
certified public accountant and earned a B.S. in Management from
Boston College and an M.B.A. from Babson College.
CLAUDE E. WHITE joined us in March 1995 as General Counsel and
Assistant Secretary. In January 1998, Mr. White became
Corporate Secretary, in addition to General Counsel, and in May
2002 became a Vice President. Mr. White received his B.A.
in Political Science from Rutgers College and his J.D. from
Rutgers School of Law.
GERARDO CANET served as our Chief Executive Officer from
February 14, 1994 to December 31, 2005 and has been a
director since February 14, 1994. Mr. Canet resigned
as our Chief Executive Officer effective December 31, 2005,
but continues to serve as chairman of the board and a consultant
to the Company. Mr. Canet has been a director of Dendreon
Corporation since December 1996. He earned a B.A. in Economics
from Tufts University and an M.B.A. from Suffolk University.
KUSH K. AGARWAL became a director effective August 8, 2007.
He served as President of VCA, which we acquired on
August 8, 2007, from August 1987 until he resigned on
May 15, 2008. Mr. Agarwal has a Master of Science in
Industrial Administration from Carnegie-Mellon University, a
Master of Science in Applied Analysis and Operations Research
from the State University of New York and a Bachelor of
Technology in Mechanical Engineering from Indian Institute of
Technology.
WAYNE R. MOON became a director in May 2001. Mr. Moon
joined Kaiser Foundation Health Plan, Inc. in 1970 and was
subsequently elected President, Chief Operating Officer and
director. In September 1993, Mr. Moon was appointed
President and Chief Executive Officer of Blue Shield of
California and a member of its board of directors and, later,
chairman. Mr. Moon retired from Blue Shield of California
in January 2000. Until recently, he served as chairman of the
board of RelayHealth, Inc. He
66
serves on various corporate and civic boards, including Varian,
Inc. and the California State Automobile Association.
Mr. Moon earned a B.B.A. and a Masters in Hospital
Administration from the University of Michigan.
LAWRENCE J. STUESSER became a director in April 1994. Since June
1999, Mr. Stuesser has been a private investor. From June
1996 to May 1999, Mr. Stuesser was the President and Chief
Executive Officer and a director of Computer People Inc., the
U.S. subsidiary of London-based Delphi Group plc, of which he
was also a director. Mr. Stuesser was a director of
American Retirement Corporation from May 1997 to July 2006.
Early in his career, Mr. Stuesser qualified as a certified
public accountant and served as an audit manager with Alexander
Grant & Company, an accounting firm. Mr. Stuesser
holds a B.B.A. in Accounting from St. Marys
University.
ELIZABETH E. TALLETT became a director in June 1998. Since July
2002, Ms. Tallett has been a Principal of Hunter Partners,
LLC, which provides management services to developing life
sciences companies. Ms. Tallett is a director of The
Principal Financial Group, Inc., Varian, Inc., Coventry Health
Care, Inc. and Meredith Corp. Inc. Ms. Tallett graduated
from Nottingham University with degrees in Mathematics and
Economics.
YVONNE S. THORNTON, M.D., M.P.H. became a director in
January 2006. Dr. Thornton is a double board-certified
specialist in obstetrics, gynecology and maternal-fetal
medicine. Currently, Dr. Thornton is a perinatal consultant
at Westchester Medical Center in New York. Dr. Thornton is
a former Professor of Clinical Obstetrics and Gynecology at
Cornell (Weill) Medical College and Vice-Chair of the Department
of OB/GYN and Director of Maternal-Fetal Medicine at Jamaica
Hospital Medical Center in New York City, where she served from
2002 to 2005. Dr. Thornton is a Diplomate of the American
Board of Obstetrics and Gynecology, a Fellow of the American
College of Surgeons and an Oral Examiner for the American Board
of Obstetrics and Gynecology. After graduating with honors from
Monmouth College in New Jersey, she received her M.D. with
honors from Columbia University College of Physicians and
Surgeons. Dr. Thornton also received her Executive Masters
(M.P.H.) degree in Health Policy and Management from Columbia
University.
Director
Independence
Our board of directors has determined that Messrs. Moon and
Stuesser, Ms. Tallett and Dr. Thornton are independent
directors, in accordance with Nasdaq Marketplace
Rule 5605(a)(2), because none of them is believed to have
any relationships that, in the opinion of our board of
directors, would interfere with the exercise of independent
judgment in carrying out their responsibilities as a director.
In addition, our board of directors has also determined that
Mr. Sarason Liebler, who ceased being a member of our board
of directors on May 12, 2009 because he had reached the
mandatory retirement age of 72 under our corporate governance
guidelines, was an independent director in accordance with
Nasdaq Marketplace Rule 5605(a)(2). Our board of directors
considered the $57,533 of consulting fees that were paid by us
to Mr. Liebler in 2008 when determining his independence.
Committees
of the Board of Directors
Our board of directors maintains an audit committee, a
compensation committee and a nominating and governance committee.
Audit
Committee
The audit committee is charged by our board of directors to
(a) study, review and evaluate our accounting, auditing and
financial reporting practices, including the internal controls
and audit functions, (b) assess our compliance with legal
and regulatory requirements and (c) select the independent
auditors and review their qualifications, independence and
performance, while being the focal
67
point for communications between our board of directors, our
management and the independent auditors. More specifically, the
audit committee pre-approves all audit and non-audit services to
be performed by the independent auditors, reviews the scope and
results of the audit of our financial statements, reviews
financial statements and periodic filings with the Securities
and Exchange Commission and discusses the same with our
management.
Each audit committee member is an independent director, as
defined in Nasdaq Marketplace Rule 5605(a)(2). Our board of
directors has determined that in addition to being independent,
Mr. Stuesser is an audit committee financial
expert as such term is defined in Item 407 of
Regulation S-K
promulgated by the Securities and Exchange Commission.
Compensation
Committee
The compensation committee, under a delegation of authority from
our board of directors, reviews and makes decisions with respect
to salaries, wages, bonuses, equity awards and other benefits
and incentives for our executive officers.
Nominating
and Governance Committee
Our board of directors maintains a nominating and governance
committee consisting of independent directors, as defined in
Nasdaq Marketplace Rule 5605(a)(2). The primary purpose of
the nominating and governance committee is to provide oversight
on the broad range of issues surrounding the composition and
operation of our board of directors, including identifying
individuals qualified to become members of our board of
directors, recommending to our board of directors director
nominees for the next annual meeting of stockholders and
recommending to our board of directors a set of corporate
governance principles applicable to us. The nominating and
governance committee also provides assistance to our board of
directors in the areas of committee selection, evaluation of the
overall effectiveness of our board of directors and management
and review and consideration of developments in corporate
governance practices. The nominating and governance
committees goal is to assure that the composition,
practices, and operation of our board of directors contribute to
value creation and effective representation of our stockholders.
Compensation
Committee Interlocks and Insider Participation
During 2008, the members of the compensation committee were
Ms. Tallett (chairperson), Messrs. Liebler, Moon and
Stuesser and Dr. Thornton. Mr. Liebler ceased being a
member of our board of directors and the compensation committee
on May 12, 2009 because he had reached the mandatory
retirement age of 72 under our corporate governance guidelines.
All of the individuals listed above are, or, in the case of
Mr. Liebler, were, independent directors, as defined in
Nasdaq Marketplace Rule 5605(a)(2). None of the individuals
listed above has ever been an officer or employee of us or any
of our subsidiaries. During 2008, none of our executive officers
served on the compensation committee or board of directors of
any other entity that had any executive officer who also served
on the compensation committee of our board of directors or our
board of directors.
Compensation
Discussion and Analysis
Overview
and Objectives
The objective of our compensation program, consisting of base
salary, executive incentive compensation (performance-based
compensation), stock options, restricted stock and restricted
stock unit (RSU) grants, is to ensure that in our
effort to create stockholder value, we attract, motivate and
retain executives capable of assisting in the creation of such
stockholder value.
68
Our compensation program is designed to be competitive by
providing base salaries that are market driven; rewarding for
our performance and individual performance through annual
incentive compensation awards; and retaining executives through
grants of stock option, restricted stock and RSU awards that
provide for vesting over time, and upon the obtainment of
certain performance targets in the case of RSUs. Commencing in
2008, we awarded senior executives with stock option awards that
vest over a four-year period and, commencing in 2009, we are
awarding senior executives with grants of performance-based
RSUs. In order to be market competitive with salaries for senior
executives, the compensation committee annually assesses market
salaries and attempts to ensure that salaries for our senior
executives fall within the mid to upper range of salaries for
comparable positions, taking into consideration experience,
background and annual individual performance reviews for
individual executives, but qualified to comparable size
companies within comparable industries. With respect to
executive incentive compensation, our executives are expected to
accomplish individual goals annually that contribute to our
overall growth. To the extent the goals are accomplished, such
executives are rewarded. Additionally, our executives are
rewarded if we achieve certain revenue and bottom-line goals
each year, with greater reward being provided based on higher
level of achievement.
We believe that linking executive compensation to corporate
performance results in a better alignment of compensation with
our goals and the interests of our stockholders. As performance
goals are met or exceeded, most probably resulting in increased
value to stockholders, executives are rewarded commensurately.
We believe the compensation levels during 2008 for our
executives and our Chief Executive Officer adequately reflect
our compensation goals and philosophy.
Elements
of Our Compensation Program
We have chosen these four elements of compensation because of
the belief that, taken together, (a) base salary,
(b) executive incentive compensation, (c) stock option
awards and (d) restricted stock and RSU grants represent
the fairest way to compensate for services, provide a financial
incentive to achieve long-term goals and objectives and help
align an executives interest with that of our
stockholders. Short-term compensation is typically in the form
of base salary and annual incentive bonuses and long-term
compensation is typically in the form of equity. Each
individuals base salary is determined based on years of
experience and market rates for similar positions with other
companies of comparable size. While the compensation committee
does not believe that it is appropriate to establish
compensation levels based solely on market comparisons or
industry practices, it believes that information regarding pay
practices at other companies is useful in assessing the
reasonableness of compensation and recognizes that we need to be
competitive for executive talent in our industry. A significant
part of an executives compensation is the incentive bonus
compensation program. This program provides a cash bonus which
targets 75% of base salary for our President and Chief Executive
Officer, 50% of base salary for the division Presidents and
Executive Vice Presidents, 40% of base salary for Senior Vice
Presidents and 30% of salary for Vice Presidents. The program
has been designed to (a) reward executives who have
achieved specific business and financial success during our most
recent fiscal year, (b) give executives the incentive to
strive for higher productivity, efficiency and quality of
services and (c) encourage the best people to
join us and stay with us. The program is based on achieving
specific goals and results set by our President and Chief
Executive Officer, and approved by the compensation committee.
Our executive incentive compensation program consists of two
parts: part one is based on our performance versus budget and
part two is based on the achievement of individual performance
goals. The maximum amount earned under part one is 60% of an
individuals total maximum incentive compensation which, as
stated above, ranges from 30% to 75% of base salary. Part two of
our incentive compensation program is based on the achievement
of certain common milestones related to our achievements and
specific milestones established for each executive. The common
milestones are applicable to all eligible employees and the
specific milestones apply to each eligible employee and are
determined by each executives individual supervisor with
the approval of our President and Chief Executive Officer. For
Mr. Higham, our President and Chief Executive Officer,
whose milestones are
69
approved by the compensation committee, the common milestones
represented 10% of his bonus eligibility and the specific
milestones represented 30% of his bonus eligibility for 2008.
For Mr. Hlywak, our Executive Vice President and Chief
Financial Officer, 10% of his eligible bonus was based on the
common milestones and the specific milestones represented 30% of
his bonus eligibility for 2008.
Our President and Chief Executive Officer recommends to, and
consults with, the compensation committee with respect to the
base salaries of our executive officers. In order to assure that
executive compensation is both competitive and appropriate, the
compensation committee reviews executive compensation in its
entirety before determining compensation level adjustments. The
overall compensation of our senior executives is intended to
fall within an appropriate range for comparable positions in our
industry.
The compensation committee may retain the services of a
compensation consultant to advise and assist it in the
performance of its functions. During 2008, the compensation
committee engaged Frederic W. Cook & Co.
(Cook), which received instructions from, and
reported directly to, the compensation committee. The
compensation committee requested Cooks advice on a variety
of issues, including compensation strategy, market comparisons,
pay and performance alignment versus industry peers, executive
pay trends and potential compensation plan design and
modifications.
Historically, our executive compensation structure emphasized
cash components over long-term incentive components, due
primarily to the low trading volume of our common stock. As we
have grown, it has become more feasible to increase the emphasis
on long-term incentives, making our executive compensation more
competitive with comparable companies by increasing the equity
portion of our overall compensation.
Allocation
of Compensation Among the Four Elements
In determining what portion or percentage of an executives
compensation is to be allocated among the four elements
discussed above, we have determined that the largest portion
should be allocated to base salary, the next largest portion to
executive incentive compensation and the smallest portion to
stock option awards and restricted stock and RSU grants. We
recognize that in order to attract, motivate and retain
executives, there must be a connection among each element of
compensation that accomplishes the objectives stated above. Base
salary serves to attract competent executives in what is an
increasingly competitive marketplace. Executive incentive
compensation serves as a good motivator for executives to strive
for the highest level of productivity, which results in
stockholder value. Stock option awards and restricted stock and
RSU grants serve to retain executives because the vesting of the
stock options, shares of restricted stock and RSUs granted is
over a period of time and with the growth of our common stock,
each executives incentives are aligned with those of our
stockholders.
Perquisites
We provide our President and Chief Executive Officer, Jay
Higham, with a leased vehicle that is maintained at our expense.
The total 2008 expenses related to the leased vehicle were
$12,463. Mr. Doman, the President of our Vein Clinics
Division, received an automobile allowance for a portion of the
year ended December 31, 2008 in an aggregate amount of
$2,564.
401(k)
Defined Contribution Plan
We maintain a 401(k) Plan that allows executives, as well as our
other employees, to make elective salary deferrals in accordance
with Internal Revenue Service (IRS) regulations. We
provide a discretionary match of 25% of an individuals
maximum contribution of $15,500, up to 1.5% of an
individuals compensation of $230,000 or less for the year,
for a maximum match of $3,450 per individual. For our President
and Chief Executive Officer, our Executive Vice President and
Chief
70
Executive and our other Named Executive Officers (as defined
below), we contributed the maximum match of $3,450 in 2008.
Retirement
Benefits
No retirement benefits are provided to our executives.
Severance
and Change of Control Arrangements
Jay
Higham Employment Agreement
On October 10, 2005, we entered into an employment
agreement with Jay Higham to serve as our President and Chief
Executive Officer, effective January 1, 2006. Pursuant to
the employment agreement, Mr. Higham was appointed as one
of our directors on January 24, 2006. The employment
agreement provides that Mr. Higham receive an annual base
salary of $275,000, subject to increases. Under the employment
agreement, Mr. Higham was granted shares of our common
stock with a value of $400,000 based on the closing price of our
common stock as reported on the Nasdaq Global Market on the
first trading day of January 2006. The number of shares of our
common stock granted to Mr. Higham was 32,000 and such
shares of common stock vest over a
10-year
period. Pursuant to the employment agreement, we may terminate
Mr. Highams employment without cause on
30 days prior notice, in which event Mr. Higham
will receive, as severance pay, 12 months base
salary, plus Mr. Highams annual bonus, without regard
to the condition precedents established for the bonus payment,
in one lump sum payment. Under the employment agreement, if we
had terminated Mr. Higham effective December 31, 2008,
based on his 2008 compensation, he would have been paid an
aggregate of $545,000, $330,000 of which represents his 2008
base salary and $215,000 of which represents his accrued 2008
bonus.
The employment agreement further provides that if, within one
year after our Change of Control (as defined in the
employment agreement), Mr. Highams employment is
terminated by Mr. Higham for Good Reason (as
defined in the employment agreement) or by us without cause,
Mr. Higham will be paid a lump sum amount equal to his base
salary for a
24-month
period, plus twice the full amount of Mr. Highams
annual bonus based on his then current base salary, without
regard to the condition precedents established for the bonus
payment. Based on this change of control provision, if we had
experienced a Change of Control in 2008 and
Mr. Highams employment had been terminated effective
December 31, 2008, for either Good Reason by
Mr. Higham or without cause by us, Mr. Higham would
have been entitled to termination pay equal to an aggregate of
$1,089,000, $660,000 of which represents his then annualized
base salary for
24-months
and $429,000 of which represents twice the full amount of his
annual bonus.
Under the employment agreement, Mr. Higham has agreed not
to compete with us while employed by us and for a period of two
years thereafter.
Executive
Retention Agreements
We are also a party to executive retention agreements with our
executive officers, including Mr. Hlywak, our Executive
Vice President and Chief Financial Officer, and the other Named
Executive Officers (as defined below).
The executive retention agreements provide for certain severance
payments and benefits to the Named Executive Officers in the
event of a termination of their employment, either by us without
cause or by the executive for Good Reason (as
defined in the executive retention agreement), at any time
within 18 months after we experience a Change in
Control (as defined in the executive retention agreement)
(any such termination, a Qualifying Termination).
More specifically, the executive retention
71
agreements provide the Named Executive Officers with one
additional year of base salary, bonus (if applicable) and
benefits (or equivalent) more than they would previously have
been entitled to receive upon a termination without cause.
Accordingly, pursuant to the executive retention agreements, in
the event of a Qualifying Termination, the Named Executive
Officers will be paid one years severance. Pursuant to the
terms of the executive retention agreements, all incentive stock
options granted to a Named Executive Officer will become fully
vested upon a Qualifying Termination, subject to certain terms
and conditions. Also, pursuant to the executive retention
agreements, we would be required to pay each Named Executive
Officer for all reasonable fees and expenses incurred by them in
litigating their rights under the executive retention
agreements, to the extent a Named Executive Officer is
successful in any such litigation.
Under the executive retention agreements, in the event a Named
Executive Officer, other than Mr. Higham, who would be paid
in accordance with the terms of his employment agreement, is
terminated without cause under circumstances outside a
Change in Control, each Named Executive Officer
would be paid 90 days base salary continuation. In the
event Mr. Hlywak had been terminated without cause
effective December 31, 2008 as a result of a Change
in Control that occurred in 2008, Mr. Hlywak would
have been paid an aggregate of $484,000, $256,000 of which
represents his 2008 annual base salary and $128,000 of which
represents the bonus amount Mr. Hlywak would have been
eligible to receive. For each of the other Named Executive
Officers, had they been terminated without cause effective
December 31, 2008 as a result of a Change in
Control that occurred in 2008, he or she would have been
paid his or her 2008 annual base salary and bonus amount which
he or she would have been eligible to receive. For
Mr. Doman, the payment would have been an aggregate of
$310,520, $221,880 of which represents annual base salary and
$88,720 of which represents bonus. For Mr. Travia, the
payment would have been an aggregate of $343,000, $245,000 of
which represents annual base salary and $98,000 of which
represents bonus. For Ms. Schumann, the payment would have
been an aggregate of $294,000, $210,000 of which represents
annual base salary and $84,000 of which represents bonus.
Finally, in certain circumstances, Section 162(m) of the
Internal Revenue Code of 1986, as amended
(Section 162(m)), limits to $1 million the
deductibility of compensation, including stock-based
compensation, paid to executives by public companies. None of
the compensation paid to our executive officers in 2008 exceeded
the threshold for deductibility under Section 162(m).
72
Summary
Compensation Table
The following table sets forth a summary of the compensation
paid or accrued by us during the years ended December 31,
2008, 2007 and 2006 for our President and Chief Executive
Officer, our Executive Vice President and Chief Financial
Officer and our next three most highly compensated executive
officers (the Named Executive Officers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal
Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Jay Higham
|
|
|
2008
|
|
|
$
|
330,000
|
|
|
$
|
128,700
|
|
|
$
|
70,949
|
|
|
$
|
112,516
|
|
|
$
|
15,913
|
|
|
$
|
658,078
|
|
President and Chief
|
|
|
2007
|
|
|
$
|
300,000
|
|
|
$
|
195,000
|
|
|
$
|
154,000
|
|
|
|
|
|
|
$
|
13,555
|
|
|
$
|
662,555
|
|
Executive Officer
|
|
|
2006
|
|
|
$
|
275,000
|
|
|
$
|
148,500
|
|
|
$
|
441,250
|
|
|
|
|
|
|
$
|
15,828
|
|
|
$
|
880,578
|
|
John W. Hlywak, Jr.
|
|
|
2008
|
|
|
$
|
256,000
|
|
|
$
|
76,500
|
|
|
$
|
38,252
|
|
|
$
|
56,259
|
|
|
$
|
3,450
|
|
|
$
|
430,461
|
|
Executive Vice President
|
|
|
2007
|
|
|
$
|
245,000
|
|
|
$
|
122,500
|
|
|
$
|
84,807
|
|
|
|
|
|
|
$
|
3,300
|
|
|
$
|
455,607
|
|
and Chief Financial Officer
|
|
|
2006
|
|
|
$
|
234,000
|
|
|
$
|
105,750
|
|
|
$
|
28,200
|
|
|
|
|
|
|
$
|
3,300
|
|
|
$
|
371,250
|
|
Daniel P.
Doman(3)
|
|
|
2008
|
|
|
$
|
221,880
|
|
|
$
|
42,750
|
|
|
$
|
100,004
|
|
|
$
|
49,550
|
|
|
$
|
6,014
|
|
|
$
|
420,198
|
|
President of Vein Clinics
|
|
|
2007
|
|
|
$
|
79,167
|
|
|
$
|
56,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,837
|
|
Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamela
Schumann(4)
|
|
|
2008
|
|
|
$
|
210,000
|
|
|
$
|
84,000
|
|
|
$
|
27,500
|
|
|
$
|
56,259
|
|
|
$
|
3,450
|
|
|
$
|
381,209
|
|
President of Consumer
|
|
|
2007
|
|
|
$
|
122,635
|
|
|
$
|
31,863
|
|
|
$
|
111,075
|
|
|
|
|
|
|
$
|
2,895
|
|
|
$
|
268,468
|
|
Services Division
|
|
|
2006
|
|
|
$
|
97,231
|
|
|
$
|
28,800
|
|
|
$
|
9,770
|
|
|
|
|
|
|
$
|
2,775
|
|
|
$
|
138,576
|
|
Joseph J. Travia, Jr.
|
|
|
2008
|
|
|
$
|
245,000
|
|
|
$
|
110,250
|
|
|
$
|
37,500
|
|
|
$
|
56,259
|
|
|
$
|
3,450
|
|
|
$
|
452,459
|
|
President of Fertility Centers
|
|
|
2007
|
|
|
$
|
222,654
|
|
|
$
|
87,200
|
|
|
$
|
124,600
|
|
|
|
|
|
|
$
|
3,300
|
|
|
$
|
437,754
|
|
Division
|
|
|
2006
|
|
|
$
|
201,076
|
|
|
$
|
63,570
|
|
|
$
|
19,800
|
|
|
|
|
|
|
$
|
3,015
|
|
|
$
|
287,461
|
|
|
|
(1)
|
See Note 19 of our consolidated financial statements
included elsewhere in this prospectus for a discussion of the
assumptions made in the valuation of the stock awards and the
option awards.
|
(2)
|
This column includes the amounts of $12,463, $10,255 and $12,528
for the years ended December 31, 2008, 2007 and 2006,
respectively, paid by us in connection with a vehicle leased for
Mr. Higham, $2,564 for the year ended December 31,
2008 paid by us in connection with a vehicle leased for
Mr. Doman, plus amounts representing our matches made for
the Named Executive Officers under our 401(k) Plan.
|
(3)
|
Mr. Doman joined us on August 8, 2007 with our
acquisition of VCA.
|
(4)
|
Ms. Schumann worked on a part-time basis from
January 1, 2006 through November 14, 2007.
|
73
Grants of
Plan-Based Awards for the Fiscal Year Ended December 31,
2008
The following table sets forth certain information concerning
the Named Executive Officers with respect to grants of
plan-based awards for the fiscal year ended December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
|
Securities
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
Number of Shares
|
|
|
Underlying
|
|
|
Base Price of
|
|
|
Fair Value of
|
|
|
|
|
|
|
of Stock or Units
|
|
|
Options
|
|
|
Option Awards
|
|
|
Stock and
|
|
Name
|
|
Grant Date
|
|
|
(#)(1)
|
|
|
(#)
|
|
|
($/Sh)(2)
|
|
|
Option Awards
|
|
|
Jay Higham
|
|
|
1/02/08
|
(3)
|
|
|
|
|
|
|
5,573
|
|
|
$
|
11.20
|
|
|
$
|
13,416
|
|
|
|
|
5/13/08
|
(3)
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
$
|
56,761
|
|
|
|
|
5/13/08
|
(4)
|
|
|
1,566
|
|
|
|
|
|
|
|
|
|
|
$
|
14,188
|
|
|
|
|
7/22/08
|
(4)
|
|
|
|
|
|
|
33,600
|
|
|
$
|
8.06
|
|
|
$
|
99,100
|
|
John W. Hlywak, Jr.
|
|
|
1/02/08
|
(3)
|
|
|
|
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
$
|
6,709
|
|
|
|
|
5/13/08
|
(3)
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
$
|
30,605
|
|
|
|
|
5/13/08
|
(4)
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
$
|
7,647
|
|
|
|
|
7/22/08
|
(4)
|
|
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
$
|
49,550
|
|
Daniel P. Doman
|
|
|
5/13/08
|
(4)
|
|
|
11,038
|
|
|
|
|
|
|
|
|
|
|
$
|
100,004
|
|
|
|
|
7/22/08
|
(4)
|
|
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
$
|
49,550
|
|
Pamela Schumann
|
|
|
1/02/08
|
(3)
|
|
|
|
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
$
|
6,709
|
|
|
|
|
5/13/08
|
(4)
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
$
|
7,502
|
|
|
|
|
5/13/08
|
(4)
|
|
|
3,311
|
|
|
|
|
|
|
|
|
|
|
$
|
29,998
|
|
|
|
|
7/22/08
|
(4)
|
|
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
$
|
49,550
|
|
Joseph J. Travia, Jr.
|
|
|
1/02/08
|
(3)
|
|
|
|
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
$
|
6,709
|
|
|
|
|
5/13/08
|
(4)
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
$
|
7,502
|
|
|
|
|
5/13/08
|
(3)
|
|
|
3,311
|
|
|
|
|
|
|
|
|
|
|
$
|
29,998
|
|
|
|
|
7/22/08
|
(4)
|
|
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
$
|
49,550
|
|
|
|
(1)
|
Represents grants of restricted stock.
|
(2)
|
Options were issued with an exercise price equal to $11.20 per
share with respect to the January 2, 2008 grants and $6.15
per share with respect to the July 22, 2008 grants, which,
in each case, represented the last reported sale price for our
common stock on the date of grant, as reported by the Nasdaq
Global Market.
|
(3)
|
Granted pursuant to our 2000 Long-Term Compensation Plan.
|
(4)
|
Granted pursuant to our 2007 Long-Term Compensation Plan.
|
74
Outstanding
Equity Awards at December 31, 2008
The following table sets forth outstanding equity awards with
respect to the Named Executive Officers at December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
Unexercised
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
Options
|
|
|
Option
|
|
|
Option
|
|
|
Stock That
|
|
|
Stock That
|
|
|
|
(#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Unexercisable
|
|
|
Price($)
|
|
|
Date
|
|
|
Vested
(#)(1)
|
|
|
Vested
($)(2)
|
|
|
Jay Higham
|
|
|
5,573
|
|
|
$
|
11.20
|
|
|
|
01/02/2018
|
|
|
|
13,461
|
|
|
$
|
90,862
|
|
|
|
|
33,600
|
|
|
$
|
8.06
|
|
|
|
07/22/2018
|
|
|
|
|
|
|
|
|
|
John W. Hlywak, Jr.
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
|
01/02/2018
|
|
|
|
7,582
|
|
|
$
|
51,179
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
|
07/22/2018
|
|
|
|
|
|
|
|
|
|
Daniel P. Doman
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
|
07/22/2018
|
|
|
|
8,589
|
|
|
$
|
57,976
|
|
Pamela Schumann
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
|
01/02/2018
|
|
|
|
8,568
|
|
|
$
|
57,834
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
|
07/22/2018
|
|
|
|
|
|
|
|
|
|
Joseph J. Travia, Jr.
|
|
|
2,787
|
|
|
$
|
11.20
|
|
|
|
01/02/2018
|
|
|
|
8,568
|
|
|
$
|
57,834
|
|
|
|
|
16,800
|
|
|
$
|
8.06
|
|
|
|
07/22/2018
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Restricted stock awards granted May 13, 2005 to the Named
Executive Officers vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period. Restricted stock awards granted January 4, 2006 to
Mr. Higham vest over a
120-month
period at the rate of 2.5% every 90 days of the
120-month
period. Restricted stock awards granted May 23, 2006 to the
Named Executive Officers vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period. Restricted stock awards granted May 15, 2007 to the
Named Executive Officers vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period. Twenty-five percent of the restricted stock awards
granted to Messrs. Higham and Hlywak on September 24,
2007 vested immediately with the balance vesting over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period. Restricted stock awards granted September 24, 2007
to Ms. Schumann and Mr. Travia vest over a
60-month
period at the rate of 5% every 90 days of the
60-month
period. The Named Executive Officers received two restricted
stock awards on May 13, 2008; the first restricted stock
award vests over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period and the second restricted stock award vests on
May 12, 2011. Of the total 7,831 shares of restricted
stock granted to Mr. Higham, 6,265 vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period and 1,566 shares vest on May 12, 2011. Of the
total 4,222 shares of restricted stock granted to
Mr. Hlywak, 3,378 vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period and 844 shares vest on May 12, 2011. All of the
11,038 shares of restricted stock granted to Mr. Doman
vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period. Of the total 4,139 shares of restricted stock
granted to Ms. Schumann, 3,311 vest over a
36-month
period at the rate of 8.33% every 90 days of the
36-month
period and 828 shares vest on May 12, 2011.
|
(2)
|
The market value of the restricted stock awards is based on the
last reported sale price for our common stock on
December 31, 2008, as reported by the Nasdaq Global Market,
which was $6.75.
|
75
Option
Exercises and Stock Vested for the Fiscal Year Ended
December 31, 2008
The following table shows option exercises and stock award
vesting with respect to the Named Executive Officers for the
year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
|
|
Acquired on Vesting
|
|
|
on Vesting
|
|
Name
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
Jay Higham
|
|
|
7,831
|
|
|
$
|
70,448
|
|
John W. Hlywak, Jr.
|
|
|
4,222
|
|
|
$
|
36,900
|
|
Daniel P. Doman
|
|
|
11,038
|
|
|
$
|
79,032
|
|
Pamela Schumann
|
|
|
4,139
|
|
|
$
|
31,580
|
|
Joseph J. Travia, Jr.
|
|
|
4,139
|
|
|
$
|
31,580
|
|
|
|
(1)
|
Reflects shares of restricted stock that vested during the year
ended December 31, 2008.
|
(2)
|
The value realized on vesting is based on the last reported sale
price for our common stock on the vesting date, as reported by
the Nasdaq Global Market.
|
Pension
Benefits
We do not have any pension plans.
Nonqualified
Deferred Compensation
We do not have a deferred compensation plan.
Director
Compensation
In 2008, our non-employee directors were paid an annual retainer
of $30,000 and a fee of $2,000 for each regularly scheduled
meeting of the board of directors attended and for any special
or committee meeting not coinciding with a regularly scheduled
board of directors meeting. The chairpersons of the compensation
committee and the nominating and governance committee were paid
$5,000 each for serving as chairperson and the chairperson of
the audit committee was paid $8,000 for serving as chairperson.
Directors were also reimbursed for reasonable travel expenses
incurred in attending meetings. Additionally, our non-employee
directors (other than Mr. Agarwal) were granted, as part
compensation for services rendered, 4,415 shares of our
common stock, with a market value of $9.06 per share, or
$40,000, based on the last reported sale price for our common
stock on the date of the grant, which was May 13, 2008, as
reported by the Nasdaq Global Market, with vesting upon grant.
Directors who are also executive officers are not compensated
for their services as directors.
Our philosophy regarding director compensation is to recognize
that in order to attract and retain directors who are willing to
contribute time and talent to us, it is important to
competitively compensate such persons. With that philosophy in
mind, we attempt to provide fair cash compensation for a company
of our size and also provide directors with skin in the
game by awarding, as part compensation, shares of our
common stock. By making grants of our common stock a component
of a directors compensation, we enable directors to align
their interests with stockholders and appreciate the importance
of improving stock performance and providing investors with
long-term gains. Directors are not paid for their roles on
committees, other than as serving as chairperson and for
attending meetings of a committee not coinciding with a
regularly scheduled meeting of our board of directors.
Committees meet in conjunction with board of directors meetings
and, accordingly, we do not believe there should be additional
compensation for committee involvement, unless a meeting of a
committee does not
76
coincide with a regularly scheduled meeting of our board of
directors. Because committee chairpersons are expected to
interact more with management, they are compensated for the
additional time.
During 2006, our board of directors established a requirement
that directors own shares of our common stock with a value equal
to five times the annual director retainer fee paid by us to
directors for the year the director was first appointed or
elected. A director has five years to achieve this requirement.
Once this requirement is met, a director need not adjust the
number of shares of our common stock he or she owns based on
fluctuations in the market price of our common stock. As of the
date of this prospectus, all directors have met this requirement.
The following table sets forth a summary of the compensation
paid or accrued by us during the year ended December 31,
2008 for our directors, but excludes any management director
whose compensation is reflected on the Summary Compensation
Table for Named Executive Officers:
Director
Compensation for the Fiscal Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Kush K. Agarwal
|
|
$
|
19,000
|
|
|
|
|
|
|
$
|
93,750
|
|
|
$
|
112,750
|
|
Gerardo Canet
|
|
$
|
38,000
|
|
|
$
|
40,000
|
|
|
$
|
125,000
|
|
|
$
|
203,000
|
|
Sarason
Liebler(3)
|
|
$
|
38,000
|
|
|
$
|
40,000
|
|
|
$
|
57,533
|
|
|
$
|
135,533
|
|
Wayne R. Moon
|
|
$
|
43,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
$
|
83,000
|
|
Lawrence J. Stuesser
|
|
$
|
46,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
$
|
86,000
|
|
Elizabeth E. Tallett
|
|
$
|
45,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
$
|
85,000
|
|
Yvonne Thornton, M.D., M.P.H.
|
|
$
|
40,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
$
|
80,000
|
|
|
|
(1)
|
Represents grants of 4,415 shares of our common stock to
each of the directors on May 13, 2008, with a fair market
value of $9.06 per share. All of these grants vested immediately.
|
(2)
|
The amounts in All Other Compensation for
Messrs. Canet and Liebler include consulting fees in the
amount of $125,000 and $57,533, respectively, paid or accrued
for by us in 2008. Pursuant to his consulting agreement, dated
February 2, 2009, effective January 1, 2009,
Mr. Canet has agreed to provide us with consulting services
two days per month during the period from January 1, 2009
through December 31, 2009 and will receive an amount from
us equal to $36,000 in 12 equal installments of $3,000 per
month. The amount in All Other Compensation for
Mr. Agarwal represents compensation paid by us to
Mr. Agarwal for his service as President of VCA.
Mr. Agarwal resigned as President of VCA on May 15,
2008.
|
(3)
|
Mr. Liebler ceased being a member of our board of directors
on May 12, 2009 because he had reached the mandatory
retirement age of 72 under our corporate governance guidelines.
|
At December 31, 2008, our directors, as a group, held
outstanding options to purchase 56,876 shares of our common
stock and also held an aggregate of 30,905 shares of our
common stock pursuant to stock awards made during 2008.
77
PRINCIPAL
STOCKHOLDERS
The following table sets forth, as of August 31, 2009,
certain information concerning the beneficial stock ownership of
all persons known by us to beneficially own 5% or more of the
shares of our common stock outstanding, each director, certain
of our executive officers and all of our directors and executive
officers as a group. Except as indicated in the footnotes to the
below table, we believe that each stockholder named in such
table has sole voting and dispositive power with respect to all
shares of common stock attributable to such stockholder.
|
|
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
|
|
Stock Beneficially
|
|
Percent of Common
|
Beneficial Owner
|
|
Owned(1)
|
|
Stock Outstanding
|
|
Principal Stockholders:
|
|
|
|
|
|
|
|
|
Peter R. Kellogg
|
|
|
2,641,286
|
(2)
|
|
|
30.1
|
%
|
IAT Reinsurance Company Ltd.
120 Broadway
New York, New York 10271
|
|
|
|
|
|
|
|
|
Blue TSV I, LTD.
|
|
|
1,172,094
|
(3)
|
|
|
13.4
|
%
|
c/o Maple
Corporate Services Limited
P.O. Box 309, Ugland House
Grand Cayman, E9 KY1 1104
|
|
|
|
|
|
|
|
|
Gruber and McBaine Capital Management, LLC
|
|
|
633,850
|
(4)
|
|
|
7.2
|
%
|
50 Osgood Place
San Francisco, California 94133
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
487,625
|
(5)
|
|
|
5.6
|
%
|
1299 Ocean Avenue
Santa Monica, California 90401
|
|
|
|
|
|
|
|
|
Directors and Certain Executive Officers:
|
|
|
|
|
|
|
|
|
Jay Higham
|
|
|
153,981
|
(6)
|
|
|
1.8
|
%
|
John W. Hlywak, Jr.
|
|
|
108,043
|
(6)
|
|
|
1.2
|
%
|
Pamela Schumann
|
|
|
16,974
|
(6)
|
|
|
|
*
|
Joseph J. Travia, Jr.
|
|
|
35,326
|
(6)
|
|
|
|
*
|
Daniel P. Doman
|
|
|
6,623
|
|
|
|
|
*
|
Kush K. Agarwal
|
|
|
141,211
|
|
|
|
1.6
|
%
|
Gerardo Canet
|
|
|
41,117
|
|
|
|
|
*
|
Wayne R. Moon
|
|
|
45,345
|
(6)
|
|
|
|
*
|
Lawrence J. Stuesser
|
|
|
65,740
|
(6)
|
|
|
|
*
|
Elizabeth E. Tallett
|
|
|
82,747
|
(6)
|
|
|
|
*
|
Yvonne S. Thornton, M.D., M.P.H
|
|
|
17,891
|
|
|
|
|
*
|
All directors and executive officers as a group
(15 persons)
|
|
|
741,025
|
(7)
|
|
|
8.4
|
%
|
|
|
*
|
Represents less than 1% of outstanding shares of our common
stock.
|
(1)
|
For purposes of this prospectus, beneficial ownership is defined
in accordance with the rules and regulations of the Securities
and Exchange Commission and generally means the power to vote
and/or to
dispose of securities regardless of any economic interest
therein.
|
(2)
|
Based on a Form 4 filed with the Securities and Exchange
Commission on August 15, 2008.
|
(3)
|
Based on a Form 4 filed with the Securities and Exchange
Commission on August 31, 2009.
|
(4)
|
Represents 491,530 shares of our common stock held by
Gruber and McBaine Capital Management, LLC as investment
advisor, plus 78,605 shares of our common stock held by
Jon D. Gruber and 63,714 shares of our common stock
held by J. Patterson McBaine individually based on a
Schedule 13G, dated January 27, 2009, filed with the
Securities and Exchange Commission by Gruber and McBaine Capital
Management, LLC, Jon D. Gruber, J. Patterson McBaine
and Eric B. Swergold.
|
footnotes continued on following page
78
|
|
(5)
|
Represents securities reported on an amendment to a
Schedule 13G, dated February 9, 2009, as being owned
by various funds for which Dimensional Fund Advisors LP has
sole voting and dispositive power, but disclaims beneficial
ownership.
|
(6)
|
Includes exercisable options to purchase shares of our common
stock within 60 days of August 31, 2009 as follows:
Wayne R. Moon 10,156; Lawrence J.
Stuesser 20,312; Elizabeth E.
Tallett 20,312; Jay Higham 2,437;
John W. Hlywak, Jr. 1,219; Pamela
Schumann 1,219; and Joseph J.
Travia, Jr. 1,219.
|
(7)
|
Includes 51,553 exercisable options to purchase shares of our
common stock within 60 days of August 31, 2009,
including 835 exercisable options held by an executive officer
not named above. The address for each of our directors and
executive officers is
c/o IntegraMed
America, Inc., Two Manhattanville Road, Purchase, New
York 10577.
|
79
RELATED
PARTY TRANSACTIONS
Consulting
Agreement
We have and have had consulting agreements with Gerardo Canet,
the chairman of our board of directors. The previous consulting
agreement provided for compensation of $125,000 for the year
ended December 31, 2008. The consulting agreement expired
on December 31, 2008 and was replaced with a new one-year
consulting agreement providing for $36,000 in compensation.
Policies
and Procedures for Related Party Transactions
We do not have written policies and procedures for the review,
approval or ratification of related party transactions. However,
any related party transaction is reviewed and discussed by our
board of directors or an appropriate committee of our board of
directors with responsibility for the subject matter. For
example, the consulting agreement with Mr. Canet was
reviewed and approved by the compensation committee of our board
of directors.
80
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock summarizes the
provisions of our restated certificate of incorporation and
by-laws.
The following description of the material provisions of our
capital stock and restated certificate of incorporation and
by-laws is only a summary, does not purport to be complete and
is qualified by applicable law and the full provisions of our
restated certificate of incorporation and by-laws, which have
been filed with the Securities and Exchange Commission as
exhibits to the registration statement of which this prospectus
is a part.
Authorized
Capitalization
As of the date of this prospectus, our authorized capital stock
consists of 15,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock,
par value $1.00 per share. Immediately after the completion of
this offering, 12,774,994 shares of our common stock, or
13,374,994 shares of our common stock if the underwriters
exercise their over-allotment option in full, and no shares of
our preferred stock will be issued and outstanding.
Common
Stock
All shares of our common stock to be outstanding immediately
after completion of this offering will be validly issued, fully
paid and nonassessable.
Dividends. Holders of shares of our
common stock are entitled to receive dividends and other
distributions in cash, property or capital stock of ours as may
be declared by our board of directors from time to time out of
our assets or funds legally available for dividends or other
distributions. We have not paid cash dividends on our common
stock during the last two fiscal years, and we currently
anticipate retaining all available funds for use in the
operation and expansion of our business. In addition, our credit
agreement prohibits us from paying cash dividends on our common
stock. Therefore, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
Liquidation Rights. In the event of our
voluntary or involuntary liquidation, dissolution or winding up,
holders of shares of our common stock will be entitled to share
in our assets remaining after payment of all debts and other
liabilities, subject to the liquidation preference of any
outstanding shares of our preferred stock.
Voting Rights. Shares of our common
stock carry one vote per share. All shares of common stock rank
equally as to voting and all other matters. Except as otherwise
required by law, holders of our common stock are not entitled to
vote on any amendment to our restated certificate of
incorporation that relates solely to the terms of one or more
outstanding series of preferred stock if the holders of the
affected shares are entitled to vote on the amendment. Shares of
our common stock have no conversion rights, no redemption or
sinking fund provisions, are not liable for further call or
assessment and are not entitled to cumulative voting rights.
Except as otherwise required by the Delaware General Corporation
Law and our restated certificate of incorporation and by-laws,
action requiring stockholder approval may be taken by a vote of
the holders of a majority of our common stock at a meeting at
which a quorum is present. See Anti-Takeover
Effects of Various Provisions of Delaware Law and Our Restated
Certificate of Incorporation and By-laws.
81
Other Rights. Holders of shares of our
common stock have no preemptive rights. The holders of our
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
Preferred
Stock
Our restated certificate of incorporation provides that we may
issue up to 5,000,000 shares of our preferred stock in one
or more series as may be determined by our board of directors.
Our board of directors has broad discretionary authority with
respect to the rights of issued series of our preferred stock
and may take several actions without any vote or action of the
holders of our common stock, including:
|
|
|
|
|
determining the number of shares to be included in each series;
|
|
|
|
fixing the designation, powers, preferences and relative rights
of the shares of each series and any qualifications, limitations
or restrictions with respect to each series, including
provisions related to dividends, conversion, voting, redemption
and liquidation, which may be superior to those of our common
stock; and
|
|
|
|
increasing or decreasing the number of shares of any series.
|
Our board of directors may authorize, without approval of
holders of our common stock, the issuance of preferred stock
with voting and conversion rights that could adversely affect
the voting power and other rights of holders of our common
stock. For example, our preferred stock may rank prior to our
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be
convertible into shares of our common stock.
Our preferred stock could be issued quickly with terms designed
to delay or prevent a change of control of our Company or to
make the removal of our management more difficult. This could
have the effect of discouraging third-party bids for our common
stock or may otherwise adversely affect the market price of our
common stock.
We believe that the ability of our board of directors to issue
one or more series of our preferred stock provides us with
flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of our preferred stock, as well as
authorized and unissued shares of our common stock, will be
available for issuance without action by holders of our common
stock, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on
which our securities may be listed or traded.
Although our board of directors has no intention at the present
time of doing so, it could issue a series of our preferred stock
that could, depending on the terms of such series, be used to
implement a stockholder rights plan or otherwise impede the
completion of a merger, tender offer or other takeover attempt
of our Company. Our board of directors could issue preferred
stock having terms that could discourage an acquisition attempt
through which an acquirer may be able to change the composition
of our board of directors, including a tender offer or other
transaction that some, or a majority, of our stockholders might
believe to be in their best interest or in which stockholders
might receive a premium for their stock over the market price.
82
Anti-Takeover
Effects of Various Provisions of Delaware Law and Our Restated
Certificate of Incorporation and By-laws
The Delaware General Corporation Law, our restated certificate
of incorporation and our by-laws contain provisions that may
have some anti-takeover effects and may delay, defer or prevent
a tender offer or takeover attempt that a stockholder might
consider in his, her or its best interest, including those
attempts that might result in a premium over the market price
for the shares held by stockholders.
Delaware
Anti-Takeover Statute
We are subject to Section 203 of the Delaware General
Corporation Law (Section 203). Subject to
specific exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the time the stockholder becomes
an interested stockholder, unless:
|
|
|
|
|
the business combination, or the transaction in which the
stockholder became an interested stockholder, is approved by our
board of directors prior to the time the interested stockholder
attained that status;
|
|
|
|
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced, excluding those shares
owned by persons who are directors and also officers and
employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
|
|
|
|
at or after the time a stockholder became an interested
stockholder, the business combination is approved by our board
of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of
our outstanding voting stock that is not owned by the interested
stockholder.
|
Business combinations include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, in
general, an interested stockholder is a stockholder
who, together with his, her or its affiliates and associates,
owns, or within three years did own, 15% or more of the shares
of our outstanding voting stock. These restrictions could
prohibit or delay the accomplishment of mergers or other
takeover or change of control attempts with respect to us and,
therefore, may discourage attempts to acquire us.
Restated
Certificate of Incorporation and By-laws
Provisions of our restated certificate of incorporation and
by-laws, which are summarized in the following paragraphs, may
also have an anti-takeover effect.
Quorum Requirements. Our by-laws
provide for a minimum quorum of a majority in voting power of
the issued and outstanding shares of our capital stock entitled
to vote.
No Cumulative Voting. The Delaware
General Corporation Law provides that stockholders are denied
the right to cumulate votes in the election of directors unless
a companys certificate of incorporation provides
otherwise. Our restated certificate of incorporation does not
expressly address cumulative voting.
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Calling of Special Meeting of
Stockholders. Our by-laws provide that
special meetings of our stockholders may be called only by
(a) the chairman of our board of directors, (b) our
board of directors or (c) our President.
Advance Notice Requirements for Stockholder Proposals and
Director Nominations. Our by-laws provide
that stockholders seeking to bring business before or to
nominate candidates for election as directors at an annual
meeting of stockholders must provide us with timely notice of
their proposal in writing. To be timely, a stockholders
notice must be delivered to or mailed and received at our
principal executive offices not less than 90 nor more than
120 days prior to the first anniversary of the preceding
years annual meeting of stockholders. Stockholder
proposals or nominations for the election of directors at a
meeting held more than 30 days from such anniversary date
must be received no later than the close of business on the
10th day following the earlier of the day on which notice
of the date of the meeting was mailed or public disclosure was
made.
Our by-laws also specify requirements as to the form and content
of a stockholders notice. These provisions may impede
stockholders ability to bring matters before an annual
meeting of stockholders or make nominations for directors at an
annual meeting of stockholders.
Limitations on Liability and Indemnification of Officers
and Directors. The Delaware General
Corporation Law authorizes corporations to limit or eliminate
the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of
directors fiduciary duties as directors. Our restated
certificate of incorporation includes a provision that
eliminates the personal liability of our directors to us and our
stockholders for monetary damages for breaches of their
fiduciary duties as our directors to the fullest extent
permitted by the Delaware General Corporation Law.
Our by-laws provide that we must indemnify our directors and
officers to the fullest extent authorized by the Delaware
General Corporation Law and that such indemnitees will also
generally be entitled to an advancement of expenses. We are also
expressly authorized to, and do, carry directors and
officers insurance for our directors, officers and certain
employees for some liabilities. We believe that these
indemnification provisions and insurance are useful to attract
and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in
our by-laws may discourage stockholders from bringing lawsuits
against our directors for breaches of their fiduciary duties.
These provisions may also have the effect of reducing the
likelihood of derivative litigation against our directors and
officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. In addition, your
investment may be adversely affected to the extent that, in a
class action or direct suit, we pay the costs of settlement and
damage awards against our directors and officers pursuant to
these indemnification provisions.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Authorized but Unissued Shares. Our
authorized but unissued shares of common stock and preferred
stock will be available for future issuance without your
approval. We may use additional shares for a variety of
corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit
plans. The existence of authorized but unissued shares of our
common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
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Amendments. Our restated certificate of
incorporation grants our board of directors the authority to
make, alter, amend and repeal our by-laws without a stockholder
vote in any manner not inconsistent with the laws of the State
of Delaware or our restated certificate of incorporation.
Listing
Our common stock is listed on the Nasdaq Global Market under the
symbol INMD.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company, LLC.
85
MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S.
HOLDERS OF OUR COMMON STOCK
The following discussion summarizes certain material
U.S. federal income and estate tax considerations relating
to the acquisition, ownership and disposition of our common
stock purchased pursuant to this offering by a
non-U.S. holder
(as defined below). This discussion is based on the provisions
of the U.S. Internal Revenue Code of 1986, as amended,
final, temporary and proposed U.S. Treasury regulations
promulgated thereunder and current administrative rulings and
judicial decisions, all as in effect as of the date hereof. All
of these authorities may be subject to differing interpretations
or repealed, revoked or modified, possibly with retroactive
effect, which could materially alter the tax consequences to
non-U.S. holders
described in this prospectus.
There can be no assurance that the IRS will not take a contrary
position to the tax consequences described herein or that such
position will not be sustained by a court. No ruling from the
IRS or opinion of counsel has been obtained with respect to the
U.S. federal income or estate tax consequences to a
non-U.S. holder
of the purchase, ownership or disposition of our common stock.
This discussion is for general information only and is not
tax advice. All prospective
non-U.S. holders
of our common stock should consult their own tax advisors with
respect to the U.S. federal, state, local and
non-U.S. tax
consequences of the purchase, ownership and disposition of our
common stock.
As used in this discussion, the term
non-U.S. holder
means a beneficial owner of our common stock that is not any of
the following for U.S. federal income tax purposes:
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an individual who is a citizen or a resident of the United
States;
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes that was created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source;
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a trust (a) if a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more U.S. persons have the authority to control all of
the trusts substantial decisions or (b) that has a
valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person; or
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an entity that is disregarded as separate from its owner if all
of its interests are owned by a single person described above.
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An individual may be treated, for U.S. federal income tax
purposes, as a resident of the United States in any calendar
year by being present in the United States on at least
31 days in that calendar year and for an aggregate of at
least 183 days during a three-year period ending in the
current calendar year. The
183-day test
is determined by counting all of the days the individual is
treated as being present in the current year, one-third of such
days in the immediately preceding year and one-sixth of such
days in the second preceding year. Residents are subject to
U.S. federal income tax as if they were U.S. citizens.
This discussion assumes that a prospective
non-U.S. holder
will hold shares of our common stock as a capital asset
(generally, property held for investment). This discussion does
not address all aspects of U.S. federal income and estate
taxation that may be relevant to a particular
non-U.S. holder
in light of that
non-U.S. holders
individual circumstances. In addition, this discussion does not
address any aspect
86
of U.S. state or local or
non-U.S. taxes,
or the special tax rules applicable to particular
non-U.S. holders,
such as:
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insurance companies and financial institutions;
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tax-exempt organizations;
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controlled foreign corporations and passive foreign investment
companies;
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partnerships or other pass-through entities;
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regulated investment companies or real estate investment trusts;
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pension plans;
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persons who received our common stock as compensation;
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brokers and dealers in securities;
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owners that hold our common stock as part of a straddle, hedge,
conversion transaction, synthetic security or other integrated
investment; and
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former citizens or residents of the United States subject to tax
as expatriates.
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If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes is a beneficial owner of
our common stock, the treatment of a partner in the partnership
generally will depend on the status of the partner and the
activities of the partnership. We urge any beneficial owner of
our common stock that is a partnership and partners in that
partnership to consult their tax advisors regarding the
U.S. federal income tax consequences of acquiring, owning
and disposing of our common stock.
Distributions
on Our Common Stock
Any distribution on our common stock paid to
non-U.S. holders
will generally constitute a dividend for U.S. federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess
of our current and accumulated earnings and profits will
generally constitute a return of capital to the extent of the
non-U.S. holders
adjusted tax basis in our common stock, and will be applied
against and reduce the
non-U.S. holders
adjusted tax basis. Any remaining excess will be treated as
capital gain, subject to the tax treatment described below in
Gain on Sale, Exchange or Other Disposition of Our Common
Stock.
Dividends paid to a
non-U.S. holder
that are not treated as effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States generally
will be subject to withholding of U.S. federal income tax
at a rate of 30% on the gross amount paid, unless the
non-U.S. holder
is entitled to an exemption from or reduced rate of withholding
under an applicable income tax treaty. In order to claim the
benefit of a tax treaty or to claim an exemption from
withholding, a
non-U.S. holder
must provide a properly executed IRS
Form W-8BEN
(or successor form) prior to the payment of dividends. A
non-U.S. holder
eligible for a reduced rate of withholding pursuant to an income
tax treaty may be eligible to obtain a refund of any excess
amounts withheld by timely filing an appropriate claim for a
refund with the IRS.
87
Dividends paid to a
non-U.S. holder
that are treated as effectively connected with a trade or
business conducted by the
non-U.S. holder
within the United States (and, if an applicable income tax
treaty so provides, are also attributable to a permanent
establishment or a fixed base maintained within the United
States by the
non-U.S. holder)
are generally exempt from the 30% withholding tax if the
non-U.S. holder
satisfies applicable certification and disclosure requirements.
To obtain the exemption, a
non-U.S. holder
must provide us with a properly executed IRS
Form W-8ECI
(or successor form) prior to the payment of the dividend.
Dividends received by a
non-U.S. holder
that are treated as effectively connected with a U.S. trade
or business generally are subject to U.S. federal income
tax at rates applicable to U.S. persons. A
non-U.S. holder
that is a corporation may, under certain circumstances, be
subject to an additional branch profits tax imposed
at a rate of 30%, or such lower rate as specified by an
applicable income tax treaty between the United States and such
holders country of residence.
A
non-U.S. holder
who provides us with an IRS
Form W-8BEN
or
Form W-8ECI
must update the form or submit a new form, as applicable, if
there is a change in circumstances that makes any information on
such form incorrect.
Gain On
Sale, Exchange or Other Disposition of Our Common
Stock
In general, a
non-U.S. holder
will not be subject to any U.S. federal income tax or
withholding on any gain realized from the
non-U.S. holders
sale, exchange or other disposition of shares of our common
stock unless:
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the gain is effectively connected with a U.S. trade or
business (and, if an applicable income tax treaty so provides,
is also attributable to a permanent establishment or a fixed
base maintained within the United States by the
non-U.S. holder),
in which case the gain will be taxed on a net income basis
generally in the same manner as if the
non-U.S. holder
were a U.S. person, and, if the
non-U.S. holder
is a corporation, the additional branch profits tax described
above in Distributions on Our Common Stock may also
apply;
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the disposition and
certain other conditions are met, in which case the
non-U.S. holder
will be subject to a 30% tax on the net gain derived from the
disposition, which may be offset by
U.S.-source
capital losses of the
non-U.S. holder,
if any; or
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we are, or have been at any time during the five-year period
preceding such disposition (or the
non-U.S. holders
holding period, if shorter), a United States real property
holding corporation.
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Generally, we will be a United States real property
holding corporation if the fair market value of our
U.S. real property interests equals or exceeds 50% of the
sum of the fair market values of our worldwide real property
interests and other assets used or held for use in a trade or
business, all as determined under applicable U.S. Treasury
regulations. We believe that we have not been and are not
currently, and do not anticipate becoming in the future, a
United States real property holding corporation for
U.S. federal income tax purposes.
Backup
Withholding and Information Reporting
We must report annually to the IRS and to each
non-U.S. holder
the amount of distributions paid to such holder and the amount
of tax withheld, if any. Copies of the information returns filed
with the IRS to report the distributions and withholding may
also be made available to the tax authorities in a country in
which the
non-U.S. holder
is a resident under the provisions of an applicable income tax
treaty or agreement.
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The United States imposes a backup withholding tax on the gross
amount of dividends and certain other types of payments
(currently at a rate of 28%). Dividends paid to a
non-U.S. holder
will not be subject to backup withholding if proper
certification of foreign status (usually on IRS
Form W-8BEN)
is provided, and we do not have actual knowledge or reason to
know that the
non-U.S. holder
is a U.S. person. In addition, no backup withholding or
information reporting will be required regarding the proceeds of
a disposition of our common stock made by a
non-U.S. holder
within the United States or conducted through certain
U.S. financial intermediaries if we receive the
certification of foreign status described in the preceding
sentence and we do not have actual knowledge or reason to know
that such
non-U.S. holder
is a U.S. person or the
non-U.S. holder
otherwise establishes an exemption.
Non-U.S. holders
should consult their own tax advisors regarding the application
of the information reporting and backup withholding rules to
them.
Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules from a payment to a
non-U.S. holder
can be refunded or credited against the
non-U.S. holders
U.S. federal income tax liability, if any, provided that
certain required information is furnished to the IRS in a timely
manner.
U.S.
Federal Estate Tax
An individual
non-U.S. holder
who is treated as the owner, or who has made certain lifetime
transfers, of an interest in our common stock will be required
to include the value of the common stock in his or her gross
estate for U.S. federal estate tax purposes, and may be
subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
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UNDERWRITING
The underwriters named below have agreed to purchase, subject to
the terms and conditions of an underwriting agreement among us
and the underwriters, the number of shares listed opposite their
names below. The underwriters are committed to purchase all of
the shares if any are purchased.
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Underwriters
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Number of Shares
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Piper Jaffray & Co.
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Cowen and Company, LLC
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Total
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The underwriters have advised us that they propose to offer the
shares to the public at $ per
share. The underwriters propose to offer the shares to certain
dealers at the same price less a concession of not more than
$ per share. The underwriters may
allow and the dealers may reallow a concession of not more than
$ per share on sales to certain
other brokers and dealers. After the offering, these figures may
be changed by the underwriters. Sales of shares made outside of
the United States may be made by affiliates of the underwriters.
We have granted the underwriters an option to purchase up to
600,000 additional shares of common stock from us at the
public offering price less the underwriting discount set forth
in the table below. The underwriters may exercise this option at
any time and from time to time during the
30-day
period from the date of this prospectus to cover
over-allotments, if any. To the extent any shares are purchased
with this over-allotment option, the underwriters will purchase
shares in approximately the same proportion as shown in the
table above.
The following table shows the underwriting fees to be paid by us
to the underwriters in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of
the underwriters option to purchase additional shares.
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No Exercise
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Full Exercise
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Per share
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$
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$
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Total
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$
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$
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We estimate that the total fees and expenses of this offering
payable by us, including registration, filing and listing fees,
printing fees and legal and accounting expenses, but excluding
underwriting discounts, will be approximately
$ ,
which includes
$
that we estimate we will pay pursuant to our agreement to
reimburse the underwriters for the fees and expenses incurred by
them in connection with this offering. The fees and expenses of
the underwriters that we have agreed to reimburse are not
included in the underwriting discounts set forth in the table
above.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required
to make in respect of those liabilities.
We and each of our directors and executive officers are subject
to lock-up
agreements that prohibit us and them from offering, pledging,
announcing the intention to sell, selling, contracting to sell,
selling any option or contract to purchase, purchasing any
option or contract to sell, granting any option, right or
warrant to purchase, making any short sale or otherwise
transferring or disposing of, directly or indirectly, any shares
of our common stock or any securities convertible into,
exercisable or exchangeable for or that represent the right to
receive our common stock or entering into any swap or other
agreement that transfers, in whole or in part, any of the
economic consequences of ownership of our
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common stock, for a period of at least 90 days following
the date of this prospectus without the prior written consent of
Piper Jaffray. The
lock-up
agreement does not prohibit our directors or executive officers
from transferring shares of our common stock as a bona fide gift
or to certain trusts, subject to certain requirements, including
that the transferee be subject to the same
lock-up
terms, or pursuant to trading plans adopted in accordance with
the guidelines specified by
Rule 10b5-1
under the Exchange Act in existence as of the date of this
prospectus. The
lock-up
provisions do not prevent us from selling shares to the
underwriters pursuant to the underwriting agreement, or from
granting options to acquire securities under our existing equity
compensation plans or issuing shares upon the exercise or
conversion of securities outstanding on the date of this
prospectus.
The