As filed with the Securities and Exchange Commission on January 10, 1997
Registration No. 333-15589
Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
To
Form S-1
Registration Statement under the Securities Act of 1933
International Magnetic Imaging, Inc.
(Exact name of registrant as specified in its charter)
Asher S. Levitsky P.C.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
(212) 953-6000
Fax: (212) 953-6899
(Name, address and telephone number of agent for service)
Copies to:
Lewis S. Schiller, Chairman of the Board Stuart Neuhauser, Esq.
International Magnetic Imaging, Inc. Bernstein & Wasserman, LLP
2424 N. Federal Highway; Suite 410 950 Third Avenue
Boca Raton, FL 33431 New York, NY 10022
(561) 362-0917 (212) 826-0730
Fax: (561) 347-5352 Fax: (212) 371-4730
Calculation of Registration Fee
================================================================================
<TABLE>
<CAPTION>
Proposed
Proposed Maximum Amount of
Amount to be Maximum Offering Aggregate Registration
Title of each class of securities to be registered Registered Price Per Unit(1) Offering Price Fee
- -------------------------------------------------- ------------ ----------------- -------------- --------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share(2) 1,150,000 Shs. $5.00 $ 5,750,000.00 $1,982.76
Series A Common Stock Purchase Warrants(2) 1,725,000 Wts. .15 258,750.00 89.22
Common Stock, par value $.01 per share(3),(4) 1,725,000 Shs. 6.00 10,350,000.00 3,568.97
Underwriter's Options(5) to purchase Common Stock 100,000 Optns. .0001 10.00 .01
Common Stock, par value $.01 per share(4),(6) 100,000 Shs. 8.25 825,000.00 284.48
Underwriter's Options(7) to purchase Warrants) 150,000 Optns. .0001 15.00 .01
Series A Common Stock Purchase Warrants(4),(8) 150,000 Wts. .25 37,500.00 12.93
Common Stock, par value $.01 per share(4),(9) 150,000 Shs. 6.00 900,000.00 310.35
Series B Common Stock Purchase Warrants(10) 1,000 Wts. 3.00 3,000,000.00 1,034.48
Common Stock, par value $.01 per share(4),(11) 1,000 Shs. 2.00 2,000,000.00 698.66
---------
$7,981.87(l)
=========
====================================================================================================================================
(Footnotes on following page)
</TABLE>
<PAGE>
(Footnotes from preceding page)
(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Includes 150,000 shares of Common Stock and 225,000 Series A Redeemable
Common Stock Purchase Warrants ("Warrants") issuable upon exercise of
the Underwriter's over-allotment option.
(3) Represents shares of Common Stock issuable upon exercise of the
Warrants.
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants and the Underwriter's Options.
(5) Represents Underwriter's Options to purchase 100,000 shares of Common
Stock.
(6) Represents shares of Common Stock issuable upon exercise of the
Underwriter's Options to purchase Common Stock.
(7) Represents Underwriter's Options to purchase 150,000 Warrants.
(8) Represents Warrants issuable upon exercise of the Underwriter's
Options to purchase Warrants.
(9) Represents shares of Common Stock issuable upon exercise of the
Warrants issuable pursuant to the Underwriter's Options to purchase
Warrants.
(10) Represents Series B Common Stock Purchase Warrants ("Series B
Warrants") to be sold by the Selling Security Holder. See "Selling
Security Holder."
(11) Represents shares of Common Stock issuable upon exercise of the Series
B Warrants.
================================================================================
<PAGE>
International Magnetic Imaging, Inc.
Cross-Reference Sheet Pursuant to Rule 404
Item No. Caption in Prospectus
- -------- ---------------------
1. Forepart of the Registration Statement Registration Statement Facing Page,
and Outside Front Cover of Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Inside Cover Page, Back Cover Page
Pages of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary, Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Risk Factors,
Underwriting
6. Dilution Dilution
7. Selling Security Holders Cover Page, Inside Cover Page,
Selling Security Holder
8. Plan of Distribution Cover Page, Inside Cover Page,
Selling Security Holder,
Underwriting
9. Description of Securities to be Description of Securities
Registered
10. Interest of Named Experts and Counsel N.A.
11. Information with Respect to the (a)-(c) Prospectus Summary,
Registrant Business
(d) Cover Page
(e) Financial Statements
(f) Prospectus Summary,
International Magnetic
Imaging, Inc. Selected
Financial Data
(g) N.A.
(h) International Magnetic
Imaging, Inc. Management's
Discussion and Analysis of
Financial Condition and
Results of Operations
(i) N.A.
(j)-(k) Management
(l) Principal Stockholders
(m) Certain Transactions
12. Disclosure of Commission N.A.
Position on Indemnification for
Securities Act Liabilities
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 10, 1997
International Magnetic Imaging, Inc.
1,000,000 shares of Common Stock, par value $.01 per share
1,500,000 Series A Redeemable Common Stock Purchase Warrants
---------------
International Magnetic Imaging, Inc. (the "Company") is offering
1,000,000 shares of Common Stock ("Common Stock") and 1,500,000 Series A
Redeemable Common Stock Purchase Warrants (the "Warrants"). The Common Stock and
the Warrants are collectively referred to as the "Securities." Each Warrant
entitles the holder to purchase one share of Common Stock at $6.00 per share
(subject to adjustment) during the two-year period commencing one year from the
date of this Prospectus. The Warrants are redeemable by the Company commencing
18 months from the date of this Prospectus, or earlier with the consent of
Monroe Parker Securities, Inc. (the "Underwriter"), for $.10 per Warrant, on not
more than 60 nor less than 30 days' written notice if the average closing price
per share of Common Stock is at least $15.00, subject to adjustment, for ten
consecutive trading days ending not earlier than three days prior to the date
the Warrants are called for redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the
Securities. The initial public offering prices of the Common Stock and Warrants
and the exercise price and other terms of the Warrants have been determined
through negotiations between the Company and the Underwriter, and are not
related to the Company's assets, earnings, book value, financial condition or
other recognized criteria of value. Although the Company has applied for the
inclusion of the Common Stock and Warrants on The Nasdaq SmallCap Market under
the symbols and , respectively, there can be no assurance that an active trading
market in the Securities will develop or be sustained.
---------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 7, AND "DILUTION."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Share...... $5.00 $.50 $4.50
Per Warrant.... $ .15 $.015 $ .135
Total(3)....... $5,225,000 $522,500 $4,702,500
================================================================================
(footnotes on page 2)
The Securities are being offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Common Stock and Warrants will be made against payment therefor
at the offices of the Underwriter at 2500 Westchester Avenue, Purchase, New York
10577 on , 1997.
Monroe Parker Securities, Inc.
The date of this Prospectus is , 1997
<PAGE>
(footnotes from Cover Page)
(1) Excludes additional compensation to be received by the Underwriter in
the form of (a) a non-accountable expense allowance of 3% of the gross
proceeds of this Offering, for a total of $156,750 ($180,263 if the
Underwriter's over-allotment option is exercised in full), (b) options
(the "Underwriter's Options") to purchase 100,000 shares of Common
Stock and 150,000 Warrants at exercise prices equal to 165% of the
respective initial public offering prices, and (c) a two-year
consulting agreement pursuant to which the Company will pay the
Underwriter a fee of $100,000 at the closing of this Offering. In
addition, the Company has agreed to indemnify the Underwriter against
certain liabilities, including liability under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the Offering (including the
Underwriter's non-accountable expense allowance and consulting fee) of
approximately $785,000 which are payable by the Company and relate to
the Offering by the Company and possible sale of securities by a
selling security holder.
(3) The Company has granted to the Underwriter an option exercisable within
45 days after the date of this Prospectus, to purchase up to an
additional 150,000 shares of Common Stock and 225,000 Warrants on the
same terms and conditions as the Securities offered hereby, solely to
cover over-allotments. If the over-allotment option is exercised in
full, the Total Price to Public, Total Underwriting Discounts and
Commissions and Total Proceeds to Company will be $6,008,750, $600,875
and $5,407,875, respectively. See "Underwriting."
This Prospectus, with a different Cover Page, relates to the resale by
SIS Capital Corp. ("SISC") of 1,000,000 Series B Common Stock Purchase Warrants
(the "Series B Warrants"). The Series B Warrants become exercisable on the date
of this Prospectus, but SISC has agreed not to exercise the Series B Warrants or
sell the Series B Warrants or the underlying shares of Common Stock during the
two-year period commencing on the date of this Prospectus without the prior
consent of the Underwriter. See "Selling Security Holder." The sale of such
securities is not part of the underwritten public offering. Any sales by the
Selling Security Holder of the Series B Warrants and any sale of the underlying
shares of Common Stock may have an adverse effect upon the market for and price
of the Common Stock and Warrants offered by this Prospectus.
SISC, the Company's principal stockholder, presently owns all of the
Company's Common Stock and Series B Convertible Redeemable Preferred Stock,
which are the only classes of voting stock. After completion of this Offering,
SISC will own 91.1% of the Common Stock and 93.2% of the voting stock, without
giving effect to any shares of Common Stock issuable upon exercise of any
warrants. See "Principal Stockholders."
The Company will be subject to certain informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
The Company uses the calendar year as its fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT NUMBER OF SECURITIES MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITER. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF
THE SECURITIES THROUGH OR WITH THE UNDERWRITER. ALTHOUGH IT HAS NO OBLIGATION TO
DO SO, THE UNDERWRITER MAY BECOME A MARKET MAKER AND OTHERWISE EFFECT
TRANSACTIONS IN THE SECURITIES, AND, IF THE UNDERWRITER PARTICIPATES IN SUCH
MARKET, IT MAY BE A DOMINATING INFLUENCE IN THE TRADING OF THE SECURITIES. THE
PRICES AND THE LIQUIDITY OF THE SECURITIES MAY BE SIGNIFICANTLY AFFECTED BY THE
DEGREE, IF ANY, OF THE PARTICIPATION OF THE UNDERWRITER IN SUCH MARKET, SHOULD A
MARKET DEVELOP.
- 2 -
<PAGE>
PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in
this Prospectus. It does not purport to be complete and is qualified in its
entirety by reference to more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. All share
and per share information in this Prospectus has been restated to reflect the
recapitalization effective November 1996 pursuant to which the 1,000 outstanding
shares of Common Stock were converted into 9,200,000 shares of Common Stock,
1,000,000 shares of Class A Common Stock, 5,000 shares of Series A Redeemable
Preferred Stock and 5,000 shares of Series B Convertible Redeemable Preferred
Stock.
THE COMPANY
International Magnetic Imaging, Inc. ("IMI" or the "Company") owns and
operates ten medical diagnostic imaging centers (the "Centers"), of which three
are multi-modality Centers and seven are exclusively magnetic resonance imaging
("MRI") Centers. One of the MRI Centers is owned and operated by a joint venture
in which the Company has a 50% interest. The Company also operates a referral
network through which patients are referred to diagnostic imaging centers
throughout the state of Florida, including the Company's Florida Centers.
Medical diagnostic imaging procedures, such as MRI, are used to
diagnose various diseases and physical injuries. The multi-modality Centers use
various imaging procedures, which may include any one or more of MRI, computed
axial tomography ("CT"), mammography, X-ray, fluoroscopy, ultrasound and other
technologies, while the MRI centers only offer MRI.
Since the commercial introduction of MRI in the early 1980's, the use
of MRI has experienced rapid growth due to the technology's ability to provide
anatomical images of high contrast and detail without the use of radiation or
x-ray based technologies. MRI employs high-strength magnetic fields, high
frequency radio waves and high-speed computers to process data. In addition, the
development of pharmaceutical contrast agents, software advancements and new
hardware peripherals continue to expand the clinical applications and throughput
efficiency of MRI technology. The major components of an MRI system are (i) a
large, cylindrical magnet, (ii) radio wave equipment, and (iii) a computer for
data storage and image processing. During an MRI study, a patient lies on a
table which is then placed into the magnet. Although patients have historically
spent 30 to 45 minutes inside the magnet during which time images of multiple
planes are acquired, the newest MRI machines allow patients to spend
significantly less time inside the magnet. Additional time is required for
computer processing of the images.
The Company is a Delaware corporation, organized on March 8, 1994 to
acquire ten Centers which were managed by International Magnetic Imaging, Inc.,
a Florida corporation ("IMI-Florida"). The Company was organized under the name
IMI Acquisition Corp. and its name was changed to International Magnetic
Imaging, Inc. in May 1995. The Company commenced operations on September 30,
1994 with the acquisition of nine of the Centers. The tenth Center was acquired
in January 1995. The Company's executive offices are located at 2424 North
Federal Highway, Suite 410, Boca Raton, Florida 33431, telephone (561) 362-0917.
Each of the Centers was acquired by a separate subsidiary of the Company, except
that each of the seven Centers in Florida, which are operated by limited
partnerships, was acquired by two subsidiaries, one which acquired the general
partnership interest and the other which acquired the limited partnership
interest. References to the Company include the Company, its subsidiaries and
IMI-Florida unless the context indicates otherwise.
The purchase price of the ten Centers, together with certain related
companies, including the stock of IMI-Florida and the assets of J. Sternberg and
S. Schulman M.D. Corp., a Florida corporation ("MD Corp."), which provided the
services of radiologists to the Centers, was $30.6 million, of which $7.0
million was paid in cash, $20.7 million was paid by the issuance of subordinated
notes (the "Subordinated Notes"), and $2.9 million was paid through the issuance
of shares of common stock of Consolidated Technology Group Ltd.
("Consolidated"), the parent of the Company, exclusive of acquisition costs of
$1.3 million.
See "Certain Transactions -- Acquisition of the Centers."
As of September 30, 1996, all of the Company's Common Stock was owned
by SIS Capital Corp. ("SISC"), a wholly-owned subsidiary of Consolidated, a
public company. At such date, SISC owned approximately 90.2% of the Common Stock
and Class A Common Stock on a combined basis. The Class A Common Stock is
non-voting stock. At September 30, 1996, the Company owed SISC approximately
$1.6 million. See "Certain Transactions," "Principal Stockholders" and "Selling
Security Holder." Mr. Lewis S. Schiller, chairman of the board and a director of
the Company, is also chairman of the board, chief executive officer and a
director of Consolidated and SISC. Mr. Schiller is also chairman of the board
of Netsmart Technologies, Inc. ("Netsmart"), and Trans Global Services, Inc.
("Trans Global"), which are public corporations of which SISC is the principal
stockholder, and Lafayette Industries, Inc. ("Lafayette"), a public corporation
which is controlled by SISC.
- 3 -
<PAGE>
Mr. George W. Mahoney, chief financial officer of the Company, is also
the chief financial officer of Consolidated. Mr. Norman J. Hoskin, a director
of the Company, is also a director of Consolidated, Netsmart, Trans Global and
Lafayette. Mr. E. Gerald Kay, a director of the Company, is also a director of
Trans Global and Lafayette. See "Management -- Directors and Executive
Officers."
Stephen A. Schulman, M.D., president and chief executive officer of the
Company, was president of IMI-Florida prior to the Company's acquisition of the
Centers. At the time of the acquisition of nine of the Centers in September
1994, the Company entered into a five-year employment agreement with Dr.
Schulman pursuant to which he receives annual compensation at the rate of
$350,000 and an annual bonus of not less than $100,000 nor more than $700,000.
See "Management -- Remuneration." In connection with the acquisition of the
Centers, certain of the Company's subsidiaries issued to Dr. Schulman, his wife,
the other two former stockholder-directors of IMI-Florida, to MD Corp. and to
entities in which Dr. Schulman has an equity interest (collectively, the
"Schulman Affiliated Entities") Subordinated Notes in the aggregate principal
amount of $8.7 million, of which Subordinated Notes in the amount of $7.1
million were outstanding at September 30, 1996. The Company's subsidiaries have
not made certain payments under certain of such Subordinated Notes, and the
failure to make such payments gives the holders the right to declare a default.
In addition, Dr. Schulman and the other two former stockholder-directors of
IMI-Florida, have personally guaranteed certain obligations of certain of the
partnerships which operate Centers. The total amount personally guaranteed was
approximately $2.6 million at September 30, 1996. See "Certain Transactions."
In November 1996, prior to the filing of the registration statement of
which this Prospectus is a part, the Company effected a recapitalization
pursuant to which the 1,000 then outstanding shares of Common Stock became and
were converted into (a) 9,200,000 shares of Common Stock, all of which are owned
by SISC, (b) 1,000,000 shares of Class A Common Stock, which were owned by Mr.
Schiller (150,000 shares), Mr. Schiller's designees (700,000 shares) and three
other transferees of SISC, one of whom is an officer and director of
Consolidated and the other two of whom have no affiliation with either the
Company or SISC (150,000 shares), (c) 5,000 shares of Series A Redeemable
Preferred Stock ("Series A Preferred Stock"), all of which are owned by SISC,
and (d) 5,000 shares of Series B Preferred Stock, of which 4,500 shares are
owned by SISC and 500 shares are owned by Mr. Schiller. The recapitalization was
effected by the filing in November 1996 of the Company's restated certificate of
incorporation and a certificate of designation setting forth the rights of the
holders of the Class A Common Stock, the Series A Preferred Stock and the Series
B Preferred Stock. The stockholders other than SISC agreed to accept only Class
A Common Stock, except Mr. Schiller who accepted Class A Common Stock and Series
B Preferred Stock, in respect of their equity interests in the Company. The
Common Stock and the Class A Common Stock are identical except that the holders
of the Class A Common Stock have no voting rights, except as required by law.
The Series A Preferred Stock is non-voting, except as required by law. The
Series B Preferred Stock is convertible into Common Stock at a conversion rate
of 700 shares of Common Stock for each share of Series B Preferred Stock, and
the Series B Preferred Stock votes with the Common Stock on an as-converted
basis, as a result of which the holders of the Series B Preferred Stock have the
right to cast 700 votes per share, or an aggregate of 3,500,000 votes.
THE OFFERING
Securities Offered by the Company: 1,000,000 shares of Common Stock at $5.00
per share and 1,500,000 Series A
Redeemable Common Stock Purchase Warrants
(the "Warrants") at $.15 per Warrant. The
shares of Common Stock and Warrants will
be sold separately and not as units.
Securities Offered by
Selling Security Holder: This Prospectus, with a different Cover
Page, relates to the resale by SISC,
which, in its capacity as a selling
security holder, is referred to as the
"Selling Security Holder," of 1,000,000
Series B Warrants and the underlying
shares of Common Stock. The Series B
Warrants become exercisable on the date
of this Prospectus; however, the Selling
Security Holder has agreed that, during
the two years following the date of this
Prospectus, the Series B Warrants may not
be exercised and neither the Series B
Warrants nor the underlying shares of
Common Stock may be sold without the
prior consent of the Underwriter. Any
such sales by the Selling Security Holder
are not a part of the underwritten public
offering.
The Series B Warrants have an exercise
price of $2.00 per share, expire three
years from the date of this Prospectus
and are not redeemable. There is not
expected to be any public market for the
Series B Warrants. The Series B Warrants
provide that, in the event that they are
sold or otherwise transferred pursuant to
an effective registration statement, they
- 4 -
<PAGE>
expire 90 days from the date of transfer.
As a result, any purchaser of Series B
Warrants must, within a short period,
either exercise the Series B Warrants or
permit them to expire unexercised.
The Selling Security Holder has advised
the Company that any sales of the Series
B Warrants will be made pursuant to a
negotiated sale or by gift and, if the
Selling Security Holder exercises any
Series B Warrants, any sale of the Common
Stock issuable upon such exercise will be
made on The Nasdaq SmallCap Market at
prevailing prices or in transactions at
negotiated prices or a combination and
such Common Stock may be transferred by
gift. Sales of the Series B Warrants or
the underlying shares of Common Stock may
be made to the Underwriter or other
registered broker-dealers, acting as a
principal, or through the Underwriter or
other registered broker-dealers as a
broker at any time after the
over-allotment option has either been
exercised or expired. See "Selling
Security Holder."
Description of Warrants:
Exercise of Warrants The Warrants are exercisable commencing
one year from the date of this
Prospectus. Subject to redemption by the
Company, the Warrants may be exercised at
any time during the two-year period
commencing one year from the date of this
Prospectus at an exercise price of $6.00
per share, subject to adjustment.
Redemption of Warrants The Warrants are redeemable by the
Company commencing 18 months from the
date of this Prospectus, or earlier with
the consent of the Underwriter, at $.10
per Warrant, on not more than 60 nor less
than 30 days written notice, provided
that the average closing bid price of the
Common Stock is at least $15.00 per
share, subject to adjustment, for ten
consecutive trading days ending not
earlier than three days prior to the date
the Warrants are called for redemption.
Use of Proceeds: The net proceeds of this Offering will be
used to pay outstanding loans, to
purchase equipment and expand certain MRI
Centers into multi-modality Centers and
for working capital and other corporate
purposes. See "Use of Proceeds."
Risk Factors: Purchase of the Securities involves a
high degree of risk and substantial
dilution, and should be considered only
by investors who can afford to sustain a
loss of their entire investment. See
"Risk Factors" and "Dilution."
Nasdaq Symbols:
Common Stock
Warrants
Common Stock and Common Stock Purchase Warrants Outstanding:
At the date of this Prospectus:
9,200,000 shares of Common Stock(1)
1,000,000 Series B Warrants(2)
As Adjusted(3):
10,200,000 shares of Common Stock(1)
1,500,000 Warrants
1,000,000 Series B Warrants
(1) Does not include 1,000,000 shares of Common Stock issuable pursuant to
the Series B Warrants, 3,500,000 shares of Common Stock issuable upon
the conversion of outstanding shares of Series B Preferred Stock or any
shares of Common Stock issuable upon exercise of the Warrants, the
Underwriters' over-allotment option or Underwriter's Options or the
securities underlying the Underwriter's Options. In addition, 1,000,000
shares of Class A Common Stock, which is non-
- 5 -
<PAGE>
voting, are outstanding and an aggregate of 3,450,000 shares of Class A
Common Stock are reserved for issuance upon exercise of warrants
(2,250,000 shares) and options granted or available for grant pursuant
to the Company's 1994 Long Term Incentive Plan (1,200,000 shares). In
addition, warrants to purchase 25,000 shares of Class A Common Stock
may be issued to Dr. Schulman in connection with a proposed exchange of
his Subordinated Notes. The Class A Common Stock automatically converts
into shares of Common Stock under certain conditions. See "Description
of Securities --Capital Stock."
(2) The Series B Warrants have an exercise price of $2.00 per share. See
"Certain Transactions," "Selling Security Holder," and "Description of
Securities -- Series B Common Stock Purchase Warrants."
(3) Reflects the issuance of the 1,000,000 shares of Common Stock and
1,500,000 Warrants offered hereby.
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
INTERNATIONAL MAGNETIC IMAGING, INC.
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended September 30, 1994
------------------------------- December 31, 1995 (Inception)1 to
----------------- December 31, 1994
1996 1995 -----------------
---- ----
<S> <C> <C> <C> <C>
Revenue $23,776 $20,874 $28,044 $6,557
Net income 2,613 1,865 2,682 449
Net income per share of
Common Stock:(2)
Primary .17 .12 .19 .03
Fully diluted (3) (3) .18 3
Weighted average number of
shares of Common Stock
outstanding:(4)
Primary 14,010 13,977 14,030 13,939
Fully diluted (3) (3) 15,706 3
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1996
As Adjusted(5) Actual December 31, 1995
-------------- ------ -----------------
<S> <C> <C> <C>
Working capital (deficiency) $ 5,942 $ 4,201 $( 8,857)
Total assets 46,657 45,066 39,872
Long-term debt 26,519 28,619 15,728
Total liabilities 36,228 38,628 36,740
Accumulated earnings 5,745 5,745 3,131
Stockholders' equity(2), (6) 10,429 6,438 3,132
Net tangible book value (deficiency)
per share of Common Stock(2),(7) (.95) (1.44) (1.65)
</TABLE>
- ---------------
No dividends were paid since inception.
(1) Although the Company was organized in March 1994, it did not commence
operations until September 30, 1994, when it acquired nine of the
Centers.
(2) For purposes of net income per share of Common Stock, stockholders'
equity and net tangible book value per share of Common Stock, the
Common Stock and Class A Common Stock are treated as a single class,
and the weighted average number of shares of Common Stock outstanding
includes both the outstanding Common Stock and the Class A Common
Stock.
(3) Fully diluted earnings per share is not included since the per share
amounts are antidilutive.
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<PAGE>
(4) All shares of Common Stock and Class A Common Stock issued prior to the
date of this Prospectus are treated as outstanding since inception.
(5) As adjusted to reflect the receipt by the Company of the net proceeds
from the sale of the 1,000,000 shares of Common Stock and 1,500,000
Warrants offered hereby, and the use of a portion of the proceeds of
this Offering to pay certain long term debt. See "Use of Proceeds" and
"Capitalization."
(6) Stockholders' equity includes the partners' capital of the partnerships
in which subsidiaries of the Company own the general and limited
partnership interest. The liquidation preferences relating to the
Series A Redeemable Preferred Stock ("Series A Preferred Stock") and
the Series B Preferred Stock are $5,150 and $100, respectively.
(7) Net tangible book value per share of Common Stock represents the amount
of the Company's tangible assets reduced by the amount of its
liabilities and the liquidation preference of the Series A Preferred
Stock and the Series B Preferred Stock divided by the number of
outstanding shares of Common Stock and Class A Common Stock.
PRO FORMA INCOME STATEMENT INFORMATION1
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Pro Forma net income $2,762 $2,887
Pro Forma earnings per share of Common Stock(2):
Primary: $.19 $.20
Fully diluted $.18
Pro Forma number of shares of Common Stock outstanding(2):
Primary: 14,430 14,450
Fully diluted: 16,126
</TABLE>
- ------------
(1) The pro forma income statement reflects, on a pro forma basis, the
repayment of $2,100 principal amount of debt being paid from the
proceeds of this Offering, net of tax, as if such payment had occurred
at the beginning of the respective periods.
(2) For purposes of determining earning per share of Common Stock and
number of shares of Common Stock outstanding, the Common Stock and
Class A Common Stock were treated as one class of Common Stock.
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR]1
Statement of Operations Data:
Year Ended December 31,
Nine Month Ended
September 30, 1994
1993 1992 1991
---- ---- ----
Revenue $21,162 $26,572 $26,718 $31,115
Net income 3,681 3,516 3,462 6,545
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<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 December 31, 1992 December 31, 1991
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Working capital $ 5,002 $ 2,948 $ 2,773 $ 5,849
Total assets 22,080 24,585 27,966 29,005
Long-term debt 5,823 5,835 8,514 8,162
Total liabilities 10,970 13,495 16,963 14,879
Accumulated earnings 6,052 6,032 7,145 10,310
Stockholders' equity 11,109 11,090 11,030 14,126
</TABLE>
(1) The financial information for International Magnetic Imaging, Inc.
[Predecessor] reflects the combined financial statements of IMI-Florida
and its wholly-owned subsidiaries and related partnerships.
RISK FACTORS
The purchase of the Securities offered hereby involves a high degree of
risk and should be considered only by investors who can afford to sustain the
loss of their entire investment. In evaluating an investment in the Securities
offered hereby, prospective investors should carefully consider, among other
factors, the following risk factors.
1. No assurance of continued growth. In continuing with the development
of its business, the Company will face increased pressures on its revenue both
from competition and from third-party payors. Although the Company currently
operates at a profit, three of its Centers operate at a loss. No assurance can
be given that the factors that affected these Centers will not affect other
Centers. Furthermore, the risk factors hereinafter described may affect the
ability of the Company to operate profitably, and no assurance can be given that
the Company can or will operate profitably in the future.
2. Potential inability to continue to benefit from losses or loss
carryforwards of parent. Because the Company is a subsidiary of SISC, which is a
wholly-owned subsidiary of Consolidated, it files its Federal income tax returns
as part of a consolidated group with Consolidated. Consolidated has sustained
significant losses through December 31, 1995, and, as a result of such losses,
the Company's taxable income has been offset by Consolidated's losses as well as
its tax loss carryforward. Although the use of Consolidated's tax loss and tax
loss carry forward does not affect the results of the Company's operations, the
amount of the tax savings increases stockholders' equity and cash flow, to the
extent of Consolidated's forgiveness of the obligation created by the Company's
use of the tax loss carryforward. Consolidated has agreed with respect to 1996,
to forgive such obligation. Consolidated will determine on an annual basis the
extent, if any, that it will forgive the Company's obligation arising from the
use of such year's loss or loss carryforward. No assurance can be given that
Consolidated will forgive any such obligations in the future. Furthermore, the
Company's Board of Directors has the authority to cause the conversion of Class
A Common Stock into Common Stock which would reduce Consolidated's percentage
ownership of the Common Stock, although it has no present plans to authorize
such conversion. The ability of the Company to use Consolidated's tax losses to
offset taxable income is dependent upon Consolidated's continued ownership of at
least 80% of both the voting stock and equity of the Company. Although
Consolidated, through SISC, will own at least 80% of the voting stock and equity
of the Company upon completion of this Offering, no assurance can be given that
the Company will, in the future, be able to reduce its Federal income tax
obligation as a result of Consolidated's tax loss or tax loss carryforward. The
loss of the benefits of utilizing Consolidated's tax loss and tax loss
carryforward could have an adverse effect upon the Company's cash flow. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
3. Substantial capital requirements.
(a) Working capital requirements; obligations to lender and
former stockholder-directors of IMI-Florida. At September 30, 1996, the Company
had working capital of $4.2 million, as compared with a working capital
deficiency of $8.9 million at December 31, 1995. The increase in working capital
reflects the refinancing of short-term subordinated debt incurred in connection
with the purchase of the Centers with long-term debt from DVI Financial
Services, Inc., dba DVI Capital ("DVI"), the Company's principal lender. As of
September 30, 1996, Stephen A. Schulman, M.D., president and chief executive
officer of the Company, the other two former stockholder-directors of
IMI-Florida and the Schulman Affiliated Entities held Subordinated
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<PAGE>
Notes, which were issued in connection with the acquisition of the Centers, in
the aggregate principal amount of $7.1 million, and which are due in various
installments through 1999. Of this amount, $1.0 million is due to Dr. Schulman
and his wife and $6.1 million is due to the Schulman Affiliated Entities.
Certain subsidiaries that issued the Subordinated Notes have not made certain
payments of principal or interest due on such notes in 1996, as result of which
the holders have the right to declare a default. As of the date of this
Prospectus, no default has been called, but no assurance can be given that some
or all of the holders of such Subordinated Notes will not declare a default. Any
payment by the Company on such Subordinated Notes may result in a default under
certain of the Company's loan agreements with DVI. The Company has entered into
a memorandum of understanding with Dr. Schulman pursuant to which it
contemplated that, contemporaneously with the closing of this Offering, he will
exchange certain of his Subordinated Notes for shares of a new series of
preferred stock. See "Certain Transactions."
(b) High leverage. The Company's business is highly leveraged.
At September 30, 1996, the Company's debt and capital lease obligations were
$32.2 million, of which $19.0 million was due to DVI. The Company pays interest
on $15 million of these loans at rates ranging from 10.5% to 11.875%. With
respect to $4.0 million of loans made by DVI in September 1996, the Company pays
interest currently at 10.5% and additional interest of 10.5% is payable at
maturity, resulting in an effective annual interest rate of 22.0%. DVI has a
security interest in substantially all of the Company's assets. A significant
portion of the Company's cash flow from operations has been used to pay debt
service, and the Company anticipates that a significant portion of cash flow
from operations will continue to be used for such purposes. Any decline in
revenue or operating income could have a material adverse effect upon the
Company's ability to make the required payments to DVI, which could result in a
default under some or all of the DVI loan agreements. Although the Company
believes that its cash flow from operations for 1997 will be sufficient to fund
its debt service and capital lease obligations for 1997, which are estimated at
approximately $5.7 million, no assurance can be given that additional funds will
not be required for such purpose. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Agreements with DVI."
(c) Recent and proposed expansion of facilities. The Company
has recently expanded two of its MRI Centers to multi-modality Centers and
intends to expand up to three additional MRI Centers following completion of
this Offering.
To date the Company has financed such expansion principally through equipment
financing.
(d) Use of proceeds to pay debt. Approximately $2.4 million,
or 61.3% of the net proceeds of this Offering is allocated to payment of a
portion of the Company's debt to DVI. See "Use of Proceeds."
(e) Potential need for additional financing. The Company
believes that the proceeds of this Offering, together with cash flow from
operations, will be adequate to meet its cash requirements for the twelve months
following completion of this Offering, however, the Company may require
additional funding subsequent to 1997 and no assurance can be given that the
Company will not require additional funds prior to twelve months from completion
of this Offering, and no assurance can be given as to the availability or terms
of any such financing. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
4. Restrictions against corporate practice of medicine. The
establishment, marketing and operation of diagnostic imaging centers are subject
to laws prohibiting the practice of medicine by business corporations such as
the Company, the employment by such corporations of physicians, the rebate or
division of fees between physicians and non-physicians and the manner in which
patients may be solicited and referred. See "Business -- State Government
Regulations" and "Risk Factors -- 6. Reliance and restrictions on patient
referrals." The Company performs only non-professional services (i.e.,
administrative and technical services), does not exercise control over the
practice of medicine by physicians or employ physicians to provide medical
services. Professional medical services, such as the reading of the MRI studies
and related diagnosis, are separately provided by independent licensed
radiologists pursuant to agreements with the Company. However, the laws
restricting the corporate practice of medicine have been subject to limited
judicial and regulatory interpretation and, therefore, there is no assurance
that upon review some of the Company's activities would be found not to be in
compliance with such laws. If such a claim were successfully asserted against
it, the Company could be subject to civil and criminal penalties and could be
required to restructure its contractual relationships. In addition, certain
provisions of its contracts with radiologists, including restrictive covenants,
could be held to be unenforceable. Such results or the inability of the Company
to restructure its contractual relationships could have a material adverse
effect upon the Company and could prohibit the Centers from continuing their
current procedures for conducting business. See "Business -- State Government
Regulations."
5. Dependence on third-party reimbursement.
(a) Effects of reduced payments by third-party payors. Almost
all of the Company's revenue is derived from third-party payors. For the nine
months ended September 30, 1996 and the year ended December 31, 1995, the
Company derived approximately 87% and 91% of its revenue from non-government
payors and approximately 13% and 9% from
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<PAGE>
government sponsored healthcare programs, principally Medicare and Medicaid. The
Company's revenue and profitability may be materially adversely affected by the
current trend in the healthcare industry toward cost containment. To the extent
that the Company is dependent upon third-party payors, it will be affected by
both reductions in payments and other policies adopted by such payors.
Accordingly, in such event, if the Company is not able to reduce its costs, it
may not be able to operate profitably and it may be necessary for the Company to
cease or redirect its business, with no assurance that any redirection can or
will be profitable.
(b) Effects of budgetary constraints affecting governmental
and private healthcare funding. Continuing budgetary constraints at both the
Federal and state level and the rapidly escalating costs of healthcare and
reimbursement programs have led, and may continue to lead, to significant
reductions in government and other third-party reimbursements for certain
medical charges and to the negotiation of reduced contract rates or capitation
or other financial risk-shifting payment systems by third-party payors with
service providers. Capitation agreements typically provide for payment to a
health-care provider of a fixed fee per month on a per patient basis, without
regard to the amount or scope of services rendered. Both the Federal government
and various states are considering imposing limitations on the amount of funding
available for various healthcare services. The Company cannot predict whether or
when any such proposals will be adopted or, if adopted and implemented, what
effect, if any, such proposals would have on the Company. Changes in the mix of
the Company's patients among the non-government payors and government sponsored
healthcare programs, and among different types of non-government payors and
government sponsored healthcare programs, and among different types of
non-government payor sources, could have a material adverse effect on the
Company. Further reductions in payments to physicians or other changes in
reimbursement for healthcare services could have a material adverse effect on
the Company, unless the Company is otherwise able to offset such payment
reductions through cost reductions, increased volume, introduction of new
procedures or otherwise, as to which no assurance can be given. The Company is
negotiating agreements with managed care organizations pursuant to which the
Company will provide MRI and other services; however, such agreements typically
reflect a reduced level of revenue per scan. Although the Company's average net
collection from MRI procedures increased to $710 for the nine months ended
September 30, 1996, the Company's average net collection per MRI procedure
decreased from $763 in 1993, to $726 in 1994 and to $639 for 1995. The increase
for the nine months ended September 30, 1996 reflected an increase in higher
paying procedures as well as a reduction in lower-paying procedures, principally
in the San Juan Center which was not operational during a portion of the period
while the equipment was being upgraded as well as during the period when San
Juan was recovering from the effects of Hurricane Hortense. No assurance can be
given that the average net collections per MRI Procedure will not decrease in
the future. The Company's net collection per multimodality procedure was $95 for
1993, 1994 and 1995 and $82 for the nine months ended September 30, 1996. In
this Prospectus, the information for 1993 reflects the operations of IMI-Florida
and for 1994 reflects the combined operations of IMI-Florida and the Company.
(c) Possible restrictions under insurance laws and
regulations. Many states limit the extent to which any person can engage in risk
contracting, which involves the assumption of a financial risk with respect to
providing services to a patient. Some third-party payors seek to provide
incentives to reduce utilization by paying a fixed capitation fee for patients
covered by their plans or programs. Certain contracts, such as capitation
agreements, may be a form of risk contracting. If the fees received by the
Company are less than the cost of providing the services, the Company may be
acting as a de facto insurer. The Company does not have any stop-loss to cover
any such shortfalls which may occur. In some states, only certain entities, such
as insurance companies, HMOs and independent practice associations, are
permitted to contract for the financial risk of patient care. In such states,
risk contracting in certain cases has been deemed to be engaging in the business
of insurance. The Company believes that it is not in violation of any
restrictions on risk bearing or engaging in the business of insurance. If the
Company is held to be unlawfully engaged in the business of insurance, such a
finding could result in civil or criminal penalties or require the restructuring
of some or all of the Company's operations, which could have a material adverse
effect upon the Company's business. See "Business -- Government Regulations --
General" and "Business -- State Government Regulations."
6. Reliance and restrictions on patient referrals.
(a) Dependence on referrals from physicians. The Company is
highly dependent on referrals from physicians who have no contractual or
economic obligation to refer patients to the Company's facilities. If a
sufficiently large number of physicians at any time stop referring patients to
the Centers, it would have a material adverse effect on the Company's business.
Since the acquisition of the Centers, the percentage of revenue from the former
partners or other equity owners of the Centers had decreased in terms of both
total revenue and number of MRI scans. The percentage of revenue derived from
referrals from such doctors was 38% for 1994 and 24% for 1995 and the nine
months ended September 30, 1996. For the year ended December 31, 1994, 32% of
the scans were performed for patients who were former partners or equity owners
of the Centers. During the fourth quarter of 1994, after the acquisition of nine
of the Centers, the percentage was 29%, which further declined to 24% in 1995
and the nine months ended September 30, 1996.
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<PAGE>
(b) Recent revenue from referrals from brokers. Commencing in
1995, a portion of the Company's revenue was generated by physician referrals
which were generated by brokers who negotiated a price with the Company for MRI
scans. To the extent that a third party payor paid more than the Company
charges, the broker may have received a portion of such excess. Effective
October 1, 1996, this practice became illegal in Florida. Such scans accounted
for 11% of the Company's revenue for the nine months ended September 30, 1996
and 9% for 1995. Although the Company intends to market its services directly to
physicians and health maintenance organizations, there may be a decline in
revenue from such referring physicians as a result of the change in such laws.
In addition, it is not clear, because of the absence of judicial or regulatory
guidance, that the operations of MRI Net are included within the health care
network exception to the 1996 anti-brokering law. Although the Company believes
that MRI Net is a network entity and that its operations comply with such law,
no assurance can be given such operations will not be held to be in violation of
such law. Such a result could lead to fines or imprisonment of officers and/or
directors of the Company and could have a material adverse effect upon the
Company.
(c) Government restrictions on referrals. Federal and state
laws generally restrict physicians from referring their patients to entities,
including diagnostic imaging facilities, in which the physicians have a
financial interest. This restriction precludes physicians from referring
Medicare patients to the Company if the physician has prohibited financial
relationships with the Company. Violations of the law may result in denial of
payments for the service, requirement to refund payment for the service,
assessment of civil monetary penalties and exclusion of the physicians from the
Medicare and Medicaid programs. Such self-referral prohibitions apply in certain
states to additional third-party payors, including private insurance companies
and workers' compensation programs. Further, the Federal anti-kickback statute
prohibits persons or entities from offering or receiving remuneration for the
referral of patients or the inducement of the purchase of a service covered by
Medicare, Medicaid or other state healthcare programs, including payments for
the referral of patients to centers.
(d) Potential effect of self-referral and anti-kickback laws.
Federal and state self-referral and anti-kickback laws may also affect the
Company's ability to structure future acquisitions of physician-owned
businesses, or operate its existing businesses. In May 1996, the District Court
of Appeal of Florida, Fourth District, held that an arrangement in which a
company marketed the services of a durable medical equipment business to
potential clients and received a percentage of the sales it generated was in
violation of the Federal Medicare and Medicaid Anti-kickback Statute (the
"Anti-kickback Statute"). While the Company believes that the operations of MRI
Net are different from those held to be in violation of the Anti-kickback
Statute, a court could reach a contrary conclusion. Further, although these laws
have created new business opportunities if physicians must divest their
financial interests in imaging centers, these laws also may have an adverse
impact on the Company's ability to acquire new imaging centers while maintaining
the former physician-owners as part of the referral base. In the past, Congress
has considered legislation that could expand the self-referral ban from Medicare
and Medicaid to all payors. There can be no assurance that such legislation will
not be adopted or if adopted will not have a material adverse effect on the
Company.
Violations of the anti-kickback and other statutes could
result in significant civil or criminal penalties, which could have a material
adverse effect on the Company. The Company is unaware of any current regulatory
investigations against it and there are no regulatory or judicial proceedings
pending against it or any of its facilities alleging violations of any such
laws. Nevertheless, while the Company endeavors to comply with all laws,
regulations and other legal requirements applicable to its operations, there is
no assurance that applicable statutes and regulations might not be interpreted
by a regulatory or judicial authority in a manner that would adversely affect
the Company.
(e) Effect of cost-containment programs on referrals from
physicians. In an effort to control costs, non-governmental healthcare payors
have implemented cost containment programs which could limit the ability of
physicians to refer patients to the Company's facilities. For example, persons
enrolled in prepaid healthcare plans, such as health maintenance organizations
("HMOs"), often are not free to choose where to obtain imaging services. Rather,
the health plan provides these services directly or contracts with providers at
favorable rates and requires its enrolled members to obtain such services only
from such providers. Some insurance companies and self-insured employers also
limit such services to contracted providers. Such "closed" payment systems are
now common as insurers seek to reduce the rising cost of healthcare. Although
the Company actively seeks and has obtained managed care contracts to provide
imaging services, there can be no assurance that the Company will be able to
compete successfully with larger companies as well as with companies that offer
a broader range of services in marketing to the managed care providers. The
average net collection per procedure has declined for both MRI and
multi-modality procedures.
(f) Effect of present and potential self-referral and
anti-kickback laws. The Company continues to review all aspects of its
operations and believes that it complies in all material respects with the
applicable provisions of the Federal and state self-referral and anti-kickback
statutes. However, because of the broad and sometimes vague nature of these laws
and regulations, there can be no assurance that an enforcement action will not
be brought against the Company or that the Company will not be found to be in
violation of one or more of these laws or regulations. The Company intends to
monitor developments
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<PAGE>
under Federal and state fraud and abuse laws. As of the date of this Prospectus,
the Company cannot anticipate what impact, if any, subsequent administrative or
judicial interpretation of the these laws may have on the Company's business,
financial condition, cash flow or results of operations. Further, the laws and
regulations in this area are subject to material change. Consequently, there can
be no assurance that the Company will be in a position to comply with future
laws and regulations in this area. Moreover, the cost associated with
compliance, including the cost of any additional personnel or contracting with
other qualified organizations to provide certain services, may have a material
adverse effect on the Company. See "Business --Government Regulations --
General" and "Business -- State Government Regulations."
7. Governmental regulation, quality assurance and licenses. There are
numerous Federal and state laws that regulate medical diagnostic imaging centers
and require certification by the Federal government and various state and local
instrumentalities. The Company believes that it is in compliance with all
relevant Federal and state laws, rules and regulations. The Company believes
that in the near future, all outpatient medical diagnostic imaging centers will
be required to be accredited, and the Company intends to seek such
accreditation, although no assurance can be given that the Company will obtain
any necessary accreditation. The Centers must meet Federal, and, in some
jurisdictions, state standards for quality, as well as certification
requirements, in order to receive reimbursement. Each of the Company's
facilities has received Federal certification, as well as any required state
certification.
In some instances, the Company is also subject to licensing
and/or regulation under Federal and/or state laws relating to the handling and
disposal of medical specimens, infectious and hazardous waste and radioactive
materials, as well as to the safety and health of employees. In addition, the
Company is subject to state regulation, such as personnel licensing
requirements, which may include qualifying examinations and continuing education
requirements. The failure of the Company to remain in compliance with applicable
laws and regulations could have a material adverse effect on its business and
financial condition. See "Business -- Government Regulations -- General" and
"Business -- State Government Regulations."
8. Potential liability and insurance. The provision of medical services
entails an inherent risk of professional malpractice and other similar claims.
The Company believes that it does not engage in the practice of medicine, and it
does not exert any control over the practice of medicine by physicians engaged
by it. Accordingly, the Company may be subject to liability arising from the
practice of medicine by physicians engaged by it., and the Company or its
subsidiaries are defendants in legal actions arising out of the performance of
its imaging services. There can be no assurance that additional claims, suits or
complaints relating to services delivered by the Company or by a radiologist or
medical service provider will not be asserted against the Company. Damages
assessed in connection with, and the cost of defending, such actions could be
substantial. Radiology services are performed for the Company by independent
contractors who are radiologists and other specialists and who are required, by
their agreements with the Company, to maintain their own malpractice insurance.
Although the Company maintains insurance for such purposes which it believes is
adequate both as to risks and amounts, there can be no assurance that claims
asserted against the Company for professional or other liability will be covered
by, or will not exceed the coverage limits of, such insurance. In addition, the
availability and cost of professional liability insurance has been affected by
various factors, many of which are beyond the control of the Company. The
Company currently maintains liability coverage and requires all of its
affiliated physicians to maintain malpractice and other liability coverage.
There can be no assurance that the Company will be able to maintain insurance in
the future at a cost that is acceptable to the Company or at all. Any claim made
against the Company not fully covered by insurance could have a material adverse
effect on the Company.
9. Substantial Competition. The market for imaging services in general
and medical diagnostic imaging services in particular is highly fragmented. Such
services are performed by both hospitals and outpatient diagnostic imaging
centers, such as the Centers, which are not affiliated with any hospital.
Competition varies by market and is generally higher in larger metropolitan
areas where there are likely to be more facilities and more managed care
organizations putting pricing pressure on the market. The Company competes with
both hospitals and independent medical diagnostic imaging centers. Furthermore,
to the extent that another center offers diagnostic imaging services in addition
to MRI service, the Company may be in a competitive disadvantage in marketing to
managed care organizations, physicians and patients. Competition often focuses
on physician referrals at the local market level as well as participation in
managed care organizations. Successful competition for referrals is a result of
many factors, including participation in healthcare plans, quality and
timeliness of test results, type and quality of equipment, the location of the
center, convenience of scheduling and availability of patient appointment times.
Many competitors are larger and are better known in the markets served by the
Company than the Company. Furthermore, to the extent that the Company seeks to
expand through the acquisition of other medical diagnostic imaging centers, the
Company may compete with other, better capitalized companies seeking to make
acquisitions. In addition, the establishment or transfer of ownership in some
jurisdictions may be subject to certificate of need ("CON") laws. In some
states, such laws may hinder the Company's ability to expand, while in others
such laws may affect the ability of potential competitors to enter the market.
Except for Puerto Rico, none of the states in which the Centers are located have
CON laws which affect independent free-standing diagnostic imaging centers.
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<PAGE>
Any change in CON laws which reduce the restrictions on potential competitors,
such as hospitals, may have a materially adverse effect upon the Company's
business and operations. See "Business -- Competition."
10. Possible obsolescence of equipment. In offering its diagnostic
imaging services to both medical care providers, such as managed care
organizations and physicians, and patients, the Company must be able to offer
procedures and equipment which permit accurate readings by the radiologist and
comfort to the patient. In recent years, medical technology has made significant
advancements and technological developments may render current MRI and other
imaging equipment obsolete. Technological advances may be in the form of
software upgrades to existing equipment as well as new equipment. Any such
obsolescence may result in a reduced usage of the Company's equipment and may
require the Company to make significant expenditures to offer the
state-of-the-art equipment and consolidate its operations in fewer Centers.
Furthermore, the Company has financed the purchase or lease of certain of its
equipment, and the obligations to the lenders and lessors with respect to
certain of its equipment will continue regardless of whether the Company is able
to generate revenue from the equipment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
As new equipment and diagnostic imaging technology is
developed, the Company may purchase equipment or software before the equipment
or software has become generally accepted in the industry. In such event there
is no assurance that the equipment or software will perform in accordance with
the specifications or that it will become generally accepted by the medical
community. The Company is a plaintiff in an arbitration proceeding and in a
lawsuit against two vendors of equipment which the Company claims does not
perform as warranted. The Company has expended substantial money in connection
with the purchase and attempt to use such equipment. Both vendors have denied
the Company's allegation and have claimed that the Company is obligated to pay
the balance of the purchase price. See "Business -- Legal Proceedings."
11. Conflict of interest; offering to benefit affiliates. In connection
with the acquisition of the ten Centers, SISC, the Company's principal
stockholder, lent the Company approximately $1.3 million, which was used by the
Company to pay expenses relating to the acquisition, and delivered shares of
Consolidated's common stock, which were valued at $2.9 million. The amount of
the loan and the value of the Consolidated common stock were treated as loans to
the Company from SISC. As of September 30, 1996, the Company owed SISC
approximately $1.6 million with respect to such indebtedness.
The Company has a management services agreement with The
Trinity Group, Inc. ("Trinity"), a wholly-owned subsidiary of Consolidated,
pursuant to which the Company is to pay Trinity $50,000 per month for the
five-year period commencing with the first month in which such payment may be
made pursuant to the Company's agreements with its lenders. The Company's loan
agreements with DVI do not permit such payments, and, accordingly, no payments
to Trinity have been made or accrued under such agreement. The agreement is
renewable by Trinity. Mr. Lewis S Schiller, chairman of the board of the
Company, is the chief executive officer of Consolidated, SISC and Trinity.
Certain of the Company's employees, including George W.
Mahoney, chief financial officer of both the Company and Consolidated, perform
certain accounting and related services for SISC and Consolidated, and the
portion of the compensation paid by the Company to such employees which is
allocable to services performed for Consolidated is treated as a reduction of
the Company's indebtedness to SISC. In addition, the Company pays the rent on
Consolidated's Florida office, which is also applied as a reduction of such
indebtedness. The aggregate monthly amount paid on account of such indebtedness
is approximately $54,000. The Company has agreed not to use any of the proceeds
of this Offering to pay any of such indebtedness to SISC; however, if the
Underwriter's over-allotment option is exercised, up to $250,000 of the proceeds
from the over-allotment option will be used to pay a portion of the Company's
indebtedness to SISC.
Dr. Schulman, president and chief executive officer of the
Company, was the president and one of three stockholders of IMI-Florida prior to
the Company's acquisition of the Centers. Dr. Schulman has an employment
agreement with the Company dated October 1, 1994, pursuant to which the Company
pays him a salary at the annual rate of $350,000 and an annual bonus of at least
$100,000 for the five-year term of the agreement. Pursuant to an amendment to
the agreement, the Company, in February 1996, made two loans to Dr. Schulman in
the aggregate principal amount of $300,000. Such loans bear interest at 5 1/2%
per annum and mature on December 31, 1998. Although Dr. Schulman is required to
devote his full business time and attention to the business of the Company,
pursuant to a proposed amendment to his employment agreement, Dr. Schulman may
be permitted to serve as a consultant for two MRI Centers which are located in
Chicago, Illinois and are owned by his wife. See "Risk Factors -- 12. Dependence
on key personnel; employment agreements," "Management -- Remuneration" and
"Certain Transactions.".
In connection with the acquisition of the Centers, certain of
the Company's subsidiaries issued to Dr. Schulman, his wife, the other two
former stockholder-directors of IMI-Florida, and the Schulman Affiliated
Entities, Subordinated Notes in the aggregate principal amount of $8.7 million,
of which notes in the aggregate principal amount of $7.1 million were
outstanding on September 30, 1996. Certain of the subsidiaries that issued these
Subordinated Notes have not made certain payments due on the notes, as result of
which the holders may have the right to declare a default. As of the date of
this Prospectus, no default has been called, but no assurance can be given that
some or all of the holders of such Subordinated Notes will not declare a
default. A default on such Subordinated Notes could result in a default with
respect to other indebtedness, including indebtedness due to DVI. See "Certain
Transactions."
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In October 1996, the Company entered into a non-binding
Memorandum of Understanding with Dr. Schulman (the "Schulman Memorandum")
pursuant to which, subject to the execution of definitive agreements, Dr.
Schulman agreed to reduce the outstanding principal amount of the Subordinated
Notes payable to him and his wife, from an aggregate of approximately $2.1
million as of September 30, 1996 to an aggregate of approximately $1.8 million
and exchange such Subordinated Notes for shares of a newly created series of
preferred stock having an annual non-cumulative dividend of $75,000 and a
mandatory redemption price of approximately $1.8 million. The reduction in the
Subordinated Notes payable to Dr. Schulman reflects the proposed application of
the $300,000 loan from the Company to Dr. Schulman to reduce the Subordinated
Notes payable to him. See "Certain Transactions -- Proposed Note Exchange with
Dr. Schulman."
Dr. Schulman and the two other former IMI-Florida
stockholder-directors are also guarantors of certain promissory notes, capital
equipment and real estate leases and other indebtedness which were owed by
IMI-Florida or the entities operating the Centers prior to the Company's
acquisition of the Centers. Certain of the Company's subsidiaries assumed such
loans and obligations when they acquired the Centers, and the Company has
continued to pay such loans and obligations. A subsidiary of the Company
acquired a Center in Orlando, Florida which was controlled by the former
stockholder-directors of IMI-Florida. In an effort to improve the results of the
Center, the Company formed a joint venture with the owner-operator of another
MRI center in Orlando, Florida in August 1995. The joint venture utilizes the
facilities and diagnostic imaging equipment of the Company's joint venture
partner, as a result of which the facilities and equipment owned by the
Company's subsidiary are utilized only as a backup. Notwithstanding such
arrangements, the Company has continued to pay the obligations to the equipment
vendor, lender and landlord for the subsidiary's equipment and facilities, all
of which are personally guaranteed by Dr. Schulman and the other two former
stockholder-directors of IMI-Florida. The total amount paid through September
30, 1996 on such obligations was $1.1 million, and, if all payments are made on
such obligations to the maturity thereof, the total payments by the Company on
such obligation, including those paid through September 30, 1996, will be
approximately $1.4 million. Payments of such amounts are currently made from
distributions the Company receives each month from its joint venture interest as
well as from other revenue of the Company. As a result, the subsidiary which
operated the Orlando Center sustained a net loss of approximately $620,000 for
the nine months ended September 30, 1996 and incurred negative cash flow from
such Center of approximately $580,000 for such period. See "Certain
Transactions."
In connection with the acquisition of one of the Centers, the
Company agreed to indemnify Dr. Schulman and the two other former
stockholder-directors of IMI-Florida for any personal liability they may sustain
under their guaranty of the lease obligation relating to such Center.
12. Dependence on key personnel; employment agreements.
(a) Employment agreements with Dr. Schulman and Mr. Mahoney.
The Company's success is dependent upon the continued services
of its executive officers, particularly Stephen A. Schulman, M.D., the president
and chief executive officer of the Company who is principally responsible for
the Company's operations, including its marketing efforts. The Company has an
employment agreement with Dr. Schulman pursuant to which he receives an annual
salary of $350,000 plus an annual bonus equal to the amount by which the lesser
of 10% of pre-tax cash flow or 10% of pre-tax net income exceeds a base amount;
provided that the bonus shall not be less than $100,000 nor more than $700,000
annually. The base amount for computing Dr. Schulman's bonus was $337,500 for
the contract year ended September 30, 1996 and will be $500,000 for the contract
year ended September 30, 1997. The Schulman Memorandum contemplates an amendment
to Dr. Schulman's employment agreement that would (a) extend the term of his
employment for three years, (b) provide for a $45,000 increase in his base
salary for each of the extended years, (c) permit Dr. Schulman to perform
consulting services for two MRI Centers which are located in Chicago, Illinois
and are owned by his wife and (d) permit Dr. Schulman to terminate the agreement
at any time, without cause, on six months notice.
Mr. George W. Mahoney, chief financial officer of the Company
and Consolidated, has an employment agreement with Consolidated for a term
commencing October 1, 1994 and ending December 31, 2002, pursuant to which he
received an annual salary of $177,000 for the contract year ended September 30,
1996, which increases to $189,000 for the contract year ended September 30, 1997
and increases annually thereafter until the seventh year for which the base
salary is $252,000. Pursuant to a proposed amendment to Mr. Mahoney's contract,
the term will be extended for five years at increased base salaries. The
agreement also provides for two bonuses to Mr. Mahoney. One bonus is equal to
the greater of 1% of Consolidated's net pre-tax profits or 1% of Consolidated's
net cash flow, and the other is equal to the greater of 1% of the Company's net
pre-tax profits or 1% of the Company's net cash flow. Mr. Mahoney devotes
approximately 75% of his time to the business of the Company. Although the
agreement is between Mr. Mahoney and Consolidated, his compensation is paid by
the Company and the Company allocates 25% of his compensation to Consolidated,
which is applied to reduce the Company's indebtedness to SISC. See "Management
- -- Remuneration."
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<PAGE>
The loss of services of, or a material reduction in the time
devoted to the Company's business by, Dr. Schulman, Mr. Mahoney and certain
other key employees could adversely affect the business of the Company. The
Company maintains key-man life insurance on the lives of Dr. Schulman and Mr.
Mahoney in the amounts of $2.5 million and $1.0 million, respectively.
(b) Provisions respecting Mr. Mahoney's continued employment
under DVI loan agreements. Pursuant to certain of the Company's loan agreements
with DVI, the failure of Mr. Mahoney to serve as the Company's chief financial
officer could result in a default under such loan agreements and other loan
agreements with a cross-default provision. Any default under the Company's
agreements with DVI would have a material adverse effect upon the Company.
13. Pending and threatened litigation against the Company. In January
1996, Drs. Ashley Kaye and James Sternberg, two former stockholder-directors of
IMI-Florida and Dr. Sternberg's wife, threatened to commence an action against
two subsidiaries of the Company, Consolidated and Mr. Lewis S. Schiller,
chairman of the board of Consolidated and the Company, for alleged violations of
securities and common law in connection with an asset purchase agreement between
MD Corp. and a subsidiary of the Company which was executed in conjunction with
the acquisition of the Centers and non-payment of the related $3,375,000
Subordinated Notes of two subsidiaries of the Company payable to MD Corp.
Although the Company reflects the principal and interest on such Subordinated
Notes as liabilities on its consolidated balance sheet and no notice of default
has been given, no assurance can be given that an adverse decision in any action
based on such claims will not have a material adverse effect upon the Company.
Vanguard Limited ("Vanguard"), on its own behalf or on behalf
of other persons who may be affiliated with Vanguard, based on a purported
agreement relating to the introduction of Consolidated and the Company to
IMI-Florida and assistance in the negotiation of the acquisition of the Centers,
has asserted a claim against the Company and/or SISC that it has the right,
among other things, to a 10% interest in the Common Stock of the Company, on a
fully-diluted basis, prior to this Offering and prior to the issuance of certain
warrants to DVI, for no cash consideration. In addition, Vanguard has claimed
that it is entitled to a $200,000 fee due at the time of the acquisition of the
Centers, consulting fees of $240,000 per year for five years, reimbursement of
nonaccountable expenses and a 5% interest in any future medical acquisition by
the Company. No assurance can be given that any litigation which may ensue would
not seek damages exceeding the claim described above and, if decided unfavorably
to the Company, would not have a material adverse affect on the Company. If
Vanguard commences an action against the Company and prevails, it would have a
material adverse effect upon the Company, and, furthermore, if it prevails with
respect to its claim for Common Stock, the issuance of such Common Stock could
result in a non-cash charge to earnings for the value of such Common Stock,
dilution to the stockholders, including the stockholders who purchased stock in
this Offering, and a reduction in the net tangible book value per share. In
addition, the Company may not be able to use Consolidated's net loss or tax loss
carryforward to reduce its tax liability if a sufficient number of shares of
Common Stock were issued to Vanguard.
The Company has commenced an arbitration proceeding against a
manufacturer and distributor of teleradiology equipment seeking rescission and
damages arising from claims of fraud and breach of contract. The respondent has
denied the claims and counterclaimed against the Company for the balance of the
purchase price and damages for interference with business relationships. The
amount claimed to be due by the Company is approximately $500,000 and the amount
of the counterclaim is approximately $240,000.
The Company has commenced an action against the manufacturer
of certain MRI equipment, seeking a refund of the approximately $700,000 paid by
the Company against the purchase price. Prior to the commencement of the action,
the manufacturer rejected the Company's claim and demanded payment of the
outstanding balance of the purchase price of $750,000.
See "Business -- Legal Proceedings."
14. Continued voting control by SISC. SISC, the Company's principal
stockholder, presently owns all of the Company's Common Stock and Series B
Preferred Stock, which are the only classes of voting stock. Each shares of
Series B Preferred Stock is entitled to 700 votes. After completion of this
Offering, SISC will own 91.1% of the Common Stock and 93.2% of the voting stock,
without giving effect to any shares of Common Stock issuable upon exercise of
any warrants. As a result SISC, and Mr. Lewis S. Schiller, who is chairman of
the board of the Company and chief executive officer of SISC and Consolidated,
will have the power to elect all of the directors and may taken any action
required to be taken by stockholders without participation by any other
stockholders. See "Principal Stockholders" and "Description of Securities
- --Series B Preferred Stock."
15. Broad discretion as to use of proceeds; potential unspecified
acquisitions. Approximately $1.5 million, or 38.7% of the estimated net proceeds
of this Offering are allocated to working capital and other corporate purposes
including the upgrading of certain Centers. Accordingly, management will have
broad discretion with respect to the expenditure of a substantial
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<PAGE>
portion of the net proceeds of this Offering. Purchasers of the Securities
offered hereby will be entrusting their funds to the Company's management, upon
whose judgment the investors must depend, with only limited information
concerning management's specific plans or intentions. The Company may use a
portion of the proceeds of this Offering to enter into joint ventures,
acquisitions or other arrangements which the Company believes would further the
Company's growth and development and it may utilize a portion of the proceeds of
this Offering for such purpose. No assurance can be given as that any such
transactions will result in additional revenue or net income for the Company.
Furthermore, investors may not have the opportunity to review the business or
financial statements of potential acquisition candidates or vote on any
acquisition. See "Use of Proceeds" and "Business -- Potential Acquisitions."
16. Antitrust laws. Federal and state antitrust laws and regulations
may effect the operation of MRI Net, which is a referral network through which
patients are referred to diagnostic imaging centers in Florida. See "Business --
MRI Net." Because the centers to which patients are referred are operated by
independent entities, they may be deemed competitors and, therefore, subject to
a range of Federal and state antitrust laws and regulations which prohibit
anti-competitive conduct, including price fixing, division of the market and
product tying. Violations of Federal and state antitrust laws can result in
substantial penalties and restrictions on MRI Net's business activities.
Although the Company believes that MRI Net's activities do not violate the
Federal or state anti-trust laws, no assurance can be given that a court or
regulatory agency will not make a contrary determination, which could have a
material adverse effect upon the Company. See "Business -- Antitrust Laws."
17. Potential change in use of proceeds. Notwithstanding its plan to
develop its business as described in this Prospectus, future events, including
the problems, expenses, difficulties, complications and delays frequently
encountered by businesses, as well as changes in the economic climate, changes
or anticipated changes in government regulations, new technologies, competition
and reimbursement policies or acquisition or joint venture opportunities may
make the reallocation of funds necessary or desirable. Any such reallocation
will be at the discretion of the Board of Directors. Accordingly, in the event
that the Company determines that it is unable to continue to operate profitably,
the Company may engage in other, unrelated businesses and use a portion of the
proceeds of the Offering for such purpose. However, the Company has no such
intention at this time. No assurance can be given that any such businesses, if
engaged in by the Company, can or will be profitably operated.
See "Use of Proceeds."
18. No public market. Prior to this Offering, there has been no public
trading market for the Securities. Although the Company has applied to have the
Common Stock and Warrants included in The Nasdaq SmallCap Market, there can be
no assurance that an active market in any of such securities will develop or, if
such a market develops, that it will be sustained.
19. Arbitrary offering price and terms; effect of separate offering of
Common Stock and Warrants. The price of the Common Stock and Warrants and the
terms of the Warrants offered hereby have been determined by negotiation between
the Company and the Underwriter, and do not necessarily bear any relation to the
results of the Company's operations or its financial condition or any other
criteria of value. Furthermore, the shares of Common Stock and Warrants are
being offered separately and not as units, and the Underwriter has no obligation
to offer shares of Common Stock and Warrants to the same purchasers. If a market
in the Common Stock and Warrants develops the market may place a different
relative value on the shares of Common Stock and Warrants than the Underwriter
and it is possible that even if the combined market price of one share Common
Stock and one Warrant were to increase (as to which no assurance can be given),
the market price of the Common Stock may decrease from the initial public
offering price.
20. Possible delisting from The Nasdaq Stock Market and market
illiquidity. In order for the Common Stock and Warrants to be included in The
Nasdaq SmallCap Market, the Company must, after giving effect to this Offering,
have a net worth of at least $2 million and total assets of at least $4 million.
The Company expects that it will meet the listing requirements for The Nasdaq
SmallCap Market upon completion of this Offering and that the Company's Common
Stock and Warrants will be initially included in The Nasdaq SmallCap Market. If
the Company is unable to satisfy Nasdaq's requirements for continued listing,
the Common Stock and Warrants may be delisted from The Nasdaq SmallCap Market.
In such event, trading, if any, in such securities would thereafter be conducted
in the over-the-counter market in the so-called "pink sheets" or the Nasdaq's
"Electronic Bulletin Board." Consequently, the liquidity of the Securities could
be impaired, not only in the number of Securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
potential security analysts' and news media's coverage of the Company, and lower
prices for the Securities than might otherwise be attained.
A significant number of the Securities may be sold to
customers of the Underwriter. Such customers may subsequently engage in the sale
or purchase of the Securities through or with the Underwriter. Although it has
no obligation to do so, the Underwriter may become a market maker and otherwise
effect transactions in the Securities of the Company, and, if it participates in
such market, may be a dominating influence in the trading of the Securities. The
prices and the liquidity of the
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<PAGE>
Securities may be significantly affected by the degree, if any, of the
participation of the Underwriter in such market, should a market develop.
21. Risks of low-priced stocks; penny stock regulations. If the
Securities were delisted from The Nasdaq SmallCap Market (See "Risk Factors --
20. Possible delisting of securities from The Nasdaq Stock Market and market
illiquidity") they may become subject to Rule 15g-9 under the 1934 Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule, if applicable, may affect the ability of broker-dealers
to sell the Company's Common Stock and Warrants and may affect the ability of
purchasers in this Offering to sell any of the Common Stock or Warrants acquired
pursuant to this Prospectus in the secondary market.
The Commission's regulations define a "penny stock" to be any equity
security that has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Company's Common
Stock or Warrants if the Common Stock is listed on The Nasdaq Stock Market and
has certain price and volume information provided on a current and continuing
basis or meet certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Securities will qualify for exemption from
these restrictions. If the Common Stock or Warrants become subject to the rules
on penny stocks, the market liquidity for the Common Stock or Warrants could be
severely adversely affected.
22. Potential adverse effect of redemption of Warrants. Commencing 18
months from the date of this Prospectus, or earlier with the consent of the
Underwriter, the Warrants may be redeemed by the Company at a redemption price
of $.10 per Warrant upon not more than 60 nor less than 30 days' notice if the
average closing price of the Common Stock is at least $15.00 per share, subject
to adjustment, during the ten consecutive trading days ending not earlier than
three days prior to the date the Warrants are called for redemption. Redemption
of the Warrants could force the holders to exercise the Warrants and pay the
exercise price therefor at a time when it may be disadvantageous for the holder
to do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which,
at the time the Warrants are called for redemption, is likely to be
substantially less than the market value of the Warrants. The Company will not
call the Warrants for redemption except pursuant to a currently effective
prospectus and registration statement. See "Description of Securities -- Series
A Redeemable Common Stock Purchase Warrants."
23. Current prospectus and state registration required to exercise
Warrants. Holders of the Warrants will only be able to exercise the Warrants if
(a) a current prospectus under the Securities Act relating to the shares of
Common Stock issuable upon exercise of the Warrants is then in effect and (b)
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise of any Warrants
subsequent to nine months from the date of this Prospectus. Prior to the
expiration of nine months from the date of this Prospectus, it may be necessary
to amend or supplement this Prospectus under certain conditions, in which event
the Warrants could not be exercised prior to the date of the amended Prospectus
or supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
returned by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside. See
"Description of Securities -- Series A Redeemable Common Stock Purchase
Warrants."
24. No Common Stock dividends anticipated; restrictions on dividend
payments. The Company presently intends to retain future earnings in order to
provide funds for use in the operation and expansion of its business and,
accordingly, does not anticipate paying cash dividends on its Common Stock and
Class A Common Stock in the foreseeable future. Furthermore, the Company's loan
agreements with DVI prohibit the payment of dividends without DVI's consent. The
Series B Preferred Stock does not require any dividend payments unless dividends
are paid to the holders of the Common Stock. The holders of the Series A
Preferred Stock are entitled to an annual non-cumulative dividend in the
aggregate amount of $50,000 if declared by the Board of Directors; provided,
that, in any year, dividends may not be paid on the Common Stock or Class A
Common Stock unless dividends for such year are paid to the holders of the
Series A Preferred Stock. The Company has entered into the Schulman
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Memorandum pursuant to which Dr. Schulman will, subject to the consummation of
the transactions contemplated thereby, exchange certain of his Subordinated
Notes for shares of a newly created series of Preferred Stock with a
non-cumulative dividend of $75,000. The Company is engaged in negotiations with
the other two former stockholder-directors of IMI-Florida pursuant to which they
would exchange approximately $4.2 million of Subordinated Notes for equity
securities. No assurance can be given that the Company will be able to negotiate
an agreement with the other two former stockholder-directors of IMI-Florida.
Furthermore, pursuant to the Schulman Memorandum, if the other two former
stockholder-directors of IMI-Florida exchange their Subordinated Notes on terms
more favorable that the terms set forth in the Schulman Memorandum, Dr. Schulman
will be entitled to exchange his Subordinated Notes on the same terms as the
other former stockholder-directors of IMI-Florida. See "Certain Transactions --
Proposed Note Exchange with Dr. Schulman."
25. Dilution of 119% from initial public offering price. Following
completion of this Offering, the pro forma net tangible book value per share of
Common Stock (treating the Common Stock and the Class A Common Stock as a single
class) would be $(.95). A purchaser of Common Stock in this Offering will
experience immediate dilution or $5.95, or 119% of the initial public offering
price of the Common Stock issued pursuant to this Prospectus. See "Dilution."
26. Shares eligible for future sale. All of the presently issued and
outstanding shares of Common Stock and Preferred Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act. If a public market develops for the Company's Common Stock, the
Company is unable to predict the effect that sales made under Rule 144 or other
sales may have on the then prevailing market price of the Common Stock. The
9,200,000 presently outstanding shares of Common Stock, all of which are owned
by SISC, will become eligible for sale pursuant to Rule 144 commencing 90 days
after the effective date of the registration statement of which this Prospectus
forms a part. In addition, 3,500,000 shares of Common Stock issuable upon
conversion of the Series B Preferred Stock, at such time as such shares become
convertible, and 1,000,000 shares of Common Stock issuable upon conversion of
the Class A Common Stock, if and when such shares are convertible, will be
deemed acquired at the time of the acquisition of the Series B Preferred Stock
or Class A Common Stock, as the case may be. Substantially all of the Company's
security holders have agreed that they will not sell any shares of Common Stock
owned by them or issued upon conversion or exercise of other securities for
three years from the date of this Prospectus without the prior approval of the
Underwriter. See "Selling Security Holder" for information relating to the
registration and sale by SISC of Series B Warrants to purchase 1,000,000 shares
of Common Stock and/or the underlying shares of Common Stock. The sale or
potential sale of any of the foregoing shares may have a materially adverse
effect upon the market and market price for the Common Stock and Warrants and
may adversely affect its ability to raise capital.
27. Shares of Common Stock issuable pursuant to warrants and Preferred
Stock; registration rights. In addition to the 9,200,000 shares of Common Stock
outstanding, there are outstanding (i) 1,000,000 shares of Class A Common Stock,
(ii) Series B Warrants to purchase 1,000,000 shares of Common Stock which are
owned by the Selling Security Holder, and (iii) warrants to purchase 2,250,000
shares of Class A Common Stock. In addition, 3,500,000 shares of Common Stock
are issuable upon conversion of the Series B Preferred Stock commencing three
years from the date of this Prospectus or such earlier date as the Class A
Common Stock is converted into Common Stock and 1,200,000 shares of Class A
Common Stock are issuable upon the exercise of options or other stock rights
granted pursuant to the Company's 1994 Long Term Incentive Plan, of which
options to purchase 850,000 shares of Class A Common Stock are outstanding.
Although there is no public market for the Class A Common Stock and a market in
such shares may never develop, the Class A Common Stock is included with the
Common Stock in determining earnings per share, and the issuance of such shares
may have an effect upon the market price for the Common Stock. The holders of
certain of the warrants have piggyback registration rights commencing two years
from the date of this Prospectus or earlier with the consent of the Underwriter.
The Company will bear the cost of preparing such registration statements but
will not receive any proceeds from the sale of shares of Common Stock pursuant
thereto other than payment of the exercise price with respect to any warrants
that are exercised. The existence of these registration rights, as well as the
sale of shares of Common Stock pursuant to registration statements which the
Company may be required to prepare, may have a depressive effect on the price of
the Common Stock in the open market. In addition, the existence of such warrants
and options and the registration rights referred to above may adversely affect
the terms on which the Company can obtain additional equity financing. The
holders of warrants are likely to exercise them at a time when the Company would
otherwise be able to obtain capital on terms more favorable than those provided
by the warrants.
28. Limitation on directors' liability. The Company's Certificate of
Incorporation includes certain provisions, permitted under Delaware law, which
provide that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction from which the director derived an improper
personal benefit, or (iv) for certain conduct prohibited by law. The Company's
Certificate of Incorporation also contains broad indemnification provisions.
These provisions do not affect the liability of any director under Federal or
applicable state securities' laws.
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29. Forward-looking statements. Prospective investors are cautioned
that the statements in this Prospectus that are not descriptions of historical
facts may be forward looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified under "Risk
Factors" and elsewhere in this Prospectus or in documents incorporated by
reference in this Prospectus.
30. Inexperience of the Underwriter. The Underwriter has been actively
engaged in the securities brokerage and investment banking business since 1994.
However, the Underwriter has engaged in only limited underwriting activities,
and this Offering is only the fifth public offering in which the Underwriter has
acted as the sole or managing underwriter. There can be no assurance that the
Underwriter's limited experience as an underwriter of public offerings will not
adversely affect the offering of the Securities, the subsequent development of a
trading market, if any, or the market for and liquidity of the Company's
securities. Accordingly, purchasers of the Securities offered hereby may suffer
a lack of liquidity in their investment or a material diminution of the value of
their investment.
DILUTION
The net tangible book value of the Company's Common Stock at September
30, 1996 was approximately $(1.44) per share. All share and per share
information included in this Prospectus has been restated to reflect a
recapitalization in November 1996 pursuant to which the 1,000 shares of Common
Stock became and were converted into 9,200,000 shares of Common Stock, 1,000,000
shares of Class A Common Stock, 5,000 shares of Series A Preferred Stock and
5,000 shares of Series B Preferred Stock. Net tangible book value per share of
Common Stock represents the amount of the Company's tangible assets reduced by
the amount of its liabilities and the liquidation preference of the Series A
Preferred Stock and the Series B Preferred Stock divided by the number of
outstanding shares of Common Stock and Class A Common Stock. Without taking into
account any change in the net tangible book value of the Company after September
30, 1996, other than as a result of the sale of the 1,000,000 shares of Common
Stock, at an initial public offering price of $5.00 per share, and 1,500,000
Warrants offered pursuant to this Prospectus, at an initial public offering
price of $.15 per Warrant, after deducting estimated fees and other estimated
expenses of the Offering, the Company's net tangible book value as of September
30, 1996 would have been approximately $(.95) per share. This amount represents
an immediate increase in net tangible book value per share of approximately $.49
to the present stockholders and an immediate dilution (the difference between
the offering price of the shares and the net tangible book value per share after
the Offering) per share of approximately $5.95 to the purchasers of the Common
Stock.
The following table illustrates the dilution of one share of Common
Stock as of September 30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share of Common Stock $5.00
Net tangible book value per share at September 30, 1996 $(1.44)
Increase per share attributable to sale of the Securities offered hereby .49
-----
Pro forma net tangible book value per share after Offering (.95)
--------
Dilution to public investors $(5.95)*
======
</TABLE>
- ------------
* If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $(.88) per share of Common
Stock, resulting in an increase in the net tangible book value per
share of $.56 and dilution to the public investors of $5.88 per share.
The following table summarizes, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total cash consideration
and the average price per share paid to the Company for such Common Stock, and
the number of shares and consideration to be paid by the public investors for
the 1,000,000 shares of Common Stock offered by this Prospectus.
<TABLE>
<CAPTION>
Total Percent
Shares of Percent Cash of Total Average
Common of Consid- Consid- Price
Stock Total eration eration Per
Purchased Shares Paid Paid Share
<S> <C> <C> <C> <C> <C>
Existing Stockholders 9,200,000 90.2% $ 1,000 0.0% $.00002
=======
Public Investors 1,000,000 9.8 5,000,000 100.0 $5.00
---------- ------ ---------- ----- =====
Total 10,200,000 100.0% $5,001,000 100.0%
========== ====== ========== ======
</TABLE>
- 19 -
<PAGE>
The following table ummarizes, as of December 31, 1996, the number of
shares of Common Stock and Class A Common Stock, treated as a single class,
purchased from the Company, the total cash consideration and the average price
per share paid to the Company for such Common Stock, and the number of shares
and consideration to be paid by the public investors for the 1,000,000 shares of
Common Stock offered by this Prospectus.
<TABLE>
<CAPTION>
Total Percent
Percent Cash of Total Average
of Consid- Consid- Price
Shares Total eration eration Per
Purchased Shares Paid Paid Share
<S> <C> <C> <C> <C> <C>
Existing Stockholders 10,200,000 91.1% $ 1,000 0.0% $.00002
=======
Public Investors 1,000,000 8.9 5,000,000 100.0 $5.00
---------- ------ ---------- ----- =====
Total 11,200,000 10 .0% $5,001,000 100.0%
========== ====== ========== ======
</TABLE>
USE OF PROCEEDS
The Company intends to utilize the net proceeds from the sale of the
Securities offered hereby, estimated at approximately $3.9 million (assuming the
Underwriter's over-allotment option is not exercised), substantially as follows:
(a) Approximately $2.4 million (61.3 % of the net proceeds) to pay
principal and accrued interest on a portion of the Company's
indebtedness to DVI.1
(b) Approximately $1.0 million (25.5%) to purchase equipment and
convert up to three MRI Centers into multi-modality Centers.(2)
(c) The balance of approximately $500,000 (13.2 %) for working
capital and other corporate purposes.(3)
- ------------
(1) In September 1996, the Company borrowed $4.0 million on a long-term
basis from DVI. The proceeds of these loans were used to pay certain
Subordinated Notes in the principal amount of $4.0 million, which were
due to former limited partners of certain of the Centers acquired by
the Company.
(2) The Company may expand up to three of its Centers from MRI Centers to
multi-modality Centers at which one or more other imaging technologies,
such as CT, X-ray, fluoroscopy, ultrasound and mammography, will be
offered, as well as the possible upgrading of existing MRI equipment at
one or more Centers. In expanding its Centers, the Company may either
seek lease or other financing or use a portion of the proceeds of this
Offering. The extent that the proceeds of this Offering are used for
such purposes will be dependent upon the availability and terms of
financing and the final cost associated with such upgrades which cannot
be determined at this time. In the past, the Company has financed the
purchase of substantially all of its diagnostic imaging equipment;
however, no assurance can be given that such financing will be
available. To the extent that funds allocated to expanding Centers are
not used for such purpose, such proceeds will be allocated to working
capital and other corporate purposes.
(3) Certain claims have been made against the Company. In the event that a
final judgment is rendered against the Company with respect to any one
or more of such claims, a portion of the proceeds allocable to working
capital and other corporate purposes may be used for such purposes. The
Company does not believe that the maximum liability it will incur with
respect to any of such claims will exceed $165,000, however, no
assurance can be given that its ultimate liability will not
significantly exceed such amount. See "Business -- Legal Proceedings."
In addition to the proposed expansion of up to three MRI Centers, the
Company may seek to acquire additional MRI or multi-modality imaging centers if
such centers are available at prices and on terms determined by the Board of
Directors to be reasonable. The Company does not currently have any agreement,
and is not engaged in negotiations, with respect to any such acquisition.
However, if the Company acquires any additional centers, to the extent that the
purchase price is not financed, a portion of the proceeds of this Offering may
be used for such purposes. See "Business -- Potential Acquisitions."
The foregoing represents the Company's current best estimate of its
proposed use of the estimated net proceeds of this Offering based upon the
present state of its business, operations and plans, current business conditions
and the Company's
- 20 -
<PAGE>
evaluation of the market for its services. Management will have broad discretion
with respect to the expenditure of a substantial portion of the net proceeds of
this Offering, and conditions may develop which could cause management to
reallocate proceeds from the categories listed above, including changes in its
marketing program and changes in government policy and insurance reimbursement
practices, none of which can be predicted with any degree of certainty.
Furthermore, future events, including unforseen problems, expenses,
difficulties, complications and delays frequently encountered by businesses, as
well as changes in the economic climate, changes or anticipated changes in
government regulations, new technologies, competition, reimbursement policies or
acquisition or joint venture opportunities, may make the reallocation of funds
necessary or desirable. Any such reallocation will be at the discretion of the
Board of Directors. Furthermore, in the event that the Company determines that
it is unable to continue to operate profitably, the Company may use the proceeds
from this Offering to engage in other related or unrelated businesses, although
it has no such intention at this time. No assurance can be given that any such
businesses, if engaged in by the Company, can or will be operated profitably.
The Company believes that the net proceeds from this Offering will be
sufficient to satisfy the Company's cash requirements for at least one year
following the date of this Prospectus. However, it is possible that conditions
may arise as a result of which the Company may require additional capital prior
to one year from the date of this Prospectus, and no assurance can be given that
the Company will be able to obtain any or adequate funds when required or that
any funds available to it will be available on reasonable terms. The failure to
obtain necessary funds could have a material adverse effect upon the Company.
Pending the application of the funds as described above, said funds
will be invested in high-quality short-term interest-bearing deposits and
securities.
- 21 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of the 1,000,000 shares
of Common Stock and 1,500,000 Warrants offered hereby and the use of a portion
of the net proceeds of this Offering to pay a portion of the Company's long-term
debt.
<TABLE>
<CAPTION>
September 30, 1996
Actual As Adjusted
(Dollars in thousands)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt(1) $ 3,343 $ 3,343
Current portion of subordinated debt(2) 918 918
Capital lease obligations -- current maturities(3) 1,210 1,210
Covenant not to compete 267 267
------- -------
$ 5,738 $ 5,738
======= =======
Long-term debt:
Notes payable(1) $12,466 $10,366
Revolving loan(1) 4,664 4,664
Subordinated debt(2) 5,662 5,662
Subordinated debt -- related party(2) 994 994
Due to affiliate(4) 1,598 1,598
Capital lease obligations -- long-term portion(3) 2,864 2,864
Deferred interest 371 371
------- ------
28,619 26,519
Stockholders' equity:
Preferred Stock, par value $.01 per share, 6,000,000 shares authorized, of
which:
5,000 shares are authorized, issued, outstanding and designated as Series
A Redeemable Preferred Stock, with certain redemption rights(5) -- --
5,000 shares are authorized, issued, outstanding and designated as Series
B Convertible Redeemable Preferred Stock, with certain redemption
rights(6) -- --
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
9,200,000 shares issued and outstanding and 10,200,000 shares outstanding
as adjusted(7) 92 102
Class A Common Stock, par value $.01 per share, 6,000,000 shares
authorized, 1,000,000 shares issued and outstanding(8) 10 10
Additional paid-in capital 591 4,572
Accumulated earnings(9) 5,745 5,745
------- ------
Stockholders' equity 6,438 10,429
------- ------
Total capitalization $35,057 $36,948
======= =======
</TABLE>
- ---------------
(1) See Note 7 of Notes to International Magnetic Imaging, Inc. Combined
Financial Statements.
(2) These notes were incurred in connection with the acquisition of the
Centers. The amounts due to related party reflects Subordinated Notes
to Stephen A. Schulman, M.D., president of the Company. See "Certain
Transactions," and Notes 2 and 7 of Notes to International Magnetic
Imaging, Inc. Combined Financial Statements.
(3) See Note 6 of Notes to International Magnetic Imaging, Inc. Combined
Financial Statements.
- 22 -
<PAGE>
(4) Represents indebtedness to SISC, principally the unpaid balance of
funds loaned to the Company to pay expenses of the acquisition of the
Centers and the value of Consolidated common stock issued in connection
with the acquisition of the Centers. See "Certain Transactions" and
Note 11 of Notes to International Magnetic Imaging, Inc. Combined
Financial Statements.
(5) The Series A Preferred Stock has a liquidation preference of $5,150 in
the aggregate and an aggregate redemption price of $100. The amount
shown reflects the liquidation preference of the Series A Preferred
Stock as of the date of this Prospectus. See "Description of Securities
-- Series A Preferred Stock" for information concerning the rights,
preferences and privileges of the holders of the Series A Preferred
Stock.
(6) The Series B Preferred Stock has a liquidation preference of $100 in
the aggregate and an aggregate redemption price of $100. The amount
shown reflects the liquidation preference of the Series B Preferred
Stock as of the date of this Prospectus. See "Description of Securities
-- Series B Preferred Stock" for information concerning the rights,
preferences and privileges of the holders of the Series B Preferred
Stock.
(7) Does not include an aggregate of 4,500,000 shares of Common Stock
reserved as follows: (a) 1,000,000 shares issuable upon exercise of the
Series B Warrants and (b) 3,500,000 shares issuable upon conversion of
the outstanding shares of Series B Preferred Stock. In addition, there
are reserved (i) 1,500,000 shares issuable upon exercise of the
Warrants offered by this Prospectus; (ii) 375,000 shares issuable upon
exercise of the Underwriter's over-allotment option and upon exercise
of Warrants issuable upon exercise of such over-allotment option, (iii)
250,000 shares issuable upon exercise of the Underwriter's Options and
upon exercise of Warrants issuable upon exercise of the Underwriter's
Options and (iv) 1,000,000 shares issuable upon exercise of a warrant
to be issued to DVI under certain circumstances. See "Certain
Transactions," "Description of Securities" and "Underwriting."
(8) Does not include an aggregate of 3,450,000 shares of Class A Common
Stock reserved as follows: (a) 2,250,000 shares issuable upon exercise
of the outstanding warrants and (b) 1,200,000 shares issuable upon the
grant of options, rights or other equity-based incentives provided
pursuant to the Company's 1994 Long-Term Incentive Plan. In addition,
warrants to purchase 25,000 shares of Class A Common Stock may be
issued to Dr. Schulman pursuant to the Schulman Memorandum. See
"Certain Transactions."
(9) Certain of the Centers are operated by limited partnerships of which
separate subsidiaries of the Company own the general and limited
partnership interest. Accumulated earnings includes partners' capital,
which consists of a general partners' capital deficit of $668 and a
limited partners' capital of $1,177.
See "Business -- Property" and Note 6 of Notes to International
Magnetic Imaging, Inc. Combined Financial Statements for information concerning
the Company's long-term lease obligations.
- 23 -
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
Set forth below is selected financial data with respect to the Company
for the nine months ended September 30, 1996 and 1995, the year ended December
31, 1995 and the period from inception (September 30, 1994) to December 31,
1994. The selected financial data has been derived from the financial statements
which appear elsewhere in this Prospectus. The unaudited financial data for the
interim periods reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the data
for such periods. The results of operations for the interim periods are not
necessarily indicative of operating results for the entire year. This data
should be read in conjunction with the financial statements of the Company and
the related notes which are included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended September 30, 1994
December 31, 1995 (Inception(1)) to
December 31, 1994
1996 1995
---- ----
<S> <C> <C> <C> <C>
Revenue $23,776 $20,874 $28,044 $6,557
Net income 2,613 1,865 2,682 449
Net income per share of
Common Stock:(2)
Primary .17 .12 .19 .03
Fully diluted (3) ( .18 (3)
Weighted average number of
shares outstanding:(4)
Primary 14,010 13,977 14,030 13,939
Fully diluted (3) (3) 15,706 (3)
- ---------------
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- -----------------
<S> <C> <C> <C>
Working capital (deficiency) $ 4,201 $(8,857) $ 60
Total assets 45,066 39,872 40,911
Long-term debt 28,619 15,728 30,886
Total liabilities 38,628 36,740 40,461
Accumulated earnings 5,745 3,131 449
Stockholders' equity(2),(5) 6,438 3,132 450
- ---------------
</TABLE>
No dividends have been paid since inception.
(1) Although the Company was organized in March 1994, it did not commence
operations until September 30, 1994, when it acquired nine Centers.
(2) For purposes of net income per share of Common Stock and stockholders'
equity, the Common Stock and Class A Common Stock are treated as a
single class, and the weighted average number of shares of Common Stock
outstanding includes both the Common Stock and the Class A Common
Stock.
(3) Fully diluted earnings per share is not included since the per share
amounts are antidilutive.
(4) All shares of Common Stock and Class A Common Stock issued prior to the
date of this Prospectus are treated as outstanding since inception.
(5) Stockholders' equity includes the partners' capital of the partnerships
in which subsidiaries of the Company own the general and limited
partnership.
- 24 -
<PAGE>
PRO FORMA INCOME STATEMENT INFORMATION
The pro forma income statement operations reflects on a pro forma basis
the repayment of $2,100 principal amount of debt being paid from the proceeds of
this Offering, net of tax, as if such payment had occurred at the beginning of
the respective periods.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Pro Forma net income $2,762 $2,887
Pro Forma earnings per share of Common Stock(1):
Primary: $.19 $.20
Fully diluted $.18
Pro Forma number of shares of Common Stock outstanding(1):
Primary: 14,430 14,450
Fully diluted: 16,126
</TABLE>
(1) For purpose of determining earning per share of Common Stock and number
of shares of Common Stock outstanding, the Common Stock and Class A
Common Stock were treated as one class of Common Stock.
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR]1
Set forth below is selected financial data with respect to IMI-Florida,
its subsidiaries and related partnerships on a combined basis, for the nine
months ended September 30, 1994 and the years ended December 31, 1993, 1992 and
1991. The results of operations for the interim periods are not necessarily
indicative of operating results for the entire year. This data should be read in
conjunction with the financial statements of the IMI-Florida for the nine months
ended September 30, 1994 and the year ended December 31, 1993 and the related
notes which are included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Month Ended
September 30, 1994
1993 1992 1991
---- ---- ----
<S> <C> <C> <C> <C>
Revenue $21,162 $26,572 $26,718 $31,115
Net income 3,681 3,516 3,462 6,545
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 December 31, 1992 December 31, 1991
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Working capital $ 5,002 $ 2,948 $ 2,773 $ 5,849
Total assets 22,080 24,585 27,966 29,005
Long-term debt 5,823 5,835 8,514 8,162
Total liabilities 10,970 13,495 16,963 14,879
Accumulated earnings 6,052 6,032 7,145 10,310
Stockholders' equity 11,109 11,090 11,030 14,126
</TABLE>
- 25 -
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 1996, 1995 and 1994
In the following discussion, the nine months ended September 30, 1996
and 1995 (the "September 1996 period" and the "September 1995 period,"
respectively), reflect the operations of the Company, and the nine months ended
September 30, 1994 (the "September 1994 period") reflects the operation of the
Centers that were acquired from the predecessor companies as operated by such
predecessors.
Revenue increased $2.9 million, or 13.9% from the September 1995 period
to the September 1996 period and decreased $288,000 or 1.4% from the September
1994 period to the September 1995 period. As noted in the table below, the mix
of procedures by payor class remained relatively level. The increase in revenues
for the September 1996 period compared to the September 1995 period reflects an
increase in scan volume. There was no substantial change in the reimbursement
rates from the September 1995 period to the September 1996 period. The average
revenue per MRI procedure remained relatively level when comparing the September
1995 period to the September 1994 period. Contractual adjustments, which
represent the difference between the Company's standard billing rate and the
amount to be received by the Company pursuant to its agreements with third-party
payors, were 48%, 45% and 34% for the September 1996, 1995 and 1994 periods,
respectively. The increase in the contractual allowance resulted from a decrease
in the reimbursement rates from third-party payors.
The percentage of procedure volume was as follows for the comparable
periods:
<TABLE>
<CAPTION>
Percentage of Procedure Volume
Class of Payor September 1996 September 1995 September 1994
- -------------- -------------- --------------
Period Period Period
------ ------ ------
<S> <C> <C> <C>
MRI procedures (representing 89%, 91% and 92%, respectively,
of all revenues for the September 1996, 1995 and 1994 periods)
Managed care 37% 38% 41%
Commercial 17% 17% 20%
Medicare 12% 9% 14%
Workers' compensation (other than pursuant to contracts with
workers' compensation insurers) 11% 14% 17%
Brokered scan services 11% 9% --
Contract workers' compensation 5% 6% --
Liability 5% 5% 6%
Other 2% 2% 2%
Multi-modality procedures, other than MRI(1) (representing 11%,
9% and 8%, respectively, of all revenues for the September 1996
and 1995 periods)
Managed care 84% 85% 85%
Medicare 8% 6% 6%
Commercial 5% 6% 6%
Other 3% 3% 3%
</TABLE>
- ---------------
(1) Includes CAT scans, nuclear medicine, mammography, fluoroscopy and
X-rays.
The Company's operating expenses for the September 1996 period
increased by $2.2 million, or 12.9%, from $17.0 million for the September 1995
period to $19.2 million for the September 1996 period. The operating expenses
for the September 1995 period increased by $221,000, or 1.3%, from $16.8 million
for the September 1994 period to $17.0 million for the September
- 26 -
<PAGE>
1995 period. The overall increase in expenses, which was less than the increase
in revenue for the September 1996 period compared to the September 1995 period
and approximated the decrease in revenue for September 1995 period compared to
the September 1994 period, reflected a number of factors discussed below.
Radiology fees increased $195,000, or 8.8%, from the September 1995
period to the September 1996 period and decreased $1.7 million, or 353%, from
the September 1994 period to the September 1995 period. For the September 1996
and 1995 periods, radiology fees were based on cash collections related to
services performed. Cash collections for services were $20.8 million and $18.6
million, respectively, for the September 1996 and 1995 periods, representing an
overall increase of approximately 11.8%. The rates paid vary from Center to
Center and, for the September 1995 period, cash collections were greater for
Centers that pay the radiologists a higher rate than for the September 1996
period. During the September 1996 and 1995 periods, the radiologists were
independent contractors pursuant to service agreements with the Company, and,
during the September 1994 period, a significant portion of the radiologists were
employees of MD Corp. and, accordingly, compensation to radiologists of
approximately $1.0 million is included in salaries and benefits which accounts
for the significant increase in radiology fees from the September 1994 period to
the September 1995 period.
Equipment maintenance costs relate primarily to fixed contract payment
schedules and generally do not fluctuate from period to period unless repairs
and maintenance are required that are not covered by the equipment contracts or
new equipment is placed into service or removed from service. During the
comparable periods, the equipment maintenance remained relatively level,
increasing only .5% when comparing the September 1996 and 1995 periods and
increasing only 1.6% when comparing the September 1995 and 1994 periods, since
substantially all maintenance costs were incurred pursuant to fixed maintenance
contracts.
Patient service costs and expenses consist primarily of film and
contrast agents used in the MRI procedures and utility costs of running the MRI
equipment. During the September 1995 and 1996 periods, such costs increased
$228,000 or 15.5%. Approximately $98,000 of this increase related to an increase
in medical supplies used by a multi-modality Center that performs CAT scans,
nuclear medicine, mammography, fluoroscopy and X-rays, which had a significant
increase in volume. Additionally, in the September 1996 period, one of the
Company's MRI Centers started using upgraded equipment that required a grade of
processing film that was more expensive than in the September 1995 period,
accounting for an increase in costs of approximately $105,000. The remaining
increase is due to the additional procedure volume which inherently requires
more patient service costs which was partially offset by negotiated decreases in
overall per unit film and contrast agent costs. When comparing the September
1995 and 1994 periods, such costs increased only $67,000, or 4.8%, which
represents a modest increase in film and contrast agent costs while procedure
volume remained relatively level.
Salaries and benefits increased $483,000, or 10.9%, from the September
1995 period to the September 1996 period. Of this increase, approximately
$105,000 relates to a bonus paid to the Company's chief financial officer for
services relating to the DVI loans incurred in 1996. Additionally, during the
September 1996 period, the Centers increased their hours of operations in order
to increase volume. These increased hours of operation required additional
personnel in certain Centers and required some overtime in all Centers. The per
employee base salary and benefit costs did not significantly increase. Salaries
and benefits decreased $1.6 million or 26.6% from the September 1994 period to
the September 1995 period. The salaries and benefits for the September 1994
period include approximately $1.0 million paid to radiologists based on fixed
fee contracts and salaries and benefits for the September 1995 period do not
include any such comparable payments as discussed above. Additionally, during
1995, management implemented a cost reduction plan which included the reduction
of overall salary and wage levels which accounts for the decrease in such costs
as a percentage of revenues.
Professional services, consisting primarily of legal, accounting and
consulting services, remained relatively level, increasing only $41,000, or
6.5%, in the September 1996 period from the September 1995 period. In the
September 1996 period, legal fees decreased approximately $139,000 due to the
fact that during the September 1995 period, the Company incurred additional post
acquisition legal costs that were not incurred in the September 1996 period.
Such decrease was offset by an increase in consulting fees of approximately
$152,000 for the September 1996 period pursuant to marketing agreements that
were entered into subsequent to September 30, 1995. Accounting and other
professional fees increased only $28,000 in the aggregate from the September
1995 period to the September 1996 period. Professional services decreased
$767,000, or 55.2%, from the September 1994 period to the September 1995 period
which reflects the significant accounting and legal fees that were incurred by
the Company during the September 1994 period in connection with the
acquisition..
Other management, general and administrative expenses increased
$655,000, or 22.3% from the September 1995 period to the September 1996 period.
During the September 1996 period, one of the Centers was in the process of
relocating to a new facility and, in connection therewith, it rented, on a
short-term basis, MRI equipment at a rental cost of approximately $441,000 and
was paying rent at two locations on a temporary basis resulting in additional
rental expenses of $27,000. Other significant increases include $71,000 for an
administrative fee paid to DVI as a result of borrowings incurred subsequent to
September 30,
- 27 -
<PAGE>
1995 and $40,000 for compensation to temporary employees of MRI Net who replaced
permanent employees whose compensation in the September 1995 period is included
under salaries and benefits. During the September 1995 and 1994 periods, other
management, general and administrative expenses, remained relatively level,
decreasing only $164,000 or 5.3% from the September 1994 period to the September
1995 period.
Provision for bad debts increased $514,000, or 83.7%, from the
September 1995 period to the September 1996 period. Substantially all of this
increase reflects an evaluation of the collectibility of receivables from
third-party liability payors which were generated prior to the September 30,
1994 acquisition of the Centers. Revenue from third-party liability payors
represented only 5% of revenue for the September 1996 and September 1995
periods. Provision for bad debts decreased $352,000, or 36.5%, from the
September 1994 period to the September 1995 period. During the September 1994
period the composition of revenues and the related accounts receivable balances
included more payor types with a higher risk of collectibility than in the
September 1995 period.
Depreciation and amortization consists of the depreciation of purchased
equipment, buildings, leasehold improvements and capital leases and the
amortization of goodwill, customer lists, restrictive covenants and loan costs.
Depreciation expenses decreased only $40,000, or 1.8%, from the September 1995
period to the September 1996 period, which reflects the addition of equipment in
certain of the Centers, which was offset by a decrease in Centers where
equipment is fully depreciated as of the September 1996 period. Amortization
increased $69,000, or 4.5%, for the comparable period due to an increase in
capitalized loan costs which were incurred at the beginning of 1996 for the
refinancing of certain portions of subordinated debt. Depreciation and
amortization expense increased $1.3 million, or 53.5%, from the September 1994
period to the September 1995 period of which $243,000 is increased depreciation
due primarily to equipment purchases and $1.1 million is increased amortization
due to the addition of goodwill, restrictive covenants and customer list as a
part of the September 30, 1994 acquisition.
Interest and other income increased $378,000, or 374%, from the
September 1995 period to the September 1996 period. During August 1995, the
Company entered into a joint venture agreement with respect to an MRI Center in
the Orlando, Florida area. Income from the joint venture during the September
1996 and 1995 periods were $225,000 and $42,000, respectively. The September
1996 period also includes a change in an estimate relating to prior period
over-accruals of tangible personal property taxes of approximately $140,000 for
the Company's San Juan Center. Other components of interest and other income
were not significant for the September 1996 and 1995 periods. Interest income
and other decreased $337,000, or 220.1%, from the September 1994 period to the
September 1995 period. During the September 1994 period, other income included
approximately $300,000 of debt forgiveness from certain shareholders of the
predecessor company.
Interest expenses for the September 1996 period increased $154,000, or
7.9%. At the beginning of 1996, the Company refinanced certain Subordinated
Notes, which were short-term notes on which the Company paid interest at 7%,
with long-term debt with rates varying from 11% to 12%. The increase in interest
expense from the higher rate was partially offset by reduced principal amount on
which interest was paid. Interest expense for the September 1995 period
increased $1.3 million, or 53.5%, from the September 1994 period, due to the
fact that as a part of the September 30, 1994 acquisition, approximately $20
million in subordinated debt was incurred at an aggregate interest rate of 7%.
Other increases in interest expense from the September 1994 period to the
September 1995 period are due to additions of equipment financing and interest
from new capital lease obligations.
Loss on disposal of assets, which was $524,000 for the September 1994
period, consisted primarily of leasehold improvements and medical equipment
which were sold or abandoned.
The Company's current provision for income taxes is comprised of state
and Puerto Rico income taxes. State income taxes for the September 1996 and 1995
periods were $297,000 and $86,000, respectively. Puerto Rico income taxes were
$0 and $61,000 for the September 1996 and 1995 periods, respectively. During the
September 1996 period, the Company utilized $802,000 of a $2.6 million deferred
tax asset to reduce current Federal income tax by $692,000, current state income
tax by $75,000 and current Puerto Rico income tax by $35,000. Of the $802,000
that was utilized, $114,000 relates to the September 1995 period and $57,000
relates to the three months ended December 31, 1994, representing changes in an
estimate. The Company also has a state net operating loss carryforward at
September 30, 1996 of $3.6 million to offset state income taxes of certain
Centers in which losses have accumulated. State net operating loss carryforwards
are only available to offset future income of the parties which incurred the
losses.
During the September 1995 period, no Federal income taxes were incurred
as a result of the use of the Company's available Federal income tax loss
carryforwards, which were fully utilized during the year ended December 31,
1995. In the September 1996 period, the Company accrued Federal income taxes at
the statutory rate for the period. The actual tax liability was offset in full
by the use of Consolidated's tax loss and loss carryforward, since the Company
files its Federal tax return as part of a consolidated tax return with
Consolidated.
- 28 -
<PAGE>
Overall profitability increased $749,000, or 40.1%, for the September
1996 period from the September 1995 period, reflecting gains in net revenues in
excess of increased overall costs, including the $171,000 change in estimated
state and Puerto Rico income taxes relating to prior periods. During the
September 1996 period, three of the Centers operated at an aggregate net loss of
$1.5 million while the remaining Centers generated aggregate net income of $4.1
million. During the September 1995 period, five of the Centers operated at net
losses of $1.4 million while the remaining Centers generated aggregate net
income of $3.3 million. Overall profitability decreased $334,000, or 15.6%, for
the September 1995 period from the September 1994 period reflecting reduced net
revenues of $288,000, increased operating expenses and costs of $221,000 and
$1.2 million of increased net other expenses, including interest, and decreased
tax provision of $1.3 million. In 1996, the Company generated its greatest
revenue in the first quarter with reduced revenue and gross margin in the second
and third quarters, which is consistent with the past performance. Management
anticipates that the operating results for the fourth quarter of 1996 will show
a moderate increase from the third quarter.
Years Ended December 31, 1995, 1994 and 1993
The results of the Company's operations for the year ended December 31,
1995 are not comparable with the results of operations for the year ended
December 31, 1994 since the operating results for 1994 only include the period
from the date of inception (September 30, 1994) to December 31, 1994. In the
following discussion, 1995 refers to the year ended December 31, 1995, and 1994
refers to the period from inception (September 30, 1994) to December 31, 1994
and 1993 refers to the year ended December 31, 1993 for Centers that were
acquired from the predecessor companies as operated by such predecessors.
Revenue for 1995 amounted to $28.0 million, of which $27.4 million
resulted from performing MRI and other diagnostic modality procedures, $212,000
from management services and $450,000 from other service revenues. Revenues for
1994 amounted to $6.6 million, of which $6.5 million resulted from performing
MRI and other diagnostic modality procedures, $23,000 from management services
and $7,000 from other service revenues. Revenue for 1993 was $26.6 million. The
average revenue per MRI procedure remained relatively level for both 1995 and
1994 although the average net collections per procedure declined modestly. The
average revenue per MRI procedure for 1993 was greater than for 1995 and 1994
due to increases in contractual adjustments. Contractual adjustments were 45%,
38% and 20%, respectively, of gross revenues for 1995, 1994 and 1993,
respectively. The increase in contractual adjustments results from decreases in
reimbursement rates from third-party payors.
The percentage of procedure volume was as follows for 1995 and 1994:
<TABLE>
<CAPTION>
Percentage of Procedure Volume
Year Ended From Date of Inception Year Ended
December 31, (September 30, 1994) to December 31,
Payor Type 1995 December 31,1994 1993
- ---------- ---- ---------------- ----
<S> <C> <C> <C>
MRI Procedures (representing 91% and 92%, respectively, of
revenues for 1995 and 1994)
Managed Care 38% 41% 31%
Commercial 17% 18% 15%
Workers' Compensation (other than pursuant to contracts
with workers' compensation insurers) 14% 15% 22%
Medicare 9% 14% 10%
Brokered Scan Services 9% -- --
Contract Workers' compensation 6% 5% --
Liability 4% 5% 12%
Other 3% 2% 10%
Multi-modality procedures, other than MRI (representing 9%
and 8%, respectively, of revenues for 1995 and 1994):
Managed Care 85% 85% 85%
Medicare 6% 6% 6%
Commercial 6% 6% 6%
Other 3% 3% 3%
</TABLE>
- ---------------
- 29 -
<PAGE>
Radiology fees amounted to $3.0 million and $527,000 and $402,000 for
1995 and 1994 and 1993, respectively. Effective December 1994, radiology fees
are incurred based on cash collections related to services performed. During
1995, cash collections for services were $25.4 million and the aggregate
radiology rates were approximately 12% of such collections. During October and
November 1994, the radiologists were employees of a MD Corp., and, accordingly,
compensation to radiologists of approximately $232,000 and $3.3 million,
respectively, is included in salaries and benefits for such periods. In December
1994, the radiologists were independent contractors pursuant to service
agreements with the Centers, and radiology fees, which are based on a percentage
of cash collections for services performed, amounted to $527,000.
During 1995 and 1994 and 1993, the equipment maintenance costs were
$1.2 million and $360,000, and $1.4 million, respectively, and as a percent of
revenues were 4% and 6% and 5%, respectively, which is consistent with current
maintenance cost trends since significantly all maintenance costs were incurred
pursuant to fixed maintenance contracts.
Patient service costs and expenses during 1995 and 1994 and 1993 were
$1.9 million and $521,000 and $1.4 million, respectively. Generally, patient
service costs will fluctuate based on fluctuations in scan procedure volumes.
Salaries and benefits for 1995 and 1994 and 1993 were $5.9 million and
$1.7 million and $9.3 million, respectively. During 1995, management implemented
a cost reduction plan which included the reduction of overall salary and wage
levels which accounted for the decrease in such costs as a percentage of
revenues. The salaries and benefits for 1994 and 1993 includes $232,000 and $3.3
million, respectively, paid to radiologists based on fixed fee contracts and the
1995 amounts do not include any such amounts paid to radiologists as discussed
above.
Professional fees were $787,000 and $39,000 and $330,000 for 1995 and
1994 and 1993, respectively. During 1995, the Company incurred legal and
accounting fees of approximately $502,000 and $172,000, respectively. A
significant portion of the legal fees related to additional post acquisition
services that are not expected to be incurred in future periods. The accounting
fees relate primarily to audit services performed for 1995. Additionally, during
1995, the Company entered into marketing agreements and in connection therewith,
incurred approximately $113,000 in consulting costs. Professional fees during
the three months ended December 31, 1994 were not significant. During 1993,
professional fees consisted primarily of audit, income tax, and billing and
collection consulting services performed during 1993.
Other management, general and administrative expenses were $4.0 million
and $947,000 and $5.0 million, respectively, for 1995 and 1994. During 1995,
management implemented a cost reduction plan which included the centralization
of billing and collections operations and renegotiations with significant
vendors which, during 1995 allowed the Company to maintain other management,
general and administrative expenses relatively level while scan procedure
volumes increased.
During 1995 and 1994 and 1993, the provision for bad debts was $855,000
and $131,000 and $850,000, respectively, reflecting the difference in revenue
for the periods.
During 1995 and 1994 and 1993, depreciation and amortization expense
collectively were $5.0 million and $1.3 million and $3.6 million, respectively,
which on an annualized basis results in no significant fluctuation. Depreciation
and amortization were significantly less in 1993 than in subsequent periods
because the amortization of goodwill, customer lists and restrictive covenants
commenced with the September 30, 1994 acquisition.
Interest and other income for 1995 and 1994 and 1993 was $193,000 and
$140,000 and $456,000, respectively. In August 1995, the Company entered into a
joint venture agreement with the owner of another MRI center in Orlando,
Florida. The income from such Center is treated as other income, and, as a
result, future periods will reflect an increase in other income. During 1995,
income from the joint venture approximated $120,000. During 1993, other income
was generated by duplicate film charges and expert testimony fees.
Interest expense was $2.6 million and $703,000, respectively, for 1995
and 1994. On an annualized basis, 1994 interest expense was greater than for
1995 by approximately 9% due to principal payments on certain debt. For 1993,
interest expense was significantly less because of the September 20, 1994
addition of approximately $20 million of Subordinated Debt which carries
interest at rates ranging from 4% - 7%.
Loss on sale and disposal of assets for 1995 was $104,000, of which
$79,000 related to the replacement of MRI equipment in one of the Centers and
the remainder related to the write-off of obsolete equipment.
Provision for state income taxes for 1995, 1994 and 1993 was $209,000
and $24,000 and $1.4 million, respectively, representing 7% and 5%,
respectively, of income before taxes. As noted previously, during 1996, the
Company recorded a change
- 30 -
<PAGE>
in estimate for state income taxes of $57,000 for each of 1994 and 1995. Based
on this change in estimate, it is expected that the effective rate will increase
for periods after 1995.
Overall profitability for 1995, 1994 and 1993 was $2.7 million and
$449,000 and $572,000, respectively. During 1995, five of the Centers operated
at an aggregate net loss of $2.0 million while the remaining Centers generated
aggregate net income of $4.6 million. During 1994, four of the Centers operated
at an aggregate net loss of $388,000, while the remaining Centers generated
aggregate net income of $837,000.
Liquidity and Capital Resources
The Company's principal working capital consists of cash and cash
equivalents. Cash and cash equivalents increased $335,000 from $1.4 million at
December 31, 1995 to $1.7 million at September 30, 1996. During the nine months
ended September 30, 1996, the Company's net cash provided by operations was $4.4
million. Sources of funds during the nine months ended September 30, 1996, other
than from operations, includes $15.4 million from debt financings and $139,000
from refunds of deposits previously paid. Uses of cash, other than to fund
operations, includes $14.1 million for repayment of debt, $3.5 million for fixed
asset purchases, $1.0 million for payments on capital lease obligations,
$560,000 for payment of loan costs, $380,000 for net advances to affiliates and
$74,000 for offering costs.
Working capital assets, other than cash, increased by $2.0 million.
Receivables increased by $1.8 million due primarily to increased revenue, and
prepaid expenses and other current assets increased by $241,000 due primarily to
a $300,000 loan that was made to the president and chief executive officer of
the Company. The Company's accounts receivable turnover rate reflects the nature
of the receivables and the normal collection period for such receivables. At
September 30, 1996, December 31, 1995 and December 31, 1994, the Company's
accounts receivable turnover rates were 4.8 months, 4.6 months and 3.7 months,
respectively. This trend reflects the difference in collection rates of various
categories of receivables. During the September 1996 period and 1995,
approximately 93% of revenue was derived from sources other than
liability-related services. Although the reimbursement rate for
liability-related services remained fairly constant, the reimbursement from
other sources has declined. Furthermore, the collection period for receivables
from liability-related services averages 30 to 40 months. Thus, the accounts
receivable generated by liability-related services accounted for 37% and 34% of
accounts receivables at September 30, 1996 and December 31, 1995, respectively.
These factors results in a trend whereby the accounts receivable turnover rate
will increase until receivables from liability-related services run their
respective collection cycles.
Working capital liabilities decreased by $11.0 million. Current
portions of debt and capital lease obligations decreased by $11.3 million
primarily as a result of the January and September 1996 refinancings of a
significant portion of Subordinated Notes that were due in 1996. Such financing
consisted of term loans of $6.0 million and an accounts receivable revolving
loan of $6.0 million, of which $5.0 million was utilized by the Company. The
Company used the proceeds of $11.0 million from these loans as follows:
Repayment of Subordinated Notes that were due in September 1996 $9,800,000
Working capital 495,000
Loan costs 300,000
Loan to Company's president and chief executive officer 300,000
Bonus to Company's chief financial officer for loan negotiation 105,000
As a result of the refinancings, approximately $12.4 million of debt
that was currently due was replaced by long-term debt. As of September 30, 1996,
Stephen A. Schulman, M.D., president and chief executive officer of the Company,
the other two former stockholder-directors of IMI-Florida and the Schulman
Affiliated Entities held Subordinated Notes, which were issued in connection
with the acquisition of the Centers, in the aggregate principal amount of $7.1
million, and which are due in various installments through 1999. Certain
subsidiaries that issued the Subordinated Notes have not made certain payments
amounting to $4.0 million of principal or interest due on such notes in 1996, as
result of which the holders may have the right to declare a default. The
principal amount of such notes is $6.3 million. Although no default has been
declared, no assurance can be given that some or all of the holders of such
Subordinated Notes will not seek to declare a default. The Company and Dr.
Schulman have entered into the Schulman Memorandum, which contemplates the
exchange of Subordinated Notes in the aggregate principal amount of
approximately $2.1 million, which are owned by Dr. Schulman or in which he has
an interest, for shares of a new series of Preferred Stock having an aggregate
redemption price of approximately $1.8 million. The proposed series of Preferred
Stock to be issued to Dr. Schulman would require the Company to apply 15% of the
net proceeds from any sale of equity securities (other than the proceeds from
the exercise of the Series B Warrants being sold by the Selling Security Holder)
by the Company
- 31 -
<PAGE>
received by the Company subsequent to 60 days from the closing of this Offering.
The Company is negotiating with the other two former stockholder-directors of
IMI-Florida with respect to the exchange of their Subordinated Notes in the
principal amount of approximately $4.2 million, in the aggregate, for equity
securities; however, no assurance can be given that the Company will be able to
negotiate an agreement with such individuals. As of December 31, 1996, none of
the Subordinated Notes have been converted to Preferred Stock, and the
outstanding aggregate unpaid principal balance of such Subordinated Notes was
$6.3 million. The issuance of such shares of Preferred Stock is contingent upon
the execution of a definitive agreement and the completion of this Offering. The
Schulman Memorandum provides that to the extent that the other two
former-stockholders of IMI-Florida exchange their Subordinated Debt on terms
more favorable to them than the terms of the Company's agreement with Dr.
Schulman, Dr. Schulman will be entitled to exchange his Subordinated Notes on
the same terms as the other former stockholder-directors of IMI-Florida.
Other significant changes in current liabilities were as follows:
The nominal change in accounts payable and accrued expenses reflected
(1) a $358,000 paydown of trade accounts payable, (2) increased personal
property, real property and intangible taxes of $70,000 related to the timing of
such tax payments, (3) increased Health Care Cost Containment Board ("HCCCB")
accruals of $91,000 due to increased net patient service revenue net of the
related bad debt expense on which the HCCCB accrual is calculated, (4) $150,000
in increased legal expenses, and (5) $52,000 in increased radiology fees due to
higher cash collections in the September 1996 period on which the fees are
based. The HCCCB is a Florida board that collects a tax on health related
organizations, and has no relation to the Company.
Current state income taxes payable increased by $377,000 due to a
$171,000 adjustment for a change in accounting estimate relating to 1995 and
1994 and an increase due to increased pre-tax profits. For the year ending
December 31, 1996, the Company will file a consolidated Federal income tax
return with Consolidated. As a result, although the Company will accrue Federal
income taxes on its Federal taxable income at the statutory rates for 1996, the
Company will have no Federal income tax liability because Consolidated has
agreed to forgive the amount due Consolidated in consideration for the use of
the tax loss or loss carryforward in 1996. As a result, the Company's working
capital and cash flow in 1996 will be increased by the amount of the net Federal
income tax savings.
Other current liabilities decreased $111,000 due to the payment of
amounts due to Consolidated.
Overall, the Company's working capital increased $13.4 million from a
working capital deficit of $8.9 million at December 31, 1995 to positive working
capital of $4.2 million at September 30, 1996.
In recent years, medical technology has made significant advancements.
Technological advances may be in the form of changes to existing MRI technology
as well as the development of new diagnostic methods which could render MRI and
other imaging techniques obsolete. In order to address changes in current MRI
techniques, the Company will require financing in order to upgrade its MRI
equipment and software. The Company continually monitors and evaluates the
impact of current and on-going technological developments in the field of
medical diagnostics and plans for any required upgrades and capital
expenditures. In the event that MRI were to become obsolete, the Company would
owe significant obligations on equipment which would not be generating revenue.
The Company cannot estimate the amount of capital required to satisfy such
obligations if MRI became obsolete, and it has no current plans to respond to
the potential obsolescence of MRI, since the Company believes that MRI will not
become obsolete in the next several years and MRI applications are continuing to
evolve.
The Company's estimated cash requirement for 1997 are expected to be
satisfied from cash flow from operations. For the nine months ended September
30, 1996, the Company generated cash flow from operations of approximately $4.4
million. The principal cash requirements for 1997, other than operations, are
approximately $5.7 million in debt service and capital lease obligations.
The Company's long-term cash requirements are primarily debt service
and the purchase or lease of medical equipment. The Company anticipates that it
will be able to finance any additional capital equipment purchases from either
its existing or other
financing sources provided that it can reasonably demonstrate its ability to
service any such debt service from operations. The Company does not have any
agreements with either its present financing source or any alternative sources
with respect to such financing and no assurance can be given as to the
availability or terms of any financing. The failure to obtain financing could
have a material adverse effect upon the Company.
- 32 -
<PAGE>
Impact of Inflation
The Company is subject to normal inflationary trends. Although the
Company seeks to pass on such costs, its ability to do so is affected by
applicable healthcare laws, rules and regulations as well as the payment
policies of insurers and other third-party payors, and, in recent periods, the
Company has seen a decrease in the average net collection per procedure for both
MRI procedures and multi-modality procedures, although the Company has seen an
increase in the average net collections from MRI procedures for the nine months
ended September 30, 1996.
BUSINESS
General
The Company owns and operates ten medical diagnostic imaging Centers,
of which three are multi-modality Centers and seven are exclusively MRI Centers.
One of the MRI Centers is operated by a joint venture in which the Company has a
50% interest. The Company also owns MRI Net, Inc. ("MRI Net"), which operates a
referral network through which patients are referred to diagnostic imaging
centers throughout the state of Florida, including the Company's Florida
Centers..
Medical diagnostic imaging procedures, such as MRI, are used to
diagnose various diseases and physical injuries. The multi-modality Centers use
various imaging procedures, such as MRI, CT, mammography, X-ray, ultrasound,
fluoroscopy and other technologies while the MRI Centers only offer MRI.
MRI systems enhance the diagnosis of disease and medical disorders,
frequently eliminating the need for exploratory surgery and often reducing the
amount and cost of care required to evaluate and treat a patient. Since the
introduction of MRI in the early 1980's, the use of MRI has experienced rapid
growth due to the technology's ability to provide anatomical images of high
contrast and detail. MRI, which does not utilize x-ray or other radiation based
technologies, employs high-strength magnetic fields, high frequency radio waves
and high-speed computers to process data. In addition, the development of
pharmaceutical contrast agents, software advancements and new hardware
peripherals continue to expand the clinical applications and throughput
efficiency of MRI technology.
MRI employs high-strength magnetic fields, high frequency radio waves
and high-speed computers to obtain clear, multi-planar images of the body's
internal tissues without exploratory surgery or biopsy. In addition, MRI is able
to obtain multi-planar slices of the body. These images are then displayed on
film or on the video screen of an MRI system's console in the form of a
multi-planar image of the organ or tissue. This information can be stored on
magnetic media for future access, or "printed" on film for interpretation by a
physician and retention in the patient's files, enabling healthcare
professionals to study the patient's internal conditions in detail. The
superiority of MRI image quality compared to other imaging modalities generally
makes possible a more accurate diagnosis and often reduces the amount and cost
of care needed to evaluate and treat a patient.
The major components of an MRI system are (i) a large, cylindrical
magnet, (ii) radio wave equipment, and (iii) a computer for data storage and
image processing. During an MRI study, a patient lies on a table which is then
placed into the magnet. Although patients have historically spent 30 to 45
minutes inside the magnet during which time images of multiple planes are
acquired, the newest MRI machines allow patients to spend significantly less
time inside the magnet. Additional time is required for computer processing of
the images.
Developments in imaging technology are either hardware or software
related. Most recent developments have been software upgrades which permit
greater resolution and accuracy and greater efficiency of operations. However,
there have been improvements in hardware. The Company seeks to offer the most
current and accepted technologies, and, in this connection, it seeks to upgrade
its equipment with selected software upgrades to the extent financially
feasible. The Company also evaluates new hardware and if it determines that the
purchase of the equipment will be advantageous to the Company and financing is
available on acceptable terms, it may either purchase or lease new equipment.
The decision to purchase new MRI equipment is based on the needs of the market
and the advantages of such equipment over existing equipment.
The Company is not engaged in the practice of medicine, and it does not
employ any physicians. All professional medical services are performed by
radiologists who are independent of the Company and who provide medical services
pursuant to agreements with the Company. Payment for the radiologists'
professional services is made to the radiologists pursuant to agreements with
the radiologists. See "Business -- Agreements with Radiologists."
- 33 -
<PAGE>
Acquisition of the Centers
On September 30, 1994, the Company, through wholly-owned subsidiaries,
acquired eight MRI Centers, one multi-modality Center, IMI-Florida, which
managed the operations of the Centers, the assets of MD Corp., which provided
the services of radiologists to the Centers, and MRI Net, a corporation that
operates a statewide network of MRI centers in Florida. In January 1995, the
Company, through another wholly-owned subsidiary, acquired an additional MRI
Center, which was affiliated with such Centers. The acquired assets consisted
principally of cash, accounts receivable, medical equipment, real property and
customer lists.
The purchase price of the ten Centers, together with certain related
companies, was $30.6 million, of which $7.0 million was paid in cash, $20.7
million was paid by the issuance of Subordinated Notes, and $2.9 million was
paid through the issuance of shares of Consolidated's common stock, exclusive of
acquisition costs of $1.3 million. As of September 30, 1996, outstanding
Subordinated Notes in the principal amount of $7.1 million were payable to Dr.
Schulman, his wife, the other two former stockholder-directors of IMI-Florida
and the Schulman Affiliated Entities. See "Certain Transactions."
In connection with the acquisition of the Centers, the Company borrowed
an aggregate of approximately $7.1 million from DVI on a secured, term-loan
basis payable over 60 months. Since the completion of the acquisition of the
Centers, the Company's subsidiaries borrowed additional money from DVI to pay
certain of the Subordinated Notes and to purchase equipment. See "Certain
Transactions -- Agreements with DVI."
In September 1994, contemporaneously with the purchase of nine of the
Centers, the Company entered into a five-year employment agreement with Dr.
Stephen A. Schulman, who was the president of IMI-Florida and became the
president and chief executive officer of the Company. See "Management --
Remuneration."
At the time of the acquisition, IMI-Florida had an agreement with MD
Corp., which was owned by Dr. Schulman and the other two former
stockholder-directors of IMI-Florida, pursuant to which MD Corp. provided the
services of radiologists at five of the Company's Centers in Florida. This
agreement was terminated, and, in December 1994, the Company entered into an
agreement with Expert Radiology Network, P.A. ("ERN"), a Florida professional
association owned by an independent radiologist, to provide all radiology
services for such Centers. The Company continued to engage the same independent
radiologists for the Centers in Virginia, Kansas and Puerto Rico as had been
engaged by IMI-Florida, although in certain cases, the compensation terms were
changed. See "Business -- Agreements with Radiologists."
Outpatient Services and Patient Base
Each Center is a fixed-site, outpatient facility that is designed,
equipped and staffed to provide physicians and healthcare providers with high
quality MRI, and, with respect to the multi-modality Centers, other medical
diagnostic imaging services that historically were available only at hospitals.
The Company schedules patients, prepares all patient billing and is responsible
for the collection of all charges. The Company is also responsible for related
administrative and record-keeping functions. The Company typically staffs its
Centers with technical and administrative support personnel who assist
physicians in obtaining MRI and other diagnostic scans. The Centers are designed
to offer a pleasant environment where patients are not subjected to the
admission complexities and institutional atmosphere of most hospitals.
Many physicians and other healthcare providers who have a need for MRI
and other diagnostic imaging procedures do not have the financial ability or
desire to own their own equipment. As a result, such providers use outpatient
MRI and multi-modality facilities such as the Centers for the following reasons,
among others: (i) ability to receive comprehensive MRI and other medical
diagnostic imaging services, including qualified technicians, equipment
maintenance, insurance and equipment upgrades; (ii) desire to obtain quick
access to MRI and other medical diagnostic imaging services; (iii) lack of
sufficient patient volume to justify the capital cost of purchasing an MRI or
other medical diagnostic imaging equipment; (iv) desire to use MRI or other
medical diagnostic imaging equipment to facilitate caring for their patients;
(v) lack of financial ability to purchase MRI or other medical diagnostic
imaging equipment, and/or (vi) inability to obtain required regulatory approval
to purchase or operate such equipment.
In addition, many healthcare providers with sufficient patient
utilization and resources to justify in-house MRI and other medical diagnostic
imaging equipment ownership prefer to use independent facilities such as the
Centers in order to: (i) obtain the use of such equipment without capital
investment; (ii) eliminate the need to recruit, train and manage qualified
technicians; (iii) retain the flexibility to take advantage of all technological
developments; (iv) avoid future uncertainty as to reimbursement
- 34 -
<PAGE>
policies; (v) provide additional imaging services when patient demand exceeds
in-house capacity, and/or (vi) obtain radiologic and other diagnostic and
technical services.
Set forth below is information relating to the Centers.
Date Service
Center Location Commenced
- ------ -------- ----------
Pine Island Plantation, Florida December 1986
North Miami Beach North Miami Beach, Florida January 1988
Boca Raton(1) Boca Raton, Florida November 1988
Physicians Outpatient
Diagnostic Center (2) Ft. Lauderdale, Florida November 1985
South Dade(3) Miami, Florida December 1989
Oakland Oakland Park, Florida January 1990
San Juan(4) San Juan, Puerto Rico October 1990
Arlington Arlington, Virginia December 1990
Kansas City Overland Park, Kansas October 1991
Orlando(5) Orlando, Florida September 1992
- ---------------
(1) The Company expanded the Boca Raton Center to a multi-modality Center
in July 1996. The Center offers MRI and CT imaging services.
(2) Physicians Outpatient Diagnostic Center ("PODC") has been a
multi-modality Center since prior to the Company's acquisition of the
Center. It offers CT, mammography, X-ray, ultrasound and other
modalities.
The Company converted the South Dade Center to a multi-modality Center and
upgraded its MRI equipment in October 1996 at a cost of approximately $2.5
million. As part of the conversion, the Center was moved to larger facilities,
its MRI equipment was upgraded, and the Center now offers CT, fluoroscopy and
ultrasound services in addition to MRI.
(4) In September 1996, this Center upgraded its MRI equipment.
(5) The Orlando Center is operated as a joint venture with a non-affiliated
party and is co-managed by the Company and its joint venture partner.
The equipment used in this Center has been provided by the Company's
joint venture partner, and the Company's equipment is used for backup.
Currently, the Company intends to expand up to three other MRI Centers,
including the North Miami Beach Center, following the completion of this
Offering, although it has not made any commitments or plans with respect to such
expansion. See "Use of Proceeds". The Company may expand other MRI equipment
and/or convert other MRI Centers to multi-modality Centers if it determines
there is a need to do so.
Each Center generally has a full-time staff of eight to ten employees,
typically consisting of technicians, file clerks, a marketing representative, a
transcriptionist, one or more receptionists and a center administrator. The
Centers are open at such hours as are appropriate for the local medical
community. Most are open from 7:00 a.m. to 9:00 p.m. each weekday, and many of
the Centers offer extended evening and weekend hours. Each Center is supervised
by a center administrator. The Company is responsible for patient scheduling and
billing the patient (or third party payor) directly. The Company has contracts
with independent board-certified radiologists, some of which have sub-specialty
training in orthopedic and neuroradiology, to interpret the Company's scans and
provide the test results to the referring physician.
The Company is not engaged in the practice of medicine. None of the
Company's Centers employs any physicians to provide medical services. The
Company bills for both its services and those of the radiologist who provides
professional services on a "global basis." Such a bill includes both the
technical and professional components. Payment for the radiologists'
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professional services is paid to the radiologist pursuant to agreements with the
radiologists. Thus, a portion of the Company's revenue is payable to the
radiologists for their professional services. See "Business -- Agreements with
Radiologists."
The Company markets its services through open houses, lectures,
symposia, direct mail and direct physician marketing. Each Center uses one or
more marketing representatives, the Center's administrator and certain
radiologists who interpret the Company's scans to market its services to the
local medical community, while the Company's national accounts manager focuses
on managed care providers and third party payors. The Company also utilizes the
marketing expertise and abilities of Dr.
Schulman when required.
Almost all of the Company's revenue is derived from third-party payors.
For the nine months ended September 30, 1996 and the year ended December 31,
1995, the Company derived approximately 87% and 91% of its revenue from
non-government payors and approximately 13% and 9% from government sponsored
healthcare programs, principally Medicare and Medicaid. The Company's revenue
and profitability may be materially adversely affected by the current trend in
the healthcare industry toward cost containment as government and private
third-party payors seek to impose lower reimbursement and utilization rates and
negotiate reduced payment schedules with service providers. Continuing budgetary
constraints at both the Federal and state level and the rapidly escalating costs
of healthcare and reimbursement programs have led, and may continue to lead, to
significant reductions in government and other third-party reimbursements for
certain medical charges and to the negotiation of reduced contract rates or
capitation or other financial risk-shifting payment systems by third-party
payors with service providers. Both the Federal government and various states
are considering imposing limitations on the amount of funding available for
various healthcare services. The Company cannot predict whether or when any such
proposals will be adopted or, if adopted and implemented, what effect, if any,
such proposals would have on the Company. In addition, rates paid by private
third-party payors, including those that provide Medicare supplemental
insurance, are generally higher than Medicare payment rates. Changes in the mix
of the Company's patients among the non-government payors and government
sponsored healthcare programs, and among different types of non-government
payors and government sponsored healthcare programs, and among different types
of non-government payor sources, could have a material adverse effect on the
Company. Further reductions in payments to physicians or other changes in
reimbursement for healthcare services could have a material adverse effect on
the Company, unless the Company is otherwise able to offset such payment
reductions through cost reductions, increased volume, introduction of new
procedures or otherwise, as to which no assurance can be given. The Company has
consummated and is continuing to negotiate agreements with managed care
organizations pursuant to which the Company provides and will provide MRI and
other services; however, such agreements typically reflect a reduced level of
revenue per scan. Although the Company's average net collection from MRI
procedures increased to $710 for the nine months ended September 30, 1996, the
net collections per MRI procedure decreased in prior periods. The Company's
average net collection per MRI procedure decreased from $763 in 1993, to $726 in
1994 to $639 for 1995. The increase for the nine months ended September 30, 1996
reflected an increase in higher paying procedures as well as a reduction in
lower-paying procedures, principally in the San Juan Center which was not
operational during a portion of the period while the equipment was being
upgraded as well as during the period when San Juan was recovering from the
effects of Hurricane Hortense. No assurance can be given that the average net
collections per MRI Procedure will not decrease in the future. The Company's net
collection per multimodality procedure was $95 for 1993, 1994 and 1995 and $82
for the nine months ended September 30, 1996..
The Company is highly dependent on referrals from physicians who have
no contractual or economic obligation to refer patients to the Company's
facilities. Since the acquisition of the Centers, the percentage of revenue from
the former physician-partners and other physician-equity owners of the Centers
has decreased in terms of both total revenue and number of MRI scans. The
percentage of revenue derived from referrals from such physicians was 38% for
1994 and 24% for 1995 and the nine months ended September 30, 1996. In 1994,
1995 and the nine months ended September 30, 1996, the Company performed 13,000,
9,000 and 7,000 procedures, respectively, for patients referred by such
physicians and 21,000, 26,000 and 22,000 from patients referred by other
physicians.
Commencing in 1995, a portion of the Company's revenue was obtained by
physician referrals which were generated by brokers who negotiated a price with
the Company for MRI and other scans. To the extent that a third party paid more
than the Company charged for such scans, the broker received a portion of such
excess. Effective October 1, 1996, this practice became illegal in Florida. Such
scans accounted for 11% of the Company's revenue for the nine months ended
September 30, 1996 and 9% for 1995. Although the Company intends to market its
services directly to physicians and health maintenance organizations, there may
be a decline in revenue from physicians whose scans were obtained through
brokers as a result of the change in the laws.
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Agreements with Radiologists
The Company engages independent radiologists and other specialists to
read and interpret the diagnostic imaging scans performed at the Centers. None
of such radiologists or other specialists are employed by the Company. The
Company bills on a global basis. Such bills include both the technical services
provided by the Company and the professional services rendered by the
radiologist. The radiologist is paid in accordance with an agreement between the
Company and such radiologist.
In December 1994, the Company entered into a five-year agreement (the
"ERN Agreement") with ERN, a Florida professional association owned by an
independent radiologist, pursuant to which ERN was engaged by the Company to
provide, on an exclusive basis, all radiology services for five of the Company's
Florida Centers through radiologists and other specialists employed by ERN. ERN
has also entered into a similar exclusive radiology services agreement with the
diagnostic imaging center located in Orlando, Florida in which the Company has a
50% joint venture interest. ERN receives a fee for its radiology services in an
amount equal to a percentage, ranging from 15% to 20%, of gross collections
received by the Centers, together with an annual consulting fee of $30,000 in
the case of the ERN Agreement and $6,000 with respect to the Orlando joint
venture center. Upon the consummation of this Offering, ERN has the right to
receive a five-year warrant to purchase 100,000 shares of the common stock of
Consolidated at an exercise price equal to the market price of such Common Stock
on the day preceding the date of exercise. The Company has been informed that
ERN currently employs five radiologists and other specialists to perform such
radiology services on behalf of ERN. Prior to December 1996, ERN also provided
radiology services to another of the Company's Florida Centers on a exclusive
basis pursuant to an oral agreement. Since December 1996, an independent
radiologist, who had formerly performed such services as an employee of ERN, has
been performing services at such Center pursuant to an oral agreement with the
Company. Pursuant to such oral agreement, the Company is currently paying such
radiologist a fee equal to 15% to 20% of gross collections from the Center.
In October 1990, the Company entered into a Facilities Use Agreement
with an independent radiologist in Puerto Rico pursuant to which such
radiologist performs all radiology services at the Center in Puerto Rico during
the term of such agreement for which the radiologist receives an annual fee
ranging from 10% to 15% of the gross revenues of the Center, subject to increase
with respect to gross revenues of the Center in excess of $2,000,000. In
September 1994, in connection with the Company's acquisition of this Center, the
agreement was amended and Consolidated issued 125,000 shares of its common stock
to such radiologist. The agreement provides for the Company's subsidiary which
owns the Center to pay the radiologist $500,000 as liquidated damages if it
terminates the agreement without cause.
The Company has also entered into agreements with independent
radiologists with respect to the Centers in Virginia and Kansas. The radiologist
engaged by the Virginia Center receives an annual fee of $275,000 plus 15% of
the Center's gross revenues in excess of $2.4 million. The radiologist engaged
by the Kansas Center receives a fee for each study performed ranging from $75 to
$150, depending on the number of studies read.
Certain of the radiologists engaged by the Company, including Dr.
Steinberg and other radiologists employed by ERN, have been granted options to
purchase the Company's Class A Common Stock.
MRI Net
The Company, through MRI-Net, a wholly-owned subsidiary of the Company,
operates a referral network through which patients are referred to 85 diagnostic
imaging centers throughout the state of Florida, including the Company's Florida
Centers. The Company markets MRI Net to HMOs, indemnity plans, workers
compensation insurers and other third-party payors by making available to them
at contract rates a range of imaging services at centers located throughout the
state. Pursuant to contracts with the third-party payors, the participating
centers provide diagnostic imaging services to persons who are covered by the
contracting third-party payors. The Florida Centers are part of such network.
During the nine months ended September 30, 1996, the centers participating in
the network, including the Florida Centers, serviced a total of approximately
600 patients per month. These patients were referred to the centers through MRI
Net from approximately 40 different third-party payors. The Company receives a
fee of at least $50 from the center performing the services for each patient
which is referred to it by MRI-Net. Revenues from MRI-Net for the nine months
ended September 30, 1996 and the year ended December 31, 1995 constituted less
than 2% of the Company's total revenues for each of such periods.
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Government Regulation - Reimbursement
The healthcare industry is highly regulated and is undergoing
significant change as third-party payors, such as Medicare, Medicaid, Blue
Cross/Blue Shield plans and other insurers increase efforts to control the cost,
utilization and delivery of healthcare services. Legislation has been proposed
or enacted at both the Federal and state levels to regulate healthcare delivery
in general and imaging services in particular. In addition, several states,
including those in which the Company operates, have imposed limits on the
reimbursement by Medicaid and Workers Compensation programs for imaging
services. These and similar limits may reduce the income generated by the
Company's operations.
In general, Medicare reimburses radiology imaging services under a
physician fee schedule which covers services provided not only in a physician's
office, but also in freestanding imaging centers. The Company believes that
reductions in reimbursement for Medicare services may be implemented from time
to time, which may lead to reductions in reimbursement rates of other
third-party payors. Congress and the Department of Health and Human Services
("HHS") have taken various actions over the years to reduce reimbursement rates
for radiology services and proposals to reduce rates further are anticipated.
The Company is unable to predict which, if any, proposals will be adopted. Any
reductions in Medicare reimbursement for radiology services could have a
material adverse effect on the Company. In addition, the Company cannot predict
the effect healthcare reforms and efforts to control costs may have on its
business, and there can be no assurance that such reforms or efforts will not
have a material adverse effect on the Company's operations.
With respect to diagnostic testing, the "purchased services" limitation
prohibits physicians from billing Medicare, as part of a global bill, a
marked-up amount for diagnostic testing services where the technical component
of such services is purchased from outside vendors. In order to avoid this
restriction, bill Medicare globally for such services and mark-up the technical
component, the physician must own or lease the equipment and employ the
technician. This payment limitation has resulted in fewer physicians' billing
Medicare for radiology and other diagnostic services and a reduction in facility
discounts to physicians.
Government Regulation - General
The Company's business is subject to extensive Federal and state
regulation. Such regulations cover, among other things, certain reporting
requirements, limitations on ownership and other financial relationships between
a provider and its referral sources, approval by the FDA of the safety and
efficacy of pharmaceuticals and medical devices, the confidentiality of medical
records, antitrust laws. and environmental regulation regarding the use of
various substances, including radioisotopes, and the disposal of medical waste.
In addition, the requirements that the Company must satisfy to conduct its
businesses vary from state to state and many of the state requirements overlap
with the Federal requirements. The Company believes that its operations comply
with applicable Federal and state regulations in all material respects. However,
changes in the law or new interpretations of existing laws can have a material
effect on permissible activities of the Company, the relative costs associated
with doing business, and the amount of reimbursement for the Company's products
and services paid by government and other third-party payors.
The Company believes that in the near future, all outpatient medical
diagnostic imaging centers will be required to be accredited by certain
accreditation entities. In anticipation of these requirements, the Company is
currently in the process of having all of the Centers accredited by an
accreditation organization, the requirements of which the Company believes will
satisfy any anticipated future requirements that may be imposed. There can be no
assurance, however, that any such accreditation requirements will be imposed or,
if imposed, what the scope of such requirements will be or whether the Company
will obtain any necessary accreditation.
Mammography
Centers performing mammography services (including screening
mammography) must meet Federal, and in some jurisdictions, state standards for
quality as well as certification requirements. Under interim regulations issued
by the Food and Drug Administration (the "FDA"), all mammography facilities are
required to be accredited, to undergo an annual mammography facility physics
survey, to be inspected annually and pay an annual inspection fee, to meet
qualification standards for physicians, mammography technologists and medical
physicists who interpret mammograms, to meet certification requirements for
adequacy, training and experience of personnel, to meet quality standards for
equipment and practices, and to meet various requirements governing record
keeping of patient files. In addition, the FDA has proposed regulations
governing standards for mammography X-ray equipment, medical physicists
standards and minimum quality standards for mammography facilities including
personnel
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standards and quality control. Sanctions for violating the Mammography Quality
Standards Act of 1992 ("MQSA") are varied, ranging from civil monetary
penalties, suspension or revocation of certificates and injunctive relief.
Moreover, the MQSA requires conformity with these standards to obtain payment
for Medicare services. Although the one Center that offers mammography is
currently accredited by the Mammography Accreditation Program of the American
College of Radiology, and the Company anticipates continuing to meet the
requirements for accreditation for such Center as well as any Centers which
offer mammography, the withdrawal or delay of such accreditation could result in
the revocation of certification, if the FDA so determines.
Permits and Licensure
Certain of the Company's facilities require state licensure and are
also subject to Federal and other state laws and regulations governing imaging
facilities and the staff hired by the Company, such as technicians, to provide
services. The Company believes that it is in compliance with applicable
licensure requirements. The Company further believes that diagnostic testing
will continue to be subject to intense regulation at the Federal and state
levels and cannot predict the scope and effect thereof.
Anti-kickback Laws
The Company is also subject to Federal and state laws prohibiting
direct or indirect payments for patient referrals and regulating reimbursement
procedures and practices under Medicare, Medicaid and state programs as well as
in relation to private payors.
The Anti-kickback Statute prohibits the offer, payment, solicitation or
receipt of any remuneration in return for the referral or arranging for the
referral of items or services paid for in whole or in part under the Medicare
and Medicaid programs (the "Anti-kickback Statute"). To date, courts have
interpreted the Anti-kickback Statute to apply to a broad range of financial
relationships between providers and referral sources, such as physicians and
other practitioners. Violations of the statute's provisions may result in civil
and criminal penalties, including fines of up to $25,000 and exclusion from
participation in Medicare and state health programs such as Medicaid and
imprisonment for up to five years.
Since July 1991, the U.S. Department of Health and Human Services has
adopted regulations creating "safe harbors" from Federal criminal and civil
penalties under the Anti-kickback Statute by exempting certain types of
ownership interests and other financial arrangements that do not appear to pose
a threat of Medicare and Medicaid program abuse. Although additional safe
harbors have also been proposed, none of the Company's current activities fit
within an applicable safe harbor that has either been enacted or proposed.
Transactions covered by the Anti-kickback Statute that do not conform to an
applicable safe harbor are not necessarily in violation of the Anti-kickback
Statute, but the practice may be subject to increased regulatory scrutiny and
possible prosecution. Several courts have rendered decisions interpreting the
statute. In May 1996, the District Court of Appeal of Florida, Fourth District
held that an arrangement in which a company marketed the services of a durable
medical equipment business to potential clients and received a percentage of the
sales it generated was in violation of the Anti-kickback Statute. While the
Company believes that MRI Net's operations are different from those in such
case, a court could reach a contrary conclusion. The restrictions of the
Anti-kickback Statute may limit the ability of the Company to enter into joint
venture or service agreements with physicians, may restrict its dealings with
any physician from whom it has purchased an interest in a facility and could, if
interpreted broadly, preclude MRI Net from being paid for its services. Although
the Company believes that it is in compliance with the Anti-kickback Statute,
there is no assurance that it will not be found to have engaged in prohibited
activities.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly known as "Stark II," amended the prior physician self-referral ban
known as "Stark I," by dramatically enlarging the field of physician-owned or
physician-interested entities to which the referral prohibitions apply. Since
January 1, 1995, Stark II has prohibited, subject to certain exemptions, a
physician or a member of his immediate family from referring Medicare patients
to an entity providing "designated health services" (including, among other
things, radiological imaging services, which are the services provided by the
Company), in which the physician has an ownership or investment interest, or
with which the physician has entered into a compensation arrangement. Certain
exceptions are available under Stark II, including the referral of patients to
providers owned by certain qualifying publicly-traded companies in which a
referring physician owns an investment security. At this time, however, the
ownership of investment securities (including common and preferred stock, bonds,
debentures, notes and other debt instruments) in the Company does not qualify
for the exemption as the Company does not have presently shareholder equity of
at least $75 million. Other exceptions exist under the Stark II which may or may
not be available to the Company for arrangements in which the Company may be
involved. The Company has been advised by its healthcare counsel that there are
no regulations, administrative pronouncements or judicial cases interpreting
Stark II. While the Company believes that it is in compliance with the Stark
legislation, the statute is broad and ambiguous, and
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interpretive regulations have not been issued. Future regulations could require
the Company to modify the form of its relationships with physicians under the
Stark II. Submission of a claim that a provider knows or should know is for
services for which payment is prohibited under the Stark II could result in
refunds of any amounts billed, civil money penalties of not more than $15,000
for each such service billed (and $100,000 for participation in a "circumvention
scheme," and possible exclusion from the Medicare and Medicaid programs.
There are also Federal (and state) civil and criminal statutes imposing
substantial penalties, including civil fines and/or imprisonment, on health care
providers that fraudulently or wrongfully bill governmental or third-party
payors for health care services. The Federal law prohibiting false billings
allows a private person to bring a civil action in the name of the U.S.
government for violations of its provisions. The potential liability under the
Federal False Claims Act can include treble damages plus a fine of $10,000 per
claim. Courts are currently divided as to whether an Anti-kickback Statute
violation may also be a predicate for false claims liability.
On August 21, 1996, the Health Insurance Portability and Accountability
Act of 1996 (the "1996 Health Act") was signed into law. Title II of the 1996
Health Act contains significant provisions relating to healthcare fraud and
abuse. The 1996 Health Act codifies the long-standing implicit exception in
anti-kickback liability for managed care discounts, if the provider, via the
arrangement, is at "substantial financial risk." In addition, Federal criminal
law was revised to create a new class of criminal healthcare offenses, standards
for liability were clarified and new initiatives were launched to coordinate
efforts at the Federal and state levels to control fraud and abuse. The 1996
Health Act also increased the penalties under the Federal False Claims Act and
permits the government to reward sources who provide information that results in
a recovery by the government.
Antitrust
Federal and state antitrust laws and regulations may effect the
operation of MRI Net, which is a referral network through which patients are
referred to diagnostic imaging centers in Florida. See "Business -- MRI Net."
Because the centers to which patients are referred are operated by independent
entities, they may be deemed competitors and, therefore, subject to a range of
Federal and state antitrust laws and regulations which prohibit anti-competitive
conduct, including price fixing, division of the market and product tying.
Violations of Federal and state antitrust laws can result in substantial
penalties and restrictions on MRI Net's business activities. Although the
Company believes that MRI Net's activities do not violate the Federal or state
anti-trust laws, no assurance can be given that a court or regulatory agency
will not make a contrary determination, which could have a material adverse
effect upon the Company.
State Government Regulation
Many states, including the states in which the Company operates, have
adopted statutes and regulations prohibiting payments for patient referrals and
other types of financial arrangements with healthcare providers, which, while
similar in certain respects to the Federal legislation, vary from state to
state. Sanctions for violation of these state restrictions may include loss of
licensure and civil and criminal penalties. Certain states have also begun
requiring healthcare practitioners to disclose to patients any financial
relationship with a provider, including advising patients of the availability of
alternative providers.
In addition, the laws of many states prohibit business corporations
such as the Company from practicing medicine, employing physicians to practice
medicine or sharing fees with physicians. The Company provides only
non-professional services by providing non-medical (i.e., technical and
administrative services), does not exercise control over the practice of
medicine by physicians and does not employ any physicians for the purpose of
providing medical services. All physicians engaged by the Company are
independent contractors. The Company may not dictate the manner in which a
physician interprets a radiological examination or counsels patients. However,
these laws generally have been subjected to limited judicial or regulatory
interpretation, and therefore, there is no assurance that some of the Company's
activities might be found not to be in compliance. If such a claim were
successfully asserted against it, the Company could be subject to civil and
criminal penalties, and could be required to restructure its contractual
relationships. In addition, certain provisions of its contracts, including
non-competition covenants by the contracting professionals, could be ruled
unenforceable. Such results or the inability to successfully restructure
contractual arrangements could have a material adverse effect on the Company's
operations.
Many states limit the extent to which providers can engage in risk
contracting, which involves the assumption of a financial risk with respect to
providing services to a patient. In some states, only certain entities, such as
insurance companies, HMOs or independent practice associations are permitted to
contract for the financial risk of patient care. In such states, risk
contracting in certain cases has been deemed to be engaging in the business of
insurance. The Company believes that it is not in
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violation of any restrictions on risk bearing or engaging in the business of
insurance under applicable state laws. If the Company is found to be unlawfully
engaging in the business of insurance, such a finding could result in civil or
criminal penalties or require a restructuring of the Company's operations that
could have a material adverse impact on the Company's operations.
Florida
In April 1992, the State of Florida adopted the Patient Self-Referral
Act of 1992 which prohibits referrals for certain designated health services by
a healthcare provider to a facility (including a diagnostic imaging center), in
which such provider has an ownership interest. In addition, effective October 1,
1996, the State of Florida enacted legislation which prohibits patient
brokering. The law makes it unlawful for any person, including any healthcare
provider or healthcare facility (including a diagnostic imaging center) to: (a)
offer or pay any commission, bonus, rebate, kickback or bribe, or engage in any
split fee arrangement, in any form whatsoever, to induce the referral of
patients or patronage from a healthcare provider or healthcare facility or (b)
solicit or receive any commission, bonus, rebate, kickback or bribe, or engage
in any split fee arrangement, in any form whatsoever, in return for referring
patients or patronage to a healthcare provider or healthcare facility.
Violations of the law may be punishable by fines and imprisonment. There is an
exception in the 1996 anti-brokering statute related to payments to or by a
health care network entity that has contracted with a health insurer, a health
care purchasing group, or the Medicare or Medicaid program to provide health
goods or services under a health benefit plan when such payments are for goods
or services under the plan. The Company believes that MRI Net is a health care
network entity that falls within the statutory exception. However, there has
been no regulatory or judicial interpretation of the statute clearly applying
the exception to network structures and activities like those of MRI Net, as a
result of which it is not certain that this exception would apply to MRI Net's
activities. If MRI Net's activities are found not to be in compliance with the
statute, it would be subject to fines, imprisonment, and/or a need to
restructure its business. The Company has in the past used the services of
"patient brokers," but discontinued such practice when the anti-brokering
statute became effective. The Company believes that its current procedures
otherwise comply with Florida laws regarding referrals and patient brokering.
Kansas
The State of Kansas prohibits the practice of medicine by
non-physicians and the rebate or division of fees between physicians and
non-physicians. The Company believes that its operations comply with such laws.
Currently, the employees of the Kansas Center provide only technical services
relating to the MRI scans. Professional medical services, such as the reading of
the MRI studies and related diagnosis, are separately provided by licensed
physicians pursuant to bona fide independent contractor agreements. There can be
no assurance, however, that state authorities will not determine that these
relationships constitute the unauthorized practice of medicine by the Company.
Such determinations could have a materially adverse effect upon the Company and
would prohibit the Kansas Center from continuing its current procedures for
conducting business. In addition, Kansas has recently adopted laws similar to
the Federal "Anti-Kickback" statutes, which prohibit the giving or receiving of
remunerations in exchange for the referral of patients for services for which
payment is made by Kansas Medicaid. However, no Medicaid referrals are accepted
by the Kansas Center from persons who receive any remuneration of any kind from
the Kansas Center, and thus the Company believes it is in compliance with such
laws.
Puerto Rico
The Health Facilities Act of Puerto Rico and the Health Facilities
Regulations promulgated thereunder set forth the provisions which regulate the
establishment and operation of health facilities in the Commonwealth of Puerto
Rico, including among others, diagnostic and treatment centers. No person may
operate or maintain a Health Facility in Puerto Rico without a license granted
pursuant to the provisions of the Health Facilities Act and the Health
Facilities Regulations. A license granted under the Health Facilities Act and
the Health Facilities Regulations is valid for two years unless otherwise
revoked or suspended before said term.
However, the Office of Regulation and Accreditation of the Health
Department of Puerto Rico currently applies the provisions of the Health
Facilities Act and the Health Facilities Regulations to MRI facilities which
operate in conjunction with, or as part of hospitals. Independent MRI
facilities, such as the one operated by the Company, are not presently regulated
under the Health Facilities Act or Health Facilities Regulations.
MRI facilities in Puerto Rico are subject to certificate of need and
convenience ("CON") laws, which currently may serve to limit the competition for
the Company because of the added time and expense of establishing and operating
competing facilities. No major new health facilities can be constructed without
obtaining a CON granted by the Secretary of Health.
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In addition, any professional clinical personnel providing services at
the Company's MRI facility must satisfy local license requirements.
The laws and regulations in this area may be subject to material
change. Consequently, there can be no assurance that the Company will be in a
position to comply with future laws and regulations. Moreover, the cost
associated with compliance, including the cost of any additional personnel or
contracting with other qualified organizations to provide certain services, may
have a detrimental effect on the profitability of the Company's operations in
Puerto Rico. Further, even if the Company currently possesses all the licenses
and permits necessary to operate in Puerto Rico, there can be no assurance that
the Company will be able to renew all such licenses and permits.
As of the date of this Prospectus, the Commonwealth of Puerto Rico has
not enacted any laws or regulations prohibiting physicians from referring
patients to MRI facilities in which they have an ownership or financial
interest.
Virginia
Under the Virginia Practitioner Self-Referral Act (the "Virginia
Anti-Referral Law"), unless the practitioner directly provides health services
within the entity and will be personally involved with the provision of care to
the referred patient, a practitioner may not refer a patient for health services
to any entity outside the practitioner's office or group practice if the
practitioner or any of the practitioner's immediate family members is an
investor in such entity. An "investor" is one directly or indirectly possessing
a legal or beneficial ownership interest, including an investment interest,
which is defined as the ownership or holding of an equity or debt security.
Currently, no physician in a position to refer patients to the Virginia Center,
nor any of their immediate family members, is an "investor", as defined in the
Virginia Anti-Referral Law, in the Company or in the entity which owns the
Virginia Center.
A referring physician, or an immediate family member of a referring
physician who purchases Common Stock or Warrants in this Offering or otherwise
purchases such Securities in the public market, may be deemed an "investor" as
defined in the Virginia Anti-Referral Law, in that he or she would have an
indirect ownership interest in the entity which owns the Virginia Center,
because such entity is a wholly-owned subsidiary of the Company. Three possible
exceptions to the prohibition exist for such investors. The first exception
permits a practitioner to refer to an entity which is publicly traded and which
meets certain conditions. Even though the practitioner may be deemed an
"investor" in the entity which owns the Virginia Center, it is unclear whether
the exception applies, because the publicly traded entity is the Company, which
is the parent of the owner of the Virginia Center, not the owner of the Virginia
Center itself. Assuming that the exception could apply, the Company, in any
event, would be unlikely to meet all of the conditions set forth in the
exception; consequently, this exception would not be available.
The second exception permits the Virginia Board of Health Professions
(the "Board of Health Professions") to grant an exception if it finds that there
is a demonstrated need in the community for the entity, and several other
conditions are met. Once again, there is an issue of whether the exception
applies because the entity in which the investment is made is the Company, not
the owner of the Virginia Center. Assuming the exception could apply, it is
possible for the Company to meet the conditions set forth in this exception. It
is unclear, however, whether the Board of Health Professions would determine
that there is a demonstrated need for the Virginia Center in the community. If
such determination were made by the Board of Health Professions, assuming that
the other conditions are met, this exception could be available to a physician
who purchases, or whose immediate family member purchases, Common Stock or
Warrants in this Offering or otherwise purchases such Securities in the public
market. Under the regulations adopted pursuant to the Virginia Anti-Referral
Law, any such exception granted by the Board of Health Professions would be
valid only for five years, but would be renewable. The Company has not yet
determined whether to seek qualification under the foregoing exception.
A third, more limited, exception applies if the practitioner refers a
patient who is a member of a health maintenance organization to an entity in
which the practitioner is an investor, if the referral is made pursuant to a
contract with the health maintenance organization.
Although the practitioner, and not the entity to which the referral is
made, is the focus of the Virginia Anti-Referral Law, the law also provides that
once a determination of a violation has been made by the Board of Health
Professions, any entity, other than the practitioner, that presents or causes to
be presented a bill for services that the entity knows or has reason to know is
prohibited shall be subject to a penalty of $20,000 per referral or bill.
In addition to the anti-referral law described above, Virginia law
contains a prohibition, similar to the Federal Anti-kickback Statute, that
applies with respect to referrals of Medicaid patients.
- 42 -
<PAGE>
The Company continues to review all aspects of its operations and
believes that it complies in all material respects with the applicable
provisions of the Anti-kickback Statute, Stark II and applicable state laws,
although because of the broad and sometimes vague nature of these laws and
regulations, there can be no assurance that an enforcement action will not be
brought against the Company or that the Company will not be found to be in
violation of one or more of these laws or regulations. The Company intends to
monitor developments under Federal and state fraud and abuse laws, including
Stark II. At this time, the Company cannot anticipate what impact, if any,
subsequent administrative or judicial interpretation of these laws may have on
the Company's business, financial condition, cash flow or results of operations.
Further, the laws and regulations in this area are subject to material change.
Consequently, there can be no assurance that the Company will be in a position
to comply with future laws and regulations in this area. Moreover, the cost
associated with compliance, including the cost of any additional personnel or
contracting with other qualified organizations to provide certain services, may
have a material adverse effect on the Company.
Insurance
The Company or its subsidiaries are defendants in legal actions arising
out of the performance of its imaging services. Damages assessed in connection
with, and the cost of defending, any such actions could be substantial. The
Company has obtained and currently maintains liability insurance which it
believes is adequate for its present operations. There can be no assurance that
the Company will be able to continue or, if necessary, increase such coverage or
to do so at an acceptable cost, or that the Company will have other resources
sufficient to satisfy any liability or litigation expense that may result from
any uninsured or underinsured claims. The Company also requires all of its
radiologists to maintain malpractice and other liability coverage.
Potential Acquisitions
The Company was organized to acquire and operate the Centers which,
prior to the acquisition, had been managed by IMI-Florida. The Company may, in
the future, seek to purchase additional medical diagnostic imaging centers,
including MRI and multi-modality centers. However, the Company has no agreements
or understandings and is not engaged in negotiations with respect to the
acquisition of any such additional centers. No assurance can be given that it
can or will be able to acquire any additional centers on reasonable terms or
that any centers which it may acquire will operate profitably.
Medical diagnostic imaging centers may be acquired from (i)
radiologists who own and operate such centers (ii) physicians who may be
required by law to divest themselves of such centers, and (iii) owners,
including investment partnerships and limited liability companies formed to
operate such centers, that are seeking to leave the imaging business. The
Company may also enter into joint ventures with hospitals or other entities
which desire access to medical diagnostic imaging technologies but lack the
financial or management resources to establish a separate imaging center.
In evaluating the desirability of acquiring any such centers, the
Company will consider a number of factors, including the net income and cash
flow of the center, third-party reimbursement patterns, the condition and age of
the medical diagnostic imaging equipment, the relationships with managed care
organizations and physicians and hospitals in the area, competition, the
demography of the region, the reputation of the center, the nature of the
revenue base and available financing. No assurance can be given as to the
availability or terms of any financing, and, if sufficient financing for such
purpose is not available, a portion of the net proceeds of this Offering may be
used for such acquisitions. See "Use of Proceeds."
Legal Proceedings
In May 1996, the Company commenced an arbitration proceeding before the
American Arbitration Association in Los Angeles, California against Radman, Inc.
("Radman"), a manufacturer of teleradiology systems and equipment, entitled
International Magnetic Imaging, Inc. v. Radman, Inc., alleging fraud and breach
of contract and seeking rescission of a purchase agreement between the Company
and Radman for a teleradiology system as well as an award of money damages in an
amount not less than $485,000, together with interest, attorneys' fees and
costs. Radman has asserted certain counterclaims against the Company in such
proceeding seeking an award of money damages in the sum of at least $236,000,
together with interest, 'exemplary and punitive damages, reasonable attorneys'
fees and other costs of the action. This matter is presently pending. The
Company believes that it has meritorious defenses to Radman's counterclaims.
In December 1994, the Company placed a purchase order with Advanced NMR
Systems, Inc. ("ANMR"), for Instascan MRI equipment upgrade systems for an
aggregate of $1.5 million. Three of the systems have been installed at the
Centers and
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<PAGE>
the remaining two have not yet been installed at the Company's facilities. By
letter dated February 25, 1996, the Company notified ANMR that it was
terminating and rescinding the purchase agreements for such equipment as well as
certain other related agreements between the parties and seeking the return of
the approximate $723,000 previously paid to ANMR as well as money damages as a
result of certain material deficiencies in such equipment. By letter dated March
22, 1996, ANMR's counsel denied such claimed deficiencies, disputed the
Company's right to terminate such agreements and claimed that the Company is in
breach thereof for, among other things, failing to pay the approximate $752,000
balance of the purchase price for such equipment. ANMR also threatened to
commence an action against the Company to assert its rights under such
agreements. In October 1996, the Company commenced a state court action against
ANMR in Florida.
In January 1996, Drs. Ashley Kaye and James Sternberg, two of the
former stockholder-directors of IMI-Florida, and Dr. Sternberg's wife,
threatened to commence an action against two subsidiaries of the Company,
Consolidated and Mr. Lewis S. Schiller, chairman of the board of Consolidated
and the Company, for alleged violations of securities and common law in
connection with the execution in 1994 of an asset purchase agreement between MD
Corp. and a subsidiary of the Company and non-payment of the $3,375,000
Subordinated Notes of two subsidiaries of the Company issued to MD Corp. in
connection therewith. Although the Company reflects the principal and interest
on such Subordinated Notes as liabilities on its consolidated balance sheet and
no notice of default has been given, no assurance can be given that an adverse
decision in any action based on such claims will not have a material adverse
effect upon the Company.
Vanguard, on its own behalf or on behalf of other persons who may be
affiliated with Vanguard, based on a purported agreement relating to the
introduction of Consolidated and the Company to IMI-Florida and assistance in
the negotiation of the acquisition of the Centers, has asserted a claim against
the Company and/or SISC that it has the right, among other things, to a 10%
interest in the Common Stock of the Company, on a fully-diluted basis, prior to
this Offering and prior to the issuance of certain warrants to DVI, for no cash
consideration. In addition, Vanguard has claimed that it is entitled to a
$200,000 fee due at the time of the acquisition of the Centers, consulting fees
of $240,000 per year for five years, reimbursement of nonaccountable expenses
and a 5% interest in any future medical acquisition by the Company. No assurance
can be given that any litigation which may ensue would not seek damages
exceeding the claim described above and, if decided unfavorably to the Company,
would not have a material adverse affect on the Company. If Vanguard commences
an action against the Company and prevails, it would have a material adverse
effect upon the Company, and, furthermore, if it prevails with respect to its
claim for Common Stock, the issuance of such Common Stock could result in a
non-cash charge to earnings for the value of such Common Stock, dilution to the
stockholders, including the stockholders who purchased stock in this Offering,
and a reduction in the net tangible book value per share. In addition, the
Company may not be able to use Consolidated's net loss or tax loss carryforward
to reduce its tax liability if a sufficient number of shares of Common Stock
were issued to Vanguard.
The Company or its subsidiaries are defendants in routine litigation
arising from the operation of the Centers, which are covered by insurance. See
"Business -- Insurance."
Competition
The health care industry, including the market for medical diagnostic
imaging services in general and MRI services in particular is highly fragmented.
Such services are performed by both hospitals and imaging centers, such as the
Centers, which are not affiliated with any hospital. Competition varies by
market and is generally higher in larger metropolitan areas where there are
likely to be more facilities and more managed care organizations putting pricing
pressure on the market. The Company competes with both hospitals and independent
medical diagnostic imaging centers. Furthermore, to the extent that another
center offers imaging services in addition to MRI, the Company may be in a
competitive disadvantage in marketing to managed care organizations, physicians
and patients. To a lesser extent, the Company competes with mobile MRI service
providers. Because of the cost of equipping and staffing an MRI or
multi-modality center, MRI and other medical diagnostic imaging modalities are
rarely offered by a sole practitioner or by a small group practice or by a large
group practice that does not have a substantial demand for such services.
Competition often focuses on physician referrals at the local market level as
well as participation in managed care organizations. Successful competition for
referrals is a result of many factors, including participation in health care
plans, quality and timeliness of test results, type and quality of equipment,
the location of the center, convenience of scheduling and availability of
patient appointment times. Many competitors are larger and are better known than
the Company in the market in which the Centers are located. The Company believes
that hospitals are its most significant competitors and have certain competitive
advantages, including their established community position, physician loyalty
and convenience for physicians making rounds at the hospitals. The Company
believes that its services are competitive with those offered by others in the
areas serviced by its Centers. Furthermore, to the extent that the Company seeks
to expand through the acquisition of other centers, the Company may compete with
other, better capitalized companies seeking to make acquisitions. There can be
no assurance that the Company will be able to compete effectively in the future.
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<PAGE>
In addition, the establishment or transfer of ownership in some
jurisdictions may be subject to CON laws. In some states, such laws may hinder
the Company's ability to expand, while in others such laws may affect the
ability of potential competitors to enter the market. Except for Puerto Rico,
none of the states in which the Centers are located have CON laws which affect
independent free-standing diagnostic imaging centers. Any change in CON laws
which reduce the restrictions on potential competitors, such as hospitals, may
have a materially adverse effect upon the Company's business and operations.
Employees
As of September 30, 1996, the Company had 189 employees, 128 of whom
were involved in Center operations, nine of whom were involved in sales and
marketing, 22 of whom were executive and management employees and 30 of whom
were involved in billing and other administrative activities. None of the
Company's employees are represented by a labor organization, and the Company
believes that its employee relations are good.
Property
The Company's executive and administrative facilities are located in
approximately 8,000 square feet of space at 2424 North Federal Highway, Boca
Raton, Florida, which are leased from a nonaffiliated landlord for a term
expiring in February 2000, at an annual rental of approximately $200,000. The
Pine Island, Boca Raton, San Juan and Kansas City Centers are located in
facilities owned by the Company. The remaining Centers occupy premises which are
leased by the Company from nonaffiliated landlords at an annual aggregate rental
of approximately $750,000, inclusive of the rent for the Company's executive and
administrative facilities. The leases provide for annual escalations and expire
during the period from 1997 to 2000. The Company believes that its present
facilities are adequate. To the extent that the Company moves its MRI or other
imaging equipment, the Company may incur significant expenses in both moving the
equipment and adapting the facility for MRI use.
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Lewis S. Schiller 66 Chairman of the Board, Principal Executive
Officer and Director
Stephen A. Schulman, M.D. 60 President and Chief Executive Officer
George W. Mahoney 35 Chief Financial Officer
James H. Webb, Jr. 36 Chief Operating Officer
Norman J. Hoskin 61 Director
E. Gerald Kay 57 Director
Mr. Lewis S. Schiller has been chairman of the board, principal
executive officer and a director of the Company since its organization in March
1994. Mr. Schiller is chairman of the board and chief executive officer of
Consolidated and SISC and is chief executive officer and/or chairman of
Consolidated's operating subsidiaries, whose operations include, in addition to
the Company, contract engineering services, three dimensional imaging products,
telecommunications and various manufacturing operations. SISC, a wholly-owned
subsidiary of Consolidated, is the principal stockholder of the Company. Mr.
Schiller has held such positions for more than the past five years. Mr. Schiller
is also chairman of the board, chief executive officer and a director of
Netsmart, a majority-owned publicly held subsidiary of SISC that markets health
information systems and other network based software systems, Trans Global, a
majority-owned publicly held subsidiary of SISC that is engaged in contract
engineering, and Lafayette, a public corporation controlled by SISC that is
engaged in various manufacturing businesses. Mr. Schiller devotes only a
portion of his time to the business of the Company.
Stephen A. Schulman, M.D., a board-certified radiologist, has been
president and chief executive officer of the Company since October 1, 1994. For
19 years prior thereto, Dr. Schulman was director of radiology at Westside
Regional Hospital in Fort Lauderdale, Florida. Prior to his employment with the
Company, he was president and chief executive officer of MD Corp., IMI-Florida
and its affiliates. From 1985 to 1992, with Drs. James Sternberg and Ashley Kay,
Dr. Schulman established the Centers presently owned by the Company. Dr.
Schulman is also president of American Diagnostic Imaging Services of River
North Corp.
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<PAGE>
and American Diagnostic Imaging Services of Arlington Heights Corp., two
corporations that own and operate two MRI centers in Illinois. Both corporations
are wholly-owned by Dr. Schulman's wife.
Mr. George W. Mahoney has been chief financial officer of the Company
since October 1, 1994. He has also been chief financial officer of Consolidated
since October 1994. For more than three years prior thereto, Mr. Mahoney was
chief financial officer of IMI-Florida and its affiliated entities.
Mr. James H. Webb, Jr. has been chief operating officer of the Company
since October 1, 1994. From July 1992 until September 1994, he was chief
operating officer of IMI-Florida and its affiliated entities. From June 1990
until June 1992, he was regional director of Health Images, Inc., which owned
and operated MRI centers.
Mr. Norman J. Hoskin has been a director of the Company since October
1994. He is chairman of Atlantic Capital Group, a financial advisory services
company, a position he has held for more than the past five years. He is also
chairman of the board and a director of Tapistron International, Inc., a high
tech manufacturer of carpeting, and is a director of Consolidated, Trans Global
and Lafayette. Mr. Hoskin is also a director of Aqua Care Systems, Inc., a water
media filtration and remediation company, and Spintek Gaming, Inc., a
manufacturer of gaming equipment.
Mr. E. Gerald Kay has been a director of the Company since August 1996.
He has been chairman of the board and chief executive officer of Chem
International, Inc., a pharmaceutical manufacturer, Manhattan Drug Co., Inc., a
wholesaler of pharmaceutical products, The Vitamin Factory, Inc., a chain of
retail vitamin stores, and Connaught Press, Inc., a publisher, for more than the
past five years. From 1988 to 1990, he was also president and a director of The
Rexall Group, Inc., a distributor of Rexall brand products. Mr. Kay is also a
director of Trans Global and Lafayette. From June 1994 until December 1996, Mr.
Kay was a director of Netsmart.
Mr. Schiller devotes a significant portion of his time to the business
of Consolidated and its other subsidiaries. He anticipates that he will devote
such amount of his time to the business of the Company as is necessary; however,
Mr. Schiller does not expect to devote more than 10% of his time to the business
of the Company. Mr. Mahoney devotes approximately 75% of his time to his
services as chief financial officer of the Company and the balance to his duties
as chief financial officer of Consolidated.
The Company's Certificate of Incorporation includes certain provisions,
permitted under Delaware law, which provide that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any transaction from which
the director derived an improper personal benefit, or (iv) for certain conduct
prohibited by law. The Company's Certificate of Incorporation also contains
broad indemnification provisions. These provisions do not affect the liability
of any director under Federal or applicable state securities' laws.
The Board of Directors does not have any executive, nominating or audit
committees.
Remuneration
Set forth below is information concerning the Company's chief executive
officer and the only other officers of the Company who received or accrued
compensation in excess of $100,000 during the years ended December 31, 1995,
1994 and 1993. Information with respect to Stephen A. Schulman, M.D. and Mr.
George W. Mahoney reflects, for 1994, the combined compensation received by them
from the Company and IMI-Florida, and for 1993, the compensation received by
them from IMI-Florida.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (Awards)
Name and Principal Position Year Salary Bonus Other Annual Restricted Stock Options, SARs
- --------------------------- ---- ------ ----- Compensation Awards (Dollars) (Number)
------------ ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Lewis S. Schiller, Chairman 1995 --(1) -- -- -- --
of the Board (since September 1994 --(1) -- -- -- --
30, 1994)
Stephen A. Schulman, M.D. 1995 $362,000 $100,000 $ 43,917(2) -- --
President and Chief Executive 1994 126,500 -- 289,466(2) -- 400,000(3)
Officer 1993 48,000 -- 1,032,692(2) -- --
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<PAGE>
George W. Mahoney, 1995 $132,011(4) $ 19,236 $ 4,323 -- --
Chief Financial Officer 1994 115,911 40,000 -- -- 250,000(3)
1993 84,033 8,500 -- -- --
</TABLE>
- ---------------
(1) Mr. Schiller received no compensation from the Company. Effective
December 31, 1994, Consolidated changed its fiscal year from the twelve
months ended July 31 to the calendar year. During the year ended
December 31, 1995, the period from August 1, 1994 to December 31, 1994,
and for the fiscal years ended July 31, 1994 and 1993, the total
compensation paid or accrued by Consolidated to Mr. Schiller was
$250,000, $94,000, $181,451 and $175,000, respectively.
(2) Other compensation for Dr. Schulman reflects (a) certain insurance and
other benefits, including a $12,000 auto allowance in 1995, (b) $63,000
and $84,000 from MD Corp. in each of 1994 and 1993, respectively, (c)
Dr. Schulman's share of the corporate general partners' share of income
from the partnerships which owned and operated the Centers prior to the
Company's acquisition of the Centers, amounting to $18,000 and $24,000
in 1994 and 1993, respectively, and (d) dividends and distributions
paid to Dr. Schulman from such partnerships of $208,466 and $924,692 in
1994 and 1993, respectively.
(3) In October 1994, the Company granted to Dr. Schulman and Mr. Mahoney
seven-year incentive stock options pursuant to the Company's 1994
Long-Term Incentive Plan, to purchase 400,000 shares and 250,000 shares
of Class A Common Stock, respectively, at an exercise price of $.50 per
share, being the fair market value on the date of grant. Such options
were immediately exercisable as to 200,000 shares and became
exercisable as to the balance on January 1, 1995.
(4) Does not include, with respect to Mr. Mahoney, salary and bonus of
$45,451 and $6,412 for services rendered by Mr. Mahoney to Consolidated
in 1995 and 1994, respectively, which amounts were paid by the Company
and applied to reduce the Company's indebtedness to SISC. Other annual
compensation represents life insurance benefits.
The annual salary payable by Consolidated to Mr. Schiller pursuant to
his employment agreement with Consolidated was $250,000, subject to a cost of
living increase, prior to September 1, 1996. Effective September 1, 1996, Mr.
Schiller's annual salary from Consolidated was increased to $500,000. In
addition, Mr. Schiller receives incentive compensation from Consolidated based
on the results of Consolidated's operations and has a right to purchase 10% of
Consolidated's or SISC's equity interest in each of their operating subsidiaries
and investments for 110% of Consolidated's or SISC's cost. Mr. Schiller has
exercised his right to purchase 10% of SISC's equity interest in the Company for
nominal consideration; however, in exercising such right, Mr. Schiller agreed to
accept shares of Class A Common Stock in order that SISC would retain sufficient
ownership of the Company's voting stock following completion of this Offering.
Mr. Schiller also exercised his right to purchase 500 shares of Series B
Preferred Stock. See "Certain Transactions." Mr. Schiller has also exercised his
right with respect to other securities owned by SISC, including securities of
other subsidiaries of SISC.
Stephen A. Schulman, M.D. has an employment agreement with the Company
dated October 1, 1994, pursuant to which the Company pays him an annual salary
of $350,000 for the term of the agreement which expires on September 30, 1999.
The agreement also provides for payment to Dr. Schulman of an annual bonus of
not less than $100,000 nor more than $700,000, equal to 10% of the amount by
which the lesser of 10% of pre-tax cash flow or 10% of pre-tax net income
exceeds a base amount. For the contract years beginning October 1, 1995, 1996,
1997 and 1998, such base amounts are $337,500, $500,000, $600,000 and $700,000,
respectively. Dr. Schulman's employment agreement also provides Dr. Schulman
with a $12,000 annual automobile allowance and provides him with certain life
insurance and other benefits. Pursuant to an amendment to Dr. Schulman's
employment agreement, the Company, in February 1996, made two loans to Dr.
Schulman in the aggregate principal amount of $300,000. Such loans bear interest
at 5 1/4% per annum and mature on December 31, 1998. Pursuant to a proposed
second amendment to Dr. Schulman's employment agreement contemplated by the
Schulman Memorandum, the term of the employment agreement will be extended for a
period of three years, the $300,000 loan and all accrued interest on the loan
will be applied to reduce the outstanding balance of the Subordinated Notes held
by Dr. Schulman and his wife, and Dr. Schulman's base salary for each of the
three years commencing October 1, 1996 will be increased by $45,000. The
proposed second amendment, which is contemplated by the Schulman Memorandum,
also provides (a) an extension of the term of Dr. Schulman's employment for
three years, (b) a $45,000 increase in his base salary for each of the extended
years, (c) that Dr. Schulman may perform consulting services for two MRI Centers
which are located in Chicago, Illinois and are owned by his wife and (d) that
Dr. Schulman may terminate the agreement at any time, without cause, on six
months notice. See "Certain Transactions."
Mr. George W. Mahoney, chief financial officer of the Company and
Consolidated, has an employment agreement with Consolidated for a term
commencing October 1, 1994 and ending December 31, 2002, pursuant to which he
received an annual salary of $177,000 for the contract year ended September 30,
1996. Mr. Mahoney's annual salary increases to $189,000 for the
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<PAGE>
current contract year, which ends on September 30, 1997 and increases annually
thereafter until the seventh year for which his annual salary is $252,000. The
agreement also provides for two bonuses to Mr. Mahoney. One bonus is equal to
the greater of 1% of Consolidated's net pre-tax profits or 1% of Consolidated's
net cash flow, and the other is equal to the greater of 1% of the Company's net
pre-tax profits or 1% of the Company's net cash flow. In addition, the Company
paid Mr. Mahoney bonuses of $100,000 and $40,000 in 1996 for services relating
to certain of the Company's loans from DVI pursuant to amendments to his
employment agreement. Mr. Mahoney also receives a $6,000 allowance for an
automobile which may be used for personal as well as business purposes and life
insurance of $1,000,000 on which he may designate the beneficiary. Mr. Mahoney
devotes approximately 75% of his time to the business of the Company. Although
Mr. Mahoney and Consolidated are the parties to his employment agreement, Mr.
Mahoney's compensation is paid by the Company and the Company allocates 25% of
his compensation (exclusive of the bonuses relating to the Company) to
Consolidated, which is applied to reduce the Company's indebtedness to SISC.
Pursuant to certain of the Company's loan agreements with DVI, the
failure of Mr. Mahoney to serve as the Company's chief financial officer could
result in a default under such loan agreements and other loan agreements with a
cross-default provision between the Company and DVI or between Company and any
other lenders. As of the date of this Prospectus the Company does not have any
agreements with other lenders with such cross-default provisions.
Long-Term Incentive Plan
In October 1994, the Company adopted, by action of the Board of
Directors and stockholders, the 1994 Long-Term Incentive Plan (the "Plan"). The
Plan does not have an expiration date. Set forth below is a summary of the Plan,
which summary is qualified in its entirety by reference to the full text of the
Plan, a copy of which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
The Plan is authorized to grant options or other equity-based
incentives for 1,200,000 shares of the Class A Common Stock or, at such time as
the Class A Common Stock is converted into Common Stock, shares of Common Stock.
If shares subject to an option under the Plan cease to be subject to such
option, or if shares awarded under the Plan are forfeited or otherwise
terminated without a payment being made to the participant in the form of stock,
such shares will again be available for future issuance under the Plan.
Awards under the Plan may be made to key employees, including officers
of and consultants to the Company, its subsidiaries and affiliates, but may not
be granted to any director unless the director is also an employee of or
consultant to the Company or any subsidiaries or affiliates. The Plan imposes no
limit on the number of officers and other key employees to whom awards may be
made.
The Plan is to be administered by a committee of no less than three
disinterested directors to be appointed by the board (the "Committee"). No
member or alternate member of the Committee shall be eligible to receive options
or stock under the Plan (except as to the automatic grant of options to
directors) or under any plan of the Company or any of its affiliates. The
Committee has broad discretion in determining the persons to whom stock options
or other awards are to be granted, the terms and conditions of the award,
including the type of award, the exercise price and term and the restrictions
and forfeiture conditions. If no Committee is appointed, the functions of the
committee shall be performed by the Board of Directors. At present no Committee
has been appointed.
The Committee will have the authority to grant the following types of
awards under the Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards. The Plan is designed to provide the Committee
with broad discretion to grant incentive stock-based rights. The Company granted
seven-year incentive stock options to purchase an aggregate of 765,500 shares of
Class A Common Stock at $.50 per share in October 1994, and incentive stock
options to purchase 84,500 shares of Class A Common Stock at $1.00 per share in
September 1995 (71,500 shares) and June 1996 (13,000 shares). The exercise
prices of the options were the fair market value on the respective dates of
grant. All of the options are presently fully exercisable and have a term of
seven years from the date of grant. The options granted in October 1994 include
options to purchase 400,000 shares, 250,000 shares and 33,000 shares of Class A
Common Stock granted to Stephen A. Schulman, M.D., president and chief executive
officer of the Company, Mr. George W. Mahoney, chief financial officer of the
Company, and James H. Webb, Jr., chief operating officer of the Company,
respectively.
During the year ended December 31, 1995, no options were granted to any
of the officers named in the compensation table under "Management --
Remuneration."
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<PAGE>
The following table sets forth information concerning the exercise of
options during the year ended December 31, 1995 and the year-end value of
options held by the officers named in the compensation table under "Management
- -- Remuneration."
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Fiscal Options at Fiscal
Year End Year End1
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
---- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Lewis S. Schiller -- -- --(1) --(1)
Stephen A. Schulman, M.D. -- -- 400,000(2)/ $200,000(3)/
-- --
George W. Mahoney -- -- 250,000(2)/ $125,000(3)/
-- --
</TABLE>
- ---------------
(1) Mr. Schiller held no options at December 31, 1995, although, at such
date, he held warrants to purchase 100,000 shares of Class A Common
Stock at $2.00 per share.
(2) Represents incentive options to purchase shares of Class A Common Stock
of the Company.
(3) The value of the options at fiscal year end (December 31, 1995) is
based on the fair market value per share of Class A Common Stock of
$1.00 per share.
AGREEMENTS WITH DVI
From the date of acquisition of the Centers to the date hereof, DVI has
been the Company's principal lender, with the exception of certain equipment and
real estate loans.
On September 30, 1994, certain of the Company's subsidiaries which
acquired the Centers entered into a series of loan and security agreements with
DVI, pursuant to which DVI lent the subsidiaries an aggregate of approximately
$7.1 million to enable the subsidiaries to acquire the Centers, IMI-Florida, MD
Corp. and MRI Net. The term of each loan is 60 months, the interest rate is
10.5% per annum, and each loan is self-amortizing during the term. The loans are
prepayable, in whole only and not in part, without premium or penalty, provided
that the loans to all of the subsidiaries are similarly prepaid. As collateral
security for such loans, DVI was granted a first lien and security interest in
all of the then existing assets, tangible and intangible, of the borrowers and
all future property of the borrowers with certain exceptions, as to which DVI
obtained or will obtain a junior lien. All of the outstanding shares of capital
stock of the borrowers have been pledged to DVI as additional collateral
security for the loans. The loan agreements include cross-default and
cross-collateralization provisions, with the effect that the default of one
borrower will constitute a default by all borrowers, and the collateral of each
borrower is effectively pledged as collateral security for the entire loan. The
loan agreements include various covenants, including covenants which restrict
the borrowers' ability to change their business, incur future indebtedness,
encumber DVI's collateral, distribute money or property other than in the
ordinary course of business, guarantee the obligations of others or enter into
business combinations, recapitalize or issue securities, without the consent of
DVI. The loan agreements relating to subsequent loans by DVI have similar
covenants. In connection with these loans, Consolidated issued to DVI a
five-year warrant to purchase 1,000,000 shares of Consolidated's common stock at
$.75 per share. The Company, as parent corporation of the borrowers, guaranteed
the payment of the indebtedness to DVI and the performance by the borrowers of
all other obligations under the loan agreements.
On several occasions since September 30, 1994, some or all of the
Company's subsidiaries have obtained additional financing from DVI principally
for the payment of Subordinated Debt, the purchase of equipment and the
refinancing of short-term equipment debt. The aggregate outstanding principal
amount of such loans was $19.0 million at September 30, 1996. The interest rates
on these additional loans (other than the September 1996 loans described below)
range between 10.5% and 11.875%
- 49 -
<PAGE>
per annum and these loans become due at various times during the period from
September 30, 1999 to September 30, 2002. All of such additional loans are
collateralized by a first lien and security interest in all present and future
tangible and intangible assets of the borrowers, subject to certain exceptions
similar to those noted above and contain cross default and cross
collateralization provisions and negative covenants similar to those noted
above. The Company is the guarantor of all of such loans.
In September 1996, certain of the Company's subsidiaries borrowed an
aggregate of $4.0 million from DVI. The loans, which mature in September 2001,
are payable in monthly installments over the term of the loans. The Company pays
interest currently at 11.5% per annum, additional interest of 10.5% per annum
has been deferred and is payable on the maturity date of the loans, resulting in
an effective annual interest rate of 22.0%. In connection with these loans, SISC
sold to DVI, for $2,500, a warrant to purchase 250,000 shares of Class A Common
Stock at $2.00 per share, and the Company issued to DVI a warrant to purchase
250,000 shares of Class A Common Stock at $5.00 per share. These warrants are
exercisable for the three month period commencing on the earliest to occur of
(a) the prepayment in full of such loans, (b) an event of default under the loan
and security agreements with respect to such loans, or (c) November 1, 2001. In
addition, the Company agreed that in the event the principal of and interest on
such loans has not been paid in full prior to the November 1, 2001 maturity
date, the Company will issue to DVI a warrant to purchase 1,000,000 shares of
the Common Stock at 80% of the market price per share of such Common Stock on
the date of exercise, exercisable from November 1, 2001 until February 1, 2002.
Pursuant to the Company's loan agreements with DVI, the failure of Mr.
George W. Mahoney to serve as chief financial officer of the Company prior to
the payment in full of the DVI loans constitutes an event of default or could
result in an event of default thereunder.
A portion of the net proceeds of this offering will be utilized to
prepay $2.1 million of principal of the September 1996 loans, together with all
accrued interest thereon to the date of prepayment. See "Use of Proceeds."
CERTAIN TRANSACTIONS
Issuance of Securities at Organization
In connection with its organization in September 1994, the Company
issued an aggregate of 9,200,000 shares of Common Stock, 1,000,000 shares of
Class A Common Stock, 5,000 shares of Series A Preferred Stock, 5,000 shares of
Series B Preferred Stock, Series B Warrants to purchase 1,000,000 shares of
Common Stock at $2.00 per share and warrants to purchase 1,250,000 shares of
Class A Common Stock at $2.00 per share.
Pursuant to the employment agreement between Consolidated and Mr. Lewis
S. Schiller, chairman of the board of both the Company and Consolidated, Mr.
Schiller has the right to purchase 10% of SISC's equity position in its
subsidiaries, including the Company, for 110% of SISC's cost. Mr. Schiller has
exercised his right and purchased from SISC an aggregate of 850,000 shares of
Class A Common Stock, 500 shares of Series B Preferred Stock and warrants to
purchase 150,000 shares of Class A Common Stock of the Company at an exercise
price of $2.00 per share, which were issued to Mr. Schiller and his designees.
His designees included DLB, Inc. ("DLB"), which received 250,000 shares and
50,000 warrants in payment of certain of Mr. Schiller's obligations to his wife,
who is the sole stockholder of DLB, and his three adult children, each of whom
received 50,000 shares. In exercising his right under his employment agreement,
Mr. Schiller agreed to accept Class A Common Stock in lieu of Common Stock, and
he did not exercise his right to purchase any shares of Series A Preferred
Stock.
SISC also transferred 50,000 shares of Class A Common Stock and
warrants to purchase 100,000 shares of Class A Common Stock at an exercise price
of $2.00 per share to one individual who is an officer and director of
Consolidated, warrants to purchase an aggregate of 5,000 shares of Class A
Common Stock to two key employees of Consolidated and an aggregate of 100,000
shares of Class A Common Stock and warrants to purchase an aggregate of 250,000
shares of Class A Common Stock to two non-affiliated persons. In connection with
the September 1996 loans from DVI, SISC sold to DVI, for $2,500, a warrant to
purchase 250,000 shares of Class A Common Stock at $2.00 per share. In September
1996, the Company also issued to SISC a warrant to purchase 250,000 shares of
Class A Common Stock at $5.00 per share.
In October 1994, the Company issued seven-year warrants to purchase an
aggregate of 500,000 shares of Class A Common Stock at $2.00 per share SISC
(55,000 shares) to 15 individuals (445,000 shares), including Mr. George W.
Mahoney, chief financial officer of the Company, to whom it issued a warrant to
purchase 100,000 shares, and Messrs. Norman J. Hoskin and E. Gerald Kay,
directors of the Company, to each of whom the Company issued a warrant to
purchase 50,000 shares.
- 50 -
<PAGE>
Acquisition of the Centers
On September 30, 1994, the Company, through wholly-owned subsidiaries,
acquired eight MRI Centers and one multi-modality diagnostic imaging Center,
IMI-Florida, which managed the operations of the Centers, the assets of MD
Corp., which provided the services of radiologists to the Centers, and MRI Net.
In January 1995, the Company acquired an additional MRI Center, which was
affiliated with such Centers.
The purchase price of the ten Centers, together with certain related
companies, was $30.6 million, of which $7.0 million was paid in cash, $20.7
million was paid by the issuance of Subordinated Notes, and $2.9 million was
paid by the issuance of shares of Consolidated's common stock, exclusive of
acquisition costs of $1.3 million. At the time of the acquisition, Stephen A.
Schulman, M.D. was president, chief executive officer and a principal
stockholder of IMI-Florida and MD Corp. In connection with such acquisition, Dr.
Schulman, his wife, the other two former stockholder-directors of IMI-Florida,
MD Corp. and the Schulman Affiliated Entities received $3.9 million in cash,
$8.7 million principal amount of Subordinated Notes and 3,343,000 shares of
Consolidated's common stock, of which approximately 1.0 million shares were
issued to each of Dr. Schulman and the other two former stockholder-directors of
IMI-Florida. The Schulman Affiliated Entities include the general partners of
the seven partnerships which owned and operated certain of the Centers, the
three corporations which owned and operated other Centers and MRI Net. Dr.
Schulman owns a one-third interest in MD Corp. and the Schulman Affiliated
Entities. In addition, he was a limited partner of certain of such partnerships.
Pursuant to the agreement relating to the acquisition of the stock of
IMI-Florida, as a result of a decline in the price of the Consolidated common
stock during the two years following the consummation of the acquisition of the
Centers, an additional 83,334 shares of Consolidated common stock, one-third of
which are to be issued to each of Dr. Schulman and the other two former
stockholder-directors of IMI-Florida. Such number of shares reflects a reduction
in the number of shares otherwise issuable as a result of the failure of the
Centers to generate a specified level of revenue. In addition, pursuant to the
agreements relating to the purchase of the assets of two Centers, as a result of
such decline in the stock price of Consolidated, an aggregate of 70,000 shares
of Consolidated common stock are to be issued to the entities which sold the
assets of such Centers to the Company. Dr. Schulman and the two other former
stockholder-directors of IMI-Florida will receive an aggregate of 21,403 of such
shares.
During 1995 and the first three quarters of 1996, the Company paid in
full Subordinated Notes which it issued to certain partnerships in connection
with the acquisition of the Centers. By virtue of his direct ownership of
certain of the Subordinated Notes, his indirect ownership of certain of the
Subordinated Notes issued to the Schulman Affiliated Entities and his ownership
of limited partnership interests in certain of partnerships, Dr. Schulman
received an aggregate of $588,000 from the proceeds of such Subordinated Note
payments. Additionally, Dr. Schulman may receive additional payments in the
future from the proceeds of any payments that may be made by the Company on
other outstanding Subordinated Notes.
At the closing of the acquisition of the Centers, Subordinated Notes in
an aggregate principal amount of $750,000, which were payable to Dr. Schulman
and the other two former stockholder-directors of IMI-Florida, were assigned by
such persons to an institutional lender in payment of certain obligations to,
and in consideration of the grant of releases and other concessions by, such
lender to Dr. Schulman and such other former stockholder-directors. For the
period October 1, 1994 through September 30, 1996, the Company paid principal
and interest of approximately $312,000 to such lender pursuant to such
Subordinated Notes. As of September 30, 1996, approximately $490,000 was due
under such Subordinated Notes. The Company intends to continue to make the
required payments of principal and interest on such notes through their
respective maturity dates. These Subordinated Notes, which mature through
September 30, 1999, represent a portion of the $20.7 million principal amount of
Subordinated Notes issued in connection with the acquisition of the Centers.
Upon the consummation of the acquisition of the first nine Centers in
September 1994, Dr. Schulman entered into an employment agreement with the
Company. The initial base salary under the agreement of $250,000, was
subsequently increased to $350,000 with a minimum annual bonus of $100,000. See
"Management -- Remuneration" for information relating to additional terms of Dr.
Schulman's employment agreement and certain amendments thereto.
Dr. Schulman and the other two former IMI-Florida stockholder-directors
are guarantors of certain promissory notes, mortgages, capital and operating
leases and other indebtedness which was owed by IMI-Florida or the entities
operating the Centers prior to the Company's acquisition of the Centers. While
the Company's subsidiaries which assumed such loans and obligations when they
acquired the Centers have been paying such loans and obligations, Dr. Schulman
and such individuals remain personally liable with respect to such loans and
obligations and (other than with respect to the Center acquired by the Company
in January 1995) have not been indemnified by the Company with respect thereto.
One of the Centers acquired in 1994 by a subsidiary of the Company is a Center
in Orlando, Florida, which was controlled by the stockholder-directors of
IMI-Florida. In an effort to improve the results of the Center, the Company
formed a joint venture with the owner-operator of another Center in Orlando,
Florida in August 1995. The joint venture utilizes the facilities and diagnostic
imaging equipment of the Company's
- 51 -
<PAGE>
joint venture partner, as a result of which the facilities and equipment owned
by the Company's subsidiary is utilized only as a backup. Notwithstanding such
arrangements, the Company has continued to pay obligations to the equipment
vendor, lender and landlord for the subsidiary's equipment and facilities, all
of which are personally guaranteed by Dr. Schulman and the two other former
stockholder-directors of IMI-Florida. The total amount paid by the Company
through September 30, 1996 on such obligations was $1.1 million, and, if all
payments are made on such obligations, the total payments by the Company,
including those paid through September 30, 1996, will be approximately $1.4
million. Payments of such amounts are made from distributions the Company
receives each month from its joint venture interest as well as from other
revenue of the Company. As a result, the subsidiary which operated the Orlando
Center sustained a net loss of approximately $620,000 for the nine months ended
September 30, 1996 and incurred negative cash flow from such Center of
approximately $580,000 during such period.
During 1995 and the first three quarters of 1996, the Company retired
mortgages and other obligations for which Dr. Schulman was personally liable in
the aggregate principal amount of approximately $1.4 million. The Company may,
in the future, retire other indebtedness or obligations of which Dr. Schulman is
a personal guarantor.
Proposed Note Exchange with Dr. Schulman
In connection with the purchase of the Centers, certain subsidiaries of
the Company issued Subordinated Notes in the aggregate principal amounts of $1.0
to each of Drs. Stephen A. Schulman, Ashley Kaye and James Sternberg, who are
the three former stockholder-directors of IMI Florida, and their respective
wives. In addition, the Company issued Subordinated Notes in the aggregate
principal amount of $4.4 million to the Schulman Affiliated Entities.
In October 1996, the Company and Dr. Schulman entered into the Schulman
Memorandum, a non-binding memorandum of understanding pursuant to which, subject
to the execution of definitive agreements, Dr. Schulman agreed to reduce the
outstanding principal amount of the Subordinated Notes payable to him and his
wife, including his interest in the Subordinated Notes issued to the Schulman
Affiliated Entities, from an aggregate of $2.1 million as of September 30, 1996
to an aggregate of approximately $1.8 million (after giving effect to the
proposed cancellation by the Company of Dr. Schulman's $300,000 note
representing the principal amount of two loans made by the Company to Dr.
Schulman in March 1996 pursuant to an amendment to his employment agreement) and
exchange such Subordinated Notes for shares of a proposed new series of
preferred stock having an annual non-cumulative dividend of $75,000, payable in
quarterly installments of $18,750, commencing with the three months ending May
31, 1997, a liquidation preference of $100 and a redemption price of
approximately $1.8 million. The Company will be required to apply 15% of the net
proceeds from any sale of equity securities by the Company (other than from this
Offering), subsequent to 60 days after the closing of this Offering, to the
redemption of such series of Preferred Stock. Dr. Schulman will also receive a
five-year warrant to purchase 25,000 shares of the Class A Common Stock at $5.00
per share.
Pursuant to the Schulman Memorandum, the Company and Dr. Schulman are
to enter into a further amendment to his employment agreement providing for,
among other things, (a) the extension of the term thereof for an additional
three years expiring on December 31, 2002, (b) an increase of Dr. Schulman's
annual salary by $45,000 for each year during such three year period, (c) the
grant to Dr. Schulman of the right to terminate his employment agreement,
without cause, upon six months' notice to the Company, (d) a non-competition
covenant by Dr. Schulman, and (e) the grant to Dr. Schulman of the right to
devote a portion of his time to the operations of two MRI centers located in
Illinois which are owned by his wife and to perform consulting services for any
third-party purchaser of such centers.
The Schulman Memorandum also provides that (a) in the event that the
Company enters into an agreement with either of Drs. Kaye or Sternberg pursuant
to which they or either of them receives more favorable terms with respect to
the Subordinated Notes held by them than are provided to Dr. Schulman, Dr.
Schulman will receive such more favorable terms and (b) the Company will,
subject to the consent of the Underwriter, use its best efforts to register
under the Securities Act shares of Class A Common Stock prior to the expiration
of two years plus 120 days from the date the Company receives the proceeds from
this Offering, unless, prior to the expiration of such period, the Class A
Common Stock shall have been converted into Common Stock. The Schulman
Memorandum also provides that in the event that either SISC or Mr. Lewis S.
Schiller exchange their shares of Class A Common Stock for shares of Common
Stock, Dr. Schulman may exchange any of the shares of Class A Common Stock for
an equal number of shares of Common Stock and to exchange any warrants to
purchase Class A Common Stock for warrants to purchase an equal number of shares
of Common Stock. The right to exchange only applies to securities issued to Dr.
Schulman pursuant to the agreement contemplated by the Schulman Memorandum. See
"Description of Securities -- Capital Stock."
All of the foregoing transactions are subject to and conditioned upon
the execution and delivery of definitive agreements relating to such
transactions and the consummation of this Offering. There can, however, be no
assurance that the Company and
- 52 -
<PAGE>
Dr. Schulman will conclude any such agreements or that the final terms of such
agreements will not be different from those disclosed in this Prospectus.
The proposed transaction which are the subject of the Schulman
Memorandum do not affect the Subordinated Notes payable to Drs. Kaye and
Sternberg or their interest in the Subordinated Notes payable with respect to
the Schulman Affiliated Entities. See "Business -- Legal Proceedings" in
connection with claims made by Drs. Kaye and Sternberg and Dr. Sternberg's wife
against two subsidiaries of the Company, Consolidated and Mr. Lewis S. Schiller,
chairman of the board of the Company and Consolidated. The Company is engaged in
negotiations with Drs. Kaye and Sternberg with respect to the exchange of their
Subordinated Notes and those of Dr. Sternberg's wife in the aggregate amount of
approximately $4.2 million for equity securities. However, no assurance can be
given that such negotiations will result in an agreement or that any agreement
with Drs. Kaye and Sternberg will not be substantially more favorable to them
than the proposed note exchange with Dr. Schulman. In the event that the terms
of the agreement with Drs. Kaye and Sternberg are more favorable to them than
the terms of the Schulman Memorandum, Dr. Schulman will be entitled to exchange
his debt on the same terms as Drs. Kaye and Sternberg.
Other Related Party Transactions
In connection with the acquisition of the Centers, SISC, the principal
stockholder of the Company, lent approximately $1.3 million to the Company,
which was used to pay acquisition costs, and delivered to certain of the
Schulman Affiliated Entities and the stockholders of IMI-Florida shares of
Consolidated common stock, valued at $2.9 million, representing a portion of the
purchase price of the Centers and IMI-Florida. Such loan and the value of such
Consolidated common stock is treated as a non-interest bearing loan from the
Company to SISC with no stated maturity date. The largest principal amounts
outstanding during the nine months ended September 30, 1996, the year ended
December 31, 1995 and the period from inception (September 30, 1994) to December
31, 1994 were $2.7 million, $3.2 million and $4.2 million, respectively. As of
September 30, 1996, the Company owed SISC approximately $1.6 million.
Certain of the Company's employees, including Mr. George W. Mahoney,
chief financial officer of both the Company and Consolidated, perform certain
accounting and related services for SISC and Consolidated, and the allocable
portion of the compensation paid by the Company to such employees relating to
their services for SISC and Consolidated is treated as a reduction of the
Company's indebtedness to SISC. In addition, the Company pays the rent for
Consolidated's Florida office, and such payment is also applied as a reduction
of such indebtedness. The Company has agreed not to use any of the proceeds of
this Offering to pay any of such indebtedness to SISC; however, if the
over-allotment option is exercised, up to $250,000 of the proceeds from the
over-allotment option will be used to pay a portion of the Company's
indebtedness to SISC.
In 1996, the Company paid to Mr. Mahoney bonuses of $140,000 in
connection with services relating to the Company's financing with DVI. See
"Management - Remuneration." Pursuant to certain of the loan agreements between
the Company and DVI, the failure of Mr. Mahoney to serve as the chief financial
officer of the company could result in a default under the DVI loan agreements.
The Company files its Federal income tax returns as part of a
consolidated group of corporations of which Consolidated is the common parent.
As a result of the Company's inclusion in such consolidated group, the Company
will not incur any Federal income tax liability for 1996. The total Federal
income tax savings for the nine months ended September 30, 1996 was $692,000.
Consolidated has canceled the Company's obligation to it arising from the use of
a portion of Consolidated's Federal net operating loss for 1996, which resulted
in an increase in additional paid-in capital. See Note 23 of Notes to
International Magnetic Imaging, Inc. Combined Financial Statements.
The Company has a management services agreement with Trinity, a
wholly-owned subsidiary of Consolidated, pursuant to which the Company is to pay
Trinity $50,000 per month for the five-year period commencing with the first
month in which such payment may be made pursuant to the Company's agreements
with its lenders. The Company's loan agreements with DVI do not permit such
payments, and, accordingly, no payments to Trinity have been made or accrued
under such agreement. The agreement is renewable by Trinity. Mr. Lewis S
Schiller, chairman of the board of the Company, is the chief executive officer
of Consolidated, SISC and Trinity.
- 53 -
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1996 and as adjusted
to give effect to the sale of the 1,000,000 shares of Common Stock and 1,500,000
Warrants offered by this Prospectus, based on information provided by the
persons named below, the number and percentage of shares of outstanding Common
Stock and Common Stock and Class A Common Stock rated as a single class,
beneficially owned by each person known by the Company to own beneficially at
least 5% of the Company's outstanding Common Stock and Common Stock and Class A
Stock as a single class, each director and all directors and officers as a
group:
<TABLE>
<CAPTION>
Percentage of Common
Percentage of Stock and Class A Stock
Common Stock as a single class(3)
Amount and Nature of
Name and Address(1) Beneficial Ownership(2)
Outstanding As Adjusted Outstanding As adjusted
<S> <C> <C> <C> <C> <C>
Lewis S. Schiller(4) 10,200,000 shares of 100.0% 91.1% 95.5% 88.2%
160 Broadway Common Stock and
New York, NY 10038 1,350,000 shares of Class
A Common Stock
SIS Capital Corp.(5) 10,200,000 shares of 100.0% 91.1% 91.7% 84.6%
160 Broadway Common Stock and
New York, NY 10038 800,000 shares of Class A
Common Stock
Norman J. Hoskin(6) 50,000 shares of Class A -- -- * *
Common Stock
E. Gerald Kay(7) 50,000 shares of Class A -- -- * *
Common Stock
All directors and officers 10,200,000 shares of 100.0% 91.1% 95.7% 88.9%
as a group (four Common Stock and
individuals)(4), (6), (7), (8), 2,200,000 shares of Class
A Common Stock
</TABLE>
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
International Magnetic Imaging, Inc., 2424 North Federal Highway, Boca
Raton, FL 33431.
(2) Unless otherwise indicated, the Company believes that each person named
in the table has the sole voting and sole investment power and has
direct beneficial ownership of the shares. Since the Series B Preferred
Stock is not convertible into Common Stock prior to three years from
the date of this Prospectus unless the Class A Common Stock is
converted into Common Stock, the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock are not included in
computing the percentage ownership of any such person. The 5,000 shares
of Series B Preferred Stock are owned by SISC (4,500 shares) and Mr.
Lewis S. Schiller (500 shares).
(3) The Common Stock and Class A Common Stock are identical except that the
shares of Class A Common Stock have no voting rights. The Class A
Common Stock is automatically converted into Common Stock under certain
conditions as described under "Description of Securities -- Capital
Stock."
(4) Includes 9,200,000 shares of Common Stock owned by SISC, 1,000,000
shares of Common Stock issuable upon exercise of Series B Warrants
owned by SISC, 450,000 shares of Class A Common Stock owned by Mr.
Schiller, 100,000 shares of Class A Common Stock issuable upon exercise
of warrants held by Mr. Schiller, and 800,000 shares of Class A Common
Stock issuable upon exercise of warrants held by SISC. Does not include
3,500,000 shares of Common Stock issuable upon conversion of the Series
B Preferred Stock owned by SISC (3,150,000 shares of Common Stock) and
Mr.
- 54 -
<PAGE>
Schiller (350,000 shares of Common Stock) or 250,000 shares of Class A
Common Stock owned by DLB or 50,000 shares of Class A Common Stock
issuable upon exercise of warrants held by DLB. DLB is owned by Mr.
Schiller's wife, and Mr. Schiller disclaims beneficial interest in DLB
or in any securities owned by DLB..
(5) Includes 9,200,000 shares of Common Stock, 1,000,000 shares of Common
Stock issuable upon exercise of Series B Warrants, and 800,000 shares
of Class A Common Stock issuable upon exercise of warrants owned by
SISC. Does not include 3,150,000 shares of Common Stock issuable upon
conversion of the Series B Preferred Stock owned by SISC.
(6) Represents 50,000 shares of Class A Common Stock issuable upon exercise
of warrants owned by Mr. Hoskin.
(7) Represents 50,000 shares of Class A Common Stock issuable upon exercise
of warrants owned by Mr. Kay.
(8) Includes 400,000 shares of Class A Common Stock issuable upon exercise
of options held by Stephen A. Schulman, M.D., president and chief
executive officer of the Company, and 350,000 shares of Class A Common
Stock issuable upon the exercise of warrants (100,000 shares) and
options (250,000 shares) held by Mr. George W. Mahoney, chief financial
officer of the Company.
SELLING SECURITY HOLDER
The Selling Security Holder, SISC, may sell, from time to time,
1,000,000 Series B Warrants and the 1,000,000 shares of Common Stock issuable
upon exercise of the Series B Warrants pursuant to this Prospectus. The Series B
Warrants are exercisable on the date of this Prospectus. The Selling Security
Holder has agreed that, during the two years following the date of this
Prospectus, it will not exercise the Series B Warrants or sell the Series B
Warrants or the underlying shares of Common Stock without the consent of the
Underwriter, which may be granted at any time. In no event may the Series B
Warrants or the underlying shares of Common Stock be sold prior to the exercise
in full or the expiration of the Underwriter's over-allotment option. There is
not expected to be any public market for the Series B Warrants. The Series B
Warrants provide that, in the event that they are sold or otherwise transferred
pursuant to an effective registration statement, they expire 90 days from the
date of transfer. As a result, any purchaser of Series B Warrants must, within a
short period, either exercise the Series B Warrants or permit them to expire
unexercised. The Series B Warrants have an exercise price of $2.00 per share.
The holders of the Series B Warrants have one demand registration right
commencing one year after the date of this Prospectus. The Series B Warrants
expire three years from the date of this Prospectus and may not be redeemed by
the Company.
In addition to the Series B Warrants to purchase 1,000,000 shares of
Common Stock, SISC also owns warrants to purchase 250,000 shares of Class A
Common Stock at $5.00 per share and 550,000 shares of Class A Common Stock at
$2.00 per share. See "Certain Transactions."
Set forth below is information as to the stock ownership of the Selling
Security Holder as of October 15, 1996:
Amount and Nature Shares
Name and of Beneficial Being Percent of Ownership(1)
Address Ownership Offered Outstanding As Adjusted
SIS Capital Corp. 10,200,000(2) 1,000,000 91.1% 82.1%(3)
160 Broadway
New York, NY 10038
- ---------------
(1) The percentages are based on the outstanding Common Stock at December
31, 1996 after giving effect to the sale of the 1,000,000 shares of
Common Stock offered hereby. The percentage of ownership of the Common
Stock and Class A Common Stock, treated as a single class, would be
84.6% outstanding and 76.9% as adjusted.
(2) Includes 1,000,000 shares of Common Stock issuable upon exercise of the
Series B Warrants owned by SISC and does not include 3,150,000 shares
of Common Stock issuable upon conversion of the Series B Preferred
Stock owned by SISC. Mr. Lewis S. Schiller, chairman of the board of
the Company is the chief executive officer of Consolidated, the parent
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of SISC, and has the right to vote and direct the disposition of the
shares owned by SISC. See "Management" and "Certain Transactions."
(3) If the Underwriter's over-allotment option is exercised in full, SISC's
percentage ownership, as adjusted for the sale of the Series B
Warrants, of the Common Stock and of the Common Stock and the Class A
Common Stock as a single class would be 81.1% and 74.9%, respectively.
The Selling Security Holder has advised the Company that any transfer
of the Series B Warrants will be either pursuant to a sale in transactions at
negotiated prices or by gift and that, if SISC exercises Series B Warrants, the
sale of the underlying shares of Common Stock may be effected from time to time
in transactions (which may include block transactions by or for the account of
the Selling Security Holder) on The Nasdaq SmallCap Market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices or in negotiated
transactions, a combination of such methods of sale or otherwise, and securities
may be transferred by gift.
The Selling Security Holder may effect such transactions by selling
such securities directly to purchasers, through broker-dealers (including the
Underwriter) acting as agents for the Selling Security Holder or to
broker-dealers (including the Underwriter) who may purchase Series B Warrants or
underlying shares of Common Stock as principals and thereafter sell the
securities from time to time in the over-the-counter market, in negotiated
transactions or otherwise. Such broker-dealers (including the Underwriter), if
any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holder and/or the purchasers from whom
such broker-dealer may act as agents or to whom they may sell as principals or
otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions).
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Security Holder's securities
may not simultaneously engage in market-making activities with respect to any
securities of the Company during the applicable "cooling-off" period (at least
two and possibly nine business days) prior to the commencement of such
distribution. Accordingly, in the event the Underwriter is engaged in a
distribution of the Selling Security Holder's securities, it will not be able to
make a market in the Securities during the applicable restrictive period.
However, the Underwriter has not agreed, and is not obligated, to act as a
broker-dealer in the sale of the Selling Security Holder's securities and the
Selling Security Holder may be required, and in the event the Underwriter is a
market-maker, will likely be required, to sell such securities through another
broker-dealer. In addition, the Selling Security Holder will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions
may limit the timing of the purchases and sales of shares of the Company's
securities by the Selling Security Holder.
The Selling Security Holder and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discount and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
Capital Stock
The Company is authorized to issue 6,000,000 shares of Preferred Stock,
par value $.01 per share, 50,000,000 shares of Common Stock, par value $.01 per
share, and 6,000,000 shares of Class A Common Stock. Holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Holders of Class A Common Stock have no voting rights
except as provided by law.
Each share of Class A Common Stock will automatically become and be
converted into one share of Common Stock upon the first to occur of (a) the
date, as reasonably determined by the Board of Directors, that the Company
ceases to be eligible under the Internal Revenue Code of 1986, as amended, to be
a member of the consolidated group of corporations of which Consolidated is the
common parent, or (b) the date as of which the Board of Directors effects such a
conversion.
The Common Stock and the Class A Common Stock are treated as a single
class and have identical rights except that the holders of the Class A Common
Stock have no voting rights except as required by law. Holders of Common Stock
and Class A Common Stock are entitled to share in such dividends as the Board of
Directors, in its discretion, may declare from funds legally available. In the
event of liquidation, dissolution or winding up, each outstanding share of
Common Stock and Class A Common
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Stock entitles its holder to participate ratably in the assets remaining after
payment of liabilities. There are presently 9,200,000 shares of Common Stock
outstanding, and upon completion of this Offering, assuming the Underwriters'
over-allotment option is not exercised, there will be 10,200,000 shares of
Common Stock outstanding. There are presently 1,000,000 shares of Class A Common
Stock outstanding.
Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
the Company, and there are no conversion, redemption or sinking fund provisions
with regard to the Common Stock or Class A Common Stock. All outstanding shares
of Common Stock are, and those issuable pursuant to this Prospectus or upon
exercise of the Warrants will be, when issued as provided in this Prospectus or
as provided in the Warrant and the Warrant Agreement, validly issued, fully
paid, and nonassessable. Stockholders do not have cumulative voting rights in
the election of directors, with the result that the holders of more than 50% of
the Common Stock voting in the election of directors may elect all of the
directors.
The Company's Board of Directors is authorized to issue, from time to
time and without further stockholder action, up to 6,000,000 shares of preferred
stock in one or more distinct series. The Board of Directors is authorized to
fix the following rights and preferences, among others, for each series: (i) the
rate of dividends and whether such dividends shall be cumulative; (ii) the price
at and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of a voluntary or involuntary
liquidation or dissolution; (iv) whether or not a sinking fund shall be provided
for the redemption or purchase of shares; (v) the terms and conditions on which
shares may be converted; and (vi) whether, and in what proportion to any other
series or class, a series shall have voting rights other than as required by
law, and, if voting rights are granted, the number of voting rights per share.
Except as set forth in this Prospectus, the Company has no plans, agreements or
understandings with respect to the designation of any series or the issuance of
any shares of Preferred Stock.
There are presently two series of Preferred Stock that are authorized,
the Series A Preferred Stock and the Series B Preferred Stock. The Board of
Directors may create other series of Preferred Stock which are either junior or
senior to or on a parity with the Series A Preferred Stock as to dividends
and/or on any voluntary or mandatory liquidation or dissolution without the
approval of the holders of such series of Preferred Stock. The Series A
Preferred Stock and Series B Preferred Stock are on a parity with each other as
to dividends or upon liquidation, dissolution or winding up.
See "Certain Transactions -- Proposed Note Exchange with Dr. Schulman"
in connection with the proposed issuance of shares of a new series of Preferred
Stock to be issued to Stephen A. Schulman, M.D., president and chief executive
officer of the Company pursuant to the Schulman Memorandum, and the negotiations
with the other two former stockholder-directors of IMI-Florida respect to the
issuance of shares of such new series of Preferred Stock in exchange for their
Subordinated Notes. .
Series A Preferred Stock
The Series A Preferred Stock consists of 5,000 shares, all of which are
issued and outstanding. Holders of shares of Series A Preferred Stock are
entitled to non-cumulative dividends of $10 per share, or an aggregate of
$50,000. The Company has no obligations to declare dividends for any year, but,
in any year, no dividends may be declared with respect to the Common Stock and
Class A Common Stock unless the dividends for such year for the Series A
Preferred Stock have been declared and paid or provided for. Dividends, if
declared, are payable on February 1st of each year to holders of record on the
previous January 15th.
The holders of the Series A Preferred Stock have no voting rights
except as required by law. The Series A Preferred Stock is not convertible into
Common Stock or any other class or series of capital stock. The Series A
Preferred Stock may be redeemed for $20 per share, on not less than ten more
than 60 days' notice at any time after the Class A Common Stock is converted
into Common Stock. At such time as the Series A Preferred Stock may be redeemed,
the Company may redeem the Series A Preferred Stock in whole at any time or in
part from time to time.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any security of the
Company, if any, which ranks senior to the Series A Preferred Stock, holders of
shares of Series A Preferred Stock will be entitled to receive from the assets
of the Company an aggregate amount equal to 80% of the company's stockholders'
equity as of the last day of the calendar quarter prior to the date as of which
the determination is being made, provided, that from and after the date of this
Prospectus, the aggregate amount shall be 80% of the Company's stockholder's
equity as of the last day of the quarter immediately preceding the date of this
Prospectus, on a per share basis plus accrued and unpaid dividends to the
payment date, before any payment or distribution is made to holders of shares of
Common Stock, Class A
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Common Stock or any other series or class of stock hereafter issued which ranks
junior as to liquidation rights to the Series A Preferred Stock.
Series B Preferred Stock
The Series B Preferred Stock consists of 5,000 shares, all of which are
issued and outstanding. Holders of shares of Series B Preferred Stock have no
preferential dividend rights. If dividends are declared with respect to the
Common Stock, the holders of the Series B Preferred Stock shall be entitled to
dividends on an as-converted basis, such dividends to be determined as if the
shares of Series B Preferred Stock and shares of Common Stock (including Class A
Common Stock) were a single class. Based on a conversion rate of 700 shares of
Common Stock for each share of Series B Preferred Stock, each share of Series B
Preferred Stock would receive a dividend equal to 700 times the dividend payable
to the holders of the Common Stock.
Each share of Series B Preferred Stock, unless previously redeemed, is
convertible, commencing three years from the date of this Prospectus or on such
earlier date, if any, as the Class A Common Stock is converted into Common
Stock, into 700 shares of Common Stock, or an aggregate of 3,500,000 shares of
Common Stock; provided, however, that if, after completion of this Offering and
prior to the date on which the Series B Preferred Stock would otherwise become
convertible, the Company issues any shares of Common Stock or Class A Common
Stock, including the issuance of any shares of Common Stock upon exercise of the
Warrants or the Underwriter's Option, the Series B Preferred Stock shall become
immediately convertible to the extent that the number of shares of Common Stock
issuable upon such conversion shall be equal to four times the number of shares
of Common Stock and Class A Common Stock so issued; provided, that if such
conversion would result in the conversion of a fractional share of Series B
Preferred Stock, the number of shares of Series B Preferred Stock which may be
immediately converted shall be rounded up to the next higher integral number of
shares. In addition, if the Series B Preferred Stock is called for redemption,
the conversion rights will expire at the close of business on the business day
prior to the redemption date. The conversion rate is subject to adjustment upon
the occurrence of certain events.
The Company has the right to redeem the shares of Series B Preferred
Stock at a redemption price of $20 per share, or an aggregate of $100,000, at
any time after the expiration of three years from the date of this Prospectus or
earlier if the Class A Common Stock is converted into Common Stock. At such time
as the Series B Preferred Stock may be redeemed, it may be redeemed in whole at
any time or in part from time to time. Once the Series B Preferred Stock becomes
redeemable, the Company may redeem the Series B Preferred Stock upon at least
30, but not more than 60 days' prior written notice to the registered holders.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any security of the
Company, if any, which ranks senior to the Series B Preferred Stock, holders of
shares of Series B Preferred Stock will be entitled to receive from the assets
of the Company $20 per share before payment is made to any class or series of
capital stock which ranks junior to the Series B Preferred Stock on liquidation,
dissolution or winding up. After payment of such preference, no further payment
shall be due to the holders of the Series B Preferred Stock.
Series A Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled, upon payment of the exercise
price of $6.00 per share, to purchase one share of Common Stock. Unless
previously redeemed, the Warrants are exercisable during the two-year period
commencing one year from the date of this Prospectus. A holder of the Warrants
(an "Exercising Holder") will only be able to exercise the Warrants if (a) a
current prospectus under the Securities Act relating to the shares of Common
Stock issuable upon exercise of the Warrants is then in effect, and (b) such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the state in which the Exercising Holder resides.
Commencing 18 months from the date of this Prospectus, or earlier with
the consent of the Underwriter, the Warrants are subject to redemption by the
Company, on not more than 60 nor less than 30 days' written notice, at a price
of $.10 per Warrant, if the closing price per share of the Common Stock is at
least $15, subject to adjustment, for at least ten consecutive trading days
ending not earlier than three days prior to the date on which the Warrants are
called for redemption. Holders of Warrants will automatically forfeit their
rights to purchase the shares of Common Stock issuable upon exercise of such
Warrants unless the Warrants are exercised before the close of business on the
business day immediately prior to the date set for redemption. All of the
outstanding Warrants must be redeemed if any are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants by
first class mail, postage prepaid, within five business days (or such longer
period to which the Underwriter may consent) after the Warrants are called for
redemption, but no earlier than the sixtieth nor later than the thirtieth day
before the date fixed for redemption. The notice of redemption shall specify the
redemption price, the date fixed for redemption, the place where the Warrant
certificates shall be delivered and the redemption price paid, and that the
right to exercise
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the Warrants shall terminate at 5:00 p.m., New York City time, on the business
day immediately preceding the date fixed for redemption. The Warrants can only
be redeemed if, on the date the Warrants are called for redemption, there is a
current and effective registration statement covering the issuance of the shares
of Common Stock issuable upon exercise of the Warrants.
The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m., New York City time, on the expiration date of
the Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised.
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price, and the number of shares
in certain specified events, such as stock dividends, stock splits, mergers,
sale of substantially all of the Company's assets, and for other similar events.
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. A holder of Warrants will not possess any rights as a
stockholder of the Company unless and until the holder exercises the Warrants.
Although the Warrants have a fixed exercise price and a formula for
adjustments in certain events and have a fixed expiration date, it is possible
that in the future the Company may wish to reduce the exercise price or extend
the exercise period of the Warrants. The Company has no plans to reduce such
price or extend the exercise period of the Warrants. Any such change would be
effected pursuant to a post-effective amendment to the registration statement of
which this Prospectus is a part or a new registration statement, and no Warrants
with amended terms may be exercised unless and until such post-effective
amendment or new registration statement has been declared effective by the
Commission.
The Warrants are issued pursuant to a Warrant Agreement among the
Company, the Underwriter and American Stock Transfer & Trust Company, as warrant
agent.
Series B Common Stock Purchase Warrants
As of the date of this Prospectus, there were Series B Warrants to
purchase 1,000,000 shares of Common Stock at $2.00 per share outstanding. See
"Certain Transactions" and "Selling Security Holder" for information with
respect to the issuance and possible sale of such Series B Warrants.
The Series B Warrants are exercisable during the three-year period
commencing on the date of this Prospectus. The holders of the Series B Warrants
have demand and piggy-back registration rights with respect to the Series B
Warrants and the shares of Common Stock issuable upon exercise of the Series B
Warrants. The demand registration rights may not be exercised prior to one year
from the date of this Prospectus. Pursuant to the piggyback registration rights,
the Series B Warrants and underlying shares of Common Stock are included in the
registration statement of which this Prospectus is a part. The Company has no
right to redeem the Series B Warrants. In the event that the Series B Warrants
are transferred pursuant to an effective registration statement, the Series B
Warrants automatically terminate 90 days after the date of transfer, provided
that the registration statement remains current and effective during such
period. In such event, the transferee must either exercise the Series B Warrants
or permit them to expire unexercised.
The Series B Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price in certain events,
such as stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events.
The holders of the Series B Warrants have been given the opportunity to
profit from a rise in the market for the shares of the Company's Common Stock at
a nominal cost per share, with a resulting dilution in the interests of
stockholders. The holders of the Series B Warrants can be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain
equity capital, if then needed, by a new equity offering on terms more favorable
than those provided by the Series B Warrants. Such facts may adversely affect
the terms on which the Company could obtain additional financing.
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Other Warrants
Warrants to Purchase Class A Common Stock. As of the date of this
Prospectus, there are outstanding warrants to purchase an aggregate of 2,250,000
shares of Class A Common Stock, of which warrants to 500,000 shares have an
exercise price of $5.00 per share and may be exercised until September 2001, and
warrants to purchase 1,750,000 shares have an exercise price of $2.00 per share
and may be exercised until October 2001. The Company has granted piggyback
registration rights with respect to certain of these warrants. In addition,
pursuant to the Schulman Memorandum, the Company is to issue to Stephen A.
Schulman, M.D. a five-year warrant to purchase 25,000 shares of Class A Common
Stock at $5.00 per share. Additional warrants may be issued to the other two
former stockholder-directors of IMI-Florida if they agree to exchange their
Subordinated Notes for shares of a new series of Preferred Stock.
Warrants to Purchase Common Stock. Pursuant to the Company's agreement
with DVI, in the event that the Company does not prepay its September 1996 term
loans to DVI prior to the September 2001 maturity date, the Company has agreed
to issue to DVI a warrant to purchase 1,000,000 shares of Common Stock at an
exercise price equal to 80% of the market price of the Common Stock on the date
of exercise. The Company has granted DVI certain piggyback registration rights
with respect to the shares of Common Stock issuable upon exercise of these
warrants. The warrant, if issued, will be exercisable from November 1, 2001
until February 1, 2002. See "Agreements with DVI."
Dividend Policy
The Company presently intends to retain future earnings, if any, in
order to provide funds for use in the operation and expansion of its business
and accordingly does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Pursuant to the Company's loan agreements with DVI, the
Company may not pay dividends without the approval of DVI. See "Description of
Securities -- Series A Preferred Stock" and "Description of Securities -- Series
B Preferred Stock" for information concerning non-cumulative dividends payable
with respect to the Series A Preferred Stock and the Series B Preferred Stock
and "Certain Transactions -- Proposed Note Exchange with Dr. Schulman" in
connection with non-cumulative dividends payable with respect to a new series of
Preferred Stock to be issued to Dr. Schulman as contemplated by the Schulman
Memorandum.
Shares Eligible for Future Sale
All of the presently issued and outstanding shares of Common Stock,
Class A Common Stock and Preferred Stock are "restricted securities" as that
term is defined under Rule 144 promulgated under the Securities Act. If a public
market develops for the Company's Common Stock, the Company is unable to predict
the effect that sales made under Rule 144 or other sales may have on the then
prevailing market price of the Common Stock. The 9,200,000 presently outstanding
shares of Common Stock, all of which are owned by SISC, will become eligible for
sale pursuant to Rule 144 commencing 90 days after the effective date of the
registration statement of which this Prospectus forms a part. Substantially all
of the Company's security holders have agreed that has agreed that it will not
sell its shares of Common Stock for three years from the date of this Prospectus
without the prior approval of the Underwriter, except that the restriction is
two years with respect to the Series B Warrants and the underlying shares of
Common Stock. See "Selling Security Holder" in connection with the possible sale
of Series B Warrants to purchase 1,000,000 shares of Common Stock and/or the
1,000,000 shares of Common Stock issuable upon exercise of such warrants.
Commencing on the date the shares may be sold pursuant to Rule 144, in
any three month period, a holder may sell up to the greater of 1% of the
outstanding Common Stock, which is 102,000 shares based on 10,200,000 shares of
Common Stock outstanding upon completion of the sale of the 1,000,000 shares of
Common Stock offered hereby or the average weekly trading volume.
It is not anticipated that there will be a public market for the Class
A Common Stock. However, in the event that the Class A Common Stock is converted
into Common Stock, the holding period with respect to the shares of Common Stock
issued upon such conversion will include the holding period for the Class A
Common Stock. Similarly, the shares of Common Stock issued upon conversion of
the Series B Preferred Stock will be deemed to have been acquired at the time
the shares of Series B Preferred Stock were acquired by the holder thereof.
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Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding certain employee stock ownership
plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. An "interested stockholder" is defined as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
These provisions could have the effect of delaying, deferring or
preventing a change of control of the Company. The Company's stockholders, by
adopting an amendment to the certificate of incorporation or by-laws of the
Company, may elect not to be governed by Section 203, effective twelve months
after adoption. Neither the certificate of incorporation nor the by-laws of the
Company currently excludes the Company from the restrictions imposed by Section
203.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
UNDERWRITING
Monroe Parker Securities, Inc. (the "Underwriter") has agreed, on the
terms and subject to the conditions of the Underwriting Agreement, to purchase
from the Company, and the Company has agreed to sell to the Underwriter,
1,000,000 shares of Common Stock and 1,500,000 Warrants. The Underwriter is
committed to purchase and pay for all of the Securities offered hereby on a
"firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the respective public offering prices set forth on
the cover page of this Prospectus. The Underwriter may allow to certain dealers,
who are members of the National Association of Securities Dealers, Inc.
("NASD"), concessions not exceeding $. per share of Common Stock and $ per
Warrant, of which not more than $. per share of Common Stock and $ per Warrant,
may be reallowed to other dealers who are members of the NASD. After the initial
public offering, the offering price, the concession and the reallowance may be
changed.
The Company has granted an option to the Underwriter, exercisable
during the 45 day period from the date of this Prospectus, to purchase up to a
maximum of 150,000 additional shares of Common Stock and 225,000 additional
Warrants at the public offering price set forth on the Cover Page of this
Prospectus, less the underwriting discounts, for the sole purpose of covering
over-allotments of the Securities.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate public offering price of all Securities
sold (including any Securities sold pursuant to the Underwriter's over-allotment
option).
The Company has also agreed to enter into a two-year consulting
agreement pursuant to which the Company will pay the Underwriter a fee of
$100,000 which is to be paid in full at the closing of this Offering. During the
term of the consulting agreement, the Underwriter will be reimbursed for its
Company-approved out of pocket expenses. The Underwriting Agreement also
provides that the Company will pay the Underwriter a fee in the event the
Company consummates an acquisition, merger or similar transaction with a party
introduced to it by the Underwriter. As of the date of this Prospectus, the
Underwriter has not introduced the Company to any such party.
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The holders of all of the outstanding Common Stock and Class A Common
Stock have agreed not to sell publicly any of their securities without the
written consent of the Underwriter for a period of three years from the date of
this Prospectus. See "Selling Security Holder" for information relating to the
restrictions on sales by the Selling Security Holder. The Company has agreed
that, during the two years following the date of this Prospectus, it will not,
without the consent of the Underwriter, issue any securities (other than upon
exercise or conversion of outstanding securities, the Warrants, the
Underwriter's Options or pursuant to the Plan).
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a purchase price of $25, Underwriter's Options to purchase
from the Company up to 100,000 shares of Common Stock at an exercise price of
$8.25 per share and up to 150,000 Warrants at an exercise price of $.25 per
Warrant. The Warrants issuable upon exercise of the Underwriter's Options are
identical to the Warrants offered hereby. The Underwriter's Options are
exercisable for a four-year period commencing one year from the date this
Prospectus, except that Underwriter's Option to purchase Warrants terminate upon
the expiration or earlier redemption of the Warrants. During the one-year period
commencing on the date of this Prospectus, the Underwriter's Options may not be
sold, transferred, assigned or hypothecated, except to the officers of the
Underwriter or to selling group members or officers or partners or members
thereof, all of which shall be bound by such restrictions. The Underwriter's
Options will contain anti-dilution provisions providing for adjustment under
certain circumstances similar to those applicable to the Warrants. The holders
of the Underwriter's Options have no voting, dividend or other rights as
stockholders of the Company with respect to securities underlying the
Underwriter's Options. The holders of the Underwriter's Options have been given
the opportunity to profit from a rise in the market for the Company's Securities
at a nominal cost, with a resulting dilution in the interests of stockholders.
The holders of the Underwriter's Options can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain equity
capital, if then needed, by a new equity offering on terms more favorable than
those provided by the Underwriter's Options. Such facts may adversely affect the
terms on which the Company could obtain additional financing. Any profit
received by the Underwriter on the sale of the Underwriter's Options or the
securities issuable upon exercise of the Underwriter's Options may be deemed
additional underwriting compensation.
The Company has agreed during the term of the Underwriter's Options and
for two years thereafter to give advance notice to the holders of the
Underwriter's Options or underlying securities of its intention to file a
registration statement, and, in such case, the holders of the Underwriter's
Options and underlying securities shall have the right to require the Company to
include the underlying securities in such registration statement at the
Company's expense. At the demand of the holders of a majority of the
Underwriter's Options and underlying Common Stock, including Common Stock issued
or issuable upon exercise of the Warrants issuable upon exercise of the
Underwriter's Options, during the term of the Underwriter's Options, the Company
will also be required to file one such registration statement at the Company's
expense. In addition, the Company has agreed to cooperate with the holders of
the Underwriter's Options in filing a second registration at the expense of the
holders of the Underwriter's Options or underlying securities.
The Company has also agreed to pay the Underwriter a Warrant
solicitation fee equal to 5% of the exercise price of the Warrants, a portion of
which may be reallowed to a member of the NASD who solicited or assisted in the
solicitation of the exercise of the Warrants. The Warrant exercise fee shall not
be payable with respect to any Warrant exercised prior to the first anniversary
of the date of this Prospectus and may be paid only if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (ii) the exercise of the Warrant was solicited by
a member of the NASD and such solicitation was acknowledged by the holder, (iii)
the Warrant is not held in a discretionary account, (iv) disclosure of the
compensation arrangements are made, in addition to the disclosure provided in
this Prospectus, in documents provided to holders of Warrants at the time of
exercise, and (v) the solicitation of the Warrant was not made in violation of
Rule 10b-6 of the Commission under the Securities Exchange Act of 1934.
Rule 10b-6 of the Commission pursuant to the Exchange Act may prohibit
the Underwriter from engaging in any market making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Underwriter of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriter may be unable
to provide a market for the Company's securities during certain periods while
the Warrants are exercisable.
Prior to this Offering, there has been no public market for the
Securities of the Company. The public offering price of the Common Stock and
Warrants and the exercise price and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the Underwriter
and are not related to the Company's assets, book value, financial condition
- 62 -
<PAGE>
or any other recognized criteria of value. In determining such price and terms,
the Company and the Underwriter considered a number of factors, including
estimates of the Company's business potential, the amount of dilution to public
investors, the Company's prospects, and the general condition of the securities
markets.
The Underwriter has informed the Company that sales to any account over
which the Underwriter exercises discretionary authority will not exceed 1% of
this Offering.
The Underwriter has been actively engaged in the securities brokerage
and investment banking business since 1994. However, the Underwriter has engaged
in only limited underwriting activities, and this Offering is only the fifth
public offering in which the Underwriter has acted as the sole or managing
underwriter. There can be no assurance that the Underwriter's limited experience
as an underwriter of public offerings will not adversely affect the offering of
the Securities, the subsequent development of a trading market, if any, or the
market for and liquidity of the Company's securities. Accordingly, purchasers of
the Securities offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment.
LEGAL MATTERS
Esanu Katsky Korins & Siger, 605 Third Avenue, New York, New York
10158, special counsel for the Company, have given their opinion as to the
authorization and valid issuance of the shares of Common Stock and Warrants
offered by this Prospectus. Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, NY 10022, is acting as counsel for the Underwriter in connection with this
Offering.
The following firms have acted only as special healthcare counsel to
the Company in connection with this Prospectus, and the information relating to
government regulations contained under the caption "Business -- Government
Regulation and Reimbursement" and "Risk Factors" has been included in reliance
upon their advice: Proskauer Rose Goetz & Mendelsohn LLP, as to Federal and
Florida law, Piper & Marbury L.L.P., as to Virginia law, Niewald Waldeck &
Brown, as to Kansas law, and Nevares, Sanchez-Alvarez & Gonzalez-Nieto, as to
Puerto Rico law.
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by Moore Stephens, P.C. independent certified public
accountants, as stated in their report appearing herein are included herein in
reliance on their report given on the authority of that firm as experts in
accounting and auditing. The financial statements of IMI-Florida for September
30, 1994 and for the nine months then ended and for December 31, 1993 and for
the year then ended included in this Prospectus have been audited by Moore
Stephens, P.C., independent certified public accountants, as stated in their
report appearing herein and are included in reliance on their report given on
the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the securities offered
hereby has been filed by the Company with the Securities and Exchange
Commission. This Prospectus does not contain all of the information set forth in
such Registration Statement. For further information with respect to the Company
and to the Securities offered hereby, reference is made to such Registration
Statement, including the exhibits thereto. Statements contained in this
Prospectus as to the content of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
- 63 -
<PAGE>
[This page intentionally left blank]
- 64 -
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
International Magnetic Imaging, Inc. And Subsidiaries
and Related Partnerships:
Report of Independent Auditors..................................... F-3
Combined Balance Sheets............................................ F-4
Combined Statements of Operations.................................. F-6
Combined Statements of Equity...................................... F-7
Combined Statements of Cash Flows.................................. F-8
Notes to Combined Financial Statements............................. F-10
International Magnetic Imaging, Inc. [Predecessor]
Report of Independent Auditors..................................... F-32
Combined Statements of Operations.................................. F-33
Combined Statements of Changes in Equity........................... F-34
Combined Statements of Cash Flows.................................. F-35
Notes to Combined Statements of Operations, Changes in Equity,
and Cash Flows..................................................... F-36
. . . . . . . . .
F-1
<PAGE>
[This page intentionally left blank]
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of International Magnetic Imaging, Inc.
We have audited the accompanying combined balance sheets of
International Magnetic Imaging, Inc. and its subsidiaries and related
partnerships as of December 31, 1995 and 1994, and the related combined
statements of operations, equity, and cash flows for the year ended December 31,
1995 and from date of inception [September 30, 1994] to December 31, 1994. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the combined financial position
of International Magnetic Imaging, Inc. and its subsidiaries and related
partnerships as of December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for the year ended December 31, 1995 and for the
period from September 30, 1994 to December 31, 1994, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 16, 1996
F-3
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
[Unaudited]
<S> <C> <C> <C>
Assets:
Current Assets:
Cash $ 1,746,251 $ 1,411,490 $ 1,471,050
Accounts Receivable - Net 12,284,485 10,506,041 7,928,854
Prepaid Expenses and Other 179,025 237,944 235,072
--------------- --------------- ---------------
Total Current Assets 14,209,761 12,155,475 9,634,976
--------------- --------------- ---------------
Property and Equipment:
Property and Equipment - Net 9,381,395 7,249,676 9,060,302
Equipment Under Capitalized Leases - Net 3,266,820 2,252,329 2,581,618
--------------- --------------- ---------------
Property and Equipment - Net 12,648,215 9,502,005 11,641,920
--------------- --------------- ---------------
Other Assets:
Goodwill - Net 9,865,974 10,277,160 10,928,755
Restrictive Covenants - Net 1,100,861 1,926,512 3,027,380
Customer Lists - Net 4,901,539 5,184,319 5,561,917
Loan Origination Costs - Net 575,114 98,992 46,875
Deposits and Other 588,973 727,946 69,663
Deferred Offering Costs 73,543 -- --
Deferred Tax Asset 801,595 -- --
Note Receivable - Officer 300,000 -- --
--------------- --------------- ---------------
Total Other Assets 18,207,599 18,214,929 19,634,590
--------------- --------------- ---------------
Total Assets $ 45,065,575 $ 39,872,409 $ 40,911,486
=============== =============== ===============
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
[Unaudited]
<S> <C> <C> <C>
Liabilities and Equity:
Current Liabilities:
Accounts Payable and Other Liabilities $ 2,314,668 $ 2,673,087 $ 1,912,137
Accrued Expenses 1,106,878 814,156 800,158
Accrued Radiology Fees 238,788 187,134 52,508
Current Income Taxes Payable 609,985 232,298 23,643
Current Portion of Notes Payable 3,343,329 2,933,082 2,593,069
Current Portion of Obligations Under Capitalized Leases 1,210,401 1,140,095 995,174
Current Portion of Covenants Not-to-Compete 266,667 266,667 266,667
Current Portion of Subordinated Debt 918,152 12,653,825 2,637,048
Due to Affiliate -- 111,514 294,641
--------------- --------------- ---------------
Total Current Liabilities 10,008,868 21,011,858 9,575,045
--------------- --------------- ---------------
Noncurrent Liabilities:
Long-Term Debt:
Notes Payable 12,465,913 5,909,814 7,756,517
Revolver Loan 4,663,351 -- --
Obligations Under Capitalized Leases 2,864,279 2,057,580 2,518,170
Covenants Not-to-Compete -- 200,000 466,667
Subordinated Debt 5,662,298 4,033,873 16,158,870
Subordinated Debt - Related Party 994,000 969,000 1,067,000
Due to Affiliate 1,597,914 2,557,796 2,919,000
Deferred Interest 371,260 -- --
--------------- --------------- ---------------
Total Noncurrent Liabilities 28,619,015 15,728,063 30,886,224
--------------- --------------- ---------------
Total Liabilities 38,627,883 36,739,921 40,461,269
--------------- --------------- ---------------
Commitments and Contingencies -- -- --
--------------- --------------- ---------------
Equity:
Preferred Stock - Par Value $.01, 6,000,000 Shares Authorized:
Series A - 5,000 Shares Issued and Outstanding
[Liquidation Value - $5,150,000] 50 50 50
Series B - 5,000 Shares Issued and Outstanding
[Liquidation Value - $100,000] 50 50 50
Common Stock - Par Value $.01, 50,000,000 Shares Authorized,
9,200,000 Shares Issued and Outstanding 92,000 92,000 92,000
Class A Common Stock - Par Value $.01, 6,000,000 Shares Authorized,
1,000,000 Shares Issued and Outstanding 10,000 10,000 10,000
Additional Paid-in Capital 590,803 (101,100) (101,100)
General Partners' [Deficiency] (668,486) (324,840) (69,580)
Limited Partners' Equity [Deficiency] 1,177,647 (58,202) (80,089)
Stockholders' Equity 5,235,628 3,514,530 598,886
--------------- --------------- ---------------
Total Equity 6,437,692 3,132,488 450,217
--------------- --------------- ---------------
Total Liabilities and Equity $ 45,065,575 $ 39,872,409 $ 40,911,486
=============== =============== ===============
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From date of
Inception
[September 30,
Nine months ended Year ended 1994] to
September 30, December 31, December 31,
------------- ------------ ------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Revenue:
Net Patient Service Revenue $ 22,968,825 $ 20,415,610 $ 27,381,738 $ 6,526,644
Management Fee Income 388,869 141,168 212,211 22,901
Radiology Fee Income -- -- -- 7,791
Other Service Revenue 418,205 317,048 449,773 --
--------------- --------------- --------------- ---------------
Total Revenue 23,775,899 20,873,826 28,043,722 6,557,336
--------------- --------------- --------------- ---------------
Costs and Expenses:
Radiology Fees 2,403,047 2,207,809 2,981,862 526,576
Equipment Maintenance 939,956 935,302 1,223,154 359,842
Patient Service Costs and Expenses 1,697,431 1,469,248 1,934,866 520,839
Salaries and Benefits 4,928,935 4,445,722 5,941,350 1,713,229
Professional Services 664,296 623,493 786,608 39,190
Other Management, General and
Administrative 3,590,885 2,935,520 3,966,117 946,822
Provision for Bad Debts 1,127,500 613,866 855,053 130,637
Depreciation 2,279,496 2,239,840 2,939,841 775,244
Amortization 1,604,198 1,534,946 2,047,681 509,016
--------------- --------------- --------------- ---------------
Total Costs and Expenses 19,235,744 17,005,746 22,676,532 5,521,395
--------------- --------------- --------------- ---------------
Operating Income Before Other
Income and Taxes 4,540,155 3,868,080 5,367,190 1,035,941
--------------- --------------- --------------- ---------------
Other Income [Expense]:
Interest Income and Other 479,011 101,044 192,562 139,727
Interest Expense (2,107,693) (1,953,710) (2,565,215) (702,808)
Loss on Disposal of Assets (953) (3,229) (24,893) --
Loss on Sale of Assets -- -- (78,718) --
--------------- --------------- --------------- ---------------
Total Other [Expense] - Net (1,629,635) (1,855,895) (2,476,264) (563,081)
--------------- --------------- --------------- ---------------
Income Before Income Taxes 2,910,520 2,012,185 2,890,926 472,860
Income Tax Expense 297,219 147,408 208,655 23,643
--------------- --------------- --------------- ---------------
Net Income $ 2,613,301 $ 1,864,777 $ 2,682,271 $ 449,217
=============== =============== =============== ===============
Earnings Per Share:
Primary $ .17 $ .12 $ .19 $ .03
=============== =============== =============== ===============
Fully Diluted $ * $ * $ .18 $ *
=============== =============== =============== ===============
Weighted Average Number of Shares:
Primary 14,010,000 13,976,550 14,030,175 13,938,500
=============== =============== =============== ===============
Fully Diluted * * 15,706,375 *
=============== =============== =============== ===============
</TABLE>
*Fully diluted information is not presented since the effect is anti-dilutive.
See Notes to Combined Financial Statements.
F-6
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Class A Common
6,000,000 Shares Authorized Par Value $.01 Stock 50,000,000 Stock 6,000,000
Series B Convertible Shares Authorized Shares Authorized
Series A Redeemable Redeemable 9,200,000 Shares Issued 1,000,000 Shares Issued
5,000 Shares Issued 5,000 Shares Issued and Outstanding and Outstanding
and Outstanding and Outstanding Par Value $.01 Par Value $.01
--------------- --------------- -------------- -----------------
# of Shares Amount # of Shares Amount # of Shares Amount # of Shares Amount
----------- ------ ----------- ------ ----------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock 5,000 $ 50 5,000 $ 50 9,200,000 $ 92,000 1,000,000 $ 10,000
Net Income for the period
ended December 31, 1994 -- -- -- -- -- -- -- --
-------- --------- --------- ---------- ---------- ---------- --------- ----------
Balance as of
December 31, 1994 5,000 50 5,000 50 9,200,000 92,000 1,000,000 10,000
Net Income for the year ended
December 31, 1995 -- -- -- -- -- -- -- --
-------- --------- --------- ---------- ---------- ---------- --------- ----------
Balance as of
December 31, 1995 5,000 50 5,000 50 9,200,000 92,000 1,000,000 10,000
Additional Capital
Contribution -- -- -- -- -- -- -- --
Net Income for the nine months
ended September 30, 1996
[Unaudited] -- -- -- -- -- -- -- --
-------- --------- --------- ---------- ---------- ---------- --------- ----------
Balance as of
September 30, 1996
[Unaudited] 5,000 $ 50 5,000 $ 50 9,200,000 $ 92,000 1,000,000 $ 10,000
======== ========= ========= ========== ========== ========== ========= ==========
(continued)
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-in Retained Partners' Capital Total
------- -------- ----------------- -----
Capital Earnings General Limited Equity
------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock $(101,100) $ -- $ -- $ -- $ 1,000
Net Income for the period
ended December 31, 1994 -- 598,886 (69,580) (80,089) 449,217
--------- -------- ------- ------- ----------
Balance as of
December 31, 1994 (101,100) 598,886 (69,580) (80,089) 450,217
Net Income for the year
ended December 31, 1995 -- 2,915,644 (255,260) 21,887 2,682,271
--------- --------- -------- ------- ----------
Balance as of
December 31, 1995 (101,100) 3,514,530 (324,840) (58,202) 3,132,488
Additional Capital
Contribution 691,903 -- -- -- 691,903
Net Income for the nine
months ended September
30, 1996 [Unaudited] -- 1,721,098 (343,646) 1,235,849 2,613,301
--------- --------- -------- --------- ----------
Balance as of
September 30, 1996
[Unaudited] $ 590,803 $ 5,235,628 $(668,486) $ 1,177,647 $ 6,437,692
=========== =========== ========= =========== ===========
(concluded)
</TABLE>
See Notes to Combined Financial Statements.
F-7
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From date of
Inception
[September 30,
Nine months ended Year ended 1994] to
September 30, December 31, December 31,
------------- ------------ ------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 2,613,301 $ 1,864,777 $ 2,682,271 $ 449,217
--------------- --------------- --------------- ---------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Bad Debts 1,127,500 613,866 855,053 130,637
Depreciation 2,279,496 2,239,840 2,939,841 775,244
Amortization of Intangible Assets and
Loan Costs 1,604,198 1,534,946 2,047,681 509,016
Loss on Disposal of Equipment 953 3,229 24,893 --
Loss of Sale of Equipment -- -- 78,718 --
Deferred Tax Benefit [Provision] (801,595) -- -- --
Deferred Interest 371,260 -- -- --
Changes in Operating Assets and Liabilities:
Accounts Receivable - Net (2,905,944) (2,946,794) (3,432,240) (680,478)
Prepaid Expenses and Other (241,082) 125,683 (2,870) 114,355
Accounts Payable and Other Liabilities 311,990 603,292 983,603 1,229,744
Accrued Radiology Fees 51,654 169,319 134,626 52,508
--------------- --------------- --------------- ---------------
Total Adjustments 1,798,430 2,343,381 3,629,305 2,131,026
--------------- --------------- --------------- ---------------
Net Cash - Operating Activities -
Forward 4,411,731 4,208,158 6,311,576 2,580,243
--------------- --------------- --------------- ---------------
Investing Activities:
Property and Equipment Additions (3,525,281) (173,862) (226,076) (1,514,620)
Proceeds from Sale of Property and
Equipment -- -- 85,000 --
Cash Received from Companies Acquired -- -- -- 2,349,538
Cash Paid to Companies Acquired -- -- -- (7,100,000)
Net Payments to Affiliate (379,493) (266,843) (440,347) (1,034,144)
Payments for Deposits -- (205,158) (658,283) --
Deposit Refunded 138,972 -- -- --
--------------- --------------- --------------- ---------------
Net Cash - Investing Activities -
Forward $ (3,765,802) $ (645,863) $ (1,239,706) $ (7,299,226)
</TABLE>
See Notes to Combined Financial Statements.
F-8
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From date of
Inception
[September 30,
Nine months ended Year ended 1994] to
September 30, December 31, December 31,
------------- ------------ ------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Net Cash - Operating Activities -
Forwarded $ 4,411,731 $ 4,208,158 $ 6,311,576 $ 2,580,243
--------------- --------------- --------------- ---------------
Net Cash - Investing Activities -
Forwarded (3,765,802) (645,863) (1,239,706) (7,299,226)
--------------- --------------- --------------- ---------------
Financing Activities:
Proceeds from Acquisition Debt -- -- -- 7,100,000
Proceeds from Lending Institutions 15,398,005 974,500 1,210,755 82,376
Payments on Notes Payable and
Long-Term Debt (14,050,556) (3,886,984) (5,190,329) (765,468)
Payments on Capital Lease Obligations (1,024,371) (797,743) (1,078,134) (226,875)
Payments of Loan Costs (560,703) (62,550) (73,722) --
Payments of Offering Costs (73,543) -- -- --
--------------- --------------- --------------- ---------------
Net Cash - Financing Activities (311,168) (3,772,777) (5,131,430) 6,190,033
--------------- --------------- --------------- ---------------
Net Increase [Decrease] in Cash 334,761 (210,482) (59,560) 1,471,050
Cash - Beginning of Periods 1,411,490 1,471,050 1,471,050 --
--------------- --------------- --------------- ---------------
Cash - End of Periods $ 1,746,251 $ 1,260,568 $ 1,411,490 $ 1,471,050
=============== =============== =============== ===============
</TABLE>
See Notes to Combined Financial Statements.
F-9
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[1] Nature of Operations
International Magnetic Imaging, Inc., a Delaware corporation formerly known as
IMI Acquisition Corporation [the "Company"], commenced operations in September
1994 to engage in the acquisition, ownership and operation of outpatient medical
diagnostic centers providing magnetic resonance imaging ["MRI"] services and
other diagnostic modalities. Operations of the centers are conducted through
seven partnerships and five corporations and are located in various states and
the Commonwealth of Puerto Rico.
The Company was organized as a wholly-owned subsidiary of SIS Capital Corp.
["SISC"], which is a wholly-owned subsidiary of Consolidated Technology Group
Ltd., ["Consolidated"], a public Company.
The principal users of the Company's centers are practicing physicians located
in general proximity to the various centers. Each of the centers is managed by
International Magnetic Imaging, Inc., a Florida Corporation ["IMI - Florida"].
Basis of Presentation - The combined financial statements include the accounts
of the Company and its wholly-owned subsidiaries and related partnerships. The
seven Florida centers operate as limited partnerships in which the Company has
two corporate subsidiaries as corporate partners for each partnership, one
owning 1% to 30% of the partnership as a general partner and the other 70% to
99% as a limited partner. Such a structure was required to consummate the
acquisition under Florida law due to the notes payable to the former limited
partners. Intercompany balances have been eliminated in combination.
Operating Centers:
Pine Island Magnetic Resonance Imaging Center, Ltd.
Magnetic Resonance Institute of North Miami Beach, Ltd.
Magnetic Resonance Institute of Boca Raton, Ltd.
Magnetic Resonance Institute of South Dade, Ltd.
Oakland Magnetic Resonance Institute, Ltd.
Physician's Outpatient Diagnostic Center, Ltd.
IMI Acquisition of Puerto Rico Corporation
IMI Acquisition of Arlington Corp.
IMI Acquisition of Kansas Corp.
Magnetic Resonance Institute of Orlando, Ltd.
Management Company:
IMI - Florida
Radiology Company:
MD Acquisition Corp.
[2] Summary of Significant Accounting Policies
The accounting and reporting policies of International Magnetic Imaging, Inc.
and Subsidiaries and Related Partnerships [hereinafter collectively referred to
as "IMI" or the "Company"] conform to generally accepted accounting principles.
The following summarizes the more significant of these policies.
F-10
<PAGE>
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F-11
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #2
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. At
December 31, 1995 and 1994, the Company had no cash equivalents.
Joint Venture - On August 7, 1995, the Company entered into a joint venture
agreement with Kaley Imaging, Inc. ["Kaley"]. The Company and Kaley have
determined that they will mutually benefit from a consolidation of their
respective operations. The Company owns 50% of the joint venture and accounts
for its investment on the equity method. At December 31, 1995, the Company has
recognized $120,450 of income from this arrangement.
Allowance for Doubtful Accounts - Patient accounts are reserved for when, in
management's opinion, the collectibility of a portion of, or the entire
outstanding balance, is doubtful.
Property and Equipment and Depreciation - Property and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on a straight-line
basis over the estimated useful lives of the related assets. Leasehold
improvements are stated at cost less accumulated amortization. Such improvements
are amortized over the shorter of the term of the lease or the useful life of
the improvement. Medical equipment financed under capital leases is recorded in
property and equipment at the lower of the present value of the minimum lease
payments or the fair value of the assets at the inception of the lease.
Amortization of assets held under capital leases is included in depreciation
expense and is computed using the straight-line method.
Property and equipment are depreciated over the following estimated useful
lives:
Years
Buildings and Improvements 25
Leasehold Improvements 10 - 25
Medical Equipment 6
Furniture and Equipment 5 - 7
Expenditures for maintenance, repairs, and replacement of minor items are
charged to earnings as incurred. Major additions and improvements which extend
the useful life or improve the operating performance of the related asset are
capitalized. Upon disposition, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
operations for the period. Depreciation expense for the periods December 31,
1995 and 1994 is $2,939,841 and $775,244, respectively. The equipment used by
the Company is technologically sophisticated and subject to accelerated
obsolescence in the event of significant technological change.
Intangible Assets - Intangible assets consist of goodwill, customer lists, and
covenants not-to-compete arising from business acquisitions. Goodwill, which
represents the excess of the purchase price over the estimated fair value of the
net assets acquired via the business acquisitions, is being amortized over the
period of expected benefit of 20 years. Customer lists are amortized over the
period of expected benefit, which is 15 years. The covenants not-to-compete are
being amortized over their contractual lives, which is 3 years. Intangible
assets are being amortized on a straight-line basis.
Accumulated amortization of intangible assets resulting from business
acquisitions was $2,535,092 and $509,016 at December 31, 1995 and 1994,
respectively. Amortization expense relating to business acquisitions for the
year ended December 31, 1995 and three months ended December 31, 1994 was
$2,026,076 and $509,016, respectively.
F-12
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #3
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Intangible Assets [Continued] - Management of the Company has developed a policy
to evaluate the period of goodwill amortization to determine whether later
events and circumstances warrant revised estimates of useful lives. Management
on a quarterly basis evaluates the carrying value of goodwill by comparing the
carrying value to the value of projected discounted net cash flows from related
operations. Impairment will be recognized if the carrying value of goodwill is
greater than the projected discounted net cash flows from related operations.
Management has determined that projected discounted net cash flows exceed the
carrying value of goodwill at December 31, 1995. It is at least reasonably
possible that management's estimate of projected discounted net cash flows may
change in the near term.
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
Loan Origination Costs - Loan origination costs of $46,875 and $73,722 were
incurred in connection with financing relating to the business acquisitions and
capital expenditures for the years ended December 31, 1995 and 1994,
respectively. The costs will be amortized over the terms of the related
financing agreements, using the straight-line method which approximates the
interest method. Amortization expense of loan origination costs relating to
business acquisitions and capital expenditures at December 31, 1995 and 1994 was
$21,605 and $-0-, respectively. Amortization of such costs began in January of
1995.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
Net Patient Service Revenue - The Company is not engaged in the practice of
medicine and does not employ physicians. The Company bills on a "global basis,"
pursuant to which it bills for both the services provided by the Company as well
as the professional services provided by the physicians. The revenue generated
by the "global basis" billing represents revenue to the Company. The physicians,
who are independent contractors who are not under the control of the Company,
are paid by the Company in accordance with the agreements between the Company
and the physicians. Payments to the physicians are reflected as "radiology
fees." [See Note 13] Net patient service revenue is reported at the estimated
net realizable amounts from patients and third-party payors at the time services
are rendered, including provisions for estimated contractual adjustments under
reimbursement agreements with third-party payors. The Company has historically
not provided any significant amount of charity care. For the year ended December
31, 1995 and the period from inception [September 30, 1994] to December 31,
1994, contractual adjustments amounted to approximately $22,000,000 and
$4,000,000, respectively.
F-13
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #4
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Income Taxes - The Company prepares its combined financial statements on the
accrual basis of accounting. Provision has been made for federal income taxes
for the center operating in the Commonwealth of Puerto Rico and state income
taxes for the corporate general and limited partners of the partnership
entities. The Company and its subsidiaries file separate state tax returns. No
provision has been made for federal and state income taxes for the seven
partnership entities [the Florida centers] as the corporate general and limited
partners, which are subsidiaries of the Company, are responsible for such taxes
on their respective share of earnings. Although federal income tax returns for
the management company, radiology company, the corporate general and limited
partners of the partnership entities, and the three operating MRI centers
organized for tax purposes as "C" corporations are filed on a consolidated basis
with those of the parent company, Consolidated, the combined subsidiaries of
Consolidated have calculated their tax provision on the "separate return basis."
Any tax benefit received by the utilization of Consolidated's federal tax net
operating losses has been properly recorded as a liability to Consolidated and
then subsequently forgiven, resulting in an addition to paid-in capital in
accordance with Accounting Principles Bulletin No. 26.
Acquisitions - On September 30, 1994, the Company acquired IMI - Florida and its
affiliated entities in a business combination accounted for as a purchase. The
principal operations of IMI - Florida are in the establishment and operation of
outpatient diagnostic centers providing MRI services and other diagnostic
modalities. The results of operations of the acquired entities are included in
the accompanying combined financial statements since the date of acquisition.
The total cost of the acquisition was $31,871,702, which exceeded the fair value
of net assets of the acquired entities by $11,068,852. Included in the purchase
price was the issuance of 3,343,000 shares of Consolidated common stock valued
at approximately $.87 a share [$2,920,000] which was the fair value determined
at the time of acquisition. Such shares were transferred from Consolidated to
SISC and from SISC to the Company. Pursuant to the agreement, additional shares
of Consolidated common stock may have to be issued to the sellers should there
be a decline in the price of the Consolidated common stock at the time of one
year from the date of sale. Additionally, in conjunction with the Company's
acquisition of one of the centers, 125,000 shares of Consolidated common stock
was issued to a radiologist in connection with an amendment to the exsisting
agreement with such radiologist. The determined fair value at that time of $.87
per share or $108,750 was expensed during the period ended December 31, 1994.
The excess purchase price, or goodwill, is being amortized by the straight-line
method over 20 years.
The other intangibles, specifically restrictive covenants and customer lists,
are being amortized by the straight-line method over 3 years and 15 years,
respectively.
The following summarizes the purchase price allocated to acquired assets at fair
value.
Cash $ 6,960,000
Subordinated Debt 19,862,915
Stock 2,920,000
Notes [Covenants] 800,000
Acquisition Costs 1,328,787
---------------
Purchase Cost $ 31,871,702
------------- ===============
Allocated to:
Cash $ 2,349,548
Other Assets 421,281
Covenants-Not-to-Compete 3,302,597
Property, Plant and Equipment 10,902,543
Accounts Receivable 7,379,015
Managed Care Contracts - Customer Lists 5,655,619
Liabilities Assumed (9,207,753)
Goodwill 11,068,852
---------------
Total $ 31,871,702
----- ===============
F-14
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #5
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
The cash portion of the purchase price was simultaneously financed through a
major asset-based lender.
Earnings Per Share - Earnings per share is computed based on the weighted
average number of shares outstanding for each period presented using the
modified treasury stock method. Common stock equivalents are included in the
calculation when they are dilutive. Certain options and warrants, issued at or
below the Initial Public Offering price within one year of the filing of the
Registration Statement, are included in the computation of earnings per share
for all periods presented. In November 1996, the Company effected a
recapitalization pursuant to which 1,000 shares of Common Stock outstanding on
such date became and were converted into 9,200,000 shares of Common Stock,
1,000,000 shares of Class A Common Stock, 5,000 shares of Series A Redeemable
Preferred Stock and 5,000 shares of Series B Convertible Redeemable Preferred
Stock. In computing earnings per share, shares of Common Stock and Class A
Common Stock are treated as a single class. All share and per share information
in these financial statements gives effect, retroactively, to such transactions.
Dividends on preferred stock, if and when declared, are included in the
calculation of earnings per share.
[3] Accounts Receivable
Accounts receivable, net of contractual allowances, are summarized as follows:
December 31,
1 9 9 5 1 9 9 4
Personal Injury Liability Related Services $ 5,423,870 $ 4,794,648
Managed Care 2,031,822 1,552,414
Commercial Insurance 1,812,313 1,574,168
Workers' Compensation 958,427 1,079,673
Medicare/Medicaid 559,026 568,624
Private Pay 784,121 700,191
Other 1,426,843 10,162
---------------- ---------------
Totals 12,996,422 10,279,880
Less: Allowance for Doubtful Accounts (2,490,381) (2,351,026)
---------------- ---------------
Accounts Receivable - Net $ 10,506,041 $ 7,928,854
------------------------- ================ ===============
Accounts receivable pledged as collateral for borrowings at December 31, 1995
and 1994 was $9,969,500 and $6,821,971, respectively. On a combined basis the
Company does not have a significant concentration of receivables from any one
non-governmental managed care provider. The Company does not require collateral
from its customers.
Contractual allowances amounted to approximately $2,000,000 and $1,000,000 at
December 31, 1995 and 1994, respectively.
The changes in the allowance for doubtful accounts are summarized as follows:
December 31,
1 9 9 5 1 9 9 4
Beginning Balance $ 2,351,026 $ 2,394,794
Provision for Doubtful Accounts 855,053 130,637
Recoveries 255,862 94,848
Charge-offs (971,560) (269,253)
---------------- ---------------
Ending Balance $ 2,490,381 $ 2,351,026
-------------- ================ ===============
F-15
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #6
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[4] Other Receivable
In connection with the acquisition of one of the Florida centers, certain
liabilities that existed at the closing date [September 30, 1994] were paid by
Physician's Outpatient Diagnostic Center, Ltd. In accordance with the purchase
agreement, Physician's Outpatient Diagnostic Center, Ltd. is entitled to
reimbursement for the payment of these liabilities, which amount to $146,462 as
of December 31, 1994. Cash collections on accounts receivable that existed prior
to the closing date are being used to reduce this receivable. As of December 31,
1995, this receivable has been collected.
[5] Property and Equipment
Property and equipment as of December 31 are summarized as follows:
December 31,
Property Class 1 9 9 5 1 9 9 4
-------------- ------- -------
Land $ 663,830 $ 663,830
Buildings and Improvements 3,242,346 3,233,627
Leasehold Improvements 1,170,377 1,151,516
Medical Equipment 14,590,268 15,918,545
Furniture and Equipment 2,071,906 2,118,092
---------------- ---------------
Subtotal 21,738,727 23,085,610
Less: Accumulated Depreciation (14,489,051) (14,025,308)
---------------- ---------------
Property and Equipment - Net $ 7,249,676 $ 9,060,302
---------------------------- ================ ===============
Property and equipment pledged as collateral for borrowings had a net book value
of $7,249,676 and $8,759,812 as of December 31, 1995 and 1994, respectively.
[6] Leases
The Company leases real estate for certain of its MRI centers and its
administrative offices under noncancellable operating leases expiring during the
next fifteen years. The real estate leases contain clauses which permit
adjustments of lease payments based upon changes in the "Consumer Price Index,"
options to renew the leases for periods up to an additional fifteen years and
additional payments for a proportionate share of real estate taxes and common
area operating expenses.
Several of the MRI centers lease the magnetic resonance imaging equipment under
noncancellable capital leases, the last of which expires in 2000.
F-16
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #7
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[6] Leases [Continued]
For certain of those leases, a balloon payment representing the buy-out of the
leased equipment is due at the end of the lease term. A summary of leased
property under capitalized leases is as follows:
December 31,
Property Class 1 9 9 5 1 9 9 4
-------------- ------- -------
Medical Equipment:
San Juan $ 1,508,390 $ 1,508,390
Greater Kansas City 2,556,284 2,010,384
Orlando 1,625,664 1,625,664
IMI 350,151 222,860
P.O.D.C. 333,143 243,869
---------------- ---------------
Subtotal 6,373,632 5,611,167
Less: Accumulated Amortization (4,121,303) (3,029,549)
---------------- ---------------
Equipment Under Capitalized Leases - Net $ 2,252,329 $ 2,581,618
---------------------------------------- ================ ===============
Amortization expense of equipment under capitalized leases is included in
depreciation expense.
As of December 31, 1995, the future minimum lease payments under capitalized
leases and noncancellable operating leases are:
Capital Operating
Fiscal Years Leases Leases
1996 $ 1,384,644 $ 593,146
1997 1,015,244 598,593
1998 876,359 602,082
1999 330,542 598,690
2000 70,418 241,578
Thereafter -- 69,992
--------------- ----------------
Total Minimum Lease Payments 3,677,207 $ 2,704,081
================
Less Amount Representing Interest (479,532)
--------------
Present Value of Net Minimum
Capitalized Lease Payments 3,197,675
Less: Current Portion of Obligations
Under Capital Leases (1,140,095)
---------------
Non-Current Portion of Obligations
Under Capitalized Leases $ 2,057,580
--------------------------------- ===============
Total rental expense for the years ended December 31, 1995 and 1994 was $628,366
and $129,690, respectively.
F-17
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #8
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[7] Long-Term Debt
The Company maintains term loans and other notes payable which are secured by
accounts receivable and property and equipment. Loan agreements contain various
covenants, including restrictions on any mergers, consolidations, sales of
assets or issuances of stock, as well as restrictions on payments to the parent
Company or any subsidiary or affiliate and to the payment of dividends, unless
authorized by the lender. Subordinated notes payable issued in connection with
the acquisitions are unsecured. Certain subsidiaries that issued the
Subordinated Notes have not made certain payments of principal or interest due
on such notes in 1996, as result of which the holders may have the right to
declare a default. Although no default has been called, no assurance can be
given that some or all of the holders of such Subordinated Notes will not seek
to declare a default [See Notes 21 and 23A]. Long-term debt at December 31, 1995
and 1994 consists of the following:
Long-term debt consists of the following:
December 31,
1 9 9 5 1 9 9 4
Operating Term Loan:
Note payable in monthly installments of $20,000,
plus interest at 1.5% above the prime rate; final
payment due November 1995. $ -- $ 220,000
Equipment and Leasehold Improvement Debt:
Note payable in monthly installments of $26,416,
plus interest at 1% above the prime rate; final
payment due December 1995. -- 317,000
Note payable in monthly installments of $13,666,
which includes interest at 7.75%; final payment
due July 1996. 93,478 243,471
Note payable in monthly installments of $16,241;
which includes interest at a rate of 9.5%; final
payment due September 1996. 147,008 318,958
Note payable in monthly installments of $12,830,
which includes interest at a rate of 9.5%; final
payment due September 1998. 371,338 484,150
Note payable in monthly installments of $6,488,
which includes interest at 11.5% final payment
due May 2000 260,763 --
Note payable in monthly installments of $6,488,
which includes interest at 11.5%, final payment
due May 2000 260,763 --
Note payable in monthly installments of $7,962,
which includes interest at 11.5%, final payment
due May 2000. 319,989 --
--------- ----------
Total Equipment and Leasehold Improvement Debt
- Forward 1,453,339 1,583,579
--------- ----------
Building Debt:
Mortgage note payable in monthly installments
of $9,256, plus interest at 1% above the prime
rate; balloon payment due September 1996. 971,834 1,082,900
Mortgage note payable in monthly installments of
$8,333, plus interest at 1% above the prime rate;
balloon payment due February 1999. 516,667 616,667
--------- ----------
Totals - Forward $1,488,501 $ 1,699,567
F-18
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #9
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[7] Long-Term Debt [Continued]
December 31,
1 9 9 5 1 9 9 4
Total Equipment and Leasehold Improvement Debt -
Forwarded $1,453,339 $ 1,583,579
------------ -----------
Building Debt [Continued]:
Totals - Forwarded 1,488,501 1,699,567
Mortgage note payable in monthly installments of
$2,942, which includes interest at 9.75%, balloon
payment due November 2000 222,701 --
Mortgage note payable in monthly installments of
$1,184, plus interest at 1.25% above the prime
rate; balloon payment due November 1995. -- 240,266
---------- -----------
Total Building Debt - Forward 1,711,202 1,939,833
---------- -----------
Subordinated Debt:
Note payable in quarterly installments of $110,401,
plus interest at 7%; balloon payment due September
1996. 3,238,396 3,680,000
Note payable in quarterly installments of $78,537,
plus interest at 7%; balloon payment due September
1996. 2,303,765 2,617,915
Note payable in quarterly installments of $92,400,
plus interest at 7%; balloon payment due September
1996. 2,710,403 3,080,003
Note payable in quarterly installments of $28,800,
plus interest at 7%; balloon payment due September
1996. 844,800 960,000
Note payable in quarterly installments of $20,700,
plus interest at 7%; balloon payment due September
1996. 607,200 690,000
Note payable in quarterly installments of $17,100,
plus interest at 7%; balloon payment due September
1996. 501,600 570,000
Note payable in quarterly installments of $29,400,
plus interest at 7%; balloon payment due September
1996. 862,400 980,000
Note payable in quarterly installments of $11,400,
plus interest at 7%; balloon payment due September
1997. 334,400 380,000
---------- ----------
Totals - Forward $11,402,964 $12,957,918
F-19
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #10
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[7] Long-Term Debt [Continued]
December 31,
1 9 9 5 1 9 9 4
Total Equipment and Leasehold Improvement
Debt - Forwarded $ 1,453,339 $ 1,583,579
----------- -----------
Total Building Debt - Forwarded 1,711,202 1,939,833
----------- -----------
Subordinated Debt [Continued]:
Totals - Forwarded 11,402,964 12,957,918
Note payable in quarterly installments of $14,400,
plus interest at 7%; balloon payment due September
1997. 422,400 480,000
Note payable in quarterly installments of $91,500,
plus interest at 7%; balloon payment due September
1997. 2,860,976 3,050,000
Note payable in quarterly installments of $195,925,
which includes interest at 4%; balloon payment due
September 1999. 2,970,358 3,375,000
---------- ----------
Total Subordinated Debt - Forward 17,656,698 19,862,918
---------- ----------
Other Debt:
Note payable in monthly installments of $29,124,
which includes interest at 10.5%; final payment
due September 1999. 1,079,498 1,302,742
Note payable in monthly installments of $25,922,
which includes interest at 10.5%; final payment
due September 1999. 960,793 1,159,488
Note payable in monthly installments of $8,684,
which includes interest at 10.5%; final payment
due September 1999. 321,858 388,419
Note payable in monthly installments of $10,768,
which includes interest at 10.5%; final payment
due September 1999. 399,135 481,677
Note payable in monthly installments of $21,129,
which includes interest at 10.5%; final payment
due September 1999. 783,134 945,089
Note payable in monthly installments of $18,807,
which includes interest at 10.5%; final payment
due September 1999. 697,093 841,254
---------- ----------
Totals - Forward $ 4,241,511 $ 5,118,669
F-20
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #11
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[7] Long-Term Debt [Continued]
December 31,
1 9 9 5 1 9 9 4
Total Equipment and Leasehold Improvement
Debt - Forwarded $ 1,453,339 $ 1,583,579
----------- -----------
Total Building Debt - Forwarded 1,711,202 1,939,833
----------- -----------
Total Subordinated Debt - Forwarded 17,656,698 19,862,918
----------- -----------
Other Debt [Continued]:
Totals - Forwarded 4,241,511 5,118,669
Note payable in monthly installments of $10,854,
which includes interest at 10.5%; final payment
due September 1999. 402,322 485,524
Note payable in monthly installments of $27,319,
which includes interest at 10.5%; final payment
due September 1999. 1,012,574 1,221,981
Note payable in monthly installments of $1,000,
which includes interest at 12%; final payment
due December 1996 10,368 --
Note payable in monthly installments of $2,000,
which includes interest at 12%; final payment
due August 1996 11,580 --
----------- -----------
Total Other Debt 5,678,355 6,826,174
----------- -----------
Total Debt 26,499,594 30,212,504
Less Current Portion (15,586,907) (5,230,117)
------------ -----------
Totals $ 10,912,687 $ 24,982,387
------ ============ ============
The prime rate at December 31, 1995 and 1994 was 8.5%.
Maturities of long-term debt are as follows:
Years ending
December 31,
1996 $ 15,586,907
1997 5,559,357
1998 2,773,824
1999 2,354,547
2000 224,959
Thereafter --
---------------
Total $ 26,499,594
----- ===============
Cash paid for interest for the periods ended December 31, 1995 and 1994 amounted
to $2,175,631 and $709,140, respectively.
F-21
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #12
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[8] Covenants Not-to-Compete
In connection with the acquisition of the imaging centers, the Company entered
into two three-year non-competition agreements with two of the previous owners
of the acquired entities. Pursuant to such agreements, the Company is
contractually obligated to pay such individuals an aggregate of $800,000. The
monthly payments under these agreements are $22,222 with the final payment due
in September 1997. The balance due pursuant to such agreements as of December
31, 1995 and 1994 is $466,667 and $733,334, respectively. Annual maturities of
these obligations are as follows:
Years ending
December 31, Amount
1996 $ 266,667
1997 200,000
--------------
Total $ 466,667
----- ==============
[9] Capital Stock
The Company is authorized to issue 6,000,000 shares of Preferred Stock, par
value $.01 per share, 50,000,000 shares of Common Stock, par value $.01 per
share, and 6,000,000 shares of Class A Common Stock, par value $.01 per share.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Holders of Class A Common
Stock have no voting rights except as provided by law.
Common Stock - There are 9,200,000 shares of Common Stock and 1,000,000 shares
of Class A Common Stock outstanding.
Each share of Class A Common Stock will automatically become and be converted
into one share of Common Stock upon the first to occur of (a) the date, as
reasonably determined by the Board of Directors, that the Company ceases to be
eligible under the Internal Revenue Code of 1986, as amended, to be a member of
the consolidated group of corporations of which Consolidated is the common
parent, or (b) the date as of which the Board of Directors effects such a
conversion.
The Common Stock and the Class A Common Stock are treated as a single class and
have identical rights except that the holders of the Class A Common Stock have
no voting rights except as required by law. Holders of Common Stock and Class A
Common Stock are entitled to share in such dividends as the Board of Directors,
in its discretion, may declare from funds legally available. In the event of
liquidation, dissolution or winding up, each outstanding share of Common Stock
and Class A Common Stock entitles its holders to participate ratably in the
assets remaining after payment of liabilities.
Series A Preferred Stock - The Series A Preferred Stock consists of 5,000
shares, all of which are issued and outstanding. Holders of shares of Series A
Preferred Stock are entitled to non-cumulative dividends of $10 per share, or an
aggregate of $50,000. The Company has no obligation to declare dividends for any
year, but, in any year, no dividends may be declared with respect to the Common
Stock and Class A Common Stock unless the dividends for such year for the Series
A Preferred Stock have been declared and paid or provided for. Dividends, if
declared, are payable on February 1st of each year to holders of record on the
previous January 15th.
The holders of the Series A Preferred Stock have no voting rights except as
required by law. The Series A Preferred Stock is not convertible into Common
Stock or any other class or series of capital stock. The Series A Preferred
Stock may be redeemed for $20 per share, on not less than ten or more than 60
days' notice at any time after the Class A Common Stock is converted into Common
Stock. At such time as the Series A Preferred Stock may be redeemed, the Company
may redeem the Series A Preferred Stock in whole at any time or in part from
time to time. The Series A Preferred Stock is redeemable at the option of the
Company.
F-22
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #13
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[9] Capital Stock
Series A Preferred Stock [Continued] - In the event of any voluntary
liquidation, dissolution or winding up of the Company, after payment has been
made on any security of the Company, if any, which ranks senior to the Series A
Preferred Stock, holders of shares of Series A Preferred Stock will be entitled
to receive from the assets of the Company an aggregate amount equal to 80% of
the Company's stockholders' equity, including partners' capital, as of the last
day of the calendar quarter prior to the date as of which the determination is
being made, provided, that from and after the effective date of the Registration
Statement relating to the Company's Initial Public Offering, the aggregate
amount shall be 80% of the Company's stockholder's equity, including partners'
capital, as of the last day of the quarter immediately preceding such effective
date, on a per share basis plus accrued and unpaid dividends to the payment
date, before any payment or distribution is made to holders of shares of Common
Stock, Class A Common Stock or any other series or class of stock hereafter
issued which ranks junior as to liquidation rights to the Series A Preferred
Stock.
Series B Preferred Stock - The Series B Preferred Stock consists of 5,000
shares, all of which are issued and outstanding. Holders of shares of Series B
Preferred Stock have no preferential dividend rights. If dividends are declared
with respect to the Common Stock, the holders of the Series B Preferred Stock
shall be entitled to dividends on an as-converted basis, such dividends to be
determined as if the shares of Series B Preferred Stock and shares of Common
Stock [including Class A Common Stock] were a single class. Based on a
conversion rate of 700 shares of Common Stock for each share of Series B
Preferred Stock, each share of Series B Preferred Stock would receive a dividend
equal to 700 times the dividend payable to the holders of the Common Stock.
Each share of Series B Preferred Stock, unless previously redeemed, is
convertible, commencing three years from the effective date of the Registration
Statement relating to the Company's Initial Public Offering or on such earlier
date, if any, as the Class A Common Stock is converted into Common Stock, into
700 shares of Common Stock, or an aggregate of 3,500,000 shares of Common Stock;
provided, however, that if, after completion of the Company's Initial Public
Offering and prior to the date on which the Series B Preferred Stock would
otherwise become convertible, the Company issues any shares of Common Stock or
Class A Common Stock, including the issuance of any shares of Common Stock upon
exercise of warrants or options, the Series B Preferred Stock shall be
convertible to the extent that the number of shares of Common Stock issuable
upon such conversion shall be equal to four times the number of shares of Common
Stock and Class A Common Stock so issued; provided, that if such conversion
would result in the conversion of a fractional share of Series B Preferred
Stock, the Series B Preferred Stock may be converted as to the next higher
integral number of shares. In addition, if the Series B Preferred Stock is
called for redemption, the conversion rights will expire at the close of
business on the business day prior to the redemption date. The conversion rate
is subject to adjustment upon the occurrence of certain events. In case the
Corporation shall after the date the Certificate of Designation, of which this
Statement of Designation is an exhibit, [the "Filing Date"], (A) pay a dividend
or make a distribution on its shares of Common Stock in shares of Common Stock,
(B) subdivide, split or reclassify its outstanding Common Stock into a greater
number of shares, (C) effect a reverse split or otherwise combine or reclassify
its outstanding Common Stock into a smaller number of shares, (D) issue any
shares by reclassification of its shares of Common Stock, the Conversion Rate in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of the shares of Series B Preferred
Stock converted after such date shall be entitled to receive the aggregate
number and kind of shares which, if such shares had been converted immediately
prior to such time, he would have owned upon such conversion and been entitled
to receive upon such dividend, subdivision, combination or reclassification.
F-23
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #14
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[9] Capital Stock [Continued]
Series B Preferred Stock [Continued] -
The Company has the right to redeem the shares of Series B Preferred Stock at a
redemption price of $20 per share, or an aggregate of $100,000, at any time
after the expiration of three years from the effective date of the Registration
Statement relating to the Company's initial public offering, or earlier if the
Class A Common Stock is converted into Common Stock. The Series B Preferred
Stock may be redeemed in whole or in part. Once the Series B Preferred Stock
becomes redeemable, the Company may redeem the Series B Preferred Stock upon at
least 30, but not more than 60 days' prior written notice to the registered
holders.
[10] Stockholders' Equity - General Partners
The general and limited partner corporate entities [See Notes 1 and 2] included
in the combined financial statements at December 31, 1995, totaling $(383,042)
in net deficiency, are as follows:
General Partners:
IMI Acquisition of Pine Island Corporation
IMI Acquisition of North Miami Beach Corporation
IMI Acquisition of Boca Raton Corporation
IMI Acquisition of South Dade Corporation
IMI Acquisition of Oakland Park Corporation
IMI Acquisition of Orlando Corporation
P.O.D.C. Acquisition Corporation
Limited Partners:
IMI Ltd. Partner Acquisition of Pine Island, Inc.
IMI Ltd. Partner Acquisition of North Miami Beach, Inc.
IMI Ltd. Partner Acquisition of Boca Raton, Inc.
IMI Ltd. Partner Acquisition of South Dade, Inc.
IMI Ltd. Partner Acquisition of Oakland Park, Inc.
IMI Ltd. Partner Acquisition of Orlando, Inc.
P.O.D.C. Ltd. Partner Acquisition Corporation
[11] Related Party Transactions
Issuance of Securities at Organization - In connection with its organization in
September and October 1994, the Company issued an aggregate of 9,200,000 shares
of Common Stock, 1,000,000 shares of Class A Common Stock, 5,000 shares of
Series A Preferred Stock, 5,000 shares of Series B Preferred Stock, Series B
Warrants to purchase 1,000,000 shares of Common Stock at $2.00 per share and
warrants to purchase 1,250,000 shares of Class A Common Stock at $2.00 per share
[See Note 23].
In October 1994, the Company issued seven-year warrants to purchase an aggregate
of 500,000 shares of Class A Common Stock at $2.00 per share to SISC and 15
individuals, including the chief financial officer of the Company, to whom it
issued a warrant to purchase 100,000 shares, and two directors of the Company,
to each of whom the Company issued a warrant to purchase 50,000 shares.
Due to Affiliate - In connection with the acquisitions of the centers, SISC lent
approximately $1.3 million to the Company, which was used to pay acquisition
costs, and delivered shares of Consolidated common stock, valued at $2.9
million, representing a portion of the purchase price. Such loan and the value
of such Consolidated common stock is treated as a non-interest bearing loan
payable by the Company to SISC with no stated maturity date. The balance as of
December 31, 1995 and 1994 amounted to $2,669,310 and $3,213,641, respectively.
F-24
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #15
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[11] Related Party Transactions [Continued]
Notes Payable to Officer - Approximately $969,000 and $1,067,000 at December 31,
1995 and 1994, respectively, of the subordinated notes payable issued in
connection with the acquisitions is payable to an officer of the Company. The
officer was a stockholder in the predecessor entities.
[12] Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes," current and deferred taxes
have been calculated as if the Company were a separate taxpayer. Deferred income
taxes reflect the net tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, and (b) operating loss carryforwards.
The tax effects of significant items composing the Company's net deferred tax
liability as of December 31, 1995 and December 31, 1994 are as follows:
December 31,
1 9 9 5 1 9 9 4
Deferred Tax Liabilities:
Book Basis of Assets in Excess of Tax Basis $ 4,420,514 $ 5,105,947
------------ ------------
Deferred Tax Assets:
Allowance for Doubtful Accounts not Currently
Deductible 937,130 884,691
Difference Between Book and Tax Depreciation 4,526,214 4,705,811
Difference Between Book and Tax Amortization 256,791 48,380
------------- ------------
Totals 5,720,135 5,638,882
------------- ------------
Valuation Allowance 1,299,621 532,935
------------- ------------
Net Deferred Tax Liability $ -- $ --
-------------------------- ============= ============
The Company's deferred tax asset valuation allowance was $1,299,621 and $532,935
as of December 31, 1995 and 1994, respectively. The increase in the valuation
allowance of $766,686 for the year ended December 31, 1995 is comprised of the
following:
Difference Between Book and Tax Depreciation $ (179,597)
Difference Between Book and Tax Amortization 208,411
Book Basis of Assets in Excess of Tax Basis of Assets 685,433
Allowance for Doubtful Accounts not Currently Deductible 52,439
----------------
Total $ 766,686
----- ================
The current and deferred income tax components of the provision [benefit] for
income taxes consist of the following:
Years ended Three months ended
December 31, December 31,
1 9 9 5 1 9 9 4
------- -------
Current:
Puerto Rico $ 82,964 $ 4,968
State 125,691 18,675
------------ -----------
Totals 208,655 23,643
Deferred -- --
------------ -----------
Totals $ 208,655 $ 23,643
------ ============ ===========
F-25
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #16
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[12] Income Taxes [Continued]
The provision for income taxes varies from the amount computed by applying the
statutory rate for the reasons below:
Three
Years ended months ended
December 31, December 31,
1 9 9 5 1 9 9 4
Provision Based on Statutory Rates 35.0% 35.0%
Benefit of Graduated Rates (1.0) (1.0)
Puerto Rico Taxes [Net of Federal Benefit] 2.9 1.1
States Taxes [Net of Federal Benefit] 4.3 4.1
Valuation Allowance (34.0) (34.0)
--------- ---------
Totals 7.2% 5.2%
------ ========= =========
The Company's provision for income taxes is comprised of state and Puerto Rico
income taxes for the 12 months ended December 31, 1995 and the three months
ended December 31, 1994, respectively. The Company has a valuation allowance
based on the uncertainties surrounding the health care industry due to health
care reform considerations being contemplated by the government.
The Company and its subsidiaries file separate state tax returns. As of December
31, 1995, the Company had state net operating losses of $2,053,000 expiring as
follows:
2004 $ 76,000
2005 173,000
2009 206,000
2010 1,598,000
---------------
Total $ 2,053,000
----- ===============
For the nine months ended September 30, 1996, the Company recorded a liability
of $691,903 payable to its immediate parent SISC for the utilization of tax net
operating losses of the consolidated group. This liability was subsequently
forgiven and credited to paid-in capital.
[13] Commitments
Professional Liability Insurance - Each of the operating entities carries
professional malpractice and general liability insurance. The independent
radiology entities that provide the radiology services are covered by their own
medical malpractice insurance. The Company has procedures in place to monitor
coverage and incidents of significance.
Employment Agreements - In October 1994, the Company entered into a five-year
employment agreement with the President/Chief Executive Officer which runs
through September 1999. The agreement provides for an annual base salary of
$350,000 and a bonus, not less than $100,000 and not greater than $700,000,
calculated on a percentage of the lesser of pre-tax cash flow or pre-tax net
income.
F-26
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #17
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[13] Commitments [Continued]
Employment Agreements [Continued] - The Chief Financial Officer ["CFO"] of the
Company, who is also the CFO of Consolidated, has an employment agreement with
Consolidated for a term commencing October 1, 1994 and ending December 31, 2002,
pursuant to which he received an annual salary of $177,000 for the contract year
ended September 30, 1996 with increases annually thereafter until the seventh
year for which his annual salary is $252,000. The agreement provides for two
bonuses, one of which is equal to the greater of 1% of Consolidated's net
pre-tax profits or 1% of Consolidated's net cash flow, and the other of which is
equal to the greater of 1% of the Company's net pre-tax profits or 1% of the
Company's net cash flow. Although the CFO and Consolidated are the parties to
his employment agreement, 75% of the CFO's compensation is paid by the Company
because he devotes 75% of his time to the Company and the remaining 25% is
allocated to and paid by Consolidated [exclusive of the bonuses relating to the
Company].
Radiologist Agreements - The Company engages radiologists and other specialists
to read and interpret the diagnostic imaging scans performed at the centers. The
Company has entered into agreements at several of its centers for these
services. Terms and fees vary on a contract by contract basis. Fees are
generally based on a percentage of collected gross revenues, such fees generally
range from 10% - 20%. One contract has annual fees of $275,000 plus a percentage
of the center's annual gross revenues in excess of $2.4 million through March
2000 and another includes an annual consulting fee of $30,000 through December
1999. In addition, one agreement contains a provision for the issuance to the
radiologist of a warrant to purchase 100,000 shares of the common stock of
Consolidated upon the consummation of an initial public offering of the
Company's common stock.
[14] Employee Benefit Plans
On July 1, 1995, the Company adopted a Qualified Retirement Plan under the
Internal Revenue Code. The Plan requires employees to complete one year of
service and attain the age of 21. Employer contributions are discretionary and
determined on an annual basis. Employer contributions to the plan totaled
$41,120 for the year ended December 31, 1995.
The Plan will match employee contributions dollar for dollar with maximum
limitations as follows:
1995 $ 500
1996 750
1997 1,000
1998 1,250
1999 1,500
2000 1,750
2001 2,000
[15] Long-Term Incentive Plan
In October 1994, the Company adopted, by action of the Board of Directors and
stockholders, the 1994 Long-Term Incentive Plan [the "Plan"]. The Plan does not
have an expiration date.
The Plan is authorized to grant options or other equity-based incentives for
1,200,000 shares of the Class A Common Stock or, at such time as the Class A
Common Stock is converted into Common Stock, shares of Common Stock. If shares
subject to an option under the Plan cease to be subject to such option, or if
shares awarded under the Plan are forfeited or otherwise terminated without a
payment being made to the participant in the form of stock, such shares will
again be available for future issuance under the Plan.
Awards under the Plan may be made to key employees, including officers of and
consultants to the Company, its subsidiaries and affiliates, but may not be
granted to any director unless the director is also an employee of or consultant
to the Company or any subsidiaries or affiliates. The Plan imposes no limit on
the number of officers and other key employees to whom awards may be made.
F-27
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #18
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[15] Long-Term Incentive Plan [Continued]
The following types of awards can be granted under the Plan: incentive or
non-qualified stock options; stock appreciation rights; restricted stock;
deferred stock, stock purchase rights and/or other stock-based awards. Incentive
stock options to purchase an aggregate of 850,000 shares of Class A Common Stock
were granted under the plan as follows: In October 1994, the Company granted
incentive stock options to purchase 765,500 shares of Class A Stock at $.50 per
share; in September 1995, the Company granted incentive stock options to
purchase 71,500 shares of Class A Common Stock at $1.00 per share, and in June
1996, the Company granted incentive stock options to purchase 13,000 shares of
Class A Common Stock at $1.00 per share. The exercise price of the options were
the fair market value on the respective dates of grant. All of the options are
presently fully exercisable and have a term of seven years from the date of
grant.
[16] Litigation
The Company is subject to lawsuits arising in the course of ordinary business.
Management after review and consultation with counsel, believes it has
meritorious defenses and considers that any potential outcome from these matters
after considering potential insurance recoveries, would not materially affect
the financial position and statement of operations of the Company. Nevertheless,
due to uncertainties in the legal process, it is at least reasonably possible
that management's view of the outcome may change in the near term.
[17] Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk are cash and cash equivalents and accounts receivable arising from
its normal business activities. The Company routinely assesses the financial
strength of it customers and based upon factors surrounding the credit risk of
its customers establishes an allowance for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowances is limited [See Note 3]. The Company places its cash and cash
equivalents with high quality financial institutions. The amount on deposit in
any one institution that exceeds federally insured limits is subject to credit
risk. The Company had cash balances in excess of federally insured limits of
approximately $602,000 and $747,000 as of December 31, 1995 and 1994,
respectively.
The Company derives over approximately 71% of its net patient service revenues
from operations in the State of Florida.
The Company's operating facilities grant credit without collateral to its
patients, most of whom are residents of the operating facilities respective area
and are insured under third-party payor agreements. The mix of accounts
receivable net of contractual allowances from third-party payors and patients
are as follows:
December 31,
1 9 9 5 1 9 9 4
Personal Injury Liability Related Services 42 % 47%
Managed Care 16 % 15%
Commercial Insurance 14 % 15%
Workers' Compensation 7 % 10%
Medicare/Medicaid 4 % 6%
Private Pay 6 % 7%
Other 11 % --%
-------- -------
100 % 100%
======== =======
F-28
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #19
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[18] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments", which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
Carrying Amount Fair Value
Notes Payable - Long-Term $ 5,909,814 $ 5,726,391
Subordinated Debt - Long-Term 5,002,873 4,311,924
-------------- --------------
Totals $ 10,912,687 $ 10,038,315
------ ============== ==============
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash, accounts receivables, accounts payables and short-term debt, the carrying
amount approximated fair value for the majority of these instruments because of
their short maturities. The fair value of long-term debt is estimated based on
discounting expected future cash flows at the rates currently offered to the
Company for debt of the same or similar remaining maturities. Due to the
non-interest bearing nature and unspecified payment terms, it was not
practicable to estimate the fair value of the debt due to affiliate and
covenants not-to-compete, however, the use of discounted cash flow techniques to
estimate fair value could result in an estimated fair value substantially lower
than the carrying amount.
[19] Supplemental Disclosures of Cash Flow Information
Cash paid for interest and taxes amounted to $2,175,631 and $53,764 in 1995 and
$709,140 and $-0- in 1994.
During 1995, the Company entered in various capital lease agreements for
equipment at a cost of $762,465.
During December 1994, the Company entered into an agreement to purchase five
system upgrades for existing MRI centers. The cost of these totaled $1,475,000.
Cash paid for interest and taxes amounted to $2,394,747 and $48,029 for the nine
months ended September 30, 1996 and $2,148,042 and $-0- for the nine months
ended September 30, 1995.
During the nine months ended September 30, 1996 and 1995, the Company acquired
equipment under capitalized leases in the amounts of $3,970,727 and $785,124.
During 1994, the Company utilized stock transferred from an affiliate valued at
$2,919,000 to acquire the centers and related companies.
During 1995, $103,984 of expenses incurred relating to an affiliate were applied
against the amount due to affiliate.
During the nine months ended September 30, 1996, $691,903 of debt due to an
affiliate was forgiven and included in paid-in capital.
F-29
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #20
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[20] Reclassification -Certain items have been reclassified to conform with the
current year's presentation.
[21] Subsequent Events
On February 7, 1996, the Company loaned $300,000 to an officer of the Company.
The loan is due to the Company in 1998. Interest only is payable annually from
inception at a rate of 5-1/2%.
In January 1996, the Company obtained financing from DVI Financial Services,
Inc. and an affiliate thereof ["DVI"], a non-related party to the Company,
consisting of a term loan of $2,000,000 and a revolving loan of $6,000,000. DVI
has a security interest in substantially all of the Company's assets, primarily
accounts receivable and property and equipment. The majority of the proceeds
were used to pay current subordinated debt. In addition, other current
subordinated debt was reclassified to long-term per the loan agreements. The
Company does not intend to pay such subordinated debt as long as payment would
result in a default under the DVI agreements. Furthermore, the Company believes
that any payment on such subordinated debt would be a violation of the
subordination provisions applicable to such subordinated debt. As a result of
such subordinated provisions, if the holders were to assert a default, which
would result in a default under DVI agreements, payments would be made to DVI
and not the holders of the subordinated debt. The pro forma effect of this
financing and the application of the proceeds on the December 31, 1995 balance
sheet is as follows:
Assets:
Current Assets $ 12,713,421
Property and Equipment - Net 9,502,005
Other Assets 18,759,496
---------------
Total Assets $ 40,974,922
------------ ===============
Liabilities:
Current Liabilities 12,649,113
Non-Current Liabilities 25,311,634
Total Liabilities 37,960,747
Equity 3,014,175
Total Liabilities and Equity $ 40,974,922
---------------------------- ===============
A summary of the foregoing pro forma balance sheet reflects (a) an increase of
$545,0900 in other assets due to the recognition of deferred loan costs in
connection with the financing; (b) a decrease in current liabilities in excess
of the $8 million in loan proceeds due to the payoff of the current portion of
he notes due to the limited partners and the deferral of the subordinated debt;
(c) an increase in noncurrent liabilities in excess of he $8 million in loan
proceeds due to the deferral of the subordinated from current to noncurrent; (d)
an increase in current assets due to excess cash remaining from the loan
proceeds after the required pay offs were made; (e) a decrease in equity due to
the expensing of certain costs related to the loan that did not warrant
deferral, such as additional compensation paid to certain employees who helped
close the financing transaction.
[22] Unaudited Interim Statements
The financial statements for the nine months ended September 30, 1996 and 1995
are unaudited, however, in the opinion of management all adjustments [consisting
of normal recurring adjustments] necessary to a fair presentation of the
financial statements for these interim periods have been made. The results for
interim periods are not necessary indicative of the results to be obtained for a
full fiscal year.
F-30
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #21
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[23] Subsequent Events [Unaudited]
[A] In September 1996, certain of the Company's subsidiaries borrowed an
aggregate of $4.0 million from DVI. The loans, which mature in September 2001,
are payable in monthly installments over the term of the loans. The Company pays
interest currently at 11.5% per annum, additional interest of 10.5% per annum
has been deferred and is payable on the maturity date of the loans, resulting in
an effective annual interest rate of 22.0%. DVI has a security interest in
substantially all of the Company's assets, primarily accounts receivable and
property and equipment. In connection with these loans, SISC sold to DVI, for
$2,500, a warrant to purchase 250,000 shares of Class A Common Stock at $2.00
per share, and the Company issued to DVI a warrant to purchase 250,000 shares of
Class A Common Stock at $5.00 per share. These warrants are exercisable for the
three month period commencing on the earliest to occur of (a) the prepayment in
full of such loans, (b) an event of default under the loan and security
agreements with respect to such loans, or (c) November 1, 2001. In addition, the
Company agreed that in the event the principal of and interest on such loans has
not been paid in full prior to the November 1, 2001 maturity date, the Company
will issue to DVI a warrant to purchase 1,000,000 shares of the Common Stock at
80% of the market price per share of such Common Stock on the date of exercise,
exercisable from November 1, 2001 until February 1, 2002.
[B] In September 1996, the Company issued warrants to purchase 250,000 shares of
Class A Common Stock at $5.00 per share to SISC.
[C] The following supplementary earnings per share reflects on a pro forma basis
the repayment of indebtedness of $2,100,000 and the resulting reduction of
interest expense and increase in net income, net of tax, as if it had taken
place at the beginning of the respective periods.
September 30, December 31,
1 9 9 6 1 9 9 5
Pro Forma Net Income $ 2,761,808 $ 2,886,895
=============== ==============
Pro Forma Earnings Per Share:
Primary $ .19 $ .20
=============== ==============
Fully Diluted $ -- $ .18
=============== ==============
Pro Forma Number of Shares:
Primary 14,430,000 14,450,175
=============== ==============
Fully Diluted -- 16,126,375
=============== ==============
[D] In October 1996, the Company entered into a non-binding Memorandum of
Understanding with its President/Chief Executive Officer ["CEO"] pursuant to
which, subject to the execution of definitive agreements and the completion of
an Initial Public Offering of the Company's common stock, the CEO agreed to
reduce the outstanding principal amount of the Subordinated Notes payable to him
and his wife, from an aggregate of $2.1 million as of September 30, 1996 to an
aggregate of approximately $1.7 million and exchange such Subordinated Notes for
shares of a newly created series of preferred stock having an annual
non-cumulative dividend of $75,000 and a mandatory redemption price of
approximately $1.7 million. A portion of the reduction in the Subordinated Notes
payable to the CEO reflects the proposed application of the $300,000 loan from
the Company to him to reduce the Subordinated Notes payable to him. Any
difference between the principal amount of the loan and the redemption price of
the preferred stock will be treated as a contribution to capital.
F-31
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #22
[Information as of and for the nine months ended
September 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[23] Subsequent Events [Unaudited] [Continued]
[E] In November 1996, the Company filed a registration statement with respect to
an initial public offering of its securities.
[F] Although the Company files its federal income tax returns as part of a
consolidated group of corporations of which Consolidated is the common parent,
it has calculated its tax provision on the "separate return basis." The current
tax benefit of $692,000 received by the utilization of the Parent Company's tax
net operating losses for the nine months ended September 30, 1996 has been
properly recorded as a liability to the Parent and then subsequently forgiven,
resulting in an increase to additional paid-in capital in accordance with
Accounting Principles Bulletin No. 26.
The actual tax provision of $297,219 for the nine months ended September 30,
1996 represents state income taxes and Commonwealth of Puerto Rico income taxes
only. The provision for federal income taxes was completely eliminated by the
applicable deferred tax asset arising from the temporary differences caused by
the depreciation, amortization and bad debt expense recorded for book purposes
versus tax purposes. Such expense pertaining to goodwill, customer lists and
covenants-not-to-compete amortization and bad debt reserve which was recorded
for financial reporting purposes exceeded the expense recorded for tax purposes
by approximately $3,356,000 thereby creating the deferred tax asset.
[G] Pursuant to the agreement relating to the acquisition of IMI-Florida and its
affiliated entities, as a result of a decline in the price of the Consolidated
common stock, an additional 153,334 shares of Consolidated common stock are to
be issued to the sellers. Approximately 35,000 of these shares are to be issued
to the Company's CEO.
[H] The Company has a management services agreement with The Trinity Group, Inc.
("Trinity"), a wholly-owned subsidiary of Consolidated, pursuant to which the
Company is to pay Trinity $50,000 per month for the five-year period commencing
with the first month in which such payment may be made pursuant to the Company's
agreements with its lenders. The Company's loan agreements with DVI do not
permit such payments, and, accordingly, no payments to Trinity have been made or
accrued under such agreement. The agreement is renewable by Trinity. Mr. Lewis S
Schiller, chairman of the board of the Company, is the chief executive officer
of Consolidated, SISC and Trinity.
. . . . . . . . .
F-32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners International Magnetic Imaging, Inc. [Predecessor]
We have audited the accompanying combined statement of
operations, changes in equity, and cash flows of International Magnetic Imaging,
Inc. [Predecessor] and its affiliates for the year ended December 31, 1993, and
the nine months ended September 30, 1994. These combined statement of
operations, changes in equity, and cash flows are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined statement of operations, changes in equity, and cash flows based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined statements of
operations, changes in equity, and cash flows are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the combined statements of operations, changes in equity, and
cash flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of combined statements of operations, changes in equity, and cash
flows. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined statements of operations, changes
in equity, and cash flows referred to above present fairly, in all material
respects, combined results of operations and cash flows of International
Magnetic Imaging, Inc. [Predecessor] and its affiliates for the year ended
December 31, 1993 and the nine months ended September 30, 1994, in conformity
with generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey April 22, 1994 as to the year ended December 31, 1993 and
November 22, 1994 as to the nine months ended September 30, 1994
F-33
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
1 9 9 4 1 9 9 3
------- -------
Revenue:
Net Patient Service Revenue $ 21,161,740 $ 26,572,387
--------------- ---------------
Expenses:
Radiology Fees 487,365 401,506
Equipment Maintenance 920,394 1,364,450
Patient Service Costs and Expenses 1,401,912 1,422,021
Salaries and Benefits 6,059,210 9,333,088
Professional Services 1,390,211 329,733
Other Management, General and
Administrative 3,099,641 4,996,206
Provision for Bad Debts 966,018 849,620
Depreciation and Amortization 2,459,742 3,545,116
--------------- ---------------
Total Expenses 16,784,493 22,241,740
--------------- ---------------
Operating Income Before Other Income
[Expense] 4,377,247 4,330,647
Other Income [Expense]:
Loss on Disposal of Assets (523,718) (194,172)
Interest Income and Other 437,684 456,174
Interest Expense (610,435) (1,076,249)
--------------- ---------------
Net Income - Historical 3,680,778 3,516,400
Charge in Lieu of Income Taxes 1,472,311 1,406,560
--------------- ---------------
Pro Forma Net Income $ 2,208,467 $ 2,109,840
=============== ===============
See Notes to Combined Statement of Operations,
Changes in Equity, and Cash Flows.
F-34
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF CHANGES IN EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Partners' Capital Notes Total
Stock Capital Earnings General Limited Receivable Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1992 $ 8,770 $ 4,768,336 $ 369,480 $ (1,071,122) $ 7,846,566 $ (919,000) $ 11,003,030
Issuance of Common Stock -- (22,000) -- -- -- -- (22,000)
Partners' Capital Contributions -- -- -- -- 20,000 -- 20,000
Additional Capital Contributed -- 1,383,728 -- -- 10,000 23,000 1,416,728
Partners' Capital Withdrawals -- -- -- (6,431) (114,080) -- (120,511)
Partners' Distributions -- -- -- (115,263) (2,558,509) -- (2,673,772)
Offering Costs -- (185,019) -- -- 42 -- (184,977)
Dividends Paid -- -- (1,864,827) -- -- -- (1,864,827)
Net Income -- -- 1,701,911 (312,475) 2,126,964 -- 3,516,400
------- ----------- ---------- ------------ ----------- ---------- ------------
Balances - December 31, 1993 8,770 5,945,045 206,564 (1,505,291) 7,330,983 (896,000) 11,090,071
Partners' Distributions -- -- -- (137,850) (2,745,379) -- (2,883,229)
Dividends Paid -- -- (1,247,890) -- -- -- (1,247,890)
Net Income -- -- 1,633,385 48,275 1,999,118 -- 3,680,778
------- ----------- ---------- ------------ ----------- ---------- ------------
Balances - September 30, 1994
[Unaudited] $ 8,770 $ 5,945,045 $ 592,059 $ (1,594,866) $ 6,584,722 $ (896,000) $ 10,639,730
======= =========== ========== ============ =========== ========== ============
</TABLE>
See Notes to Combined Statement of Operations,
Changes in Equity, and Cash Flows.
F-35
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1 9 9 4 1 9 9 3
------- -------
<S> <C> <C>
Operating Activities:
Net Income $ 3,680,778 $ 3,516,400
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Provision for Bad Debts 966,018 849,620
Depreciation and Amortization 2,459,742 3,545,116
Loss on Disposal of Property and Equipment 523,718 194,172
Changes in Operating Assets and Liabilities:
Restricted Cash (983,000) --
Accounts Receivable - Net (2,571,920) (180,989)
Radiology Fees Receivable -- 662,625
Prepaid Expenses and Other 2,704,197 (608,053)
Accounts Payable and Other Liabilities (522,558) (806,501)
--------------- ---------------
Net Cash - Operating Activities 6,256,975 7,172,390
--------------- ---------------
Investing Activities:
Property and Equipment Additions - Net (466,429) (995,010)
Proceeds from Sale of Equipment 469,103 --
--------------- ---------------
Net Cash - Investing Activities 2,674 (995,010)
--------------- ---------------
Financing Activities:
Stock Redemption -- (22,000)
Shareholders' Dividends (1,247,890) (1,864,827)
Partners' Capital Contributions -- 1,633,650
Partners' Distributions (2,883,229) (2,673,772)
Partners' Capital Withdrawals -- (120,511)
Offering Costs -- (184,977)
Proceeds from Notes Payable and Long-Term Net -- 1,282,013
Net Repayments on Lines of Credit -- (700,000)
Payments on Notes Payable and Long-Term Net (877,366) (2,660,591)
Payments on Capital Lease Obligations (654,452) (780,449)
--------------- ---------------
Net Cash - Financing Activities (5,662,937) (6,091,464)
--------------- ---------------
Net Increase in Cash and Cash Equivalents 596,712 85,916
Cash and Cash Equivalents - Beginning of Years 1,752,826 1,666,910
--------------- ---------------
Cash and Cash Equivalents - End of Years $ 2,349,538 $ 1,752,826
=============== ===============
</TABLE>
See Notes to Combined Statement of Operations,
Changes in Equity, and Cash Flows.
F-36
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
The accounting and reporting policies of International Magnetic Imaging, Inc.
["IMI"] and its affiliates conform to generally accepted accounting principles.
The following summarizes the more significant of these policies.
Operations - The principal operations of International Magnetic Imaging, Inc.
and Affiliates [hereinafter collectively referred to as the "Company"] are in
the establishment and operation of outpatient diagnostic centers providing
magnetic resonance imaging ["MRI"] services. Operations of the centers are
conducted through nine limited partnerships and one corporation and are located
in various states and the U.S.
Commonwealth of Puerto Rico.
The general partner of each of the limited partnerships are corporate entities
incorporated in the state the limited partnership conducts operations. The
principal users of the Company's magnetic resonance imaging services are
practicing physicians, a number of which are limited partners, located in
general proximity to the various centers. Each of the centers are managed by a
management company, IMI, whose principal shareholders are related to the general
partner of the limited partnership through common ownership.
The Florida legislature has enacted the "Patient Self-Referral Act" [the "Act"]
which provides that after October 1, 1994, a physician cannot refer patients to
an entity which provides diagnostic imaging services in which the physician has
an investment interest, as defined in the Act [See Note 12].
Basis of Presentation - The combined statements of operations, changes in
equity, and cash flows include the accounts of the following affiliated
entities. The year the MRI centers commenced operations is shown
parenthetically.
Operating Centers:
Physicians Outpatient Diagnostic Center, Ltd. [1985] ["PODC"]
Pine Island Magnetic Resonance Imaging Center, Ltd. [1986] ["Pine Island"]
Magnetic Resonance Institute of North Miami Beach, Ltd. [1988] [" N. Miami"]
Magnetic Resonance Institute of Boca Raton, Ltd. [1988] ["Boca Raton"]
Magnetic Resonance Institute of South Dade, Ltd. [1989] ["South Dade"]
Oakland Magnetic Resonance Institute, Ltd. [1990] ["Oakland Park"]
San Juan M.R.I., Inc. [1990] ["San Juan"]
Magnetic Resonance Institute of Arlington, L.P. [1990] ["Arlington"]
Magnetic Resonance Institute of Greater Kansas City, L.P. [1991] ["Kansas
City"]
Magnetic Resonance Institute of Orlando, Ltd. [1992] ["Orlando"]
General Partners:
P.O.D.C., Inc.
S.A.S.G.P., Inc.
Askay, Inc.
Magnetic Resonance Institute of Boca Raton, Inc.
Magnetic Resonance Institute of South Dade, Inc.
Oakland Magnetic Resonance Institute, Inc.
Magnetic Resonance Institute of Arlington, Inc.
Magnetic Resonance Institute of Greater Kansas City, Inc.
Magnetic Resonance Institute of Orlando, Inc.
Management Companies:
International Magnetic Imaging, Inc. ["IMI"]
F-37
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #2
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Radiology Company:
J. Sternberg and S. Schulman, M.D. Corp.
The accounts of IMI and its affiliates are combined because of the common
ownership interests in the management company, operating MRI entities, and the
general partners that exercise operating control over such entities. All
significant intercompany balances and transactions are eliminated in
combination. The corporate general partners account for their respective
investments in the limited partnerships using the equity method.
The financial statements, for all periods presented, have been prepared in
accordance with the American Institute of Certified Public Accountants' audit
and accounting guide "Audits of Providers of Health Care Services."
Cash and Cash Equivalents - The Company considers all investments purchased with
a maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts - Patient accounts are reserved for when, in
management's opinion, the collectibility of a portion of, or the entire
outstanding balance, is doubtful.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the related assets. Leasehold improvements are
stated at cost less accumulated amortization. Such improvements are amortized
over the shorter of the term of the lease or the useful life of the improvement.
Medical Equipment financed under capital leases is recorded in property and
equipment at cost at the inception of the lease. Amortization of assets held
under capital leases is included in depreciation expense and computed using the
straight-line method.
Property and equipment are depreciated over the following estimated useful
lives:
Years
Buildings and Improvements 25
Leasehold Improvements 10 - 25
Medical Equipment 6
Furniture and Equipment 5 - 7
Expenditures for maintenance, repairs, and replacement of minor items are
charged to earnings as incurred. Major additions and improvements which extend
the useful life or improve the operating performance of the related asset are
capitalized. Upon disposition, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
operations for the period.
Intangible Assets:
Organization Costs - Expenses incurred in connection with the formation of each
of the entities have been capitalized and are being amortized over a period of
five years using the straight-line method. Accumulated amortization of such
costs at December 31, 1993 is $90,962.
F-38
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #3
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Deferred Financing Costs - Deferred financing costs are being amortized using
the straight-line method, which approximates the interest method, over the term
of the related financing agreement. Accumulated amortization of such costs at
December 31, 1993 is $75,640.
Income Taxes - The Company prepares its combined financial statements on the
accrual basis of accounting. No provision has been made for Federal and State
income taxes for the partnership entities as the individual general and limited
partners are responsible for such taxes on their respective share of earnings.
Likewise, the general partner corporate entities and the management companies
have elected "S corporation" status under the Internal Revenue Code and the
taxation of the earnings thereof is the responsibility of the individual
shareholders. As of December 31, 1993, the Company's sole magnetic resonance
institute organized for tax purposes as a "C" corporation, San Juan MRI, Inc.
["San Juan"] has available, for its operations only, approximately $1,041,000 of
income tax loss carryforwards to offset future taxable income of which $681,000,
$256,000 and $104,000 expires in 1997, 1998 and 1999, respectively. At December
31, 1993 , San Juan has net operating loss carryforwards for financial reporting
purposes of approximately $1,312,000.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Statement No. 109, "Accounting for Income Taxes." The
statement is effective for the fiscal year 1993. The implementation of such
statement has not had a material impact on the Company's financial position.
Net Patient Service Revenue - Net patient service revenue is reported at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered, including provisions for estimated contractual
adjustments under reimbursement agreements with third-party payors. The Company
has historically not provided any significant amount of charity care.
[2] Property and Equipment
Depreciation expense for the year ended December 31, 1993 and the nine months
ended September 30, 1994 is $3,501,284 and $2,374,931, respectively.
[3] Leases
The Company leases real estate for certain of its MRI centers and its
administrative offices under noncancellable operating leases expiring during the
next fifteen years. The real estate leases contain clauses which permit
adjustments of lease payments based upon changes in the "Consumer Price Index",
options to renew the leases for periods up to an additional fifteen years and
additional payments for a proportionate share of real estate taxes and common
area operating expenses.
Several of the MRI centers lease the magnetic resonance imaging equipment under
noncancellable capital leases, the last of which expires in 1999. In January
1993, the Company restructured certain capital lease agreements. The
restructuring extends the term of the leases and, for certain of those leases,
includes a balloon payment representing the buy-out of the leased equipment at
the end of the lease term.
F-39
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #4
- --------------------------------------------------------------------------------
[3] Leases [Continued]
As of December 31, 1993, the future minimum lease payments under capital leases
and noncancellable operating leases are:
Capital Operating
Leases Leases
Fiscal Years
1994 $ 1,323,054 $ 352,308
1995 1,294,373 205,426
1996 1,162,019 139,317
1997 877,975 140,380
1998 668,248 141,472
Thereafter 175,294 264,768
--------------- ---------------
Total Minimum Lease Payments 5,500,963 $ 1,243,671
===============
Less Amount Representing Interest (1,188,668)
Present Value of Net Minimum
Capital Lease Payments $ 4,312,295
---------------------- ===============
Total rental expense for the year ended December 31, 1993 and the nine months
ended September 30, 1994 is $591,207 and $562,003, respectively.
[4] Long Term Debt
Maturities of long-term debt as of December 31, 1993 are as follows:
Years ended
December 31, Amount
1994 $ 3,138,325
1995 1,388,631
1996 326,399
1997 124,399
---------------
Total $ 4,977,754
----- ===============
Interest paid is $538,842, during the year ended December 31, 1993 and $585,781
during the nine months ended September 30, 1994.
[5] Debentures
San Juan has issued debentures in the principal amount of $4,000 each, which
bear interest at the rate of 10%, of which $560,000 are due July 1, 1995 and
$88,000 are due on July 1, 1997. The debentures are subject to prepayment, in
whole or in part, at any time. As long as the debenture principal and accrued
interest thereon is outstanding, San Juan cannot pay dividends to its
shareholders or management fees to IMI. At December 31, 1993, debentures in the
amount of $648,000, were outstanding. Management fees accrued to IMI was
$1,905,602, at December 31, 1993.
F-40
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #5
- --------------------------------------------------------------------------------
[6] Shareholders' Equity - General Partners
The number of common shares authorized, issued and outstanding, and the amount
of issued and outstanding common stock of the general partner corporate entities
included in the combined financial statements at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Additional
Par Shares Issued and Common Paid-in
Value Authorized Outstanding Stock Capital
<S> <C> <C> <C> <C> <C>
S.A.S.G.P., Inc. $ 1.00 500 300 $ 300 $ 134,200
Askay, Inc. $ 1.00 7,500 300 $ 300 $ 164,000
MRI of Boca Raton, Inc. $ 1.00 7,500 300 $ 300 $ 165,200
MRI of South Dade, Inc. $ 1.00 7,500 300 $ 300 $ 111,000
Oakland MRI, Inc. $ 1.00 7,500 300 $ 300 $ 81,000
MRI of Arlington, Inc. $ 1.00 7,500 300 $ 0 $ 85,000
MRI of Greater Kansas City, Inc. $ 1.00 7,500 300 $ 300 $ 110,000
MRI of Orlando, Inc. $ 1.00 7,500 300 $ 300 $ 76,000
</TABLE>
[7] Related Party Transactions
San Juan Loans - IMI and a related radiology company, not included in the
combined financial statements, provided $750,000 revolving lines of credit to
San Juan. Borrowings under the lines of credit are unsecured and bear interest
at a rate of 9.5% at December 31, 1993. In October 1990, the proceeds of the
notes were assigned by the creditor entities to the principal shareholders of
IMI and the radiology company and treated as dividend distributions. The amount
attributable to IMI was $216,000. Borrowings under the lines of credit are
payable in full at December 31, 1994. At December 31, 1993, borrowings amounted
to $174,124.
Interest paid on the notes during 1993 to the principal shareholders is $30,276.
Interior Design Fees - Interior design services and the purchase of furniture,
fixtures, and certain leasehold improvements for the Company are performed by an
entity owned by the spouse of one of the Company's principal shareholders.
Aggregate payments for the design services and reimbursements for purchases of
furniture and equipment during the year ended December 31, 1993 was $2,568.
F-41
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #6
- --------------------------------------------------------------------------------
[8] Supplemental Noncash Investing and Financing Information
Capital lease obligations of $222,860 in 1993 were incurred when the Company
entered into leases for new medical equipment.
[9] Commitments
Professional Liability Insurance - Each of the operating entities carries
professional malpractice and general liability insurance. The radiology entities
that provide the radiology services are covered by their own medical malpractice
insurance. The Company has procedures in place to monitor coverage and incidents
of significance.
[10] Employee Benefit Plan
During 1993, the Company began sponsoring the International Magnetic Imaging,
Inc. 401(K) Savings Plan. Employees become eligible for participation after
completion of 1,000 hours of eligible service during the first twelve months of
employment or in any later plan year. Participants may elect to contribute from
1% to 15% of their compensation, as defined. The Company may choose to make a
matching contribution to the plan for each participant who has elected to make
tax deferred contributions for the plan year. The Company's matching
contribution percentage will be decided each year by the Company, not to exceed
$1,000. For 1993, the Company decided to match 100% of the employees
contribution, up to the maximum amount allowable under the plan. This amounted
to $73,523 for 1993.
[11] Restructure
[A] In April of 1994 the Company restructured certain capital lease agreements
to extend the terms of such leases. The net present value of the future minimum
lease payments under the restructured agreement had no change, however, the net
increase or [decrease] in the future minimum lease payments under these capital
leases is as follows:
Fiscal Increase
Years [Decrease]
1994 $ (156,478)
1995 (27,532)
1996 (27,532)
1997 81,755
1998 307,002
--------------
Total Net Increase in Minimum Lease Payments 177,215
Less Increase in Amount Representing Imputed Interest (177,215)
Increased Net Present Value of Capital Lease Payments $ --
----------------------------------------------------- ==============
F-42
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
CHANGES IN EQUITY, AND CASH FLOWS, Sheet #7
- --------------------------------------------------------------------------------
[11] Restructure [Continued]
[B] Additionally, in February and April 1994, the Company renegotiated and
refinanced certain promissory notes such that the interest rates and terms were
increased. The renegotiation and refinancing resulted in a $259,575 charge to
earnings and a $514,719 decrease in cash. The net increase (decrease) in the
annual maturities of debt is as follows:
Fiscal Increase
Years (Decrease)
1994 $ (176,955)
1995 7,320
1996 144,751
1997 111,905
1998 211,031
Thereafter 216,667
--------------
Net Increase $ 514,719
------------ ==============
[C] Furthermore, during the first two quarters of 1994, the Company disposed of
certain fixed assets which were no longer in operational use. The net cost of
the assets disposed was $508,248 resulting in a charge to earnings of $508,248.
[12] Sale of Business
In May 1994, an agreement was reached between IMI Acquisition Corporation
[Buyer], a wholly owned subsidiary of Consolidated Technology Group, Ltd.
["Consolidated"] and the shareholders of International Magnetic Imaging, Inc.
[Seller] in which buyer intends to acquire, own and operate all of the centers
within this combined group. The selling price for the Centers, together with IMI
and MD Corp., is approximately $27 million of which $6 million is payable in
cash and $21 million in the acquiring subsidiary's 7% subordinated installment
notes ["Notes"], and Consolidated is issuing shares of its Common Stock. The
Notes to be issued in connection with acquisition of the Centers mature
primarily in September 1996, with Notes in the principal amount of $860,000
maturing in September 1997. The Notes to be issued to acquire IMI and the assets
of MD Corp. mature in September 1997 and September 1999, respectively.
[13] Pro Forma Income Tax Effect
The pro forma effects of income tax expense have been computed based on an
effective rate of 40% for federal and state income taxes which were in effect
for the respective time periods.
. . . . . . . . .
F-43
<PAGE>
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations other than
those contained in this Prospectus in
connection with the offer made by this
Prospectus, and, if given or made, such
information or representations must not be 1,000,000 Shares of
relied on as having been authorized by the Common Stock
Company or by the Underwriters. This 1,500,000 Series A
Prospectus does not constitute an offer to Redeemable Common Stock
sell or a solicitation of an offer to buy any Purchase Warrants
securities offered hereby to any person in
any jurisdiction in which such offer or
solicitation was not authorized or in which
the person making such offer or solicitation
is not qualified to do so or to anyone to International Magnetic
whom it is unlawful to make such offer or Imaging, Inc.
solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall,
under any circumstances, create any
implication that there has been no change in
the circumstances of the Company of the facts
herein set forth since the date of this
Prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary... .....................3
Risk Factors...............................8
Dilution...................................19
Use of Proceeds............................20
Capitalization.............................22
Selected Financial Data ...................24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................26
Business...................................33 PROSPECTUS
Management.................................45
Agreements with DVI........................49
Certain Transactions.......................50
Principal Stockholders.....................54
Selling Security Holder....................55
Description of Securities..................56
Underwriting...............................61
Legal Matters..............................63
Experts....................................63
Additional Information ....................63
Index to Commbined Financial Statements...F-1
Monroe Parker Securities, Inc.
Until__________, 1997 (25 days after the date
of this Prospectus) all dealers effecting
transactions in the registered securities,
whether or not participating in the
distribution, may be required to deliver a
Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect
to their unsold allotments or subscriptions. ,1997
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 10, 1997
International Magnetic Imaging, Inc.
1,000,000 Series B Common Stock Purchase Warrants
The 1,000,000 Series B Common Stock Purchase Warrants ("Series B
Warrants") may be sold by SIS Capital Corp. (the "Selling Security Holder"). The
Series B Warrants have an exercise price of $2.00 per share, expire three years
from the date of this Prospectus and are not redeemable by the Company. The
Selling Security Holder has agreed that, during the two years commencing on the
date of this Prospectus, it will not exercise or sell the Series B Warrants or
the underlying shares of Common Stock without the consent of Monroe Parker
Securities, Inc., the underwriter of the Company's initial public offering (the
"Underwriter"). Such consent cannot be granted until the exercise or expiration
of the Underwriter's over-allotment option in the Company's initial public
offering. There is not expected to be any public market for the Series B
Warrants. The Series B Warrants provide that, in the event that they are sold or
otherwise transferred pursuant to an effective registration statement, they
expire 90 days from the date of sale or transfer. As a result, any purchaser of
the Series B Warrants must, within a short period, either exercise the Series B
Warrants or permit them to expire unexercised.
The Company will not receive any proceeds from the sale by the Selling
Security Holder of the Series B Warrants or underlying shares of Common Stock
except to the extent that any Series B Warrants are exercised. The cost of the
registration of the Series B Warrants and the underlying securities for the
Selling Security Holder, estimated at approximately $5,000, is being borne by
the Company.
The Selling Security Holder has advised the Company that any transfer
of the Series B Warrants will be either pursuant to a sale at negotiated prices
or by gift, and, if the Series B Warrants are exercised, any sale of the
underlying shares of Common Stock may be effected from time to time in
transactions (which may include block transactions) by or for the account of the
Selling Security Holder in the over-the-counter market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices or in negotiated
transactions, a combination of such methods of sale or otherwise, and such
securities may be transferred by gift.
The Selling Security Holder may effect such transactions by selling its
securities directly to purchasers, through broker-dealers, including the
Underwriter, acting as agents for the Selling Security Holder or to
broker-dealers, including the Underwriter, who may purchase securities as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holder and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
This Prospectus, with a different Cover Page, relates to the sale by
the Company pursuant to an underwritten public offering of 1,000,000 shares of
Common Stock and 1,500,000 Series A Redeemable Common Stock Purchase Warrants
(the "Warrants"). See "Underwriting."
SISC, the Company's principal stockholder, presently owns all of the
Company's Common Stock and Series B Convertible Redeemable Preferred Stock,
which are the only classes of voting stock. After completion of the underwritten
public offering, SISC will own 91.1% of the Common Stock and 93.2% of the voting
stock, without giving effect to any shares of Common Stock issuable upon
exercise of any warrants. See "Principal Stockholders."
---------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS," WHICH BEGIN ON PAGE 7, AND "DILUTION."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
The Selling Security Holder understands that the anti-manipulative
rules under the Securities Exchange Act of 1934, Rules 10b-6 and 10b-7, may
apply to its sales in the market and has furnished the Selling Security Holder
with a copy of these rules. The Company has also informed the Selling Security
Holder of the need for delivery of copies of this Prospectus.
The Company will be subject to certain informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
The Company uses the calendar year as its fiscal year.
IN CONNECTION WITH THE PUBLIC OFFERING BY THE COMPANY OF COMMON STOCK AND
WARRANTS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE
OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND/OR WARRANTS AT LEVELS ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
- 2 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee $ 7,981.87
NASD registration fee 2,812.13
Nasdaq listing fee 10,000.00
Printing and engraving *
Accountants' fees and expenses *
Legal fees *
Transfer agent's and warrant agent's fees and expenses *
Blue Sky fees and expenses *
Underwriter's non-accountable expense allowance 156,750.00
Underwriter's consulting agreement 100,000.00
Miscellaneous . *
-----------
Total $785,000.00**
===========
* To be supplied by amendment.
** Estimated
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law and Article EIGHTH
of the Company's Restated Certificate of Incorporation (Exhibit 3.1) provide for
indemnification of directors and officers of the Company under certain
circumstances.
Reference is made to Paragraphs 6 and 7 of the Underwriting Agreement
(Exhibit 1.1) with respect to indemnification of the Company and the
Underwriter. In addition, the Series B Warrants (Exhibit 10.7) and the
subscription agreement relating to the January 1996 Interim Notes (Exhibit
10.12) also include indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, offices or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
Set forth below is information concerning the issuance by the
Registrant of its securities since its organization in August 1994. All
securities issued are restricted securities and the certificates bear
restrictive legend.
(a) On September 30, 1994, the Registrant issued to SIS Capital Corp.
("SISC") 9,200,000 shares of Common Stock, 1,000,000 shares of Class A Common
Stock, 5,000 shares of Series A Redeemable Preferred Stock and 5,000 shares of
Series B Convertible Redeemable Preferred Stock ("Series B Preferred Stock").
(b) The issuances referred to in Paragraph (a) of this Item 15 reflect
the recapitalization effective in November, 1996, pursuant to which the 1,000
shares of Common Stock outstanding on such date became and were converted into
9,200,000 shares of Common Stock, 1,000,000 shares of Class A Common Stock,
5,000 shares of Series A Redeemable Preferred Stock and 5,000 shares of Series B
Preferred Stock.
(c) Also in connection with the organization of the Company, in
September 1994, the Company issued to SISC for nominal consideration Series B
Common Stock Purchase warrants to purchase 1,000,000 shares of Common Stock at
$2.00 per share and 1,250,000 shares of Class A Common Stock at $2.00 per share.
II-1
<PAGE>
(d) In October 1994, the Company issued, for nominal consideration,
warrants to purchase an aggregate of 500,000 shares of Class A Common Stock at
$2.00 per share to the following persons, all of whom were employed or engaged
by the Company.
Name Warrants
---- --------
SIS Capital Corp. 55,000
George W. Mahoney 100,000
Norman J. Hoskin 50,000
E. Gerald Kay 50,000
Robert L. Blessey 50,000
Emillio Torres, M.D. 27,500
Charles Fitzpatrick 22,500
Lee Wingeier 22,500
Brian Wade 22,500
Gary Feldsberg, M.D. 16,000
Cary Hoffman, M.D. 16,000
Brian Murphy, M.D. 16,000
Stanley Rosensweig, M.D. 16,000
Fred Steinberg, M.D. 16,000
Lewis Friloux, M.D. 11,000
Mary McNaughton, M.D. 9,000
--------
500,000
(e) In September 1996, in connection with loans from DVI Financial
Services, Inc. d/b/a DVI Capital ("DVI"), the Company issued to DVI a warrant to
purchase 250,000 shares of Class A Common Stock at an exercise price of $5.00
per share. In September 1996, the Company issued to SISC a warrant to purchase
250,000 shares of Class A Common Stock at $5.00 per share. In connection with
the DVI loans, SISC sold to DVI a warrant to purchase 250,000 shares of Class A
Common Stock at $2.00 per share. See Paragraph (a) of this Item 15.
The issuances described in this Item 15 are exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
as transactions not involving a public offering, except that the issuance of
securities pursuant to the recapitalization described in Paragraph (b) is exempt
from such registration requirements pursuant to Section 3(a)(9) of the
Securities Act. No underwriting was involved in connection with any of such
issuances and no fees or commissions were paid.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1(1) Form of Underwriting Agreement.
1.2(1) Form of Underwriter's Purchase Option.
1.3(1) Form of Selected Dealer Agreement.
1.4(1) Form of Consulting Agreement between the Registrant and the
Underwriter.
2.1(2) General Partnership Interest Purchase Agreement dated July 19,
1994 by and between IMI Acquisition of Boca Raton Corporation
and Magnetic Resonance Institute of Boca Raton, Inc.
II-2
<PAGE>
2.2(2) Escrow Agreement dated July 19, 1994 by and among IMI
Acquisition of Boca Raton Corporation, Magnetic Resonance
Institute of Boca Raton, Inc. and Capital Bank.
2.3(2) Subscription Agreement dated July , 1994 by and between IMI
Ltd. Partner Acq. of Boca Raton, Inc. and Magnetic Resonance
Institute of Boca Raton, Inc.
2.4(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq of Boca Raton, Inc., Magnetic Resonance Institute
of Boca Raton, Ltd., and Capital Bank.
2.5(3) Modification and Extension of Promissory Note/Mortgage of
Magnetic Resonance Institute of Boca Raton, Ltd. to DVI.
2.6(2) General Partnership Interest Purchase Agreement by and between
IMI Acquisition of North Miami Beach Corporation and Askay,
Inc.
2.7(2) Escrow Agreement dated July 19, 1994 by and between IMI
Acquisition of No Miami Beach Corporation, Askay, Inc., and
Capital Bank.
2.8(2) Subscription Agreement dated July 19, 1994 by and between IMI
Ltd. Partner Acq. of North Miami Beach, Inc. and Askay, Inc.
2.9(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of North Miami Beach Inc., Magnetic Resonance
Institute of North Miami Beach Ltd., and Capital Bank.
2.10(2) General Partnership Interest Purchase Agreement dated July 19,
1994 by and between IMI Acquisition of South Dade Corporation
and Magnetic Resonance Institute of South Dade, Inc.
2.11(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of South Dade, Magnetic Resonance Institute of
South Dade, Ltd. and Capital Bank.
2.12(2) Subscription Agreement dated July 19, 1994 by and between IMI
Ltd. Partner Acq. of South Dade, Inc. and Magnetic Resonance
Institute of South Dade, Inc.
2.13(2) General Partnership Interest Purchase Agreement dated July 19,
1994 by and between IMI Acquisition of Orlando Corporation and
Magnetic Resonance Institute of Orlando, Inc.
2.14(2) Escrow Agreement dated July 19, 1994 by and among IMI
Acquisition of Orlando Corporation, Magnetic Resonance
Institute of Orlando, Inc. and Capital Bank.
2.15(2) Subscription Agreement dated July 19, 1994 by and between IMI
Ltd. Partner Acq. of Orlando, Inc. and Magnetic Resonance
Institute of Orlando, Inc.
2.16(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of Orlando, Inc., Magnetic Resonance Institute of
Orlando, Ltd. and Capital Bank.
2.17(2) General Partnership Interest Purchase Agreement dated July 19,
1994 by and between IMI Acquisition of Oakland Park Corporation
and Oakland Magnetic Resonance Institute, Inc.
2.18(2) Subscription Agreement dated July 19, 1994 by and between IMI
Ltd. Partner Acq. of Oakland Park, Inc. and Oakland Magnetic
Resonance Institute, Inc.
2.19(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of Oakland Park, Inc., Oakland Magnetic Resonance
Institute, Inc. and Capital Bank.
2.20(2) General Partnership Interest Purchase Agreement dated July 19,
1994 by and between IMI Acquisition of Pine Island Corporation
and S.A.S.G.P., Inc.
2.21(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of Pine Island, Inc., S.A.S.G.P., Inc. and Capital
Bank.
2.22(2) Subscription Agreement dated July 19, 1994 by and between IMI
Ltd. Partner Acq. of Pine Island, Inc. and S.A.S.G.P., Inc.
2.23(2) Escrow Agreement dated July 19, 1994 by and among IMI Ltd.
Partner Acq. of Pine Island, Inc., Pine Island Magnetic
Resonance Imaging Center, Ltd. and Capital Bank.
2.24(3) Mortgage and Security Agreement of Pine Island Magnetic
Resonance Imaging Center, Ltd. To DVI.
2.25(3) Stock Purchase Agreement dated July 19, 1994 by and between MD
Ltd. Partner Acq. Corporation and Stephen A. Schulman, MD and
Stephanie S. Schulman, James H. Sternberg, MD and Marsha
Sternberg, Ashley Kaye, MD and International Magnetic Imaging,
Inc.
2.26(2) Asset Purchase Agreement dated as of July 19, 1994 by and
between MD Acquisition Corporation, J. Sternberg and S.
Schulman M.D. Corp.
2.27(2) Asset Purchase Agreement dated as of August 29, 1994, by and
between IMI Acquisition of Kansas Corporation and Magnetic
Resonance Institute of Greater Kansas City, L.P.
2.28(3) Mortgage and Security Agreement of Magnetic Resonance Institute
of Greater Kansas City, L.P. to DVI.
2.29(2) Asset Purchase Agreement dated as of August 29, 1994, by and
between IMI Acquisition of Puerto Rico Incorporated, as
assignee of DCP Acquisition Corp., and San Juan MRI, Inc.
2.30(2) General Partnership Interest Purchase Agreement dated as of
August 29, 1994 by and between PODC Acquisition Corporation and
P.O.D.C., Inc., A.F.-B.P.O.D.C., Inc., G.S.L.P.O.D.C., Inc. and
J.M.S.P.O.D.C., Inc.
2.31(2) Subscription Agreement dated as of August 29, 1994 by and
between PODC Ltd. Partner Acq. Corporation and Physicians
Outpatient Diagnostic Center, Ltd.
II-3
<PAGE>
2.32(2) Asset Purchase Agreement dated as of October 20, 1994, by and
between IMI Acquisition of Arlington Corp. and Magnetic
Resonance Institute of Arlington, L.P. Amendment dated April
13, 1994 to the Purchase Agreement.
3.1(1) Restated Certificate of Incorporation.
3.2(1) Certificate of designation with respect to the Series A
Preferred Stock and Series B Preferred Stock.
3.3(1) By-Laws
4.1(1) Form of Warrant Agreement among the Registrant and American
Stock Transfer & Trust Company, as Warrant Agent, to which the
form of Series A Redeemable Common Stock Purchase Warrant is
included as an exhibit.
5.1(3) Opinion of Esanu Katsky Korins & Siger.
10.1(2) Loan and Security Agreement dated as of September 30, 1994, by
and between IMI Acquisition of Boca Raton Corporation, IMI
Limited Partner Acquisition of Boca Raton, Inc., as Borrowers,
IMI Acquisition Corporation, as Guarantor and DVI, as Lender.
[Substantially identical Loan and Security Agreements among
other subsidiaries, IMI Acquisition Corporation and DVI were
executed, but are not filed as exhibits.]
10.2(2) Secured promissory notes dated as of September 30, 1994 to DVI.
10.3(2) Unconditional continuing guaranties dated as of September 30,
1994, between DVI and IMI Acquisition Corporation.
10.4(2) Security agreements (pledge) dated as of September 30, 1994,
between IMI Acquisition Corporation, as Guarantor and DVI, as
Lender. [Substantially identical guaranties among
IMI Acquisition Corporation and DVI, dated as of September 30,
1994, but are not filed as exhibits]
10.5(2) Common Stock Purchase Warrant issued by Consolidated Technology
Group Ltd. to DVI.
10.6(1) Loan and Security Agreement dated as of April 3, 1995, by and
between Magnetic Resonance Institute of Arlington, Ltd., as
Borrower, IMI Acquisition Corporation, as Guarantor, and DVI,
as Lender. [Substantially identical Loan and Security
Agreements among other subsidiaries, as Borrowers, IMI
Acquisition Corporation, as Guarantor, and DVI, as Lender, were
executed as of April 3, 1995, but are not filed as exhibits.]
10.7(1) Secured promissory notes dated as of April 3, 1995 to DVI.
10.8(1) Unconditional continuing guaranty dated as of April 3, 1995
between DVI and IMI Acquisition Corporation. [Substantially
identical guaranties between the same parties were executed as
of April 3, 1995, but are not filed as exhibits.]
10.9(1) Loan and Security Agreement dated as of December 29, 1995, by
and between Magnetic Resonance Institute of Boca Raton, Ltd.,
Magnetic Resonance Institute of South Dade, Ltd., Pine Island
Magnetic Resonance Imaging Center, Ltd., and Physicians'
Outpatient Diagnostic Center, Ltd., as Borrowers, and
International Magnetic Imaging, Inc., IMI Acquisition of
Arlington Corp., IMI Acquisition of Puerto Rico Corporation,
IMI Acquisition of Kansas Corporation, Magnetic Resonance
Institute of North Miami Beach, Ltd., and MD Acquisition
Corporation, as Guarantors, and DVI Business Credit Corporation
("DVIBCC"), as Lender. [Substantially identical Loan and
Security Agreements among the same parties with the Borrowers,
here, in the place of the Guarantors and the Guarantors, here,
with the exception of International Magnetic Imaging, Inc., in
the place of the Borrowers, and DVIBCC, as Lender, were
executed as of December 29, 1995, but are not filed as
exhibits.]
10.10(1) Secured promissory notes dated as of December 29, 1995 to
DVIBCC.
10.11(1) Unconditional continuing guaranties dated as of December 29,
1995 between DVIBCC and International Magnetic Imaging, Inc.
10.12(1) Secured unconditional continuing guaranties dated as of
December 29, 1995 between DVIBCC and IMI Acquisition of
Arlington Corp., IMI Acquisition of Kansas Corporation, IMI
Acquisition of Puerto Rico Corporation, Magnetic Resonance
Institute of North Miami Beach, Ltd., Oakland Magnetic
Resonance Institute, Ltd. and MD Acquisition Corporation; and
DVIBCC and International Magnetic Imaging, Inc., Magnetic
Resonance Institute of Boca Raton, Ltd., Magnetic Resonance
Institute of South Dade, Ltd., Pine Island Magnetic Resonance
Imaging Center, Ltd. and Physicians' Outpatient Diagnostic
Center, Ltd.
10.13(1) Loan and Security Agreement dated as of January 24, 1996, by
and between IMI Acquisition of Arlington Corp., IMI Acquisition
of Puerto Rico Corporation, IMI Acquisition of Kansas
Corporation, Magnetic Resonance Institute of North Miami Beach,
Ltd., Oakland Magnetic Resonance Institute, Ltd., MD
Acquisition Corporation, Magnetic Resonance Institute of Boca
Raton, Ltd., Magnetic Resonance Institute of South Dade, Ltd.,
Pine Island Magnetic Resonance Imaging Center, Ltd., and
Physicians' Outpatient Diagnostic Center, Ltd., as Borrowers,
International Magnetic Imaging, Inc., as Guarantor and DVI, as
Lender.
10.14(1) Secured promissory note dated as of January 24, 1996 to DVI.
10.15 Unconditional continuing guaranty dated as of January 24, 1996
between DVI and International Magnetic Imaging, Inc.
10.16 Loan and Security Agreement dated as of January 25, 1996, by
and between Magnetic Resonance Institute of North Miami Beach,
Ltd., as Borrower, International Magnetic Imaging, Inc., as
Guarantor, and DVI, as Lender.
10.17 Secured promissory note dated as of January 25, 1996 to DVI.
10.18 Unconditional continuing guaranty dated as of January 25, 1996
between DVI and International Magnetic Imaging, Inc.
10.19 Loan and Security Agreement dated as of July 29, 1996, by and
between Magnetic Resonance Institute of South Dade, Ltd., as
Borrower, International Magnetic Imaging, Inc., as Guarantor,
and DVI, as Lender.
II-4
<PAGE>
10.20 Secured promissory note dated as of July 29, 1996 to DVI.
10.21(1) Unconditional continuing guaranty dated as of July 29, 1996
between DVI and International Magnetic Imaging, Inc.
10.22(1) Loan and Security Agreement dated as of September 11, 1996, by
and between IMI Acquisition of Arlington Corp., IMI Acquisition
of Puerto Rico Corporation, IMI Acquisition of Kansas
Corporation, Magnetic Resonance Institute of North Miami Beach,
Ltd., Oakland Magnetic Resonance Institute, Ltd., MD
Acquisition Corporation, Magnetic Resonance Institute of Boca
Raton, Ltd., Magnetic Resonance Institute of South Dade, Ltd.,
Pine Island Magnetic Resonance Imaging Center, Ltd.,
Physicians' Outpatient Diagnostic Center, Ltd., as Borrowers,
International Magnetic Imaging, Inc., as Guarantor, and DVI, as
Lender. [Substantially identical Loan and Security Agreements
among the same parties were executed as of September 11, 1996,
but are not filed as exhibits.]
10.23(1) Secured promissory notes dated as of September 11, 1996 to DVI.
10.24(3) Unconditional continuing guaranty dated as of September 11,
1996 between DVI and International Magnetic Imaging, Inc.
[Substantially identical guaranties between the same parties
were executed as of September 11, 1995, but are not filed as
exhibits.]
10.25(3) Common Stock Purchase Warrant issued to DVI.
10.26(1) Employment agreement dated as of October 1, 1994, between the
Registrant and Dr. Stephen A. Schulman, as amended.
10.27(1) Memorandum of understanding dated October 16, 1996, between the
Registrant and Dr. Stephen A. Schulman.
10.28 Employment agreement dated March 21, 1995, between the
Registrant and George W. Mahoney, as amended.
10.29 Agreement dated September 30, 1994, between the Registrant and
Dr. James H. Sternberg.
10.30 Agreement dated September 30, 1994, between the Registrant and
Dr. Ashley Kaye.
10.31 Agreement dated December 5, 1994, between the Registrant and
Expert Radiology Network, P.A.
10.32(3) Facility Use Agreement dated October 15, 1990, between San Juan
MRI, Inc. and Emilio Torres Reyes, M.D., as amended.
10.33(3) Agreement dated April 1, 1995, between IMI Acquisition of
Arlington Corp. and Louis Friloux, M.D.
10.34(3) Letter agreement dated August 3, 1994, between the Registrant
and Diagnostic Imaging North, as amended.
10.35(1) Registrant's 1994 Long-term incentive plan.
10.36(1) Series B Common Stock Purchase Warrant.
10.37(3) Agreement dated as of January 1, 1997 between the Registrant
and The Trinity Group, Inc.
11.1 Computation of income per share.
24.1 Consent of Moore Stephens, P.C. (See Page II-8).
24.2(3) Consent of Esanu Katsky Korins & Siger (included in Exhibit
5.1).
24.3(1) Consent of Proskauer Rose Goetz & Mendelsohn LLP.
24.4(1) Consent of Piper & Marbury L.L.P.
24.5(1) Consent of Niewald Waldeck & Brown.
24.6(1) Consent of Nevares, Sanchez-Alvarez & Gonzalez-Nieto.
25.1(1) Powers of attorney.
27.1 Financial data schedule.
(1) Previously filed.
(2) Filed as an exhibit to the Form 8-K Current Report by Consolidated
Technology Group Ltd., SEC File No. 0-4186, having a date of report of
July 19, 1994.
(3) To be filed by amendment.
(b) Financial Statement Schedules
None
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
II-5
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons of
the registrant, pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on this the 10th day of January , 1997.
INTERNATIONAL MAGNETIC IMAGING, INC.
By: Lewis S. Schiller
-----------------
Lewis S. Schiller
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated. .
Signature Title
--------- -----
Lewis S. Schiller* Chairman of the Board, and Director
- ------------------- (Principal Executive Officer)
Lewis S. Schiller
Stephen A. Schulman* President and Chief Executive Officer
- -------------------------
Stephen A. Schulman, M.D.
George W. Mahoney* Chief Financial and Accounting Officer
- -------------------
George W. Mahoney
*By Lewis S. Schiller
Norman J. Hoskin* Director -----------------
- ------------------ Lewis S. Schiller
Norman J. Hoskin Attorney-in-fact
January 10, 1997
E. Gerald Kay* Director
- ---------------
E. Gerald Kay
II-7
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form
S-1 of our report dated February 16, 1996, accompanying the financial statements
of International Magnetic Imaging, Inc. and our report dated April 22, 1994,
accompanying the financial statements of International Magnetic Imaging, Inc.
[Predecessor], and to the use of our name and the statements with respect to us
as appearing under the heading "Experts" in the Prospectus. Effective July 1,
1996, Mortenson and Associates, P.C. changed its name to Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Cranford, New Jersey
January 10, 1996
II-8
<PAGE>
Exhibit 10.15
UNCONDITIONAL CONTINUING GUARANTY
This UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of 1996, for the benefit of DVI Financial Services Inc. d/b/a DVI Capital
Company ("Lender") whose principal place of business is located at 6611 Rockside
Road, Suite 110, Independence, Ohio 44131 by International Magnetic Imaging,
Inc., ("Guarantor"), a Delaware corporation whose address is 2424 North Federal
Highway, Boca Raton, Florida 33431.
1. Guaranty In order to induce Lender, and in consideration thereof, to
enter into that certain Loan and Security Agreement dated 1996 (the "Agreement")
with Magnetic Resonance Institute of North Miami Beach, Ltd. ("Borrower") and
any future agreements with Borrower, Guarantor unconditionally, absolutely, and
irrevocably guarantees and promises to Lender to pay, perform and discharge, any
and all present and future indebtedness, liabilities and obligations
(collectively "Obligations") of Borrower to Lender, including but not limited to
the repayment to Lender of all sums presently due and owing and of all sums that
shall in the future become due and owing from Borrower, whether arising under
the Agreement or otherwise. The Obligations of Borrower include, but are not
limited to, Borrower acting on behalf of itself or any estate created by the
commencement of a case under Title 11 of the United States Code or any successor
statute thereto (the "Bankruptcy Code") or any other insolvency, bankruptcy,
reorganization or liquidation proceeding, or by any trustee under the Bankruptcy
Code, liquidator, sequestrator or receiver of Borrower or Borrower's property or
similar person duly-appointed pursuant to any law generally governing any
insolvency, bankruptcy, reorganization, liquidation, receivership or like
proceeding.
2. Obligations Borrower's Obligations include any and all loans,
advances, indebtedness, and other obligations owed by Borrower to Lender of
every description whether now existing or hereafter arising (including those
owed by Borrower to others and acquired by Lender by purchase, assignment or
otherwise) and include Obligations that are: (a) direct or indirect; (b) fixed
or contingent; (c) primary or as guarantor or surety; (d) liquidated or
unliquidated; (e) matured or unmatured; (f) acquired by pledge, assignment,
security interest or purchase; (g) secured or unsecured; (h) primary or
secondary; (I) joint, several or joint and several; (j) represented by letters
of credit now or hereafter issued by Lender for the benefit of or at the request
of Borrower; and (k) all of Lender's expenses, included but not limited to (I)
all costs or expenses, including without limitation taxes and insurance
premiums, required to be paid by Borrower under the Agreement that are paid or
advanced by Lender, (ii) filing, recording, publication, and search fees paid or
incurred by Lender in connection with Lender's transactions with Borrower, (iii)
costs and expenses incurred by Lender to correct any default or enforce any
provision of the Agreement, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, and or advertising
to sell any security for the Obligations, whether or not a sale is consummated,
(iv) costs and expenses of suit incurred by Lender and enforcing or defending
the Agreement or any portion thereof, and (v) Lender's reasonable attorney's
fees and expenses incurred in advising, structuring, drafting, reviewing,
negotiating, amending, terminating, enforcing, defending, or concerning the
Agreement or any portion thereof irrespective of whether suit is brought, and
includes, Borrower's prompt, full and faithful performance, observance and
discharge of each and every term, condition, agreement, representation,
warranty, undertaking, and provision to be performed by Borrower under the
Agreement.
3. Attorneys' Fees If Lender incurs attorneys' fees in the enforcement
of this Guaranty, Guarantor agrees to pay Lender the reasonable costs and
expenses of said enforcement, including attorneys' fees. The term "attorneys'
fees" means the full cost of legal services performed in connection with the
matters involved, calculated on the basis of the actual fees of the attorneys
performing those services, and is not limited to "reasonable attorneys' fees" as
defined in any statute or rule of any court in which an action hereunder may be
brought.
1
<PAGE>
4. Waivers
(a) Scope of Risk Defenses Lender may at any time and from time
to time, without notice to, or the consent of, Guarantor, and without affecting
or impairing the obligation of Guarantor hereunder, do any of the following: (i)
renew or extend any Obligations of Borrower, of its customers, of any
co-guarantors (whether hereunder or under a separate instrument) or of any other
party at any time directly or contingently liable for the payment of any of said
Obligations; (ii) accept partial payments of said Obligations; (iii) settle,
release (by operation of law or otherwise), compound, compromise, collect or
liquidate any of said Obligations and the security therefore in any manner; (iv)
consent to the transfer or sale of security, or (v) bid and purchase at any sale
of any security.
(b) Primary Obligation Defenses Guarantor waives any rights to
require Lender to (i) Proceed against Borrower or any other party; (ii) proceed
against or exhaust any security held from Borrower; or (iii) pursue any other
remedy in Lender's power whatsoever. Guarantor waives any defense based on or
arising out of any defense of Borrower other than payment in full of the
Obligations, including without limitation any defense based on or arising out of
any disability of Borrower, or the unenforceability of the Obligations or any
part thereof from any cause, or the cessation from any cause of the liability of
Borrower.
(c) Commercially Reasonable Sale and Antideficiency Laws Lender
may, at Lender's election, foreclose on any security held by Lender by one or
more judicial or nonjudicial sales, whether or not every aspect of any such sale
is commercially reasonable, or exercise any other right or remedy Lender may
have against Borrower, or any security, without affecting or impairing in any
way the liability of Guarantor except to the extent the Obligations have been
paid. Guarantor waives any defense arising out of any such election by Lender,
even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Lender against Borrower
or any security. In the absence of agreeing to the waivers contained in this
subsection 4(c), Guarantor may have the right of subrogation or reimbursement
against Borrower. For example, if Lender elects to foreclose, by nonjudicial
sale, any deeds of trust securing any indebtedness of Borrower to Lender,
causing Guarantor to lose any such rights or create defenses to enforcement of
this Guaranty, Guarantor gives up any such potential defenses by agreeing to
these waivers. Guarantor also expressly waives any defense or benefit that may
be derived from California Code of Civil Procedure Section 580a, 580d or
726, or comparable provisions of the laws of any other state, and all suretyship
defenses it would otherwise have under California law or under the laws of any
other state.
(d) Disclosure Defenses Guarantor expressly waives all set-offs
and counterclaims and waives all notices, protests and demands including, but
not limited to, notice of default in payment or in the performance or observance
of any of the terms, provisions, covenants or conditions contained in any
agreement between Lender and Borrower.
(e) Borrower's Defenses On Underlying Obligations Guarantor
expressly agrees that the validity of this Guaranty and the obligations of
Guarantor shall not be terminated, affected or impaired by reason of the
waiving, delaying, exercising or nonexercising, of any of Lender's rights
against Borrower pursuant to the Agreement against Guarantor by reason of this
Guaranty or as a result of the substitution, release, repossession, sale,
disposition or destruction of any collateral securing the Obligations.
(f) Impairment of Collateral Defenses Guarantor shall not be
released or discharged, either in whole or in part, by Lender's failure or delay
to perfect or continue the perfection of any security interest in any property
which secures the Obligations of Borrower or Guarantor to Lender, or to protect
the property covered by such security interest.
(g) Guarantor's Right To Revoke Guarantor expressly waives the
right to revoke or terminate this continuing Guaranty, including any statutory
right of revocation under California Civil Code Section 2815, or comparable
provisions of the laws of any other state.
2
<PAGE>
5. Financial Condition of Borrower Guarantor assumes all responsibility
for being and keeping informed of Borrower's financial condition and assets and
of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks which Guarantor
assumes and incurs hereunder, and agrees that Lender shall have no duty to
advise Guarantor of information known to it regarding such circumstances or
risks.
6. Guarantor Not Entitled To Subrogation No payment by Guarantor
hereunder shall entitle Guarantor, by subrogation, indemnity, reimbursement,
contribution, or otherwise, to any payment by Borrower or to any subrogation,
indemnity, reimbursement, or contribution out of the property of Borrower.
7. Recovery of Preferences If a claim is made upon Lender at any time
for repayment or recovery of any amount(s) or other value received by Lender,
from any source, in payment of or on account of any of the Obligations of
Borrower guaranteed hereunder and Lender repays or otherwise becomes liable for
all or any part of such claim by reason of (a) any judgment, decree or order of
any court or administrative body having competent jurisdiction, or (b) any
settlement or compromise of any such claim, Guarantor shall remain liable to
Lender hereunder for the amount so repaid or for which Lender is otherwise
liable to the same extent as if such amount(s) had never been received by
Lender, notwithstanding any termination hereof or the termination of any
agreement evidencing any of the Obligations of Borrower.
8. Events of Default the occurrence of any one of the following events
shall constitute an event of default under this Guaranty and upon the occurrence
thereof and at Lender's election without notice or demand, Guarantor's
obligations hereunder shall become due, payable, and enforceable against
Guarantor, whether or not the Obligations are then due and payable:
(a) The occurrence of an event of default under and as defined in
the Agreement;
(b) The commencement of any bankruptcy, insolvency, receivership,
or similar proceeding by or against Guarantor or Borrower;
(c) The attempt by Guarantor or Borrower to effect an assignment
for the benefit of creditors or a composition with creditors;
(d) The insolvency of either Guarantor or Borrower;
(e) The death or dissolution of Guarantor;
(f) The inaccuracy or incompleteness in any material respect, when
made, of any representations or warranties made by Guarantor, Borrower, or any
other matter or;
(g) The breach by Guarantor of any covenant of this Guaranty or
any other agreement between Lender and Guarantor.
9. Binding On Successors and Assigns This Guaranty shall bind
Guarantor's respective heirs, administrators, personal representatives,
successors, and assigns, and shall inure to the benefit of Lender's successors
and assigns, including, but not limited to, any party to whom Lender may assign
the Agreement or any Schedules or any other agreements, and Guarantor hereby
waives notice of any such assignment. All of Lender's rights are cumulative and
not alternative.
3
<PAGE>
10. Miscellaneous This Guaranty contains the entire agreement of the
parties hereto and no other oral or written agreement between the parties hereto
with respect to the subject matter hereof exists. This Guaranty may not be
amended or modified except by a writing signed by Lender and Guarantor. This
Guaranty is a valid and subsisting legal instrument and no provision which may
be deemed unenforceable shall in any way invalidate any other provision or
provisions, all of which shall remain in full force and effect. No invalidity,
irregularity or unenforceability of all or any part of the Obligations
guaranteed nor any other circumstance which might be a legal defense of a
guarantor shall affect, impair, or be a defense to this Guaranty. If more than
one Guarantor has signed this Guaranty, each Guarantor shall be jointly and
severally liable to Lender hereunder and when permitted by the context, the
singular includes the plural. Each of the persons who has signed this or any
other Guaranty has unconditionally delivered it to Lender, and the failure to
sign this or any other Guaranty by any other person shall not discharge the
liability of any signer. The unconditional liability of the signer applies
whether the signer is jointly and severally liable for the entire amount of the
debt, or for only a pro-rata portion.
11. Choice of Law and Forum THIS GUARANTY SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND
GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL
COURTS IN THE STATE OF CALIFORNIA.
INTERNATIONAL MAGNETIC IMAGING, INC., GUARANTOR
By:
George W. Mahoney
Chief Financial Officer
4
<PAGE>
Exhibit 10.16
LOAN AND SECURITY AGREEMENT
between
MAGNETIC RESONANCE INSTITUTE OF NORTH MIAMI BEACH, LTD.
Borrower,
INTERNATIONAL MAGNETIC IMAGING INC.
Guarantor
and
DVI FINANCIAL SERVICES INC. DBA DVI CAPITAL
Lender
Dated as of January,___1996
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
January____1996 by and between DVI Financial Services Inc. dba DVI Capital, a
Delaware corporation ("Lender"), International Magnetic Imaging Inc., a Delaware
corporation ("Guarantor") and Magnetic Resonance Institute of North Miami Beach,
Ltd., a Florida limited partnership ("Borrower").
Section 1
DEFINITIONS
Section 1.1 Specific Definitions. The following definitions shall apply:
(a) "Advance(s)" shall mean an advance of loan proceeds constituting
all or a part of the Loan.
(b) "Borrower's Books" shall mean all of Borrower's books and records
including but not limited to: minute books; ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(c) "Closing Date" shall mean the date of the first Advance of the
Loan.
(d) "Collateral" shall have the meaning specified in Section 3.1
hereof.
(e) "Distribution" shall mean (I) the declaration or payment of any
profit, dividend, share or distribution on or in respect of any interest in
Borrower; (ii) the purchase or other retirement of any such interest in
Borrower; (iii) any loan or advance to the holder of any interest in Borrower or
to the holder of any Indebtedness; (iv) any other payment to the holder of any
interest in Borrower or to the holder of any Indebtedness; and (v) any payment
of principal of or interest on or with respect to any purchase or other
retirement of any Indebtedness of Borrower which, by its terms, is subordinated
to the payment of the Note; provided, however, that the term "Distribution"
shall not include any payments made by Borrower in the ordinary course of its
business, including without limitation, salaries and other compensation
payments, or payments for rent or other services rendered or for goods purchased
which are furnished and invoiced in the ordinary course of business and in
accordance with the terms of this Agreement.
(f) "Environmental Laws" shall mean all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes, and any and all regulations, codes, plans,
orders, decrees, judgments, injunctions, notices, or demand letters issued,
<PAGE>
entered, promulgated, or approved thereunder.
(g) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all references to sections thereof shall include such sections
and any predecessor provisions thereto, including any rules or regulations
issued in connection therewith.
(h) "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
1
(i) "Event of Default" shall have the meaning specified in Section 8
hereof.
(j) "Governmental Authority" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
(k) "Guaranty" shall mean the Unconditional Continuing Guaranty
executed by Guarantor unconditionally guaranteeing Borrower's Obligations under
this Agreement.
(l) "Health Care Laws" shall mean all federal, state and local laws
relating to health care providers and health care services, including, but not
limited to, Section 1877(a) of the Social Security Act as amended by the Omnibus
Budget Reconciliation Act of 1993, 42 U.S.C. Sec. 1395 (nn).
(m) "Indebtedness" of a Person shall mean (I) all items (except items
of capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise then for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
(n) "Lender Expenses" shall mean (I) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Security Documents that
are paid or advanced by Lender: (ii) filing, recording, publication and search
fees paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any default or
enforce any provision of the Security Documents or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, and preparing for
sale and/or advertising to sell the Collateral, whether or not a sale is
consummated; (iv) costs and expenses of suit incurred by Lender in enforcing or
<PAGE>
defending the Loan Documents or any portion thereof; and (v) Lender's attorney
fees and expenses incurred (before or after execution of this Agreement) in
advising Lender with respect to, or in structuring, drafting, reviewing,
negotiating, amending, terminating, enforcing, defending, or otherwise
concerning, the Security Documents or any portion thereof, irrespective of
whether suit is brought.
(o) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(p) "Loan" shall mean each loan or any other loan or loans made by
Lender to Borrower pursuant to this Agreement.
(q) "Loan Documents" shall mean (I) this Agreement; (ii) the Note;
(iii) the Security Documents; (iv) any other agreements or documents hereafter
delivered to secure repayment of the Loan; and (v) any other certificates,
documents or instruments delivered by Borrower to Lender pursuant to the terms
of this Agreement.
(r) "Note" shall mean the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
(s) "Obligation(s)" shall mean (I) the due and punctual payment of all
amounts due or to become due under the Note; (ii) the performance of all
obligations of Borrower under this Agreement, the Note, and all other Security
Documents; (iii) all extensions, renewals, modifications, amendments, and
refinancings of any of the foregoing; (iv) all Lender Expenses; (v) all loans,
advances, indebtedness, and other obligations owed by Borrower
2
to Lender of every description whether now existing or hereafter arising
(including those owed by Borrower to others and acquired by Lender by purchase,
assignment, or otherwise) and whether direct or indirect, primary or as
guarantor or surety, absolute or contingent, liquidated or unliquidated, matured
or unmatured, whether or not secured by additional collateral; and (vi) all
loans, advances, indebtedness, and other obligations owed by Guarantor to Lender
of every description whether now existing or hereafter arising (including those
owed by Guarantor to others and acquired by Lender by purchase, assignment or
otherwise) and whether direct or indirect, primary or as guarantor or surety,
absolute or contingent, liquidated or unliquidated, matured or unmatured,
whether or not secured by additional collateral.
(t) "Permitted Liens" shall mean (I) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
<PAGE>
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; (iv) Liens in favor of Lender, DVI Business Credit Corp.
or their affiliates; and (v) Liens existing on the date of this Agreement that
secure indebtedness outstanding on such date and that are disclosed on Schedule
1.1 hereto;
(u) "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or any other entity.
(v) "Proceeds" shall mean all proceeds and products of Collateral and
all additions and accessions to, replacements of, insurance or condemnation
proceeds of, and documents covering Collateral; all property received wholly or
partly in trade or exchange for Collateral; all claims against third parties
arising out of damage, destruction, or decrease in value of the Collateral; all
leases of Collateral; and all rents, revenues, issues, profits, and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
(w) "Security Document(s)" shall mean the Guaranty, and any agreement
or instrument entered into between Borrower and Lender or executed by Borrower
or Guarantor and delivered to Lender in connection with this Agreement.
(x) "Unmatured Default" shall mean any event or condition that, with
notice, passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in this Section, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section, have the meanings accorded to them in the
Uniform Commercial Code.
Section 1.3 Construction
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including' is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
3
(b) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Lender or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
<PAGE>
Section 2
LOAN
Section 2.1 The Loan Subject to the terms and conditions and relying
on the representations and warranties set forth herein, Lender agrees to advance
to Borrower and Borrower agrees to borrow from Lender, a senior secured term
loan in the amount of Nine Hundred One Thousand and Twenty-five dollars
($901,025) which shall be evidenced by a Note. The proceeds of the Loan shall be
used for the purchase by Borrower of the Collateral, and to fund Borrower's
counsel fees and the closing costs incurred in connection with the transactions
contemplated in this Agreement.
Section 2.2 Term and Repayment of Loan The "Term" of the Loan shall be
seventy-two (72) months and shall be payable in seventy-two (72) consecutive
monthly installments of Seventeen Thousand and Forty dollars ($17,040) on the
same day of each calendar month commencing on the Commencement Date set forth in
the Note. All payments of principal and interest shall be paid in full without
setoff, deduction or counterclaim.
Section 2.3 Prepayment The Loan shall not be subject to prepayment or
redemption in whole or in part prior to the expiration of the Term, except as
follows: Provided no Event of Default exists (or any occurrence which would
constitute an Event of Default with the giving of notice or lapse of time or
both), and provided that all previous payments or obligations under this
Agreement have been made promptly and in accordance with the terms of this
Agreement, the full, but not part of, the unpaid balance of the Obligations
under this Agreement may be prepaid by Borrower at any time after the twelfth
(12th) month of the Term provided, in addition to the prepayment amount Borrower
pays contemporaneously with the prepayment amount, to the Lender a prepayment
premium equal to two (2) years of interest on the prepayment amount calculated
at an interest rate of ten and three-fourth percent (10.75%) per annum.
Section 2.4 Conditions to the Closing The obligation of Lender to make
an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date
hereof and shall be true and correct in all material respects as of the Closing
Date and Borrower shall have performed all obligations which were to have been
performed by it hereunder prior to Closing Date.
(b) Borrower shall have executed and delivered to Lender (or shall
cause to be executed and delivered to Lender by the appropriate Persons) the
following:
(I) this Agreement;
(ii) the Note;
(iii) the Security Documents, together with any other
documents required or contemplated by the terms thereof;
(iv) evidence satisfactory to Lender that Borrower is a
limited partnership and Guarantor is a corporation, each of which is duly
formed, validly existing and in good standing in the state in which it was
formed and is authorized to do business;
<PAGE>
(v) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents and Security Documents;
4
(vi) pay-off letters, UCC Termination Statements, and
Mortgage and Lien Releases as required to grant Lender a first priority security
interest other than Permitted Liens in Collateral pledged as security for
repayment of the Loan,
(vii) certified copies of resolutions of the Board of
Directors of Guarantor and a certificate of the General Partner of Borrower
authorizing the execution and delivery of Loan Documents to be executed by
Borrower and Guarantor;
(viii) copies of the Agreement of Limited Partnership and
Certificate of Limited Partnership of Borrower certified by an officer of the
General Partner therefore and a certified copy of the articles of incorporation
of Guarantor certified by the Secretary of State;
(ix) copies of the Bylaws of Guarantor certified by an
Officer thereof;
(x) the written opinion of counsel to Borrower and Guarantor
issued on the Closing Date and satisfactory to Lender in scope and substance;
(xi) a certificate from the General Partner of Borrower
indicating that the representations and warranties contained herein are true and
correct as of the Closing Date.
(c) Borrower shall have paid closing fees to Lender including Lender's
legal fees incurred by Lender for the negotiation and preparation of the Loan
Documents.
(d) Neither an Event of Default nor an Unmatured Default shall have
occurred and be continuing.
(e) Borrower shall not have suffered a material or adverse change in
its business, operations or financial condition from that reflected in the
financial statement of Borrower dated September 30, 1995.
(f) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonably request which shall be
satisfactory to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1 Grant of Security Interest In order to secure prompt
payment and performance of all Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the property of
Borrower described below and on Schedule 3.1 (the "Collateral"), whether now
owned or existing or hereafter acquired or arising and regardless of where
located subject only to Permitted Liens. This security interest in the
Collateral shall attach to all Collateral without further act on the part of
Lender or Borrower. Regardless of the manner of affixation, the Collateral shall
<PAGE>
remain the personal property and not become part of the real estate. Borrower
agrees to keep the Collateral at the location(s) set forth in Schedule 3.1, and
will notify Lender promptly, in writing, of any change in the location of the
Collateral within such state, but will not remove the Collateral from such state
without the prior written consent of Lender.
The Collateral shall consist of the following subject in each case only
to Permitted Liens together with such third-party consents, lien waivers and
estoppel certificates as Lender shall reasonably require:
All of Borrower's equipment and machinery listed on Schedule 3.1 and
all machine tools, parts, attachments, accessories, accessions, replacements,
upgrades, substitutions, additions and improvements related thereto, wherever
located, and the Proceeds of any of the foregoing, including cash and non-cash
Proceeds.
5
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1 Name of Borrower The exact partnership name of Borrower is
Magnetic Resonance Institute of North Miami Beach, Ltd. Borrower was formed
under the laws of the State of Florida. The following are all previous legal
names of Borrower: None. Borrower uses the following trade names: None. The
following are all other trade names used by Borrower in the past: None.
Section 4.2 Mergers and Consolidations No entity has merged into
Borrower or been consolidated with Borrower.
Section 4.3 Purchase of Assets No entity has sold substantially all of
its assets to Borrower or sold assets to Borrower outside the ordinary course of
such seller's business at any time in the past.
Section 4.4 Change of Name or Identify Borrower shall not change its
name, business structure, or identity or use any new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
Section 4.5 Corporate Structure Guarantor is the holder of one hundred
percent (100%) of the common stock of IMI Acquisition of North Miami Beach
Corporation, the sole General Partner of Borrower and IMI Ltd. Partner Acq. of
North Miami Beach, Inc. the sole limited partner of Borrower. Such common stock
is the sole authorized class of stock in each of the foregoing entities.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1 Title Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement will be,
upon the filing of the required UCC Financing Statements, fully perfected first
priority Liens (except for Permitted Liens) and any other agreement, financing
statement or notice necessary to provide notice to third parties of the
existence of such Liens, in and to the Collateral with priority over the rights
of every person in the Collateral is free, clear, and unencumbered by any Liens
in favor of any person other than Lender except for Permitted Liens.
<PAGE>
Section 5.2 No Warranties This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely by
Borrower for Borrower's purposes; Lender is not the manufacturer, dealer, vendor
or supplier of the Collateral; the Collateral is of a size, design, capacity,
description and manufacturer selected by Borrower; Borrower is satisfied that
the Collateral is suitable and fit for its purposes; and LENDER HAS NOT MADE AND
DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR
IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF
THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE OF THE
COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3 Further Assurances Borrower shall execute and deliver to
Lender, concurrent with Borrower's execution of this Agreement and at any time
or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents Lender may reasonably request in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the
Security Documents. Borrower hereby irrevocably makes, constitutes, and appoints
Lender (and any of Lender's officers, employees, or agents designated by Lender)
as Borrower's true
6
and lawful attorney with power to sign the name of Borrower on any of the
above-described documents or on any other similar documents that need to be
executed, recorded, and/or filed in order to perfect or continue perfected
Lender's Liens in the Collateral. The appointment of Lender as Borrower's
attorney is irrevocable as long as any Obligations are outstanding. Any person
dealing with Lender shall be entitled to rely conclusively on any written or
oral statement of Lender that this power of attorney is in effect. Lender will
provide Borrower with copies of any documents signed by Lender on Borrower's
behalf pursuant to this Section.
Section 5.4 Additional Collateral If the Collateral declines in value
substantially, Borrower shall grant a security interest to Lender in additional
assets satisfactory to lender having a value at least equal to the decline in
value of the existing Collateral.
Section 5.5 Lender's Duty of Care Lender shall have no duty of care
with respect to the Collateral except that Lender shall exercise reasonable care
with respect to the Collateral in Lender's custody. Lender shall be deemed to
have exercised reasonable care if such property is accorded treatment
substantially equal to that which Lender accords its own property or if Lender
takes such action with respect to the Collateral as the Borrower shall request
or agree to in writing provided that no failure to comply with any such request
nor any omission to do any such act requested by the Borrower shall be deemed a
failure to exercise reasonable care. Lender's failure to take steps to preserve
rights against any parties or property shall not be deemed to be a failure to
exercise reasonable care with respect to the Collateral in Lender's custody. All
risk, loss, damage, or destruction of the Collateral shall be borne by Borrower.
<PAGE>
Section 5.6 Borrower's Contracts Borrower shall remain liable to
perform its Obligations under any contracts and agreements included in the
Collateral to the same extent as though this Agreement had not been entered into
and Lender shall not have any obligation or liability under such contracts and
agreements by reason of this Agreement or otherwise.
Section 5.7 Reinstatement of Liens If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other person must be
disgorged by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy, or reorganization of Borrower or such other person),
this Agreement and Lender's Liens granted hereunder shall be reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
shall sign and deliver to Lender all documents and things necessary to perfect
all terminated Liens.
Section 5.8 Lender Expenses If Borrower fails to pay any monies
(whether taxes, assessments, insurance premiums, or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit, or fails to discharge any Lien prohibited hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's interests in the Collateral, in its discretion and without prior
notice to Borrower, make payment of the same or any part thereof. Any amounts
paid or deposited by Lender shall constitute Lender Expenses, shall become part
of the Obligations, shall bear interest at the rate of twelve percent (12%) per
annum, and shall be secured by the Collateral. Any payments made by Lender shall
not constitute (a) an agreement by Lender to make similar payments in the future
or (b) a waiver by Lender of any Event of Default under this Agreement. Lender
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance, or Lien, and the receipt of the usual official
notice of the payment of monies to a governmental entity shall be conclusive
evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9 Inspection of Collateral and Records During Borrower's
usual business hours, Lender may inspect and examine the Collateral and check
and test the same as to quality, quantity, value, and condition and Borrower
agrees to reimburse Lender for its costs and expenses in so doing. Lender shall
also have the right at any time or times hereafter, during Borrower's usual
business hours or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral and Borrower's financial condition and to copy
7
and make extracts therefrom. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Lender pursuant to this Agreement
and agrees that Lender may directly contact any such accounting firm or service
bureau in order to obtain such information.
<PAGE>
Section 5.10 Deposit Accounts In order to perfect Lender's security
interest in Borrower's deposit accounts maintained at any financial institutions
at which Borrower maintains deposit accounts now or in the future, Borrower
agrees to execute a form of notification to such financial institution(s) in
order to notify them of Lender's Lien in such deposit accounts.
Section 5.11 Waivers Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1 Status Guarantor is a corporation validly existing and in
good standing under the laws of the state of its incorporation and Borrower is a
limited partnership validly existing and in good standing under the laws of the
state of its formation; and each of Borrower and Guarantor is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its business or its ownership of property requires that it be so
qualified or licensed, and has the power and authority (corporate, partnership
and otherwise) to execute and carry out the terms of the Loan Documents to which
it is a party, to own its assets and to carry on its business as currently
conducted.
Section 6.2 Authorization The execution, delivery, and performance by
Borrower and Guarantor of this Agreement and each Loan Document have been duly
authorized by all necessary partnership or corporate action. Borrower and
Guarantor have duly executed and delivered this Agreement and each Security
Document to which they are a party, and each of them constitutes a valid and
binding obligation of Borrower or Guarantor, as applicable, enforceable
according to its terms except as limited by equitable principles and by
bankruptcy, insolvency, or similar laws affecting the rights of creditors
generally.
Section 6.3 No Breach The execution, delivery, and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the agreement of
limited partnership, articles of incorporation or bylaws of Borrower or
Guarantor; (c) will not violate any agreement or instrument by which Borrower or
Guarantor, as applicable, is bound; (d) do not require any notice to or consent
by any governmental body; and (e) will not result in the creation of a Lien on
any assets of Borrower except the Lien to Lender granted herein.
Section 6.4 Taxes All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property have been paid in full before delinquency or
before the expiration of any extension period; and Borrower has made due and
timely payment or deposit of all federal, state, and local taxes, assessments,
or contributions required of it by law, except only for items that Borrower is
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
<PAGE>
Section 6.5 Deferred Compensation Plans Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any
single-employer or multi-employer plans.
8
Section 6.6 Litigation and Proceedings Except as set forth on Schedule
6.6 attached hereto, there are not outstanding judgments against Borrower or any
of its assets and there are no actions or proceedings pending by or against
Borrower before any court or administrative agency. Borrower has no knowledge or
belief of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower, except for ongoing collection matters in which Borrower is the
plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7 Business Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to advantageously
conduct its business. They are all in full force and effect and are not in known
conflict with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
Section 6.8 Laws and Agreements Borrower is in compliance with all
material agreements applicable to it, including obligations to contribute to any
employee benefit plan or pension plan regulated by ERISA. Borrower is, to its
best knowledge, in material compliance with all laws applicable to it.
Section 6.9 Financial Condition All financial statements and
information relating to Borrower and Guarantor that have been or may hereafter
be delivered by Borrower to Lender are accurate and complete and have been
prepared in accordance with generally accepted accounting principles
consistently applied. Borrower has no material obligations or liabilities of any
kind not disclosed in that financial information, and there has been no material
adverse change in the financial condition of Borrower or Guarantor since the
date of the most recent financial statements submitted to Lender.
Section 6.10 Environmental Laws
(a) Borrower has obtained all permits, licenses, and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses, and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any past,
present, or future events, conditions, circumstances, activities, practices,
incidents, actions, or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Environmental Laws, or may
give rise to any material common-law or legal liability, or otherwise form the
basis of any material claim, action, demand, suit, proceeding, hearing, study,
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or
waste.
<PAGE>
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation, or
proceeding pending or threatened against Borrower, relating in any way to
Environmental Laws.
Section 6.11 Insurance Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
will be delivered to Lender upon request. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
Section 6.12 Ownership of Property Except as set forth Schedule 6.12
hereto, Borrower has good and marketable title to all of its properties and
assets, free and clear of all liens, security interests and encumbrances, except
liens to secure repayment of the Loan and Permitted Liens. Borrower has the
exclusive right to use all such assets.
9
Section 6.13 Leases Schedule 6.13 hereto contains a complete and
accurate list of all leases pursuant to which Borrower leases real or personal
property. Each such lease is valid, binding and enforceable against Borrower in
accordance with its terms, and is in full force and effect; there are no
existing defaults by Borrower thereunder, and Borrower has no knowledge of any
Event of Default or any Unmatured Default.
Section 6.14 Health Care Laws
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Health Care Laws.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of demand letter, notice of violation, investigation or
proceeding pending or threatened against Borrower, relating in any way to Health
Care Laws.
Section 6.15 Cumulative Representations The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given, to Lender, either now or hereafter.
<PAGE>
Section 7
COVENANTS
Section 7.1 Encumbrance of Assets Borrower shall not create, incur,
assume, or permit to exist any Lien on any Collateral now owned or hereafter
acquired by Borrower, except for Liens to Lender and Permitted Liens. Lender
acknowledges that the lien created under this Agreement is a Permitted Lien
under the existing Loan and Security Agreement between Lender and the general
and limited partner of Borrower.
Section 7.2 Business; Covenant regarding George Mahoney Borrower shall
engage primarily in business of the same general character as that now conducted
by it and shall not make any investment in any other entity through the direct
or indirect holding of securities or otherwise. It is hereby agreed by Borrower
and Guarantor that the discharge by Consolidated Technology Group Ltd. or
Guarantor of George Mahoney as its Chief Financial Officer, at any time prior to
the payment in full of the Obligations covered by this Agreement, will
constitute an Event of Default under this Agreement.
Section 7.3 Condition and Repair Borrower shall maintain in good
repair and working order all properties used in its business and from time to
time shall make all appropriate repairs and replacements thereof.
Section 7.4 Insurance Borrower shall maintain, with financially sound
and reputable insurers, insurance with respect to its properties and business
against loss or damage of the kinds and in the amounts customarily insured
against by entities of established reputation engaged in the same or similar
businesses. Each such policy shall name Lender as an additional insured and,
where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and shall provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.5 Taxes Borrower shall pay all taxes, assessments and other
governmental charges imposed upon it or any of its assets or in respect of any
of its franchises, business, income, or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials, and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited,
10
or materially impaired as a result thereof) no such charge or claim need by paid
if it is being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted, if Lender is notified in advance of such
contest, and if Borrower establishes any reserve or other appropriate provision
required by generally accepted accounting principles and deposits with Lender
cash or an acceptable bond in an amount equal to twice the amount of such charge
or claim. Borrower shall make timely payment or deposit of all FICA payments and
withholding taxes required of it by applicable laws and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower has
made such payments or deposits.
Section 7.6 Accounting System Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with generally
accepted accounting principles consistently applied, with ledger and account
cards or computer tapes, disks, printouts, and records that contain information
<PAGE>
pertaining to the Collateral that may from time to time be requested by Lender.
Borrower shall not modify or change its method of accounting or enter into any
agreement hereafter with any third-party accounting firm or service bureau for
the preparation and/or storage of Borrower's accounting records without said
accounting firm's or service bureau's agreeing to provide to Lender information
regarding the Collateral and Borrower's financial condition.
Section 7.7 Financial Statements Borrower shall submit quarterly
financial statements with respect to Borrower to Lender as soon as available,
and in any event within forty-five (45) days of the end of each fiscal quarter.
Additionally, Borrower will submit audited, combined or consolidated financial
statements of International Magnetic Imaging, Inc. which will include Borrower
to Lender as soon as available, and in any event within ninety (90) days of the
end of each fiscal year. With all financial statements, Borrower will also
deliver a certificate of its chief financial officer attesting that no Event of
Default or Unmatured Default under the Agreement has occurred and is continuing.
Section 7.8 Further Information Borrower shall promptly supply Lender
with such other information concerning its affairs as Lender may reasonably
request from time to time hereafter and shall promptly notify Lender of any
material adverse change in Borrower's financial condition and any condition or
event that constitutes a breach of or event that constitutes an Event of Default
under this Agreement.
Section 7.9 ERISA Covenants Borrower shall, and shall cause each ERISA
Affiliate to, comply with all applicable provisions of ERISA and all other laws
applicable to any deferred compensation plans with which Borrower or any ERISA
Affiliate is associated, and shall promptly notify Lender of the occurrence of
any event that could result in any material liability of Borrower to any person
whatsoever with respect to any such plan.
Section 7.10 Environmental Covenants
(a) Borrower shall comply in all respects with, and will obtain all
permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
governmental authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower
would be required to notify any governmental authority with jurisdiction over
Environmental Laws.
Section 7.11 Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower shall not:
(a) Merge or consolidate with any Person.
(b) Sell, lease or otherwise dispose of its assets in any transaction
or series of related transactions (other than sales leases or other dispositions
in the ordinary course of business).
(c) Liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction.
(d) Acquire any interest in any business (whether by purchase of
assets, purchase of stock, merger or otherwise).
11
<PAGE>
(e) Become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents.
(f) Authorize or issue any additional partnership or equity interest.
Section 7.12 Restrictions on Distributions Unless authorized by
Lender, Borrower shall not make any Distributions to any Person including any
parent, subsidiary or affiliate of Borrower until the Obligations are fully
satisfied, provided, however, Borrower may make Distributions pursuant to
Schedule 7.12. so long as the financial terms of the agreements set forth on
such schedule are not hereafter amended without the consent of Lender.
Section 7.13 Restrictions on Indebtedness Unless authorized by Lender,
Borrower shall not hereafter create, incur, assume or otherwise become or remain
liable with respect to any Indebtedness except the following:
(a) Indebtedness in respect of the Note and current liabilities (other
than for money borrowed) incurred in the ordinary course of business.
(b) Indebtedness in respect of taxes, assessments, governmental charges
or levies and claims for labor, materials, equipment and supplies.
(c) Indebtedness in respect of replacement or refinancing of existing
Indebtedness, provided the amount of such Indebtedness does not exceed the
amount of the existing Indebtedness, the repayment schedule for such
Indebtedness is equal to the repayment schedule for the existing Indebtedness
and Lender gives its prior written consent, which shall not be unreasonably
withheld if the specified conditions have been met.
Section 7.14 Restrictions on Guaranties Unless authorized by Lender,
Borrower shall not hereafter become or remain liable under any guaranty of any
obligation of any other Person.
Section 7.15 Health Care Covenants
(a) Borrower shall comply in all respects with, and will obtain all
permits required by, all Health Care Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any governmental authority with jurisdiction over Health Care Laws.
Section 7.16 Deferral of Indebtedness Prior to the payment in full by
Borrower of the Obligations under this Agreement and the payment in full of all
indebtedness of Guarantor's affiliates to Lender and Lender's affiliates,
whether existing prior to, as of, or after the date of this Agreement, Borrower
shall not make any payments, directly or indirectly, on or otherwise in
connection with, any subordinated notes held by any former general partner of
Borrower, and Borrower shall cause the following makers of the following
subordinated notes to defer making any further payments, directly or indirectly,
on, or otherwise in connection with, such notes:
<PAGE>
Maker Payee Amount
MD Acquisition J. Sternberg and S. $3,375,000
Corporation Schulman M.D. Corp.
MD Ltd. Partner Stephen A. and Stephanie $ 481,767
Acq. Corporation S. Schulman (TBE)
MD Ltd. Partner Stephanie S. Schulman $ 501,431
Acq. Corporation
12
MD Ltd. Partner Acq. James H. and Marsha $ 481,768
Corporation Sternberg (TBE)
MD Ltd. Partner Acq. Marsha Sternberg $ 501,431
Corporation
MD Ltd. Partner Ashley Kaye $ 983,198
Acq. Corporation
TBE = Tenants by Entirety
Section 8
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the following
events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure shall continue for five (5) days
after the payment is due;
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof or any Loan
Document to which it is a party and such failure is not cured as soon as
reasonably practicable and in any event within thirty (30) days after written
notice thereof by Lender; provided, however, that if such failure cannot be
cured within such thirty (30) day period, Borrower shall not be in default if
the cure is commenced within such thirty (30) day period and thereafter such
cure is diligently pursued to completion;
(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft, or destruction of the Collateral
occurs;
(d) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal, stay, bond or other security acceptable
to Lender;
<PAGE>
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency, or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$10,000 is rendered against Borrower and remains undischarged for twenty (20)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of the
Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Borrower makes any payment on account of Indebtedness that has been
subordinated to any Obligations, other than payments specifically permitted by
the terms of such subordination;
(i) Any person holding indebtedness that has been subordinated to any
Obligations dies or becomes the subject of an insolvency proceeding resulting in
the termination of the subordination arrangement or terminates the subordination
arrangement or asserts that it is terminated;
13
(j) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise;
(k) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $10,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(l) Demand is made for payment of any Indebtedness in excess of $10,000
that was not originally payable upon demand when incurred but the terms of which
were later changed to provide for payment upon demand;
(m) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
(n) A judgment or other claim in excess of $10,000 becomes a Lien upon
any or all of Borrower's assets, other than a Permitted Lien;
(o) A notice of Lien, levy, or assessment in excess of $10,000 is filed
of record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or other governmental agency; or any tax or debt owing
at any time hereafter to any one or more of such entities becomes a Lien upon
any or all of Borrower's assets and the same is not paid on the payment date
thereof, except to the extent such tax or debt is being contested by Borrower as
permitted in Section 8.4;
(p) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral;
<PAGE>
(q) Any or all of Borrower's assets are attached, seized, or subjected
to a writ or distress warrant, or are levied upon, or come into the possession
of, any judicial officer;
(r) Lender believes in good faith that the prospect of payment or
performance of the Obligations by Borrower has been impaired; or
(s) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is incorrect when made.
(t) Guarantor shall be in default with respect to any of its
Obligation(s) to Lender or an Event of Default or an Unmatured Default occurs
under any other Loan Agreement.
(u) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (f), (k), (l), (n) and (o) hereof
exceeds $25,000.
Section 9
REMEDIES
Section 9.1 Specific Remedies Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or monies of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
14
(c) Lender may enter any premises of Borrower, with or without judicial
process, and take possession of the Collateral; provided however, that Lender
may only exercise such remedy if it may do so without a breach of the peace.
Lender may remove the Collateral and may remove and/or copy all records
pertaining thereto, and/or Lender may remain on such premises and use the
premises for the purpose of collecting, preparing and disposing of the
Collateral, without any liability for rent or occupancy charges. Borrower shall,
upon request of Lender, assemble the Collateral and any records pertaining
thereto and make them available at a place designed by Lender that is reasonably
convenient to both parties.
(d) Lender may dispose of the Collateral in its then-existing condition
or, at its election, may take such measures as it deems necessary or advisable
to improve, process, finish, operate, demonstrate, and prepare for sale the
Collateral, and may store, ship, reclaim, recover, protect, advertise for sale
or lease, and insure the Collateral. Lender may use and operate equipment of
Borrower in order to process o finish inventory included in the Collateral. If
any Collateral consists of documents, Lender may proceed either as to the
documents or as to the goods represented thereby.
<PAGE>
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders, or other forms of payment of or security for any
Collateral; and (ii) notify the postal authorities in Borrower's name to change
the address for delivery of Borrower's mail to an address designed by Lender,
receive and open all mail addressed to Borrower, copy all mail, return all mail
relating to the Collateral, and hold all other mail available for pickup by
Borrower.
(g) Lender may sell the Collateral at public or private sale and is not
required to repossess the Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral shall be satisfied if
such notice is sent to Borrower, ten (10) days prior to such disposition or by
any of the methods provided in Section 11.5 hereof. Borrower shall be credited
with the net proceeds of such sale only when they are actually received by
Lender, and Borrower shall continue to be liable for any deficiency remaining
after the Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2 Power of Attorney Borrower hereby appoints Lender (and any
of Lender's officers, employees, or agents designated by Lender) as Borrower's
attorney, with power whether before or after the occurrence of an Event of
Default: (a) to endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts, or other forms of payment or security that may come into
Lender's possession; (b) to notify the post office authorities to change the
address for delivery of Borrower's mail to an address designed by Lender, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower; (c) to do all things
necessary to carry out this Agreement; and (d) Lender agrees not to exercise the
power granted in clauses (a) and (b) above prior to the occurrence of an Event
of Default but such limitation does not limit the effectiveness of such power of
attorney at any time. The appointment of Lender as Borrower's attorney and each
and every one of Lender's rights and powers, being coupled with an interest, are
irrevocable as long as any Obligations are outstanding. Any person dealing with
Lender shall be entitled to rely conclusively on any written or oral statement
of Lender that this power of attorney is in effect. Lender may also use
Borrower's stationery in connection with exercising its rights and remedies and
performing the Obligations of Borrower.
15
<PAGE>
Section 9.3 Expenses Secured All expenses, including attorney fees,
incurred by Lender in the exercise of its rights and remedies provided in this
Agreement, in any other Loan Document, or by law shall be payable by Borrower to
Lender, shall be part of the Obligations, and shall be secured by the
Collateral.
Section 9.4 Equitable Relief Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy at law will provide adequate relief
to Lender, and Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Section 9.5 Remedies Are Cumulative No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
shall be deemed to be an election. No delay by Lender shall constitute a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to (i) proceed against Guarantor under any other Loan Agreement
or any other party; or (ii) proceed against or exhaust any security held from
Guarantor under any other Loan Agreement. Lender may at any time and from time
to time, without notice to, or consent of, Borrower, and without affecting or
impairing the obligation of Borrower hereunder do any of the following: (i)
renew or extend any Obligations of Guarantor under any other Loan Agreement, or
of any other party at any time directly or contingently liable for payment of
any of said Obligations; (ii) accept partial payments of said Obligations to
Guarantor under any other Loan Agreement; (iii) settle, release (by operating of
law or otherwise), compound, compromise, collect or liquidate any of said
Obligations of Guarantor under any other Loan Agreement and the security
therefor in any manner; (iv) consent to the transfer or sale of any security or
bid and purchase at any sale any security of Guarantor under any other Loan
Agreement. Borrower expressly agrees that the validity of this Agreement and the
Obligations of Borrower shall not be terminated, affected or impaired by reason
of the waiving, delaying, exercising or non-exercising, of any of Lender's
rights against Guarantor under any other Loan Agreement or as a result of the
substitution, release, repossession, sale, disposition or destruction of any
Collateral securing any Obligations of Guarantor under any other Loan Agreement.
Lender shall not be released or discharged, either in whole or in part, by
Lender's failure or delay to perfect or continue the perfection of any security
interest in any Collateral which secures the Obligations of Guarantor under any
other Loan Agreement, or to protect the property covered by such security
interest.
<PAGE>
Section 10
INDEMNITY
Section 10.1 General Indemnity Borrower shall protect, indemnify and
defend and save harmless Lender and its directors, officers, agents, and
employees from and against any and all loss, cost, liability (including
negligence, tort and strict liability), expense, damage, suits, or demands
(including fees and disbursements of counsel), and expenses, on account of any
suit or proceeding before any Governmental Authority which arises from the
transactions contemplated in this Agreement or otherwise arising in connection
with or relating to the Loan and any security therefor, unless such suit, claim
or damages are caused by the negligence or intentional malfeasance of Lender or
its directors, officers, agents, or employees. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
Section 10.2 Specific Environmental Indemnity Borrower hereby agrees
unconditionally to indemnify, defend and hold harmless Lender, its directors,
officers, employees and agents against any loss, liability, damage, or expense
or claim arising under any Environmental Laws having jurisdiction over the
property or assets of Borrower or any portion thereof or its use.
16
Section 11
MISCELLANEOUS
Section 11.1 Delay and Waiver No delay or omission to exercise any
right shall impair any such right or be a waiver thereof, but any such right may
be exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion shall be limited to that particular occasion.
Section 11.2 Complete Agreement This Agreement and the Schedules
annexed hereto are the complete agreement of the parties hereto and supersede
all previous understandings relating to the subject matter hereof. This
Agreement may be amended only by an instrument in writing that explicitly states
that it amends this Agreement and is signed by the party against whom
enforcement of the amendment is sought. This Agreement may be executed in
counterparts, each of which will be an original and all of which will constitute
a single agreement.
Section 11.3 Severability; Headings If any part of this Agreement or
the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement shall not be affected thereby. The section headings
herein are included for convenience only and shall not be deemed to be a part of
this Agreement.
Section 11.4 Binding Effect This Agreement shall be binding upon and
inure to the benefit of the parties and their respective legal representatives,
successors, and assigns of the parties hereto; however, Borrower may not assign
any of its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
<PAGE>
Collateral to the assignee, who shall thereupon have all of the rights of
Lender; and Lender (or such subsequent assignee who in turn assigns as
aforesaid) shall then be relieved and discharged of any responsibility or
liability with respect to this Agreement and said Collateral.
Section 11.5 Notices Any notices under or pursuant to this Agreement
shall be deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
To Borrower: Magnetic Resonance Institute of North Miami Beach, Ltd.
c/o International Magnetic Imaging Inc.
2424 North Federal Highway
Boca Raton, Florida 33431
Attention: George Mahoney
Chief Financial Officer
Telephone: 407-362-0917
Telecopier: 407-347-5352
Copies to: Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
Telephone: 914-232-6842
Telecopier: 914-232-0647
To Lender: DVI Capital Company
6611 Rockside Road - Suite 110
Independence, OH 44131
Attention: Alan J. Velotta
Telephone: 216-520-2900
Telecopier: 216-520-2908
17
Either party may change such address(es) by sending notice of the
change to the other party; such change of address(es) shall be effective only
upon actual receipt of the notice by the other party.
Section 11.6 Governing Law ALL ACTS AND TRANSACTIONS HEREUNDER AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED, AND
INTERPRETED IN ACCORDANCE WITH THE DOMESTIC LAWS OF CALIFORNIA.
Section 11.7 Jurisdiction Borrower agrees that the state and federal
courts in Orange County, California or any other court in which Lender initiates
proceedings have exclusive jurisdiction over all matters arising out of this
Agreement and that service of process in any such proceeding shall be effective
if mailed to Borrower at its address and in the manner described in the Notices
section of this Agreement. Borrower waives any right it may have to assert the
defense of forum non conveniens or to object to such venue and hereby consents
to any court-ordered relief.
<PAGE>
Section 11.8 Waiver of Trial by Jury LENDER, GUARANTOR AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE RELATIONSHIP
BETWEEN LENDER, GUARANTOR AND BORROWER.
IN WITNESS WHEREOF, Borrower, Guarantor and the Lender have executed
this Agreement by their duly authorized officers as of the date first above
written.
Magnetic Resonance Institute of DVI FINANCIAL SERVICES INC.
North Miami Beach, Ltd. DBA DVI CAPITAL COMPANY
By: By:
IMI Acquisition of North Miami Beach Alan J. Velotta
Corporation Group Managing Director
General Partner
By:
Name: George W. Mahoney
Title: Chief Financial Officer
INTERNATIONAL MAGNETIC IMAGING, INC., Guarantor
By:
Name: George W. Mahoney
Title: Chief Financial Officer
AGREED TO AS TO SECTION 7.16 HEREOF
MD ACQUISITION CORPORATION
By:
Lewis S. Schiller, President
MD LTD. PARTNER ACQ. CORPORATION
By:
Lewis S. Schiller, President
18
<PAGE>
SCHEDULE 1.1
PERMITTED LIENS
1. DVI Capital Company
Personal property
September 30, 1994
Due September 30, 1999
$960,792 principal
Monthly payment of $25,922 which includes interest at 10.50%
<PAGE>
SCHEDULE 3.1
GRANT OF SECURITY INTEREST
One (1) Siemens Magnetom Impact MRI S/N #5471 and all attachments, accessories,
accessions, replacements, upgrades, substitutions, additions, and improvements
thereto located at 2630- N.E. 203rd Street, #104, North Miami Beach, Florida
33180
<PAGE>
SCHEDULE 6.6
LITIGATION AND PROCEEDINGS
Trimmer v. 4th Gulfstream Apts.
This is an interpleader case
<PAGE>
SCHEDULE 6.11
INSURANCE
SEE ATTACHED EXHIBIT
<PAGE>
SCHEDULE 6.12
OWNERSHIP OF PROPERTY
Schedule of real and personal property subject to liens (other than as
contemplated by this agreement in favor of the Lender). See Schedule 1.1.
<PAGE>
SCHEDULE 6.13
LEASES
BUILDING LEASE
Landlord - 2630 Centre (Marby's Ent. Inc.)
Term - December 1, 1995 - November 30, 2000
Renewal Option - One @ 5 years
Monthly rent - $5,665 + CAM
Rent increases - Annual
Index - CPI
Cap - 4%
<PAGE>
SCHEDULE 7.12
PERMITTED DISTRIBUTIONS
Payments and fees for consulting, management, radiology and other medical,
financial and administrative services rendered in the ordinary course of
business.
Agreements:
Redemption Agreement and Subordinated Promissory Notes of Borrower to its former
limited partners.
Employment Agreements between International Magnetic Imaging, Inc. (formerly IMI
Acquisition Corp.) ("IMI") and Messrs. Schulman and Mahoney, as amended through
the date hereof.
Radiology Agreement between IMI and Expert Radiology Network, P.A., as amended
through the date hereof.
Restrictive covenant agreements between IMI and Drs. Sternberg and Kaye.
Agreements between IMI and Advanced NMR Systems, Inc.
<PAGE>
AFFIDAVIT OF OUT OF STATE CLOSING
Lewis S. Schiller, the Chief Executive Officer of IMI ACQUISITION OF
NORTH MIAMI BEACH CORPORATION, the General Partner of MAGNETIC RESONANCE
INSTITUTE OF NORTH MIAMI BEACH, LTD. ("Borrower") and ALAN J. VELOTTA, the Group
Managing Director of DVI FINANCIAL SERVICES, INC., d/b/a DVI CAPITAL ("Lender"),
both being duly sworn, hereby depose and say:
1. On the date hereof, Magnetic Resonance Institute of North Miami
Beach, Ltd. executed a Promissory Note, payable to Lender, in the principal
amount of Nine Hundred and One Thousand and Twenty-five Dollars ($901,025)
payable in seventy-two (72) equal monthly installments of $17,040 with all
principal and accrued interest due on February 2002 (the "Note").
2. Borrower personally delivered the Note to Lender (and all other Loan
Documents as defined in the Loan and Security Agreement of even date herewith
between Borrower and Lender) in the City of Cleveland, State of Ohio.
3. The Note (and the aforementioned Loan Documents) was executed by
Borrower in the City of New York, State of New York and delivered to and
accepted by Lender in the City of Cleveland, State of Ohio.
MAGNETIC RESONANCE INSTITUTE OF NORTH MIAMI BEACH, LTD.
By: IMI ACQUISITION OF NORTH MIAMI BEACH CORPORATION, General Partner
By:
Lewis S. Schiller, Chief Executive Officer
DVI FINANCIAL SERVICES, INC. d/b/a DVI CAPITAL
By:
Alan J. Velotta, Group Managing Director
STATE OF NEW YORK )
ss:
COUNTY OF NEW YORK )
On ________________, 19_____, before me personally came Lewis
S. Schiller, to me known, who, by me duly sworn, did depose and say that
deponent is the Chief Executive Officer of IMI Acquisition of North Miami Beach
Corporation, the General Partner of Magnetic Resonance Institute of North Miami
Beach, Ltd., the Partnership described in and which executed the foregoing
Affidavit.
Notary Public
STATE OF )
ss:
STATE OF )
On ________________, 19______, before me personally came Alan
J. Velotta, to me known, who, by me duly sworn, did depose and say that deponent
is the Group Managing Director of DVI Financial Services, Inc. d/b/a DVI
Capital, the corporation described in and which executed the foregoing
Affidavit.
Notary Public
<PAGE>
DELIVERY AND ACCEPTANCE CERTIFICATE
TO: DVI Financial Services, Inc. ("Lender")
RE: Loan and Security Agreement ("Agreement") dated as of
January____1996 between DVI Financial Services, Inc. d/b/a DVI
Capital as Lender and Magnetic Resonance Institute of North
Miami Beach, Ltd. as "Borrower"
The undersigned Borrower hereby acknowledges receipt of the
Equipment described in Exhibit "A" attached hereto and confirms that: all
installation and other work necessary prior to the use thereof has been
completed; the Equipment has been examined and/or tested and is in good
operating order and condition and in all respects satisfactory to Borrower and
as represented; and the Equipment has been accepted by Borrower and complies
with all the terms of the Agreement.
In the event that the Equipment subject to the Agreement fails
to perform as expected or represented by the manufacturer/supplier, Borrower
shall continue to make monthly payments to Lender as required under the terms of
the Agreement and Borrower shall look solely to the manufacturer or supplier for
the performance of all covenants and warranties with respect to the Equipment
and hereby agrees to indemnify Lender and hold it harmless from such
non-performance or breach of warranty with respect to the Equipment.
Borrower hereby acknowledges that Lender is not the
manufacturer, distributor or seller of the Equipment and has no control,
knowledge or familiarity with the conditioning, capacity, functioning or other
characteristics of the Equipment.
Borrower further acknowledges that Lender is relying upon this
executed Delivery and Acceptance Certificate to pay the manufacturer and/or
supplier for the Equipment.
Date Equipment Delivered: MRI OF NORTH MIAMI, LTD.
By: IMI ACQUISITION OF NORTH MIAMI
CORPORATION, GENERAL PARTNER
Date Equipment Accepted: By:
Its:
<PAGE>
EXHIBIT "A"
One (1) Siemens Magnetom Impact MRI S/N #5471 and all
attachments, accessories, accessions, replacements, upgrades,
substitutions, additions, and improvements, thereto located at
2630 N.E. 203rd Street, #104, North Miami Beach, Florida
33180.
<PAGE>
Exhibit 10.17
SECURED PROMISSORY NOTE
1. FOR VALUE RECEIVED, the undersigned Magnetic Resonance Institute of
North Miami Beach, Ltd. ("Maker") hereby promises to pay to DVI Financial
Services, Inc. d/b/a DVI Capital or its assignee (the "Holder"), or order,
principal in the sum of Nine Hundred and One Thousand and Twenty-five dollars
($901,025) together with accrued interest thereon as hereinafter provided.
Principal and interest shall be payable in seventy-two (72) equal monthly
installments of Seventeen Thousand and Forty dollars ($17,040) each, commencing
on the 1st day of February,1996 ("Commencement Date") and on the 1st day of each
succeeding month, with all unpaid principal and interest due and payable in full
on February, 2002.
2. If any part of the principal or interest of this Note is not paid
when due, it shall thereafter bear interest at a rate equal to the "Prime Rate"
announced by National Westminster Bank (which is not necessarily the best rate
charged to its customers) plus four percent (4%) from and as of the date of
delinquency until paid. If the specified interest rate shall at any time exceed
the maximum allowed by law, then the applicable interest rate shall be reduced
to the maximum allowed by law.
3. This Note shall not be subject to prepayment or redemption in whole
or part, except provided that Maker is not in default under this Note or any
other instrument or agreements with Holder (or any occurrence that would
constitute an Event of Default with the giving of notice or lapse of time or
both), and provided that all previous payments of principal and interest due
under this Note have been made promptly and in accordance with the terms of this
Note, the full, but not a part of, the unpaid balance of principal and interest
under this Note may be prepaid by Maker at any time after the twelfth (12th)
month provided, in addition to the prepayment amount, Maker pays,
contemporaneously with the prepayment amount, to Holder a prepayment premium
equal to two (2) years of interest on the prepayment amount calculated at an
interest rate of ten and three-fourths percent (10.75%) per annum.
4. Principal and interest shall be payable to Holder at DVI Capital,
6611 Rockside Road, Suite 110, Independence, Ohio 44131 or such other place as
the Holder may, from time to time in writing, designate.
5. This Note is made pursuant to, and secured by, a Loan and Security
Agreement dated as of the date hereof between Holder as Lender, International
Magnetic Imaging, Inc., Guarantor, and Maker as Borrower (the "Agreement"). This
Note is also secured by any Security Documents referred to in the Agreement. The
Agreement and the Security Documents create a lien on and security interest in,
the personal property described therein ("Collateral"). The Agreement and the
Security Documents shall hereinafter be collectively referred to as the "Loan
and Security Documents" and are hereby incorporated by reference in and made a
part of this Note.
6. The occurrence of any Event of Default under the Agreement shall, at
the election of the Holder, make the entire unpaid balance of the principal
amount of this Note and accrued interest immediately due and payable without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or other notices or demands of any kind of character.
7. Failure of the Holder to exercise the acceleration option of
paragraph 6 of this Note on the occurrence of any of the events enumerated
therein shall not constitute waiver of the right to exercise such option on the
subsequent occurrence of any of the events enumerated therein.
<PAGE>
8. Principal and interest shall be payable in lawful money of the
United States of America which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment. If any payment of principal or
interest under this Note becomes due on a Saturday, Sunday or legal or banking
holiday, such payments will be due on the next succeeding business day. Maker
waives presentment, demand for payment, notice of nonpayment, protest, and
notice of protest, and all other notices and demands in connection with the
delivery, acceptance, performance, default, or enforcement of this Note. Maker
consents to any and all assignments of this Note, extensions of time, renewals,
and waivers that may be made or granted by the Holder. Maker expressly agrees
that such assignments, extension of time, renewals, or waivers shall not affect
Maker's
1
liability. Maker agrees that Holder may, without notice to Maker and without
affecting the liability of Maker, accept additional or substitute security for
this Note, or release any security or any party liable for this Note, or extend
or renew this Note.
9. If Maker shall fail to make any ayment of interest or principal,
including the payment due upon maturity, when the same is due and payable and
such failure shall continue for five (5) days after nonpayment, a late charge by
way of damages shall be immediately due and payable. Maker recognizes that
default by Maker in making the payments herein agreed to be paid when due will
result in the Holder incurring additional expenses, in loss to the Holder of the
use of the money due and in frustration to the Holder in meeting its other
commitments. Maker agrees that, if for any reason Maker fails to pay any amount
due under this Note when due, the Holder shall be entitled to damages for the
detriment caused thereby, but that it is extremely difficult and impractical to
ascertain the extent of such damages. Maker therefore agrees that a sum equal to
ten cents ($.10) for each one dollar ($1.00) of each payment which is not
received within five (5) days after the date it is due and payable is a
reasonable estimate of the said damages to the Holder, which sum Maker agrees to
pay on demand.
10. If action be instituted on this Note (including without limitation,
any proceedings for collection hereof in any bankruptcy or probate matter or
case), or if proceedings are commenced on or under any of the Loan and Security
Documents, Maker promises to pay the Holder all costs of collection and
enforcement including, without limitation, reasonable attorney's fees.
11. Any and all notices or other communications or payments required or
permitted to be given hereunder shall be effective when received or refused if
given or rendered in writing, in the manner provided in the Agreement.
12. This Note shall inure to the benefit of and be binding upon the
Holder's successors and assigns. References to the "Holder" shall be deemed to
refer to the holder(s) of this Note at the time such reference becomes relevant.
13. If any term, provision, covenant, or condition of this Note is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
rest of this Note shall remain in full force and effect to the greatest extent
permitted by law and shall in no other way be affected, impaired or invalidated.
14. Nothing contained herein or in the Loan and Security Documents
shall be deemed to prevent recourse to and the enforcement against Maker and the
Collateral of all liabilities, obligations and undertakings contained herein and
in the Loan and Security Documents.
<PAGE>
15. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE
STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE
AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
DATED: January 1996
MAKER: MAGNETIC RESONANCE INSTITUTE OF NORTH MIAMI BEACH, LTD.
By: IMI Acquisition of North Miami Beach Corporation, General Partner
By:
Name: Lewis S. Schiller
Title: Chief Executive Officer
(SEAL)
WITNESS:
2
<PAGE>
Exhibit 10.18
UNCONDITIONAL CONTINUING GUARANTY
This UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of January 1996, for the benefit of DVI Financial Services Inc. d/b/a DVI
Capital ("Lender") whose principal place of business is located at 6611 Rockside
Road, Suite 110, Independence, Ohio 44131 by International Magnetic Imaging,
Inc., ("Guarantor"), a Delaware corporation whose address is 2424 North Federal
Highway, Boca Raton, Florida 33431.
1. Guaranty In order to induce Lender, and in consideration thereof, to
enter into that certain Loan and Security Agreement dated January 1996
("Agreement") with Magnetic Resonance Institute of North Miami Beach, Ltd.
("Borrower") and any future agreements with Borrower, Guarantor unconditionally,
absolutely, and irrevocably guarantees and promises to Lender to pay, perform
and discharge, any and all present and future indebtedness, liabilities and
obligations (collectively "Obligations") of Borrower to Lender, including but
not limited to the repayment to Lender of all sums presently due and owing and
of all sums that shall in the future become due and owing from Borrower, whether
arising under the Agreement or otherwise. The Obligations of Borrower include,
but are not limited to, Borrower acting on behalf of itself or any estate
created by the commencement of a case under Title 11 of the United States Code
or any successor statute thereto (the "Bankruptcy Code") or any other
insolvency, bankruptcy, reorganization or liquidation proceeding, or by any
trustee under the Bankruptcy Code, liquidator, sequestrator or receiver of
Borrower or Borrower's property or similar person duly-appointed pursuant to any
law generally governing any insolvency, bankruptcy, reorganization, liquidation,
receivership or like proceeding.
2. Obligations Borrower's Obligations include any and all loans,
advances, indebtedness, and other obligations owed by Borrower to Lender of
every description whether now existing or hereafter arising (including those
owed by Borrower to others and acquired by Lender by purchase, assignment or
otherwise) and include Obligations that are: (a) direct or indirect; (b) fixed
or contingent; (c) primary or as guarantor or surety; (d) liquidated or
unliquidated; (e) matured or unmatured; (f) acquired by pledge, assignment,
security interest or purchase; (g) secured or unsecured; (h) primary or
secondary; (I) joint, several or joint and several; (j) represented by letters
of credit now or hereafter issued by Lender for the benefit of or at the request
of Borrower; and (k) all of Lender's expenses, included but not limited to (I)
all costs or expenses, including without limitation taxes and insurance
premiums, required to be paid by Borrower under the Agreement that are paid or
advanced by Lender, (ii) filing, recording, publication, and search fees paid or
incurred by Lender in connection with Lender's transactions with Borrower, (iii)
costs and expenses incurred by Lender to correct any default or enforce any
provision of the Agreement, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, and or advertising
to sell any security for the Obligations, whether or not a sale is consummated,
(iv) costs and expenses of suit incurred by Lender and enforcing or defending
the Agreement or any portion thereof, and (v) Lender's reasonable attorney's
fees and expenses incurred in advising, structuring, drafting, reviewing,
negotiating, amending, terminating, enforcing, defending, or concerning the
Agreement or any portion thereof irrespective of whether suit is brought, and
includes, Borrower's prompt, full and faithful performance, observance and
discharge of each and every term, condition, agreement, representation,
warranty, undertaking, and provision to be performed by Borrower under the
Agreement.
<PAGE>
3. Attorneys' Fees If Lender incurs attorneys' fees in the enforcement
of this Guaranty, Guarantor agrees to pay Lender the reasonable costs and
expenses of said enforcement, including attorneys' fees. The term "attorneys'
fees" means the full cost of legal services performed in connection with the
matters involved, calculated on the basis of the actual fees of the attorneys
performing those services, and is not limited to "reasonable attorneys' fees" as
defined in any statute or rule of any court in which an action hereunder may be
brought.
1
4. Waivers
(a) Scope of Risk Defenses Lender may at any time and from time to
time, without notice to, or the consent of, Guarantor, and without affecting or
impairing the obligation of Guarantor hereunder, do any of the following: (i)
renew or extend any Obligations of Borrower, of its customers, of any
co-guarantors (whether hereunder or under a separate instrument) or of any other
party at any time directly or contingently liable for the payment of any of said
Obligations; (ii) accept partial payments of said Obligations; (iii) settle,
release (by operation of law or otherwise), compound, compromise, collect or
liquidate any of said Obligations and the security therefore in any manner; (iv)
consent to the transfer or sale of security, or (v) bid and purchase at any sale
of any security.
(b) Primary Obligation Defenses Guarantor waives any rights to
require Lender to (i) Proceed against Borrower or any other party; (ii) proceed
against or exhaust any security held from Borrower; or (iii) pursue any other
remedy in Lender's power whatsoever. Guarantor waives any defense based on or
arising out of any defense of Borrower other than payment in full of the
Obligations, including without limitation any defense based on or arising out of
any disability of Borrower, or the unenforceability of the Obligations or any
part thereof from any cause, or the cessation from any cause of the liability of
Borrower.
(c) Commercially Reasonable Sale and Antideficiency Laws Lender
may, at Lender's election, foreclose on any security held by Lender by one or
more judicial or nonjudicial sales, whether or not every aspect of any such sale
is commercially reasonable, or exercise any other right or remedy Lender may
have against Borrower, or any security, without affecting or impairing in any
way the liability of Guarantor except to the extent the Obligations have been
paid. Guarantor waives any defense arising out of any such election by Lender,
even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Lender against Borrower
or any security. In the absence of agreeing to the waivers contained in this
subsection 4(c), Guarantor may have the right of subrogation or reimbursement
against Borrower. For example, if Lender elects to foreclose, by nonjudicial
sale, any deeds of trust securing any indebtedness of Borrower to Lender,
causing Guarantor to lose any such rights or create defenses to enforcement of
this Guaranty, Guarantor gives up any such potential defenses by agreeing to
these waivers. Guarantor also expressly waives any defense or benefit that may
be derived from California Code of Civil Procedure Sec. 580a, 580d or
726, or comparable provisions of the laws of any other state, and all suretyship
defenses it would otherwise have under California law or under the laws of any
other state.
<PAGE>
(d) Disclosure Defenses Guarantor expressly waives all set-offs and
counterclaims and waives all notices, protests and demands including, but not
limited to, notice of default in payment or in the performance or observance of
any of the terms, provisions, covenants or conditions contained in any agreement
between Lender and Borrower.
(e) Borrower's Defenses On Underlying Obligations Guarantor
expressly agrees that the validity of this Guaranty and the obligations of
Guarantor shall not be terminated, affected or impaired by reason of the
waiving, delaying, exercising or nonexercising, of any of Lender's rights
against Borrower pursuant to the Agreement against Guarantor by reason of this
Guaranty or as a result of the substitution, release, repossession, sale,
disposition or destruction of any collateral securing the Obligations.
(f) Impairment of Collateral Defenses Guarantor shall not be
released or discharged, either in whole or in part, by Lender's failure or delay
to perfect or continue the perfection of any security interest in any property
which secures the Obligations of Borrower or Guarantor to Lender, or to protect
the property covered by such security interest.
(g) Guarantor's Right To Revoke Guarantor expressly waives the
right to revoke or terminate this continuing Guaranty, including any statutory
right of revocation under California Civil Code Sec. 2815, or comparable
provisions of the laws of any other state.
2
5. Financial Condition of Borrower Guarantor assumes all responsibility
for being and keeping informed of Borrower's financial condition and assets and
of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks which Guarantor
assumes and incurs hereunder, and agrees that Lender shall have no duty to
advise Guarantor of information known to it regarding such circumstances or
risks.
6. Guarantor Not Entitled To Subrogation No payment by Guarantor
hereunder shall entitle Guarantor, by subrogation, indemnity, reimbursement,
contribution, or otherwise, to any payment by Borrower or to any subrogation,
indemnity, reimbursement, or contribution out of the property of Borrower.
7. Recovery of Preferences If a claim is made upon Lender at any time
for repayment or recovery of any amount(s) or other value received by Lender,
from any source, in payment of or on account of any of the Obligations of
Borrower guaranteed hereunder and Lender repays or otherwise becomes liable for
all or any part of such claim by reason of (a) any judgment, decree or order of
any court or administrative body having competent jurisdiction, or (b) any
settlement or compromise of any such claim, Guarantor shall remain liable to
Lender hereunder for the amount so repaid or for which Lender is otherwise
liable to the same extent as if such amount(s) had never been received by
Lender, notwithstanding any termination hereof or the termination of any
agreement evidencing any of the Obligations of Borrower.
8. Events of Default the occurrence of any one of the following events
shall constitute an event of default under this Guaranty and upon the occurrence
thereof and at Lender's election without notice or demand, Guarantor's
obligations hereunder shall become due, payable, and enforceable against
Guarantor, whether or not the Obligations are then due and payable:
<PAGE>
(a) The occurrence of an event of default under and as defined in
the Agreement;
(b) The commencement of any bankruptcy, insolvency, receivership,
or similar proceeding by or against Guarantor or Borrower;
(c) The attempt by Guarantor or Borrower to effect an assignment
for the benefit of creditors or a composition with creditors;
(d) The insolvency of either Guarantor or Borrower;
(e) The death or dissolution of Guarantor;
(f) The inaccuracy or incompleteness in any material respect, when
made, of any representations or warranties made by Guarantor, Borrower, or any
other matter or;
(g) The breach by Guarantor of any covenant of this Guaranty or any
other agreement between Lender and Guarantor.
9. Binding On Successors and Assigns This Guaranty shall bind
Guarantor's respective heirs, administrators, personal representatives,
successors, and assigns, and shall inure to the benefit of Lender's successors
and assigns, including, but not limited to, any party to whom Lender may assign
the Agreement or any Schedules or any other agreements, and Guarantor hereby
waives notice of any such assignment. All of Lender's rights are cumulative and
not alternative.
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10. Miscellaneous This Guaranty contains the entire agreement of the
parties hereto and no other oral or written agreement between the parties hereto
with respect to the subject matter hereof exists. This Guaranty may not be
amended or modified except by a writing signed by Lender and Guarantor. This
Guaranty is a valid and subsisting legal instrument and no provision which may
be deemed unenforceable shall in any way invalidate any other provision or
provisions, all of which shall remain in full force and effect. No invalidity,
irregularity or unenforceability of all or any part of the Obligations
guaranteed nor any other circumstance which might be a legal defense of a
guarantor shall affect, impair, or be a defense to this Guaranty. If more than
one Guarantor has signed this Guaranty, each Guarantor shall be jointly and
severally liable to Lender hereunder and when permitted by the context, the
singular includes the plural. Each of the persons who has signed this or any
other Guaranty has unconditionally delivered it to Lender, and the failure to
sign this or any other Guaranty by any other person shall not discharge the
liability of any signer. The unconditional liability of the signer applies
whether the signer is jointly and severally liable for the entire amount of the
debt, or for only a pro-rata portion.
<PAGE>
11. Choice of Law and Forum THIS GUARANTY SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND
GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL
COURTS IN THE STATE OF CALIFORNIA.
INTERNATIONAL MAGNETIC IMAGING, INC., GUARANTOR
By:
George W. Mahoney
Chief Financial Officer
4
<PAGE>
Exhibit 10.19
LOAN AND SECURITY AGREEMENT
between
MAGNETIC RESONANCE INSTITUTE OF SOUTH DADE, LTD.
Borrower,
INTERNATIONAL MAGNETIC IMAGING INC.
Guarantor
and
DVI FINANCIAL SERVICES INC. DBA DVI CAPITAL
Lender
Dated as of July,___1996
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
July ______1996 by and between DVI Financial Services Inc. dba DVI Capital
Company, a Delaware corporation ("Lender"), International Magnetic Imaging Inc.,
a Delaware corporation ("Guarantor") and Magnetic Resonance Institute of South
Dade, Ltd., a Florida Limited Partnership ("Borrower").
Section 1
DEFINITIONS
Section 1.1 Specific Definitions. The following definitions shall
apply:
(a) "Advance(s)" shall mean an advance of loan proceeds constituting
all or a part of the Loan.
(b) "Borrower's Books" shall mean all of Borrower's books and records
including but not limited to: minute books; ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the accounts
receivable; all information relating to Borrower's business operations or
financial condition; and all computer programs, disk or tape files, printouts,
runs and other computer-prepared information and the equipment containing such
information; provided, however, that confidential patient records shall not be
included therein, except to the extent otherwise provided by law.
(c) "Closing Date" shall mean the date of the first Advance of the
Loan.
(d) "Collateral" shall have the meaning specified in Section 3.1
hereof.
(e) "Distribution" shall mean (I) the declaration or payment of any
profit, dividend, share or distribution on or in respect of any interest in
Borrower; (ii) the purchase or other retirement of any such interest in
Borrower; (iii) any loan or advance to the holder of any interest in Borrower or
to the holder of any Indebtedness; (iv) any other payment to the holder of any
interest in Borrower or to the holder of any Indebtedness; and (v) any payment
of principal of or interest on or with respect to any purchase or other
retirement of any Indebtedness of Borrower which, by its terms, is subordinated
to the payment of the Note; provided, however, that the term "Distribution"
shall not include any payments made by Borrower in the ordinary course of its
business, including without limitation, salaries and other compensation
payments, or payments for rent or other services rendered or for goods purchased
which are furnished and invoiced in the ordinary course of business and in
accordance with the terms of this Agreement.
(f) "Environmental Laws" shall mean all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes, and any and all regulations, codes, plans,
orders, decrees, judgments, injunctions, notices, or demand letters issued,
entered, promulgated, or approved thereunder.
<PAGE>
(g) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all references to sections thereof shall include such sections
and any predecessor provisions thereto, including any rules or regulations
issued in connection therewith.
(h) "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
1
(i) "Event of Default" shall have the meaning specified in Section 8
hereof.
(j) "Governmental Authority" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
(k) "Guaranty" shall mean the Unconditional Continuing Guaranty
executed by Guarantor unconditionally guaranteeing Borrower's Obligations under
this Agreement.
(l) "Health Care Laws" shall mean all federal, state and local laws
relating to health care providers and health care services, including, but not
limited to, Section 1877(a) of the Social Security Act as amended by the Omnibus
Budget Reconciliation Act of 1993, 42 U.S.C. Section 1395 (nn).
(m) "Indebtedness" of a Person shall mean (I) all items (except items
of capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise then for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
(n) "Interim Payment and Security Agreement" shall mean the agreement
entered into on the date hereof between Lender and Borrower as described in
Section 2.1.
(o) "Lender Expenses" shall mean (I) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Security Documents that
are paid or advanced by Lender: (ii) filing, recording, publication and search
fees paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any default or
enforce any provision of the Security Documents or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, and preparing for
<PAGE>
sale and/or advertising to sell the Collateral, whether or not a sale is
consummated; (iv) costs and expenses of suit incurred by Lender in enforcing or
defending the Loan Documents or any portion thereof; and (v) Lender's attorney
fees and expenses incurred (before or after execution of this Agreement) in
advising Lender with respect to, or in structuring, drafting, reviewing,
negotiating, amending, terminating, enforcing, defending, or otherwise
concerning, the Security Documents or any portion thereof, irrespective of
whether suit is brought.
(p) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(q) "Loan" shall mean each loan or any other loan or loans made by
Lender to Borrower pursuant to this Agreement.
(r) "Loan Documents" shall mean (I) this Agreement; (ii) the Note;
(iii) the Security Documents; (iv) any other agreements or documents hereafter
delivered to secure repayment of the Loan; and (v) any other certificates,
documents or instruments delivered by Borrower to Lender pursuant to the terms
of this Agreement.
(s) "Note" shall mean the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
2
(t) "Obligation(s)" shall mean (I) the due and punctual payment of all
amounts due or to become due under the Note; (ii) the performance of all
obligations of Borrower under this Agreement, the Note, and all other Security
Documents; (iii) all extensions, renewals, modifications, amendments, and
refinancings of any of the foregoing; (iv) all Lender Expenses; (v) all loans,
advances, indebtedness, and other obligations owed by Borrower to Lender of
every description whether now existing or hereafter arising (including those
owed by Borrower to others and acquired by Lender by purchase, assignment, or
otherwise) and whether direct or indirect, primary or as guarantor or surety,
absolute or contingent, liquidated or unliquidated, matured or unmatured,
whether or not secured by additional collateral; and (vi) all loans, advances,
indebtedness, and other obligations owed by Guarantor to Lender of every
description whether now existing or hereafter arising (including those owed by
Guarantor to others and acquired by Lender by purchase, assignment or otherwise)
and whether direct or indirect, primary or as guarantor or surety, absolute or
contingent, liquidated or unliquidated, matured or unmatured, whether or not
secured by additional collateral.
(u) "Permitted Liens" shall mean (I) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
<PAGE>
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; (iv) Liens in favor of Lender, DVI Business Credit Corp.
or their affiliates; and (v) Liens existing on the date of this Agreement that
secure indebtedness outstanding on such date and that are disclosed on Schedule
1.1 hereto;
(v) "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or any other entity.
(w) "Proceeds" shall mean all proceeds and products of Collateral and
all additions and accessions to, replacements of, insurance or condemnation
proceeds of, and documents covering Collateral; all property received wholly or
partly in trade or exchange for Collateral; all claims against third parties
arising out of damage, destruction, or decrease in value of the Collateral; all
leases of Collateral; and all rents, revenues, issues, profits, and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
(x) "Security Document(s)" shall mean the Guaranty, and any agreement
or instrument entered into between Borrower and Lender or executed by Borrower
or Guarantor and delivered to Lender in connection with this Agreement.
(y) "Unmatured Default" shall mean any event or condition that, with
notice, passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in this Section, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section, have the meanings accorded to them in the
Uniform Commercial Code.
3
Section 1.3 Construction
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including' is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Lender or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
<PAGE>
Section 2
LOAN
Section 2.1 The Loan Subject to the terms and conditions and relying on
the representations and warranties set forth herein, Lender agrees to advance to
Borrower and Borrower agrees to borrow from Lender, a senior secured term loan
in the amount of Two Million Sixty-nine Thousand, Three Hundred Fifty-one
Dollars ($2,069,351) which shall be evidenced by the Note. The proceeds of the
Loan shall be used for the purchase by Borrower of the Collateral, for leasehold
improvements and to fund Borrower's counsel fees and the closing costs incurred
in connection with the transactions contemplated in this Agreement. Borrower
will execute and deliver to Lender on the date hereof the Interim Payment and
Security Agreement pursuant to which Lender will advance to Borrower certain
sums for the aforementioned Collateral and leasehold improvements in accordance
with the terms thereof. Simultaneously with Lender's last advance to Borrower or
its vendor for the purchase of the equipment described on Schedule 3.1, Borrower
shall execute and deliver to Lender a Delivery and Acceptance Certificate
therefor, the Interim Payment and Security Agreement will terminate pursuant to
the terms thereof, and Borrower shall commence making payments under the Note in
accordance with the terms thereof.
Section 2.2 Term and Repayment of Loan The "Term" of the Loan shall be
seventy-two (72) months from the Commencement Date and shall be payable in
seventy-two (72) consecutive monthly installments of Thirty-nine Thousand, One
Hundred and Thirty Dollars ($39,130) on the same day of each calendar month
commencing on the Commencement Date set forth in the Note. All payments of
principal and interest shall be paid in full without setoff, deduction or
counterclaim.
Section 2.3 Prepayment The Loan shall not be subject to prepayment or
redemption in whole or in part prior to the expiration of the Term, except as
follows: Provided no Event of Default exists (or any occurrence which would
constitute an Event of Default with the giving of notice or lapse of time or
both), and provided that all previous payments or obligations under this
Agreement have been made promptly and in accordance with the terms of this
Agreement, the full, but not part of, the unpaid balance of the Obligations
under this Agreement may be prepaid by Borrower at any time after the twelfth
(12th) month of the Term provided, in addition to the prepayment amount Borrower
pays contemporaneously with the prepayment amount, to the Lender a prepayment
premium equal to two (2) years of interest on the prepayment amount calculated
at an interest rate of ten and three-fourth percent (10.75%) per annum.
Section 2.4 Conditions to the Closing The obligation of Lender to make
an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date
hereof and shall be true and correct in all material respects as of the Closing
Date and Borrower shall have performed all obligations which were to have been
performed by it hereunder prior to Closing Date.
(b) Borrower shall have executed and delivered to Lender (or shall
cause to be executed and delivered to Lender by the appropriate Persons) the
following:
4
<PAGE>
(i) this Agreement;
(ii) the Note;
(iii) the Security Documents, together with any other
documents required or contemplated by the terms thereof;
(iv) evidence satisfactory to Lender that Borrower is a
corporation and Guarantor is a corporation, each of which is duly formed,
validly existing and in good standing in the state in which it was formed and is
authorized to do business;
(v) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents and Security Documents;
(vi) pay-off letters, UCC Termination Statements, and Mortgage
and Lien Releases as required to grant Lender a first priority security interest
other than Permitted Liens in Collateral pledged as security for repayment of
the Loan,
(vii) certified copies of resolutions of the Board of
Directors of Borrower and Guarantor authorizing the execution and delivery of
Loan Documents to be executed by Borrower and Guarantor;
(viii) copies of the Certificate of Incorporation of Borrower
certified by the Secretary of State therefore and a certified copy of the
articles of incorporation of Guarantor certified by the Secretary of State;
(ix) copies of the Bylaws of Borrower and Guarantor certified
by an Officer thereof;
(x) the written opinion of counsel to Borrower and Guarantor
issued on the Closing Date and satisfactory to Lender in scope and substance;
(xi) a certificate from an officer of Borrower indicating that
the representations and warranties contained herein are true and correct as of
the Closing Date;
(xii) the Interim Payment and Security Agreement.
(c) Borrower shall have paid closing fees to Lender including Lender's
legal fees incurred by Lender for the negotiation and preparation of the Loan
Documents.
(d) Neither an Event of Default nor an Unmatured Default shall have
occurred and be continuing.
(e) Borrower shall not have suffered a material or adverse change in
its business, operations or financial condition from that reflected in the
financial statement of Borrower dated September 30, 1995.
(f) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonably request which shall be
satisfactory to Lender in form and substance.
<PAGE>
Section 3
SECURITY INTEREST
Section 3.1 Grant of Security Interest In order to secure prompt
payment and performance of all Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the property of
Borrower described below and on Schedule 3.1 (the "Collateral"), whether now
owned or existing or hereafter acquired or arising and regardless of where
located subject only to Permitted Liens. This security interest in the
5
Collateral shall attach to all Collateral without further act on the part of
Lender or Borrower. Regardless of the manner of affixation, the Collateral shall
remain the personal property and not become part of the real estate. Borrower
agrees to keep the Collateral at the location(s) set forth in Schedule 3.1, and
will notify Lender promptly, in writing, of any change in the location of the
Collateral within such state, but will not remove the Collateral from such state
without the prior written consent of Lender.
The Collateral shall consist of the following subject in each case only
to Permitted Liens together with such third-party consents, lien waivers and
estoppel certificates as Lender shall reasonably require:
All of Borrower's equipment and machinery listed on Schedule 3.1 and
all machine tools, parts, attachments, accessories, accessions, replacements,
upgrades, substitutions, additions and improvements related thereto, wherever
located, and the Proceeds of any of the foregoing, including cash and non-cash
Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1 Name of Borrower The exact corporate name of Borrower is
MAGNETIC RESONANCE INSTITUTE OF SOUTH DADE, LTD. Borrower was formed under the
laws of the State of Florida. The following are all previous legal names of
Borrower: The Imaging Center at Snapper Creek, Inc. and Magnetic Resonance
Institute of South Dade, Ltd. Borrower uses the following trade names: None. The
following are all other trade names used by Borrower in the past: None.
Section 4.2 Mergers and Consolidations No entity has merged into
Borrower or been consolidated with Borrower.
Section 4.3 Purchase of Assets No entity has sold substantially all of
its assets to Borrower or sold assets to Borrower outside the ordinary course of
such seller's business at any time in the past.
Section 4.4 Change of Name or Identify Borrower shall not change its
name, business structure, or identity or use any new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
Section 4.5 Corporate Structure Guarantor is the holder of one hundred
percent (100%) of the common stock of Borrower . Such common stock is the sole
authorized class of stock of Borrower.
<PAGE>
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1 Title Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement will be,
upon the filing of the required UCC Financing Statements, fully perfected first
priority Liens (except for Permitted Liens) and any other agreement, financing
statement or notice necessary to provide notice to third parties of the
existence of such Liens, in and to the Collateral with priority over the rights
of every person in the Collateral is free, clear, and unencumbered by any Liens
in favor of any person other than Lender except for Permitted Liens.
Section 5.2 No Warranties This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely by
Borrower for Borrower's purposes; Lender is not the manufacturer, dealer, vendor
or supplier of the Collateral; the Collateral is of a size, design, capacity,
description and manufacturer selected by Borrower; Borrower is satisfied that
the Collateral is suitable and fit for its purposes; and LENDER HAS NOT MADE AND
DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR
IMPLIED, AS TO THE
6
FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE COLLATERAL, ITS
FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE OF THE COLLATERAL, THE QUALITY OR
CAPACITY OF THE MATERIALS IN THE COLLATERAL OR WORKMANSHIP IN THE COLLATERAL,
NOR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER.
Section 5.3 Further Assurances Borrower shall execute and deliver to
Lender, concurrent with Borrower's execution of this Agreement and at any time
or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents Lender may reasonably request in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the
Security Documents. Borrower hereby irrevocably makes, constitutes, and appoints
Lender (and any of Lender's officers, employees, or agents designated by Lender)
as Borrower's true and lawful attorney with power to sign the name of Borrower
on any of the above-described documents or on any other similar documents that
need to be executed, recorded, and/or filed in order to perfect or continue
perfected Lender's Liens in the Collateral. The appointment of Lender as
Borrower's attorney is irrevocable as long as any Obligations are outstanding.
Any person dealing with Lender shall be entitled to rely conclusively on any
written or oral statement of Lender that this power of attorney is in effect.
Lender will provide Borrower with copies of any documents signed by Lender on
Borrower's behalf pursuant to this Section.
Section 5.4 Additional Collateral If the Collateral declines in value
substantially, Borrower shall grant a security interest to Lender in additional
assets satisfactory to Lender having a value at least equal to the decline in
value of the existing Collateral.
<PAGE>
Section 5.5 Lender's Duty of Care Lender shall have no duty of care
with respect to the Collateral except that Lender shall exercise reasonable care
with respect to the Collateral in Lender's custody. Lender shall be deemed to
have exercised reasonable care if such property is accorded treatment
substantially equal to that which Lender accords its own property or if Lender
takes such action with respect to the Collateral as the Borrower shall request
or agree to in writing provided that no failure to comply with any such request
nor any omission to do any such act requested by the Borrower shall be deemed a
failure to exercise reasonable care. Lender's failure to take steps to preserve
rights against any parties or property shall not be deemed to be a failure to
exercise reasonable care with respect to the Collateral in Lender's custody. All
risk, loss, damage, or destruction of the Collateral shall be borne by Borrower.
Section 5.6 Borrower's Contracts Borrower shall remain liable to
perform its Obligations under any contracts and agreements included in the
Collateral to the same extent as though this Agreement had not been entered into
and Lender shall not have any obligation or liability under such contracts and
agreements by reason of this Agreement or otherwise.
Section 5.7 Reinstatement of Liens If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other person must be
disgorged by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy, or reorganization of Borrower or such other person),
this Agreement and Lender's Liens granted hereunder shall be reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
shall sign and deliver to Lender all documents and things necessary to perfect
all terminated Liens.
Section 5.8 Lender Expenses If Borrower fails to pay any monies
(whether taxes, assessments, insurance premiums, or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit, or fails to discharge any Lien prohibited hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's interests in the Collateral, in its discretion and without prior
notice to Borrower, make payment of the same or any part thereof. Any amounts
paid or deposited by Lender shall constitute Lender Expenses, shall become part
of the Obligations, shall bear interest at the rate of twelve percent (12%) per
annum, and shall be secured by the Collateral. Any payments made by Lender shall
not constitute (a) an agreement by Lender to make similar payments in the future
or (b) a waiver by Lender of any Event of Default under this Agreement. Lender
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance, or Lien, and the receipt of the usual official
7
notice of the payment of monies to a governmental entity shall be conclusive
evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
<PAGE>
Section 5.9 Inspection of Collateral and Records During Borrower's
usual business hours, Lender may inspect and examine the Collateral and check
and test the same as to quality, quantity, value, and condition and Borrower
agrees to reimburse Lender for its costs and expenses in so doing. Lender shall
also have the right at any time or times hereafter, during Borrower's usual
business hours or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral and Borrower's financial condition and to copy and make extracts
therefrom. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Lender pursuant to this Agreement and agrees that
Lender may directly contact any such accounting firm or service bureau in order
to obtain such information.
Section 5.10 Deposit Accounts In order to perfect Lender's security
interest in Borrower's deposit accounts maintained at any financial institutions
at which Borrower maintains deposit accounts now or in the future, Borrower
agrees to execute a form of notification to such financial institution(s) in
order to notify them of Lender's Lien in such deposit accounts.
Section 5.11 Waivers Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1 Status Guarantor is a corporation validly existing and in
good standing under the laws of the state of its incorporation and Borrower is a
corporation validly existing and in good standing under the laws of the state of
its incorporation; and each of Borrower and Guarantor is qualified and licensed
to do business and is in good standing in any state in which the conduct of its
business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate, partnership and otherwise)
to execute and carry out the terms of the Loan Documents to which it is a party,
to own its assets and to carry on its business as currently conducted.
Section 6.2 Authorization The execution, delivery, and performance by
Borrower and Guarantor of this Agreement and each Loan Document have been duly
authorized by all necessary corporate action. Borrower and Guarantor have duly
executed and delivered this Agreement and each Security Document to which they
are a party, and each of them constitutes a valid and binding obligation of
Borrower or Guarantor, as applicable, enforceable according to its terms except
as limited by equitable principles and by bankruptcy, insolvency, or similar
laws affecting the rights of creditors generally.
Section 6.3 No Breach The execution, delivery, and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
incorporation or bylaws of Borrower or Guarantor; (c) will not violate any
<PAGE>
agreement or instrument by which Borrower or Guarantor, as applicable, is bound;
(d) do not require any notice to or consent by any governmental body; and (e)
will not result in the creation of a Lien on any assets of Borrower except the
Lien to Lender granted herein.
8
Section 6.4 Taxes All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5 Deferred Compensation Plans Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any
single-employer or multi-employer plans.
Section 6.6 Litigation and Proceedings There are not outstanding
judgments against Borrower or any of its assets and there are no actions or
proceedings pending by or against Borrower before any court or administrative
agency. Borrower has no knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, except for ongoing collection
matters in which Borrower is the plaintiff.
Section 6.7 Business Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to advantageously
conduct its business. They are all in full force and effect and are not in known
conflict with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
Section 6.8 Laws and Agreements Borrower is in compliance with all
material agreements applicable to it, including obligations to contribute to any
employee benefit plan or pension plan regulated by ERISA. Borrower is, to its
best knowledge, in material compliance with all laws applicable to it.
Section 6.9 Financial Condition All financial statements and
information relating to Borrower and Guarantor that have been or may hereafter
be delivered by Borrower to Lender are accurate and complete and have been
prepared in accordance with generally accepted accounting principles
consistently applied. Borrower has no material obligations or liabilities of any
kind not disclosed in that financial information, and there has been no material
adverse change in the financial condition of Borrower or Guarantor since the
date of the most recent financial statements submitted to Lender.
Section 6.10 Environmental Laws
(a) Borrower has obtained all permits, licenses, and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses, and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in the Environmental Laws.
<PAGE>
(b) Borrower is not aware of, and has not received notice of, any past,
present, or future events, conditions, circumstances, activities, practices,
incidents, actions, or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Environmental Laws, or may
give rise to any material common-law or legal liability, or otherwise form the
basis of any material claim, action, demand, suit, proceeding, hearing, study,
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or
waste.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation, or
proceeding pending or threatened against Borrower, relating in any way to
Environmental Laws.
9
Section 6.11 Insurance Schedule 6.11 sets forth a complete and accurate
list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
will be delivered to Lender upon request. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
Section 6.12 Ownership of Property Except as set forth Schedule 6.12
hereto, Borrower has good and marketable title to all of its properties and
assets, free and clear of all liens, security interests and encumbrances, except
liens to secure repayment of the Loan and Permitted Liens. Borrower has the
exclusive right to use all such assets.
Section 6.13 Leases Schedule 6.13 hereto contains a complete and
accurate list of all leases pursuant to which Borrower leases real or personal
property. Each such lease is valid, binding and enforceable against Borrower in
accordance with its terms, and is in full force and effect; there are no
existing defaults by Borrower thereunder, and Borrower has no knowledge of any
Event of Default or any Unmatured Default.
Section 6.14 Health Care Laws
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Health Care Laws.
<PAGE>
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of demand letter, notice of violation, investigation or
proceeding pending or threatened against Borrower, relating in any way to Health
Care Laws.
Section 6.15 Cumulative Representations The warranties, representations
and agreements set forth herein shall be cumulative and in addition to any and
all other warranties, representations and agreements that Borrower shall give,
or cause to be given, to Lender, either now or hereafter.
Section 7
COVENANTS
Section 7.1 Encumbrance of Assets Borrower shall not create, incur,
assume, or permit to exist any Lien on any Collateral now owned or hereafter
acquired by Borrower, except for Liens to Lender and Permitted Liens.
Section 7.2 Business; Covenant regarding George Mahoney Borrower shall
engage primarily in business of the same general character as that now conducted
by it and shall not make any investment in any other entity through the direct
or indirect holding of securities or otherwise. It is hereby agreed by Borrower
and Guarantor that the discharge by Consolidated Technology Group Ltd. or
Guarantor of George Mahoney as its Chief Financial Officer, at any time prior to
the payment in full of the Obligations covered by this Agreement, will
constitute an Event of Default under this Agreement.
Section 7.3 Condition and Repair Borrower shall maintain in good repair
and working order all properties used in its business and from time to time
shall make all appropriate repairs and replacements thereof.
Section 7.4 Insurance Borrower shall maintain, with financially sound
and reputable insurers, insurance with respect to its properties and business
against loss or damage of the kinds and in the amounts
10
customarily insured against by entities of established reputation engaged in the
same or similar businesses. Each such policy shall name Lender as an additional
insured and, where applicable, as loss payee under a lender loss payable
endorsement satisfactory to Lender and shall provide for thirty (30) days'
written notice to Lender before such policy is altered or canceled.
Section 7.5 Taxes Borrower shall pay all taxes, assessments and other
governmental charges imposed upon it or any of its assets or in respect of any
of its franchises, business, income, or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials, and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited, or materially impaired as a result thereof) no such charge or claim
need by paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles and deposits with
Lender cash or an acceptable bond in an amount equal to twice the amount of such
charge or claim. Borrower shall make timely payment or deposit of all FICA
payments and withholding taxes required of it by applicable laws and will, upon
request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
<PAGE>
Section 7.6 Accounting System Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with generally
accepted accounting principles consistently applied, with ledger and account
cards or computer tapes, disks, printouts, and records that contain information
pertaining to the Collateral that may from time to time be requested by Lender.
Borrower shall not modify or change its method of accounting or enter into any
agreement hereafter with any third-party accounting firm or service bureau for
the preparation and/or storage of Borrower's accounting records without said
accounting firm's or service bureau's agreeing to provide to Lender information
regarding the Collateral and Borrower's financial condition.
Section 7.7 Financial Statements Borrower shall submit quarterly
financial statements with respect to Borrower to Lender as soon as available,
and in any event within forty-five (45) days of the end of each fiscal quarter.
Additionally, Borrower will submit audited, combined or consolidated financial
statements of International Magnetic Imaging, Inc. which will include Borrower
to Lender as soon as available, and in any event within ninety (90) days of the
end of each fiscal year. With all financial statements, Borrower will also
deliver a certificate of its chief financial officer attesting that no Event of
Default or Unmatured Default under the Agreement has occurred and is continuing.
Section 7.8 Further Information Borrower shall promptly supply Lender
with such other information concerning its affairs as Lender may reasonably
request from time to time hereafter and shall promptly notify Lender of any
material adverse change in Borrower's financial condition and any condition or
event that constitutes a breach of or event that constitutes an Event of Default
under this Agreement.
Section 7.9 ERISA Covenants Borrower shall, and shall cause each ERISA
Affiliate to, comply with all applicable provisions of ERISA and all other laws
applicable to any deferred compensation plans with which Borrower or any ERISA
Affiliate is associated, and shall promptly notify Lender of the occurrence of
any event that could result in any material liability of Borrower to any person
whatsoever with respect to any such plan.
Section 7.10 Environmental Covenants
(a) Borrower shall comply in all respects with, and will obtain all
permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
governmental authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower
would be required to notify any governmental authority with jurisdiction over
Environmental Laws.
11
Section 7.11 Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower shall not:
(a) Merge or consolidate with any Person.
(b) Sell, lease or otherwise dispose of its assets in any transaction
or series of related transactions (other than sales leases or other dispositions
in the ordinary course of business).
<PAGE>
(c) Liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction.
(d) Acquire any interest in any business (whether by purchase of
assets, purchase of stock, merger or otherwise).
(e) Become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents.
(f) Authorize or issue any additional equity interests.
Section 7.12 Restrictions on Distributions Unless authorized by Lender,
Borrower shall not make any Distributions to any Person including any parent,
subsidiary or affiliate of Borrower until the Obligations are fully satisfied,
provided, however, Borrower may make Distributions pursuant to Schedule 7.12. so
long as the financial terms of the agreements set forth on such schedule are not
hereafter amended without the consent of Lender.
Section 7.13 Restrictions on Indebtedness Unless authorized by Lender,
Borrower shall not hereafter create, incur, assume or otherwise become or remain
liable with respect to any Indebtedness except the following:
(a) Indebtedness in respect of the Note and current liabilities (other
than for money borrowed) incurred in the ordinary course of business.
(b) Indebtedness in respect of taxes, assessments, governmental charges
or levies and claims for labor, materials, equipment and supplies.
(c) Indebtedness in respect of replacement or refinancing of existing
Indebtedness, provided the amount of such Indebtedness does not exceed the
amount of the existing Indebtedness, the repayment schedule for such
Indebtedness is equal to the repayment schedule for the existing Indebtedness
and Lender gives its prior written consent, which shall not be unreasonably
withheld if the specified conditions have been met.
Section 7.14 Restrictions on Guaranties Unless authorized by Lender,
Borrower shall not hereafter become or remain liable under any guaranty of any
obligation of any other Person.
Section 7.15 Health Care Covenants
(a) Borrower shall comply in all respects with, and will obtain all
permits required by, all Health Care Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any governmental authority with jurisdiction over Health Care Laws.
Section 7.16 Deferral of Indebtedness Prior to the payment in full by
Borrower of the Obligations under this Agreement and the payment in full of all
indebtedness of Guarantor's affiliates to Lender and Lender's affiliates,
whether existing prior to, as of, or after the date of this Agreement, Borrower
shall not make any payments, directly or indirectly, on or otherwise in
connection with, any subordinated notes held by any former general partner of
12
<PAGE>
any partnership or other entity which sold its interests to an affiliate of
Guarantor, and Borrower shall cause the following makers of the following
subordinated notes to defer making any further payments, directly or indirectly,
on, or otherwise in connection with, such notes:
Maker Payee Amount
MD Acquisition J. Sternberg and S. $3,375,000
Corporation Schulman M.D. Corp.
MD Ltd. Partner Stephen A. and Stephanie $ 481,767
Acq. Corporation S. Schulman (TBE)
MD Ltd. Partner Stephanie S. Schulman $ 501,431
Acq. Corporation
MD Ltd. Partner Acq. James H. and Marsha $ 481,768
Corporation Sternberg (TBE)
MD Ltd. Partner Acq. Marsha Sternberg $ 501,431
Corporation
MD Ltd. Partner Ashley Kaye $ 983,198
Acq. Corporation
TBE = Tenants by Entirety
IMI Acquisition or Pine Island S.A.S.G.P. $ 73,325
Corporation
IMI Acuisition of North Miami Beach ASKAY, Inc. $ 336,457
Corporation
IMI Acquisition of Boca Raton MRI of Boca Raton, Inc. $ 622,993
Corporation
IMI Acquisition of Orlando MRI of Orlando, Inc. $ 14,063
Corporation
IMI Acquisition of Kansas City MRI of Kansas City, Inc. $ 9,613
Corporation
IMI Acquisition of P.O.D.C. J. Sternberg and S. $ 308,965
Corporation Schulman, M.D. Corp.
Section 8
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the following
events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure shall continue for five (5) days
after the payment is due;
<PAGE>
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof or any Loan
Document to which it is a party and such failure is not cured
13
as soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender; provided, however, that if such failure cannot
be cured within such thirty (30) day period, Borrower shall not be in default if
the cure is commenced within such thirty (30) day period and thereafter such
cure is diligently pursued to completion;
(c) Borrower fails to keep its assets insured as required herein,
or material uninsured damage to or loss, theft, or destruction of the Collateral
occurs;
(d) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal, stay, bond or other security acceptable
to Lender;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency, or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$10,000 is rendered against Borrower and remains undischarged for twenty (20)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of the
Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Borrower makes any payment on account of Indebtedness that has been
subordinated to any Obligations, other than payments specifically permitted by
the terms of such subordination;
(i) Any person holding indebtedness that has been subordinated to any
Obligations dies or becomes the subject of an insolvency proceeding resulting in
the termination of the subordination arrangement or terminates the subordination
arrangement or asserts that it is terminated;
(j) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise;
(k) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $10,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
<PAGE>
(l) Demand is made for payment of any Indebtedness in excess of $10,000
that was not originally payable upon demand when incurred but the terms of which
were later changed to provide for payment upon demand;
(m) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
(n) A judgment or other claim in excess of $10,000 becomes a Lien upon
any or all of Borrower's assets, other than a Permitted Lien;
(o) A notice of Lien, levy, or assessment in excess of $10,000 is filed
of record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or other governmental agency; or any tax or debt owing
at any time hereafter to any one or more of such entities becomes a Lien upon
14
any or all of Borrower's assets and the same is not paid on the payment date
thereof, except to the extent such tax or debt is being contested by Borrower as
permitted in Section 7.5;
(p) There is a material impairment of the value of the Collateral or
priority of Lender's Lien on the Collateral;
(q) Any or all of Borrower's assets are attached, seized, or subjected
to a writ or distress warrant, or are levied upon, or come into the possession
of, any judicial officer;
(r) Lender believes in good faith that the prospect of payment or
performance of the Obligations by Borrower has been impaired; or
(s) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is incorrect when made.
(t) Guarantor shall be in default with respect to any of its
Obligation(s) to Lender or an Event of Default or an Unmatured Default occurs
under any other Loan Agreement.
(u) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (f), (k), (l), (n) and (o) hereof
exceeds $25,000.
Section 9
REMEDIES
Section 9.1 Specific Remedies Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable immediately
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or monies of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
<PAGE>
(c) Lender may enter any premises of Borrower, with or without judicial
process, and take possession of the Collateral; provided however, that Lender
may only exercise such remedy if it may do so without a breach of the peace.
Lender may remove the Collateral and may remove and/or copy all records
pertaining thereto, and/or Lender may remain on such premises and use the
premises for the purpose of collecting, preparing and disposing of the
Collateral, without any liability for rent or occupancy charges. Borrower shall,
upon request of Lender, assemble the Collateral and any records pertaining
thereto and make them available at a place designed by Lender that is reasonably
convenient to both parties.
(d) Lender may dispose of the Collateral in its then-existing condition
or, at its election, may take such measures as it deems necessary or advisable
to improve, process, finish, operate, demonstrate, and prepare for sale the
Collateral, and may store, ship, reclaim, recover, protect, advertise for sale
or lease, and insure the Collateral. Lender may use and operate equipment of
Borrower in order to process of finish inventory included in the Collateral. If
any Collateral consists of documents, Lender may proceed either as to the
documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders, or other forms of payment of or security for any
Collateral; and (ii) notify the postal authorities in Borrower's name to
15
change the address for delivery of Borrower's mail to an address designed by
Lender, receive and open all mail addressed to Borrower, copy all mail, return
all mail relating to the Collateral, and hold all other mail available for
pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is not
required to repossess the Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral shall be satisfied if
such notice is sent to Borrower, ten (10) days prior to such disposition or by
any of the methods provided in Section 11.5 hereof. Borrower shall be credited
with the net proceeds of such sale only when they are actually received by
Lender, and Borrower shall continue to be liable for any deficiency remaining
after the Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2 Power of Attorney Borrower hereby appoints Lender (and any
of Lender's officers, employees, or agents designated by Lender) as Borrower's
attorney, with power whether before or after the occurrence of an Event of
<PAGE>
Default: (a) to endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts, or other forms of payment or security that may come into
Lender's possession; (b) to notify the post office authorities to change the
address for delivery of Borrower's mail to an address designed by Lender, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower; (c) to do all things
necessary to carry out this Agreement; and (d) Lender agrees not to exercise the
power granted in clauses (a) and (b) above prior to the occurrence of an Event
of Default but such limitation does not limit the effectiveness of such power of
attorney at any time. The appointment of Lender as Borrower's attorney and each
and every one of Lender's rights and powers, being coupled with an interest, are
irrevocable as long as any Obligations are outstanding. Any person dealing with
Lender shall be entitled to rely conclusively on any written or oral statement
of Lender that this power of attorney is in effect. Lender may also use
Borrower's stationery in connection with exercising its rights and remedies and
performing the Obligations of Borrower.
Section 9.3 Expenses Secured All expenses, including attorney fees,
incurred by Lender in the exercise of its rights and remedies provided in this
Agreement, in any other Loan Document, or by law shall be payable by Borrower to
Lender, shall be part of the Obligations, and shall be secured by the
Collateral.
Section 9.4 Equitable Relief Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy at law will provide adequate relief
to Lender, and Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Section 9.5 Remedies Are Cumulative No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
shall be deemed to be an election. No delay by Lender shall constitute a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to (i) proceed against Guarantor under any other Loan Agreement
or any other party; or (ii) proceed against or exhaust any security held from
Guarantor under any other Loan Agreement. Lender may at any time and from time
to time, without notice to, or consent of, Borrower, and without affecting or
impairing the obligation of Borrower hereunder do any of the following: (i)
renew or extend any Obligations of Guarantor under any other Loan Agreement, or
of any other party at any time directly or contingently liable for payment of
any of said Obligations; (ii) accept partial payments of said Obligations to
Guarantor under any other Loan Agreement; (iii) settle, release (by operating of
16
law or otherwise), compound, compromise, collect or liquidate any of said
Obligations of Guarantor under any other Loan Agreement and the security
therefor in any manner; (iv) consent to the transfer or sale of any security or
bid and purchase at any sale any security of Guarantor under any other Loan
Agreement. Borrower expressly agrees that the validity of this Agreement and the
Obligations of Borrower shall not be terminated, affected or impaired by reason
of the waiving, delaying, exercising or non-exercising, of any of Lender's
rights against Guarantor under any other Loan Agreement or as a result of the
substitution, release, repossession, sale, disposition or destruction of any
<PAGE>
Collateral securing any Obligations of Guarantor under any other Loan Agreement.
Lender shall not be released or discharged, either in whole or in part, by
Lender's failure or delay to perfect or continue the perfection of any security
interest in any Collateral which secures the Obligations of Guarantor under any
other Loan Agreement, or to protect the property covered by such security
interest.
Section 10
INDEMNITY
Section 10.1 General Indemnity Borrower shall protect, indemnify and
defend and save harmless Lender and its directors, officers, agents, and
employees from and against any and all loss, cost, liability (including
negligence, tort and strict liability), expense, damage, suits, or demands
(including fees and disbursements of counsel), and expenses, on account of any
suit or proceeding before any Governmental Authority which arises from the
transactions contemplated in this Agreement or otherwise arising in connection
with or relating to the
Loan and any security therefor, unless such suit, claim or damages are caused by
the negligence or intentional malfeasance of Lender or its directors, officers,
agents, or employees. Upon receiving knowledge of any suit, claim or demand
asserted by a third-party that Lender believes is covered by this indemnity,
Lender shall give Borrower timely notice of the matter and an opportunity to
defend it, at Borrower's sole cost and expense, with legal counsel acceptable to
Lender. Lender may, at its option, also require Borrower to so defend the
matter. This obligation on the part of Borrower shall survive the termination of
this Agreement and the repayment of the Note.
Section 10.2 Specific Environmental Indemnity Borrower hereby agrees
unconditionally to indemnify, defend and hold harmless Lender, its directors,
officers, employees and agents against any loss, liability, damage, or expense
or claim arising under any Environmental Laws having jurisdiction over the
property or assets of Borrower or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1 Delay and Waiver No delay or omission to exercise any
right shall impair any such right or be a waiver thereof, but any such right may
be exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion shall be limited to that particular occasion.
Section 11.2 Complete Agreement This Agreement and the Schedules
annexed hereto are the complete agreement of the parties hereto and supersede
all previous understandings relating to the subject matter hereof. This
Agreement may be amended only by an instrument in writing that explicitly states
that it amends this Agreement and is signed by the party against whom
enforcement of the amendment is sought. This Agreement may be executed in
counterparts, each of which will be an original and all of which will constitute
a single agreement.
Section 11.3 Severability; Headings If any part of this Agreement or
the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement shall not be affected thereby. The section headings
herein are included for convenience only and shall not be deemed to be a part of
this Agreement.
<PAGE>
Section 11.4 Binding Effect This Agreement shall be binding upon and
inure to the benefit of the parties and their respective legal representatives,
successors, and assigns of the parties hereto; however, Borrower may not assign
any of its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who shall thereupon have all of the rights of
17
Lender; and Lender (or such subsequent assignee who in turn upon notice to
Borrower, assigns as aforesaid) shall then be relieved and discharged of any
responsibility or liability with respect to this Agreement and said Collateral.
Section 11.5 Notices Any notices under or pursuant to this Agreement
shall be deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
To Borrower: Magnetic Resonance Institute of South Dade, Ltd.
c/o International Magnetic Imaging Inc.
2424 North Federal Highway
Boca Raton, Florida 33431
Attention: George Mahoney
Chief Financial Officer
Telephone: 407-362-0917
Telecopier: 407-347-5352
Copies to: Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
Telephone: 914-232-6842
Telecopier: 914-232-0647
To Lender: DVI Capital Company
6611 Rockside Road - Suite 110
Independence, OH 44131
Attention: Alan J. Velotta
Telephone: 216-520-2900
Telecopier: 216-520-2908
Either party may change such address(es) by sending notice of the
change to the other party; such change of address(es) shall be effective only
upon actual receipt of the notice by the other party.
Section 11. 6 Governing Law ALL ACTS AND TRANSACTIONS HEREUNDER AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED, AND
INTERPRETED IN ACCORDANCE WITH THE DOMESTIC LAWS OF CALIFORNIA.
Section 11.7 Jurisdiction Borrower agrees that the state and federal
courts in Orange County, California or any other court in which Lender initiates
proceedings have exclusive jurisdiction over all matters arising out of this
Agreement and that service of process in any such proceeding shall be effective
if mailed to Borrower at its address and in the manner described in the Notices
section of this Agreement. Borrower waives any right it may have to assert the
defense of forum non conveniens or to object to such venue and hereby consents
to any court-ordered relief.
<PAGE>
Section 11.8 Waiver of Trial by Jury LENDER, GUARANTOR AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE RELATIONSHIP
BETWEEN LENDER, GUARANTOR AND BORROWER.
18
IN WITNESS WHEREOF, Borrower, Guarantor and the Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
MAGNETIC RESONANCE INSTITUTE OF
SOUTH DADE, LTD. DVI FINANCIAL SERVICES INC.
DBA DVI CAPITAL COMPANY
By:
Name: George W. Mahoney By:
Title: Chief Financial Officer Alan J. Velotta
Group Managing Director
INTERNATIONAL MAGNETIC IMAGING, INC., Guarantor
By:
Name: George W. Mahoney
Title: Chief Financial Officer
AGREED TO AS TO SECTION 7.16 HEREOF
MD ACQUISITION CORPORATION
By:
Lewis S. Schiller, President
MD LTD. PARTNER ACQ. CORPORATION
By:
Lewis S. Schiller, President
19
<PAGE>
SCHEDULE 1.1
PERMITTED LIENS
NONE
<PAGE>
SCHEDULE 3.1
GRANT OF SECURITY INTEREST
One (1) Siemens Magnetom Impact 1.5T Vision MRI S/N
____________ and all attachments, accessories, accessions,
replacements, upgrades, substitutions, additions, and
improvements thereto located at 7800 S.W. 87th Avenue, Miami,
Florida 33173.
<PAGE>
SCHEDULE 6.11
INSURANCE
SEE ATTACHED EXHIBIT
<PAGE>
SCHEDULE 6.12
OWNERSHIP OF PROPERTY
NONE
<PAGE>
SCHEDULE 6.13
LEASES
BUILDING LEASE
Landlord Snapper Creek Office Park Ltd.
Term 124 months commencing April 1, 1996
Renewal option One @ 5 years
Monthly rent $7,605 + CAM
Rent increases Annual
Index CPI
Cap 6%
<PAGE>
SCHEDULE 7.12
PERMITTED DISTRIBUTIONS
Payments and fees for consulting, management, radiology and other
medical, financial and administrative services rendered in the ordinary course
of business.
Agreements:
Employment Agreements between International Magnetic Imaging, Inc. (formerly IMI
Acquisition Corp.) ("IMI") and Messrs. Schulman and Mahoney, as amended through
the date hereof.
Radiology Agreement between IMI and Expert Radiology Network, P.A., as amended
through the date hereof.
Restrictive covenant agreements between IMI and Drs. Sternberg and Kaye.
Agreements between IMI and Advanced NMR Systems, Inc.
Agreement between Radman, Inc. and IMI.
<PAGE>
AFFIDAVIT OF OUT OF STATE CLOSING
George Mahoney, the Chief Financial Officer of MAGNETIC RESONANCE
INSTITUTE OF SOUTH DADE, LTD. ("Borrower") and ALAN J. VELOTTA, the Group
Managing Director of DVI FINANCIAL SERVICES, INC., d/b/a DVI CAPITAL COMPANY
("Lender"), both being duly sworn, hereby depose and say:
1. On the date hereof, Magnetic Resonance Institute of South Dade, Ltd.
executed a Promissory Note, payable to Lender, in the principal amount of Two
Million, Sixty-nine Thousand, Three Hundred and Fifty-one Dollars ($2,069,351)
payable in seventy-two (72) equal monthly installments of $39,130 with all
principal and accrued interest due on the date set forth therein (the "Note").
2. Borrower personally delivered the Note to Lender (and all other Loan
Documents as defined in the Loan and Security Agreement of even date herewith
between Borrower and Lender) in the City of Independence, State of Ohio.
3. The Note (and the aforementioned Loan Documents) was executed by
Borrower in the City of New York, State of New York and delivered to and
accepted by Lender in the City of Independence, State of Ohio.
MAGNETIC RESONANCE INSTITUTE OF SOUTH DADE, LTD.
By:
George W. Mahoney, Chief Financial Officer
DVI FINANCIAL SERVICES, INC. d/b/a DVI CAPITAL COMPANY
By:
Alan J. Velotta, Group Managing Director
STATE OF NEW YORK )
ss:
COUNTY OF NEW YORK )
On ________________, 1996, before me personally came George W.
Mahoney, to me known, who, by me duly sworn, did depose and say that deponent is
the Chief Financial Officer of Magnetic Resonance Institute of South Dade, Ltd.,
the corporation described in and which executed the foregoing Affidavit.
Notary Public
STATE OF )
ss:
STATE OF )
On ________________, 1996, before me personally came Alan J.
Velotta, to me known, who, by me duly sworn, did depose and say that deponent is
the Group Managing Director of DVI Financial Services, Inc. d/b/a DVI Capital
Company, the corporation described in and which executed the foregoing
Affidavit.
Notary Public
<PAGE>
DELIVERY AND ACCEPTANCE CERTIFICATE
TO: DVI Financial Services, Inc. ("Lender")
RE: Loan and Security Agreement ("Agreement") dated as of
between DVI Financial Services, Inc. d/b/a DVI Capital Company as Lender and
Magnetic Resonance Institute of South Dade, Ltd.
The undersigned Borrower hereby acknowledges receipt of the
Equipment described in Exhibit "A" attached hereto and confirms that: all
installation and other work necessary prior to the use thereof has been
completed; the Equipment has been examined and/or tested and is in good
operating order and condition and in all respects satisfactory to Borrower and
as represented; and the Equipment has been accepted by Borrower and complies
with all the terms of the Agreement.
In the event that the Equipment subject to the Agreement fails
to perform as expected or represented by the manufacturer/supplier, Borrower
shall continue to make monthly payments to Lender as required under the terms of
the Agreement and Borrower shall look solely to the manufacturer or supplier for
the performance of all covenants and warranties with respect to the Equipment
and hereby agrees to indemnify Lender and hold it harmless from such
non-performance or breach of warranty with respect to the Equipment.
Borrower hereby acknowledges that Lender is not the
manufacturer, distributor or seller of the Equipment and has no control,
knowledge or familiarity with the conditioning, capacity, functioning or other
characteristics of the Equipment.
Borrower further acknowledges that Lender is relying upon this
executed Delivery and Acceptance Certificate to pay the manufacturer and/or
supplier for the Equipment.
Date Equipment Delivered: MAGNETIC RESONANCE INSTITUTE OF
SOUTH DADE, LTD.
Date Equipment Accepted: By:
George W. Mahoney
Chief Financial Officer
<PAGE>
EXHIBIT "A"
One (1) Siemens Magnetom 1.5T Vision MRI S/N ______________ and all
attachments, accessories, accessions, replacements, upgrades, substitutions,
additions, and improvements, thereto located at 7800 S.W. 87th Avenue, Miami,
Florida 33173
<PAGE>
Exhibit 10.20
SECURED PROMISSORY NOTE
1. FOR VALUE RECEIVED, the undersigned Magnetic Resonance Institute of
South Dade, Ltd. ("Maker") hereby promises to pay to DVI Financial Services,
Inc. d/b/a DVI Capital Company or its assignee (the "Holder"), or order,
principal in the sum of Two Million, Sixty-nine Thousand, Three Hundred and
Fifty-one dollars ($2,069,351) together with accrued interest thereon as
hereinafter provided. Principal and interest shall be payable in seventy-two
(72) equal monthly installments of Thirty-nine Thousand, One Hundred and thirty
($39,130) each, commencing on the 1st day of the first month following Maker's
execution and delivery to Holder of a Delivery and Acceptance Certificate for
the magnetic resonance imaging equipment described in the Agreement (defined
below) ("Commencement Date") and on the 1st day of each succeeding month, with
all unpaid principal and interest due and payable in full on the first day of
the 72nd month after the Commencement Date.
2. If any part of the principal or interest of this Note is not paid
when due, it shall thereafter bear interest at a rate equal to the "Prime Rate"
announced by National Westminster Bank (which is not necessarily the best rate
charged to its customers) plus four percent (4%) from and as of the date of
delinquency until paid. If the specified interest rate shall at any time exceed
the maximum allowed by law, then the applicable interest rate shall be reduced
to the maximum allowed by law.
3. This Note shall not be subject to prepayment or redemption in whole
or part, except provided that Maker is not in default under this Note or any
other instrument or agreements with Holder (or any occurrence that would
constitute an Event of Default with the giving of notice or lapse of time or
both), and provided that all previous payments of principal and interest due
under this Note have been made promptly and in accordance with the terms of this
Note, the full, but not a part of, the unpaid balance of principal and interest
under this Note may be prepaid by Maker at any time after the twelfth (12th)
month provided, in addition to the prepayment amount, Maker pays,
contemporaneously with the prepayment amount, to Holder a prepayment premium
equal to two (2) years of interest on the prepayment amount calculated at an
interest rate of ten and three-fourths percent (10.75%) per annum.
4. Principal and interest shall be payable to Holder at DVI Capital
Company, 6611 Rockside Road, Suite 110, Independence, Ohio 44131 or such other
place as the Holder may, from time to time in writing, designate.
5. This Note is made pursuant to, and secured by, a Loan and Security
Agreement dated as of the date hereof between Holder as Lender, International
Magnetic Imaging, Inc., Guarantor, and Maker as Borrower (the "Agreement"). This
Note is also secured by any Security Documents referred to in the Agreement. The
Agreement and the Security Documents create a lien on and security interest in,
the personal property described therein ("Collateral"). The Agreement and the
Security Documents shall hereinafter be collectively referred to as the "Loan
and Security Documents" and are hereby incorporated by reference in and made a
part of this Note.
6. The occurrence of any Event of Default under the Agreement shall, at
the election of the Holder, make the entire unpaid balance of the principal
amount of this Note and accrued interest immediately due and payable without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or other notices or demands of any kind of character.
7. Failure of the Holder to exercise the acceleration option of
paragraph 6 of this Note on the occurrence of any of the events enumerated
therein shall not constitute a waiver of the right to exercise such option on
the subsequent occurrence of any of the events enumerated therein.
8. Principal and interest shall be payable in lawful money of the
United States of America which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment. If any payment of principal or
interest under this Note becomes due on a Saturday, Sunday or legal or banking
holiday, such payments will be due on the next succeeding business day. Maker
waives presentment, demand for payment, notice of nonpayment, protest, and
notice of protest, and all other notices and demands in connection with the
delivery, acceptance, performance, default, or enforcement of this Note. Maker
consents to any and all
1
<PAGE>
assignments of this Note, extensions of time, renewals, and waivers that may be
made or granted by the Holder. Maker expressly agrees that such assignments,
extension of time, renewals, or waivers shall not affect Maker's liability.
Maker agrees that Holder may, without notice to Maker and without affecting the
liability of Maker, accept additional or substitute security for this Note, or
release any security or any party liable for this Note, or extend or renew this
Note.
9. If Maker shall fail to make any payment of interest or principal,
including the payment due upon maturity, when the same is due and payable and
such failure shall continue for five (5) days after nonpayment, a late charge by
way of damages shall be immediately due and payable. Maker recognizes that
default by Maker in making the payments herein agreed to be paid when due will
result in the Holder incurring additional expenses, in loss to the Holder of the
use of the money due and in frustration to the Holder in meeting its other
commitments. Maker agrees that, if for any reason Maker fails to pay any amount
due under this Note when due, the Holder shall be entitled to damages for the
detriment caused thereby, but that it is extremely difficult and impractical to
ascertain the extent of such damages. Maker therefore agrees that a sum equal to
ten cents ($.10) for each one dollar ($1.00) of each payment which is not
received within five (5) days after the date it is due and payable is a
reasonable estimate of the said damages to the Holder, which sum Maker agrees to
pay on demand.
10. If action be instituted on this Note (including without limitation,
any proceedings for collection hereof in any bankruptcy or probate matter or
case), or if proceedings are commenced on or under any of the Loan and Security
Documents, Maker promises to pay the Holder all costs of collection and
enforcement including, without limitation, reasonable attorney's fees.
11. Any and all notices or other communications or payments required or
permitted to be given hereunder shall be effective when received or refused if
given or rendered in writing, in the manner provided in the Agreement.
12. This Note shall inure to the benefit of and be binding upon the
Holder's successors and assigns. References to the "Holder" shall be deemed to
refer to the holder(s) of this Note at the time such reference becomes relevant.
13. If any term, provision, covenant, or condition of this Note is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
rest of this Note shall remain in full force and effect to the greatest extent
permitted by law and shall in no other way be affected, impaired or invalidated.
14. Nothing contained herein or in the Loan and Security Documents
shall be deemed to prevent recourse to and the enforcement against Maker and the
Collateral of all liabilities, obligations and undertakings contained herein and
in the Loan and Security Documents.
15. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE
STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE
AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
DATED:
MAKER: MAGNETIC RESONANCE INSTITUTE OF SOUTH DADE, LTD.
By:
Name: George W. Mahoney
Title: Chief Financial Officer
(SEAL)
WITNESS:
2
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Exhibit 10.28
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 21st day of March, 1995, by and between
GEORGE W. MAHONEY, an individual residing at 9185 Saddlecreek Drive, Boca Raton,
Florida 33496 ("Executive") and CONSOLIDATED TECHNOLOGY GROUP LTD., a New York
corporation with its principal offices at 160 Broadway, New York, New York 10038
(the "Company").
W I T N E S S E T H :
WHEREAS, the Company, through its eight wholly owned subsidiaries, is
engaged in a variety of businesses including medical services, temporary
personnel, manufacturing, computer processing and financial advisory services;
and
WHEREAS, the Company requires the services of an experienced full-time
financial officer to render a variety of financial services to the Company and
its subsidiaries; and
WHEREAS, Executive has experience and expertise in rendering
the financial services required by the Company and its
subsidiaries; and
WHEREAS, for the foregoing reasons, the Company desires to employ the
Executive as its Chief Financial Officer, and Executive is desirous of being so
employed, all on and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby unconditionally acknowledged, the parties hereto do hereby agree as
follows:
1. Employment. During the Term (as hereinafter defined) of this
Agreement, the Company hereby employs Executive as its Chief Financial Officer
and as the Chief Financial Officer of its wholly owned subsidiary IMI
Acquisition Corp. ("IMI"), upon and subject to the terms and conditions set
forth in this Agreement. Executive hereby agrees to accept such employment, upon
and subject to the terms and conditions set forth in this Agreement. In
addition, the Company shall, subject to Executive's consent, cause Executive to
be nominated and elected to the Company's Board of Directors and to IMI's Board
of Directors during the Term of this Agreement.
2. Executive's Duties and Responsibilities.
2.1. Executive will perform all of the services customarily
associated with the position of Chief Financial Officer during the Term of this
Agreement, including, without limitation, such services on behalf of IMI,
subject to the policies established by and the direction of the Board of
Directors and Chief Executive Officer of the Company. Executive
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also agrees to perform such other duties and responsibilities consistent with
such position as the Board of Directors or the Chief Executive Officer may
assign to him from time to time during the Term hereof.
2.2. Executive agrees to devote substantially all of his business
time, attention and energy to the performance of his duties under this Agreement
during the Term hereof and shall perform such duties diligently, in good faith
and in a manner consistent with the best interests of the Company. Executive
further agrees to use his best efforts at all times during the Term hereof to
preserve, protect, enhance, and maintain the trade, business and goodwill of the
Company. Executive shall perform his services wherever his services are
reasonably required but principally at the principal offices of IMI presently
located at 2424 North Federal Highway, Suite 110, Boca Raton, Florida 33431.
3. Term; Severance.
3.1. The term of this Agreement shall commence on October 1, 1994
and shall expire on December 31, 1999, subject to earlier termination as
hereinafter provided in Paragraph 3.2 hereof (the "Term").
3.2. Pursuant to the provisions of Paragraph 3.1 above, the Term
of this Agreement shall terminate on the earlier to occur of any of the
following events:
(a) The death of Executive;
(b) The Permanent Disability (hereinafter defined) of
Executive as provided in Paragraph 7 hereof;
(c) The breach or default by Executive in the performance or
observance of any of the provisions of Paragraph 8 of this Agreement;
(d) Any repeated or deliberate misconduct by Executive, upon
thirty (30) days notice from the Company to Executive provided that Executive
does not cure any such breach within such thirty (30) day period;
(e) Any repeated breach of trust or other repeated action by
which Executive obtains personal gain at the expense or to the detriment of the
Company;
(f) The failure of Executive to perform the customary duties
of his position, provided that Executive is furnished with notice of such breach
from the Company (with Executive not participating or voting with respect to any
such notice if Executive is a director of the Company) and Executive
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fails to cure any such breach within thirty (30) days of such notice;
(g) A conviction of the Executive for any felony or of any
other crime involving moral turpitude;
(h) The delivery of notice to the Company by the Executive of
the termination of this Agreement for any breach or default by the Company of
any of its obligations or covenants under this Agreement, provided that any such
breach or default is not cured within thirty (30) days after such notice from
Executive;
(i) In the event of a Change of Control (as hereinafter
defined) during the Term hereof, the Executive may terminate this Agreement upon
ninety (90) days notice to the Company. For purposes hereof, the term "Change of
Control" shall mean the date on which Lewis S. Schiller is no longer an officer
or director of the Company or the date on which the Company sells all, or
substantially all, of its assets or issues to an independent non-affiliated
third party such number of shares of its capital stock as shall equal fifty
(50%) percent or more of its total issued and outstanding shares of capital
stock (except for any such issuances in connection with any recapitalization,
public offering of the Company's securities or a "reverse merger" of the Company
into another publicly held entity).
3.3. In the event of a Change of Control of any of the Company's
subsidiaries during the Term of this Agreement to which Executive renders
services hereunder, Executive shall have the right to terminate his employment
as Chief Financial Officer and/or Director and/or in any other capacity in which
he may render services to any such subsidiary, upon five (5) days notice to the
Company. In such event, this Agreement shall remain in full force and effect,
however, Executive shall not be required to render any further services to any
such subsidiary.
4. Compensation. In consideration of the performance of the
Executive's services under this Agreement during the Term hereof, the Company
shall pay Executive the following compensation:
(a) A base salary of One Hundred Sixty Five Thousand Dollars
($165,000) during the first year of the Term hereof, One Hundred Seventy Seven
Thousand Dollars ($177,000) during the second year of the Term hereof, One
Hundred Eighty Nine Thousand Dollars ($189,000) during the third year of the
Term hereof, Two Hundred Two Thousand Dollars ($202,000) during the fourth year
of the Term hereof and Two Hundred Twenty Thousand Dollars ($220,000) during the
fifth year of the Term hereof (the "Base Salary"), such salary to be paid to
Executive in equal bi-weekly installments (after the deduction of all
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applicable withholding and other required payroll deductions), in arrears,
during the Term of this Agreement. The Base Salary may be increased from time to
time during the Term of this Agreement by the Chief Executive Officer of the
Company.
(b) The Company shall also pay Executive, in addition to the
Base Salary, the following incentive compensation in each calendar year during
the Term hereof (except for the calendar year ended December 31, 1994): (i) the
greater of one percent (1%) of Net Pre-Tax Profits (hereinafter defined) of the
Company or one percent (1%) of Net Cash Flow (hereinafter defined) of the
Company (the "Company Bonus") and (ii) provided Executive has not terminated his
services under Paragraph 3.3 hereof, the greater of one percent (1%) of Net
Pre-Tax Profits of IMI or one percent (1%) of Net Cash Flow of IMI (the "IMI
Bonus"). Notwithstanding the foregoing or any other provision in this Agreement,
the Company shall pay Executive in each calendar year during the Term of this
Agreement a maximum of such incentive compensation in an amount equal to twice
Executive's Base Salary.
For purposes hereof, "Net Pre-Tax Profits" shall mean the net pre-tax income of
the Company or IMI, as the case may be, and "Net Cash Flow" shall mean the net
pre-tax cash flow of the Company or IMI, as the case may be, both as determined
by the Company's certified public accountants applying generally accepted
accounting principles consistently applied in each calendar year during the Term
hereof. In determining Net Pre-Tax Profits and Net Cash Flow, the Company's
accountants shall add the following amounts to the net calculations of each of
such items:
(aa) any compensation or similar expense incurred or
recognized by the Company in connection with the issuance of securities of the
Company for purchase prices which are less than, or warrants, options or other
convertible securities which are exercisable at prices below, fair market value;
and
(bb) the greater of (i) $200,000, or (ii) an aggregate
of the amount of any increase in the base salary of Dr. Stephen A. Schulman
which exceeds $250,000 per year, any increase in Dr. Schulman's bonus which
exceeds $700,000, any minimum bonus payments or other advances or payments to
Dr. Schulman which may be granted by the Company after February 1, 1995 and any
additional incentive compensation that may be granted to Dr. Schulman on and
after February 1, 1995 (other than stock options);
(cc) $185,000 representing operating expenses
attributable to compensation payable to IMI's management; and
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(dd) the amount of any sums due to IMI from any seller
(or any principal thereof) under any purchase agreement between IMI and any such
seller which were previously or are hereafter waived by IMI.
(c) The Company Bonus and the IMI Bonus shall be payable to
Executive within thirty (30) days following the completion of the audited
financial statements of the Company for each calendar year during the Term of
this Agreement, but in any event, not later than April 1 of each such year (or
within ten (10) days after the final resolution of any disagreement with respect
to the calculation of Net Pre-Tax Profits and Net Cash Flow pursuant to the
terms of subparagraph (d) below). In the event of any termination of this
Agreement prior to the expiration of the Term hereof, the Company shall pay
Executive (or his estate in the case of any earlier termination due to
Executive's death) the Company Bonus and the IMI Bonus in a prorated amount
based upon Net Pre-Tax Profits and Net Cash Flow for the number of days in any
such calendar year in which any such termination may occur, such payment to be
made sixty (60) days after any such termination (unless such termination results
from an occurrence under Paragraphs 3.2(c), 3.2(d), 3.2(e), 3.2(f) or 3.2(g), in
which case, notwithstanding any provision of this Agreement to the contrary, the
Company shall have no obligation to make any payment of incentive compensation
to Executive). The Maximum Bonus will also be pro-rated in any such period.
(d) The Company shall deliver to Executive with each Company
Bonus and IMI Bonus payment in each calendar year during the Term hereof, a
report setting forth the calculation of Net Pre-Tax Profits and Net Cash Flow.
Unless Executive notifies the Company within fifteen (15) business days after
receipt of said calculations of his disagreement therewith (which notice shall
state with reasonable specificity the reasons for any such disagreement and the
amounts in dispute), said calculations will be final, binding and conclusive on
Executive. If there is a disagreement, and the disagreement cannot be resolved
by the Company and the Executive within sixty (60) days following the delivery
of such calculations, the items in dispute may be submitted by either the
Company or the Executive to the Company's then independent auditors (with a copy
being furnished to the other party). After affording each of the Company and the
Executive the opportunity to present their respective positions (which
opportunity shall not extend for more than ten (10) business days following the
submission of such disputed items to such auditors), the independent auditors
shall determine what, if any, changes are required in the calculations, and such
determination shall be final, binding and conclusive on the Company and the
Executive. The fees, costs and expenses of such independent auditing firm shall
be allocated between the Company and the Executive as follows:
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(1) If the Company or Executive submits such
calculations to such independent auditors and such auditors confirm the
calculations of Net Pre-Tax Profits and Net Cash Flow (within 5% thereof, plus
or minus), the party which submitted such calculations to such auditors will pay
all of the costs therefor; or
(2) If the Company or Executive submits such
calculations to such independent auditors and such auditors determine that the
calculation of Net Pre-Tax Profits was understated by more than 5%, then the
Company will pay all of the costs therefor; or
(3) If the Company or Executive submits such
calculations to such independent auditors and such auditors determine that the
calculation of Net Pre-Tax Profits and Net Cash Flow was overstated by more than
5%, the Executive will pay all of the costs therefor.
(e) Executive shall have the right, at Executive's sole
expense, upon reasonable advance notice and during normal business hours at the
Company's offices, to examine and copy the books and records of the Company
relating to Net Pre-Tax Profits and Net Cash Flow. Executive hereby acknowledges
and agrees that any non-published documentation or other information obtained by
him in the course of any such examination shall be subject to the provisions of
Paragraph 8 hereof.
(f) The Company shall, in addition to the Base Salary, the
Company Bonus, and the IMI Bonus, reimburse Executive for all ordinary and
necessary out-of-pocket expenses incurred by him in the performance of his
services under this Agreement, subject to and upon receipt by the Company of
invoices or other documentation in support thereof. Such expenses for which
Executive shall be entitled to reimbursement shall include, but not be limited
to, travel and entertainment expenses, expenses incurred in connection with
promoting the Company's business, and the costs, including, without limitation,
all educational courses, required for the maintenance of Executive's license as
a certified public accountant.
(g) In the event of the termination of this Agreement under
the circumstances set forth below, Executive shall be entitled to receive from
the Company, in addition to any amounts provided for in subparagraph (c) above,
severance compensation in the following amounts.
(i) In the event of any termination of this Agreement
under subparagraph 3.2(a), the Executive's estate shall be entitled to receive
the face value of the life insurance policy to be maintained by the Company
pursuant to Paragraph 5.2 hereof. In the event the Company
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fails to maintain such insurance, unless such failure results from a lack of
sufficient funds to pay the premiums therefor or from Executive's failure to pay
such premiums, the Company shall pay an amount equal to the face value of such
policy to the Executive's estate, in forty-eight (48) equal installments, the
first of which shall be payable on the first day of the first month following
Executive's death;
(ii) In the event of any termination of this Agreement
under subparagraphs 3.2(b) or 3.2(h), the Executive shall be entitled to receive
an amount equal to the Base Salary provided for under this Agreement for the
remainder of the Term hereof, subject to a minimum payment in an amount equal to
thirty (30) months of Executive's then Base Salary, such amount to be payable in
equal monthly installments over a period which shall be the greater of the then
remainder of the Term of this Agreement or thirty (30) months, the first of such
installments to be paid on the first day of the first month following any such
termination;
(iii) In the event of the termination of this Agreement
under subparagraph 3.2(i), the Executive shall be entitled to receive an amount
equal to six months of Executive's then Base Salary in six equal installments,
the first of such installments to be paid on the first day of the first month
following any such termination;
(iv) In the event of the termination of Executive's
services to IMI pursuant to Paragraph 3.3 hereof, Executive shall be entitled to
receive an amount equal to twelve (12) months of Executive's then Base Salary in
twelve (12) equal monthly installments, the first of such installments to be
paid on the first day of the first month following any such termination.
5. Executive Benefits. In addition to the Base Salary, the Company
Bonus and the IMI Bonus, Executive shall receive the following benefits:
5.1. Executive shall be entitled to four (4) weeks paid vacation
and fifteen (15) paid sick days during each calendar year of the Term hereof (or
a pro-rated amount thereof in 1994). Executive shall take such vacation at such
times as will not unreasonably interfere with significant activities of the
Company and upon reasonable advance notice to the Company. Any unused vacation
shall be paid to Executive by the Company at the end of each year of the Term
hereof.
5.2. The Company shall pay for and maintain for Executive during
the Term of this Agreement, disability insurance providing for the payment to
Executive of a minimum of sixty
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(60%) percent of his Base Salary for any "disability" as defined in such
disability insurance policy. The Company shall also pay and maintain for
Executive during the Term hereof, major medical, hospitalization, dental and
vision insurance (which insurance will cover Executive and members of his
immediate family) and life insurance upon the life of the Executive in the face
value of $1,000,000, the proceeds of which shall be payable to such
beneficiary(ies) as shall be designated by Executive from time to time during
the Term of this Agreement. The Company shall maintain such disability, medical,
dental, and vision insurance in effect, at the Company's cost, for a period of
eighteen (18) months after the expiration of this Agreement or the termination
of this Agreement pursuant to Paragraphs 3.2(b) or 3.2(i) hereof. During the
Term of this Agreement, any such life insurance policy shall remain the property
of the Company; however, upon the expiration of such eighteen (18) month period
or upon any termination of this Agreement prior thereto, the Executive shall
have the right to have such life insurance policy assigned to him (in which
event Executive shall pay all costs therefor after the date of any such
assignment). The Company may, at its election at any time during the Term
hereof, obtain and maintain at its cost, a key man life insurance policy on the
Executive's life with the Company as the beneficiary thereof and Executive will
cooperate with the Company and its insurer with respect thereto.
5.3. The Company shall pay Executive a monthly automobile
allowance of $500 on the first day of each month during the Term hereof and
shall reimburse Executive for the cost of insurance, gasoline, service and
maintenance of Executive's automobile upon presentation of bills or other
evidences of payment thereof.
5.4. The Company agrees that nothing contained in this Agreement
is intended to, or shall be deemed to be granted to the Executive in lieu of, or
as a limitation upon, any rights and privileges which the Executive may
otherwise be entitled to as an executive employee of the Company under any
retirement, pension, profit sharing, insurance, hospitalization or other
employee benefit plan of any type (including, without limitation, any incentive,
profit sharing, bonus or stock option plan), which may now be in effect or which
may hereafter be adopted by the Company, or any of its subsidiaries, it being
understood that the Executive shall have the same rights and privileges to
participate in such Company (including its subsidiaries) benefit plans as any
other officer or executive employee of the Company or any of its subsidiaries.
6. Stock Purchase Right.
6.1. In December 1994, the Company's Board of Directors agreed to
grant Executive, among others, the right to acquire 750,000 shares of the
Company's Common Stock, $.01 par value (the "Common Stock") pursuant to a
non-recourse stock
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purchase agreement (the "Stock Purchase Agreement") which the Company shall
deliver to Executive on or before March 31, 1995.
6.2. The Company will issue to Executive the Stock Purchase
Agreement in a form substantially similar to the form of stock purchase
agreement then utilized by it for its other executive officers, consistent with
the provisions of this Paragraph 6. The Stock Purchase Agreement shall be
exercisable for a period of five (5) years from the date of grant and shall be
exercisable at $.50 per share. Executive shall have no rights as a stockholder
of the Company until the due and proper exercise of the Stock Purchase
Agreement.
6.3. The number of shares of Common Stock covered by the Stock
Purchase Agreement and the aforementioned exercise price shall be appropriately
adjusted upward or downward, from time to time, to reflect any recapitalization,
stock split, stock dividend or distribution to holders of shares of the
Company's Common Stock hereafter occurring prior to the full exercise of the
Stock Purchase Agreement, to the same extent as if Executive was the holder of
the number of shares of Common Stock covered by the unexercised portion of the
Stock Purchase Agreement immediately prior to the effective date of any of such
occurrences.
6.4. Executive acknowledges that neither the Stock Purchase
Agreement, nor the shares of Common Stock covered under the Stock Purchase
Agreement, are now, or will upon the issuance of the shares on the exercise
thereof, be registered under the Securities Act of 1933, as amended (the "Act").
Executive represents and warrants that he will be acquiring the Stock Purchase
Agreement and will acquire the shares of Common Stock covered thereunder upon
any exercise thereof, solely for investment, and not with a view to the resale
or distribution thereof. Executive hereby agrees that he will not sell, transfer
or assign the Stock Purchase Agreement, nor any shares of the Common Stock
acquired by him upon the exercise thereof, except in compliance with the terms
hereof, the Act and all applicable state securities laws. Executive acknowledges
and agrees that the Company may affix upon any certificate representing any of
the shares of Common Stock acquired by Executive upon the exercise of the Stock
Purchase Agreement, a notice or restrictive legend that such shares may not be
sold or otherwise transferred in a transaction in violation of the provisions of
this Agreement, the Securities Act and all applicable state securities laws.
6.5. Upon Executive's acceptance of the Stock Purchase Agreement,
in the event of any inconsistency between the provisions of such agreement as
set forth in this Paragraph and the provisions of this Paragraph, the provisions
of the Stock Purchase Agreement will control.
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6.6. In addition to the Stock Purchase Agreement, the Company
shall grant to Executive, unless this Agreement is terminated by the Company
prior to the date of such grant pursuant to Paragraphs 3.2(c), 3.2(d), 3.2(e),
3.2(f) or 3.2(g), an option to purchase such number of shares of the capital
stock of IMI as shall equal (x) not less than forty (40%) percent of the number
of such shares covered by any option granted to Dr. Stephen A. Schulman (or any
other Chief Executive Officer of IMI) or (y) in the absence of any such grant to
Dr. Schulman (or any such other individual), thirty-seven and one-half (37.5%)
percent of the number of such shares which are allocated for issuance to IMI's
management and other key personnel. Any such option shall be granted to
Executive simultaneously with the delivery of any such option to Dr. Schulman
(or any such other individual) and shall be otherwise on the same terms and
conditions as Dr. Schulman's (or any such other individual's) option (or, in his
absence, as the options granted or to be granted to IMI's management and other
key personnel). The Company will cause IMI to limit any grant of such options to
any member of IMI's management or key personnel to not more than fifty (50%) of
the total number of such options that may be granted to IMI's management and
other key personnel.
7. Disability.
7.1. Subject to the terms of subparagraph 7.2 below, in the event
Executive suffers any illness, injury or other incapacity which causes him to
become temporarily disabled during the Term of this Agreement, he shall continue
to receive one hundred (100%) percent of the Base Salary and incentive
compensation to which he was entitled at the time he became so disabled for any
period of disability not in excess of six (6) consecutive calendar months. The
term "Permanent Disability" as used in this Agreement shall mean any disability
of Executive for a period in excess of six (6) consecutive calendar months. For
the purpose of this Paragraph, the terms "disabled" and "disability" shall mean
any physical or mental illness, injury or other incapacity which, in the opinion
of a doctor reasonably satisfactory to the Company and Executive, renders the
Executive unable to perform his duties hereunder. The date that any such
disability shall be deemed to have commenced shall be the date Executive first
absents himself from work during a continuous period of disability as so
determined by the doctor hereinabove set forth.
7.2. Upon any Permanent Disability, the Company may at any time
thereafter either reduce the Base Salary to be received by Executive to
seventy-five (75%) percent of the Base Salary at the time of any such Permanent
Disability (including all payments Executive may receive under any disability
policy maintained by the Company) or terminate this Agreement upon ninety (90)
days prior written notice to Executive.
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8. Confidentiality and Non-Disclosure Covenant.
8.1. During the Term of this Agreement, Executive hereby
acknowledges that he may obtain and be entrusted with unpublished confidential
and proprietary information relating to the Company's present and proposed
business and operations, including, without limitation, financial information
relating to the Company's present and proposed business and operations, the cost
and pricing of the Company's services, the sales and marketing plans and
strategies of the Company, the identity of the radiologists and physicians
employed by the Company and the terms of their employment, proposed acquisitions
of the Company, the names and addresses of the Company's accounts and the terms
of all material agreements to which the Company is a party. All of such
information that may be obtained by Executive shall, for purposes hereof, be
referred to as "Confidential Information". Executive hereby agrees that, unless
the Confidential Information becomes publicly known through legitimate origin
not involving any improper act or omission of Executive, neither he, nor any
entity or person owned or controlled directly or indirectly by him, shall,
during the Term of this Agreement or thereafter, use for his own benefit or for
the benefit of others for any purpose and in any manner whatsoever, divulge to
any person, firm, corporation or other entity or otherwise publish or disclose
any Confidential Information (except as necessary in connection with the
performance of Executive's services under this Agreement). This provision shall
survive the expiration or termination of this Agreement. Notwithstanding the
foregoing, Executive shall not be in breach of this covenant with respect to any
use or disclosure of any Confidential Information by him which is required as a
result of any legal process served upon him in any judicial or administrative
proceeding (provided that the Company shall be given notice in time to enable it
to object to such disclosure) or was obtained by Executive from a third party
without such third party's breach of agreement or obligation of trust.
8.2. Executive hereby acknowledges and agrees that any actual or
threatened breach of the provisions of this Paragraph may cause irreparable harm
to the Company and may not be remediable by an action at law for damages and,
therefore, the Company shall be entitled to seek, as a non-exclusive remedy, in
any court of competent jurisdiction, all equitable remedies therefor, including,
without limitation, a temporary or permanent injunction or specific performance
of the provisions hereof, without the necessity of showing any actual damage or
that monetary damages would not provide an adequate remedy at law or posting a
bond therefor. The provisions of this Paragraph 8 shall survive the termination
or expiration of the Term of this Agreement.
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9. Representations and Warranties of Executive. The Executive
represents and warrants to the Company as follows:
9.1. All action on the part of Executive necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, has been taken and this
Agreement constitutes a valid and legally binding obligation of Executive,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
9.2. The authorization, execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
will not result in any violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any provision
of any instrument, judgment, order, writ, decree or agreement to which Executive
is a party or by which he is bound.
9.3. There is no action, suit, proceeding, or investigation
pending, or to the knowledge of Executive, currently threatened against
Executive, in any way relating to the validity of this Agreement or the right of
Executive to enter into or to consummate this Agreement and the transactions
contemplated hereby.
10. Arbitration. Except for any action under this Agreement for
injunctive or other equitable relief, all disputes, controversies and
differences between the parties hereto arising under this Agreement which the
parties hereto are unable to settle amicably shall be resolved in New York, New
York, by binding arbitration in accordance with the Rules then in force of the
American Arbitration Association. The arbitration shall be held before three
arbitrators one of which shall be selected by each of Executive and the Company
and one of which shall be selected by the other two arbitrators, and the
decision of such arbitrators shall be deemed to be final, and judgment upon any
award or decision rendered thereby may be entered in any court, domestic or
foreign, having jurisdiction thereof.
11. Miscellaneous.
11.1. This Agreement constitutes the sole and entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, representations, warranties, statements,
promises, information, arrangements and understandings, whether oral or written,
express or implied, between the parties hereto with respect to the subject
matter hereof, including that certain agreement dated October 1, 1994 between
the Company and Executive. This
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Agreement may not be changed or modified except by an instrument in writing
signed by the party to be bound thereby.
11.2. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the parties hereto as follows (or to such other address and/or to
such other persons as either of the parties hereto shall specify by notice given
in accordance with this provision):
(a) If to the Company:
Consolidated Technology Group Ltd.
160 Broadway
New York, New York 10038
Attn: Mr. Lewis S. Schiller
Chief Executive Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
(b) If to Executive:
George W. Mahoney
9185 Saddle Creek Drive
Boca Raton, FL 33496
All such notices, consents, requests, demands and other communications
shall be deemed given when personally delivered as aforesaid, or, if mailed as
aforesaid, on the third business day after the mailing thereof or on the day
actually received, if earlier, except for a notice of a change of address which
shall be effective only upon receipt.
11.3. Neither party hereto may assign this Agreement or their
respective rights, benefits or obligations hereunder without the written consent
of the other party hereto. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors, heirs, personal
representatives, administrators, executors and permitted assigns. Nothing
contained herein is intended to confer upon any person or entity, other than the
parties hereto, and their respective successors, heirs, personal
representatives, administrators, executors or permitted assigns, any rights,
benefits, obligations, remedies or liabilities under or by reason of this
Agreement. Notwithstanding the foregoing, in the event of a
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<PAGE>
Change of Control, the Company shall have the right to assign this Agreement,
subject to and conditioned upon receipt of Executive's written consent thereto
and to the rights of Executive under subparagraphs 3.2(i) and 3.3 hereof, to the
person or entity acquiring the stock or assets of the Company provided that any
such person or entity agrees in writing to assume and be bound by all of the
terms and provisions of this Agreement.
11.4. No waiver of this Agreement shall be effective unless in
writing and signed by the party to be bound thereby. The waiver by either party
hereto of a breach of any provision of this Agreement, or of any representation,
warranty, or covenant in this Agreement by the other party hereto shall not be
construed as a waiver of any subsequent breach or of any other provision,
representation, warranty, or covenant of such other party, unless the instrument
of waiver expressly so provides.
11.5. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York with respect to contracts made
and to be fully performed therein, without regard to the conflicts of laws
principles thereof. By his execution hereof, Executive hereby consents and
irrevocably submits to the in personam jurisdiction of the American Arbitration
Association tribunal located in the City, County and State of New York and
agrees that any process in any action commenced in such tribunal under this
Agreement may be served upon him personally, by certified or registered mail,
return receipt requested, or by Federal Express or other courier service, with
the same full force and effect as if personally served upon him in New York
City. Each of the parties hereto hereby waives any claim that the jurisdiction
of any such tribunal is not a convenient forum for any such action and any
defense of lack of in personam jurisdiction with respect thereto. In the event
of any such action or proceeding, the party prevailing therein shall be entitled
to payment from the other party hereto of its reasonable counsel fees and
disbursements in an amount determined therein.
11.6. The parties hereto hereby agree that, at any time and from
time to time during the Term hereof, upon the reasonable request of the other
party hereto, they shall do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged and delivered, such further acts, deeds,
assignments, transfers, conveyances and assurances as may be reasonably required
to more effectively consummate this Agreement and the transactions contemplated
thereby or to confirm or otherwise effectuate the provisions of this Agreement.
11.7. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, is finally determined by a
court or arbitration tribunal to any
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<PAGE>
extent to be illegal, invalid or unenforceable, the remainder of this Agreement,
or the application of such term or provision to persons or circumstances other
than those as to which it is held illegal, invalid or unenforceable, shall not
be affected thereby and each term and provision of this Agreement shall be valid
and shall be enforced to the fullest extent permitted hereunder and by law.
11.8. Except as required by applicable law or in connection with
the preparation of financial statements or documents, the Company will not
publish or disclose the compensation or other provisions of this Agreement.
11.9. During and after the Term of this Agreement, the Company
shall defend, indemnify and hold Executive harmless from any claims, causes of
action, liabilities, damages, costs or expenses incurred by Executive based upon
or in connection with the performance of his services under this Agreement to
the fullest extent permitted by the laws of the State of New York (and the laws
of the jurisdiction of any subsidiary of the Company) and of the By-Laws of the
Company (and of any such subsidiary). This provision will survive the expiration
or termination of the Term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this 21st day of March, 1995.
WITNESS: CONSOLIDATED TECHNOLOGY GROUP LTD.
____________________ By____________________________
Lewis S. Schiller
Chief Executive Officer
WITNESS:
____________________ _____________________________
George W. Mahoney
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<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
Reference is made to the Employment Agreement dated March 21, 1995 by
and between GEORGE W. MAHONEY and CONSOLIDATED TECHNOLOGY GROUP LTD. (the
"Agreement"). All capitalized terms used herein shall have the meanings ascribed
to them in the Agreement unless a separate definition for such term is contained
herein. The Company and Executive hereby agree to amend the Agreement as set
forth below.
1. The definition of "Net Cash Flow" in Paragraph 4(b) of the Agreement
is hereby amended to read as follows:
"The term "Net Cash Flow" shall mean the net pre-tax income of the
Company or IMI, as the case may be, plus depreciation, amortization, and all
other non-cash items of expense of such entities less the amount of all
principal debt service of such entities."
2. The first sentence of Paragraph 4(c) of the Agreement is hereby
deleted and the following shall be added, in lieu thereof:
"On the last day of March, June, September and December in
each year during the Term of this Agreement, commencing with calendar 1995, the
Company shall calculate Net Pre-Tax Profits and Net Cash Flow of the Company and
IMI, such calculations to be annualized on such dates, and shall pay to
Executive on such dates an amount equal to twenty-five (25%) percent of such
amounts as an advance against the Company Bonus and the IMI Bonus. Within thirty
(30) days following the completion of the audited financial statements of the
Company for each such calendar year during the Term of this Agreement, but in
any event not later than April 1 of each such year (or within ten (10) days
after the final resolution of any disagreement with respect to the calculation
of Net Pre-Tax Profits and Net Cash Flow pursuant to the terms of subparagraph
(d) below), the Company will pay the Company Bonus and the IMI Bonus to the
Executive, less any amounts advanced to Executive pursuant to the immediately
preceding sentence. If, on such date, the foregoing advances made to the
Executive exceed the Company Bonus and/or the IMI Bonus, the Company shall have
no further obligation for the payment of bonus compensation to Executive with
respect to any such year and the aforementioned advances will be retained by
Executive as a minimum bonus payment hereunder for any such year."
Except as set forth above, none of the other terms or provisions of the
Agreement shall be amended or modified by this Amendment, all of which shall
remain in full force and effect. In the event of any inconsistency between the
terms of the Agreement and the terms of this Amendment, the terms of this
Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 31st day of October, 1995.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:_______________________________
Lewis S. Schiller
Chief Executive Officer
_______________________________
George W. Mahoney
<PAGE>
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
Reference is made to the Employment Agreement dated March 21, 1995, as
amended as of October 31, 1995, by and between GEORGE W. MAHONEY and
CONSOLIDATED TECHNOLOGY GROUP LTD. (the "Agreement"). All capitalized terms used
herein shall have the meanings ascribed to them in the Agreement unless a
separate definition for such term is contained herein. The Company and the
Executive hereby agree to amend the Agreement as set forth below.
1. The definition of the term "Change of Control" in Paragraph 3.1(i)
of the Agreement is hereby amended to read as follows:
"For purposes of this Agreement, the term "Change of Control"
shall mean the date on which Lewis S. Schiller is no longer the Chief Executive
Officer and Chairman of the Board of Directors of the Company, or the date on
which the Company sells all, or substantially all, of its assets or issues to an
independent non-affiliated third party such number of shares of its capital
stock as shall equal 50% or more of its total issued and outstanding shares of
capital stock, inclusive of any such issuance in connection with a "reverse
merger" of the Company into another publicly held entity (except for any such
issuances in connection with any recapitalization or other public offering of
the Company's securities)."
2. Paragraph 3.3 of the Agreement is hereby amended by adding the
following thereto:
"If Executive elects to terminate his employment with any such
subsidiary, as aforesaid, the Company and such subsidiary shall pay to Executive
in a single lump sum on the date of any such termination, an amount equal to one
(1) year of Executive's then Base Salary."
3. Paragraphs 4(g)(iii) and (iv) of the Agreement are hereby amended to
read as follows:
"(iii) In the event of the termination of this Agreement under
subparagraph 3.2(i), the Executive shall be entitled to receive, in a single
lump sum payment on the date of any such termination, an amount equal to the
then balance of the Base Salary payable to Executive under this Agreement, which
amount shall, however, in no event be less than an amount equal to two (2) years
of Executive's then Base Salary.
(iv) In the event of a Change of Control of the Company or any
subsidiary thereof as a result of which Executive
<PAGE>
does not exercise his right to terminate this Agreement, the Company and/or any
such subsidiary shall pay to the Executive on the date of the consummation of
any such Change of Control, in a single lump sum payment, an amount equal to one
(1) year of Executive's then Base Salary."
3. Paragraph 6 of the Agreement is hereby amended, as follows:
(a) All references in such paragraph to "Stock Purchase Agreement"
shall be to "Instrument of Grant of Stock Option (Stock Option)";
(b) The Stock Option was authorized by the Board of Directors of
SIS Capital Corp., a wholly owned subsidiary of the Company;
(c) The Stock Option shall be delivered to the Executive on or
before December 31, 1995;
(d) The Stock Option will be in a form previously delivered to
Executive and the option provided for thereunder shall be exercisable at $.25
per share during the term of the Option.
Except as set forth above, none of the other terms or provisions of the
Agreement shall be amended or modified by this Amendment, all of which shall
remain in full force and effect. In the event of any inconsistency between the
terms of the Agreement and the terms of this Amendment, the terms of this
Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the __ day of November, 1995.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:_______________________________
Lewis S. Schiller
Chief Executive Officer
________________________________
George W. Mahoney
<PAGE>
AMENDMENT NO. 3 TO
EMPLOYMENT AGREEMENT
Reference is made to the Employment Agreement dated March 21, 1995, as
amended as of October 31, 1995 and November 9, 1995 by and between GEORGE W.
MAHONEY and CONSOLIDATED TECHNOLOGY GROUP LTD. (the "Agreement"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Agreement unless a separate definition for such term is contained herein. The
Company and the Executive hereby agree to amend the Agreement as set forth
below.
1. Paragraph 3.1 of the Agreement is hereby amended to read as follows:
"3.1. The term of this Agreement shall commence on October 1, 1995
and expire on December 31, 2002 (or any such later date as Executive may be
required to be employed by the Company or any of its subsidiaries pursuant to
any Loan and Security Agreement with DVI Financial Services, Inc. or its
affiliates), subject to earlier termination as hereinafter provided in Paragraph
3.2 hereof (the "Term")."
2. Paragraph 4(a) of the Agreement is hereby amended to provide that
the Base Salary during the sixth year of the Term hereof shall be $235,500 and
during the seventh year of the Term hereof shall be $252,000.
Except as set forth above, none of the other terms or provisions of the
Agreement shall be amended or modified by this Amendment, all of which shall
remain in full force and effect. In the event of any inconsistency between the
terms of the Agreement and the terms of this Amendment, the terms of this
Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the __ day of April, 1996.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:_______________________________
Lewis S. Schiller
Chief Executive Officer
_______________________________
George W. Mahoney
<PAGE>
Exhibit 10.29
AGREEMENT made this ___ day of September, 1994 by and between DR. JAMES H.
STERNBERG, an individual residing at 124 Spinnaker Lane, Jupiter, Florida 33477
("Executive") and IMI ACQUISITION CORP., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company intends to engage in the business of owning and operating
outpatient diagnostic imaging centers, including certain centers which were
previously managed by International Magnetic Imaging, Inc. (the "Centers"); and
WHEREAS, the Company's affiliates have entered into purchase agreements to
acquire certain of the Centers and all of the outstanding capital stock of
International Magnetic Imaging, Inc. ("IMI"); and
WHEREAS, Executive is an officer, director and stockholder of IMI and has
acquired valuable knowledge and experience in the management and operation of
diagnostic imaging centers, including, without limitation, the Centers; and
WHEREAS, the Company and its affiliates will expend a substantial amount of
money in acquiring the Centers and IMI, a portion of which will be paid to
Executive, and would not do so without obtaining maximum legal protection from
the risk of Executive competing with the Company's proposed operations following
the consummation of such acquisition; and
WHEREAS, the Executive is willing to agree to restrict and limit his rights to
compete with the Company's proposed operations following the consummation of
such acquisitions, upon and subject to the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
unconditionally acknowledged, the parties hereto do hereby agree as follows:
1. In consideration of the compensation provided for in Paragraph 2 hereof:
1.1. Executive hereby agrees that during the Term hereof and for a
period of two (2) years after the expiration or termination of the Term hereof,
Executive will not, directly or indirectly, on his own behalf or in the service
of or on behalf of others, whether as an officer, director, stockholder,
partner, trustee, principal, employee, consultant, agent, or owner of any
capital stock, partnership interest or other interest in any corporation,
partnership or other entity, or in any other capacity, own an interest in,
perform any Services (including, without limitation, patient referrals) or
conduct any activity for or on behalf of any diagnostic imaging facility
providing magnetic resonance imaging services which is located within a fifty
mile radius of any diagnostic imaging facility or proposed facility of the
Company (for these purposes to include any parent, subsidiary or affiliate
thereof) or for or on behalf of any diagnostic imaging facility providing
magnetic resonance imaging services which may be located outside of such fifty
mile radius but which nevertheless may be deemed by the Company to be in
competition with any diagnostic imaging facility of the Company located within
such area (a "Precluded Business Activity"). Without limiting the generality of
the foregoing, the Executive agrees that in the event it is judicially
determined that the specified time period or geographical area or scope of the
foregoing restriction is unreasonable, arbitrary, or against public policy,
contrary to law, invalid or unenforceable, the remaining provisions of this
Paragraph shall not be affected thereby and shall remain in full force and
effect and a lesser time period, geographical area, or scope which is judicially
determined to be reasonable, non-arbitrary and not violative of public policy,
not contrary to law, invalid or unenforceable, may be enforced by the Company
against the Executive in accordance with the terms hereof. Notwithstanding the
foregoing, nothing contained in this Paragraph is intended to nor shall preclude
the ownership by Executive of not more than five (5%) percent of the outstanding
securities of any publicly owned corporation or other entity engaged in a
Precluded Business Activity, provided that such ownership is solely for
investment purposes and is not coupled with any working relationship between
Executive and such corporation or entity.
1.2. Executive hereby acknowledges that the restrictions contained in
this Paragraph 1 are necessary for the protection of the Company's business and
goodwill and all considered by Executive to be reasonable. Accordingly,
Executive hereby acknowledges and agrees that any actual or threatened breach of
the provisions of this Paragraph may cause irreparable harm to the Company and
may not be remediable by an action at law for damages and, therefore, the
Company shall be entitled to seek, as a non-exclusive remedy, in any court of
competent jurisdiction, all equitable remedies therefor, including, without
limitation, a temporary or permanent injunction or specific performance of the
provisions hereof, without the necessity of showing any actual damage or that
monetary damages would not provide an adequate remedy at law or posting a bond
therefor.
1.3. In the event of any breach or threatened breach by Executive of
the provisions of this Paragraph 1.3, the Company shall be entitled to the
payment or reimbursement of its reasonable attorneys fees and disbursements in
connection therewith, whether or not an action is brought by the Company to
enforce the same.
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<PAGE>
2. Compensation. The Company hereby agrees, in consideration of Executive's
performance and compliance with the covenants contained in Paragraphs 1 and 4
hereof, to pay to Executive the sum of Four Hundred Thousand Dollars ($400,000)
during the Term of this Agreement (the "Covenant Payment"), in thirty-six (36)
equal monthly installments of Eleven Thousand One Hundred Eleven Dollars and
eleven cents ($11,111.11), in arrears, on the last day of each month during the
Term of this Agreement (pro-rated for the first and last month of the Term
hereof, if the Term commences or terminates on a day other than the first day of
the month). Notwithstanding the foregoing, in the event of any termination of
this Agreement prior to the expiration of the Term hereof, the Company shall pay
Executive (or his estate in the case of any earlier termination due to
Executive's death), such compensation through the date of such termination
(unless such termination results from an occurrence under Paragraph 3.2, in
which case, notwithstanding any provision of this Agreement to the contrary, the
Company shall have no obligation to make any Covenant Payments to Executive
thereafter. The Company will continue to make the Covenant Payments to the
executor of the estate of Executive (or any other person designated by
Executive) in the event of the death of Executive prior to the expiration or
termination of this Agreement.
3. Term.
3.1. The term of this Agreement shall commence on the date of the
Closing under that certain Stock Purchase Agreement dated July 19, 1994 between
MD Ltd. Partner Acq. Corporation, IMI and the Stockholders of IMI (the "Stock
Purchase Agreement"), and shall expire on the last day of the third year after
the aforementioned commencement date, subject to earlier termination as
hereinafter provided in Paragraph 3.2 hereof (the "Term"). In the event that the
Closing under the Stock Purchase Agreement does not occur by October 1, 1994,
either party hereto may terminate this Agreement upon three days notice. Upon
any such termination, neither of the parties hereto will have any further rights
or obligations under this Agreement.
3.2. Pursuant to the provisions of Paragraph 3.1 above, the Term of
this Agreement shall terminate upon the breach or default by Executive in the
performance or observance of any of the provisions of Paragraphs 1, 4 or 5 of
this Agreement.
3.3. In the event of a Change of Control (hereinafter defined),
during the Term hereof, the Company shall pay Executive the then unpaid balance
of the Covenant Payment within thirty (30) days of the date of any such
occurrence. For purposes hereof, the term "Change of Control" shall mean either
the date on which Lewis S. Schiller is no longer President or
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<PAGE>
Chief Executive Officer of Consolidated Technology Group Ltd. or the date on
which the Company issues to an independent non-affiliated third party such
number of shares of its capital stock as shall equal fifty (50%) percent or more
of its total issued and outstanding shares of capital stock (except for any such
issuances in connection with any recapitalization or public offering of the
Company's securities).
4. Confidentiality and Non-Disclosure Covenant.
4.1. During the Term of this Agreement, Executive hereby acknowledges
that he may obtain and be entrusted with unpublished confidential and
proprietary information relating to the Company's present and proposed business
and operations, including, without limitation, financial information relating to
the Company's present and proposed business and operations, the cost and pricing
of the Company's services, the sales and marketing plans and strategies of the
Company, the identity of the radiologists and physicians employed by the Company
and the terms of their employment, proposed acquisitions of the Company, the
names and addresses of the Company's accounts and the terms of all material
agreements to which the Company is a party. All of such information that may be
obtained by Executive shall, for purposes hereof, be referred to as
"Confidential Information". Executive hereby agrees that, unless the
Confidential Information becomes publicly known through legitimate origin not
involving any improper act or omission of Executive, neither he, nor any entity
or person owned or controlled directly or indirectly by him, shall, during the
Term of this Agreement or thereafter, use for his own benefit or for the benefit
of others for any purpose and in any manner whatsoever, divulge to any person,
firm, corporation or other entity or otherwise publish or disclose any
Confidential Information. This provision shall survive the expiration or
termination of this Agreement. Notwithstanding the foregoing, Executive shall
not be in breach of this covenant with respect to any use or disclosure of any
Confidential Information by him which is required as a result of any legal
process served upon him in any judicial or administrative proceeding (provided
that the Company shall be given notice in time to enable it to object to such
disclosure).
4.2. Executive hereby acknowledges and agrees that any actual or
threatened breach of the provisions of this Paragraph may cause irreparable harm
to the Company and may not be remediable by an action at law for damages and,
therefore, the Company shall be entitled to seek, as a non-exclusive remedy, in
any court of competent jurisdiction, all equitable remedies therefor, including,
without limitation, a temporary or permanent injunction or specific performance
of the provisions hereof, without the necessity of showing any actual damage or
that
-4-
<PAGE>
monetary damages would not provide an adequate remedy at law or posting a bond
therefor.
5. Representations and Warranties of Executive.
5.1. All action on the part of Executive necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, has been taken and this
Agreement constitutes a valid and legally binding obligation of Executive,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
5.2. The authorization, execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, will
not result in any violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any provision
of any instrument, judgment, order, writ, decree or agreement to which Executive
is a party or by which he is bound.
5.3. There is no action, suit, proceeding, or investigation pending,
or to the knowledge of Executive, currently threatened against Executive, in any
way relating to the validity of this Agreement or the right of Executive to
enter into or to consummate this Agreement and the transactions contemplated
hereby.
5.4. All of the foregoing representations and warranties of Executive
will be true and correct on the first day of the Term of this Agreement.
6. Miscellaneous.
6.1. This Agreement constitutes the sole and entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, between the parties hereto with respect to the subject matter hereof
and may not be changed or modified except by an instrument in writing signed by
the party to be bound thereby. Notwithstanding the foregoing, nothing contained
herein shall modify or supersede the restrictive covenants contained in the
Stock Purchase Agreement and the Asset Purchase Agreement dated July 19, 1994 by
and between J. Sternberg and S. Schulman M.D. Corp. and MD Acquisition
Corporation.
-5-
<PAGE>
6.2. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the parties hereto as follows (or to such other address as either
of the parties hereto shall specify by notice given in accordance with this
provision) or sent by facsimile transmission (with a copy mailed by first class
mail) to the facsimile numbers set forth below (or to such other facsimile
number as either of the parties hereto shall specify by notice given in
accordance with this provision):
(a) If to the Company: IMI Acquisition Corp. 160 Broadway New York, New York
10038 Fax No. 212-233-5023
Attn: Lewis S. Schiller, President
with a copy to:
Robert L. Blessey, Esq. 51 Lyon Ridge Road Katonah, New York 10536 Fax No.
914-232-0647
(b) If to Executive:
James H. Sternberg, M.D. 124 Spinnaker Lane Jupiter, Florida 33477 Fax No.
407-746-1792
with a copy to:
Joel Reinstein, Esq. Crocker Plaza, Suite 801 5355 Town Center Road Boca Raton,
FL 33486 Fax No. 407-393-1909
All such notices, consents, requests, demands and other communications shall be
deemed given when personally delivered as aforesaid, or, if mailed as aforesaid,
on the third business day after the mailing thereof or on the day actually
received, if earlier, except for a notice sent by facsimile transmission or a
notice of a change of address which shall be effective only upon receipt.
-6-
<PAGE>
6.3. Neither party hereto may assign this Agreement or their
respective rights, benefits or obligations hereunder without the written consent
of the other party hereto. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors, heirs, personal
representatives, administrators, executors and permitted assigns. Nothing
contained herein is intended to confer upon any person or entity, other than the
parties hereto, and their respective successors, heirs, personal
representatives, administrators, executors or permitted assigns, any rights,
benefits, obligations, remedies or liabilities under or by reason of this
Agreement.
6.4. No waiver of this Agreement shall be effective unless in writing
and signed by the party to be bound thereby. The waiver by either party hereto
of a breach of any provision of this Agreement, or of any representation,
warranty, or covenant in this Agreement by the other party hereto shall not be
construed as a waiver of any subsequent breach or of any other provision,
representation, warranty, or covenant of such other party, unless the instrument
of waiver expressly so provides.
6.5. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York with respect to contracts made and to be
fully performed therein, without regard to the conflicts of laws principles
thereof. The parties hereto hereby agree that any suit or proceeding arising
under this Agreement shall be brought solely in a federal or state court located
in the City, County and State of New York, except for any suit or proceeding
seeking an equitable remedy hereunder which may be brought in any court of
competent jurisdiction. By his execution hereof, Executive hereby consents and
irrevocably submits to the in personam jurisdiction of the federal and state
courts located in the City, County and State of New York and agrees that any
process in any suit or proceeding commenced in such courts under this Agreement
may be served upon him personally, by certified or registered mail, return
receipt requested, or by Federal Express or other courier service, with the same
full force and effect as if personally served upon him in New York City. Each of
the parties hereto hereby waives any claim that any such jurisdiction is not a
convenient forum for any such suit or proceeding and any defense of lack of in
personam jurisdiction with respect thereto. In the event of any such action or
proceeding, the party prevailing therein shall be entitled to payment from the
other party hereto of its reasonable counsel fees and disbursements in an amount
judicially determined.
6.6. The parties hereto hereby agree that, at any time and from time
to time during the Term hereof, upon the reasonable request of the other party
hereto, they shall do, execute, acknowledge and deliver, or cause to be done,
executed,
-7-
<PAGE>
acknowledged and delivered, such further acts, deeds, assignments, transfers,
conveyances and assurances as may be reasonably required to more effectively
consummate this Agreement and the transactions contemplated thereby or to
confirm or otherwise effectuate the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this __ day
of September, 1994.
ATTEST: IMI ACQUISITION CORP.
By____________________________
Lewis S. Schiller
Chief Executive Officer
WITNESS:
------------------------------
James H. Sternberg, M.D.
-8-
<PAGE>
Exhibit 10.30
AGREEMENT made this ___ day of September, 1994 by and between DR. ASHLEY KAYE,
an individual residing at 10852 N.W. Sixth Street, Coral Springs, Florida 33071
("Executive") and IMI ACQUISITION CORP., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company intends to engage in the business of owning and operating
outpatient diagnostic imaging centers, including certain centers which were
previously managed by International Magnetic Imaging, Inc. (the "Centers"); and
WHEREAS, the Company's affiliates have entered into purchase agreements to
acquire certain of the Centers and all of the outstanding capital stock of
International Magnetic Imaging, Inc. ("IMI"); and
WHEREAS, Executive is an officer, director and stockholder of IMI and has
acquired valuable knowledge and experience in the management and operation of
diagnostic imaging centers, including, without limitation, the Centers; and
WHEREAS, the Company and its affiliates will expend a substantial amount of
money in acquiring the Centers and IMI, a portion of which will be paid to
Executive, and would not do so without obtaining maximum legal protection from
the risk of Executive competing with the Company's proposed operations following
the consummation of such acquisition; and
WHEREAS, the Executive is willing to agree to restrict and limit his rights to
compete with the Company's proposed operations following the consummation of
such acquisitions, upon and subject to the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
unconditionally acknowledged, the parties hereto do hereby agree as follows:
1. In consideration of the compensation provided for in Paragraph 2 hereof:
1.1. Executive hereby agrees that during the Term hereof and for a
period of two (2) years after the expiration or termination of the Term hereof,
Executive will not, directly or indirectly, on his own behalf or in the service
of or on behalf of others, whether as an officer, director, stockholder,
partner, trustee, principal, employee, consultant, agent, or owner of any
capital stock, partnership interest or other interest in any corporation,
partnership or other entity, or in any other capacity, own an interest in,
perform any services (including, without limitation, patient referrals) or
<PAGE>
conduct any activity for or on behalf of any diagnostic imaging facility
providing magnetic resonance imaging services which is located within a fifty
mile radius of any diagnostic imaging facility or proposed facility of the
Company (for these purposes to include any parent, subsidiary or affiliate
thereof) or for or on behalf of any diagnostic imaging facility providing
magnetic resonance imaging services which may be located outside of such fifty
mile radius but which nevertheless may be deemed by the Company to be in
competition with any diagnostic imaging facility of the Company located within
such area (a "Precluded Business Activity"). Without limiting the generality of
the foregoing, the Executive agrees that in the event it is judicially
determined that the specified time period or geographical area or scope of the
foregoing restriction is unreasonable, arbitrary, or against public policy,
contrary to law, invalid or unenforceable, the remaining provisions of this
Paragraph shall not be affected thereby and shall remain in full force and
effect and a lesser time period, geographical area, or scope which is judicially
determined to be reasonable, non-arbitrary and not violative of public policy,
not contrary to law, invalid or unenforceable, may be enforced by the Company
against the Executive in accordance with the terms hereof. Notwithstanding the
foregoing, nothing contained in this Paragraph is intended to nor shall preclude
the ownership by Executive of not more than five (5%) percent of the outstanding
securities of any publicly owned corporation or other entity engaged in a
Precluded Business Activity, provided that such ownership is solely for
investment purposes and is not coupled with any working relationship between
Executive and such corporation or entity.
1.2. Executive hereby acknowledges that the restrictions contained in
this Paragraph 1 are necessary for the protection of the Company's business and
goodwill and all considered by Executive to be reasonable. Accordingly,
Executive hereby acknowledges and agrees that any actual or threatened breach of
the provisions of this Paragraph may cause irreparable harm to the Company and
may not be remediable by an action at law for damages and, therefore, the
Company shall be entitled to seek, as a non-exclusive remedy, in any court of
competent jurisdiction, all equitable remedies therefor, including, without
limitation, a temporary or permanent injunction or specific performance of the
provisions hereof, without the necessity of showing any actual damage or that
monetary damages would not provide an adequate remedy at law or posting a bond
therefor.
1.3. In the event of any breach or threatened breach by Executive of
the provisions of this Paragraph 1.3, the Company shall be entitled to the
payment or reimbursement of its reasonable attorneys fees and disbursements in
connection therewith, whether or not an action is brought by the Company to
enforce the same.
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<PAGE>
2. Compensation. The Company hereby agrees, in consideration of Executive's
performance and compliance with the covenants contained in Paragraphs 1 and 4
hereof, to pay to Executive the sum of Four Hundred Thousand Dollars ($400,000)
during the Term of this Agreement (the "Covenant Payment"), in thirty-six (36)
equal monthly installments of Eleven Thousand One Hundred Eleven Dollars and
eleven cents ($11,111.11), in arrears, on the last day of each month during the
Term of this Agreement (pro-rated for the first and last month of the Term
hereof, if the Term commences or terminates on a day other than the first day of
the month). Notwithstanding the foregoing, in the event of any termination of
this Agreement prior to the expiration of the Term hereof, the Company shall pay
Executive (or his estate in the case of any earlier termination due to
Executive's death), such compensation through the date of such termination
(unless such termination results from an occurrence under Paragraph 3.2, in
which case, notwithstanding any provision of this Agreement to the contrary, the
Company shall have no obligation to make any Covenant Payments to Executive
thereafter. The Company will continue to make the Covenant Payments to the
executor of the estate of Executive (or any other person designated by
Executive) in the event of the death of Executive prior to the expiration or
termination of this Agreement.
3. Term.
3.1. The term of this Agreement shall commence on the date of the
Closing under that certain Stock Purchase Agreement dated July 19, 1994 between
MD Ltd. Partner Acq. Corporation, IMI and the Stockholders of IMI (the "Stock
Purchase Agreement"), and shall expire on the last day of the third year after
the aforementioned commencement date, subject to earlier termination as
hereinafter provided in Paragraph 3.2 hereof (the "Term"). In the event that the
Closing under the Stock Purchase Agreement does not occur by October 1, 1994,
either party hereto may terminate this Agreement upon three days notice. Upon
any such termination, neither of the parties hereto will have any further rights
or obligations under this Agreement.
3.2. Pursuant to the provisions of Paragraph 3.1 above, the Term of
this Agreement shall terminate upon the breach or default by Executive in the
performance or observance of any of the provisions of Paragraphs 1, 4 or 5 of
this Agreement.
3.3. In the event of a Change of Control (hereinafter defined),
during the Term hereof, the Company shall pay Executive the then unpaid balance
of the Covenant Payment within thirty (30) days of the date of any such
occurrence. For purposes hereof, the term "Change of Control" shall mean either
the date on which Lewis S. Schiller is no longer President or Chief Executive
Officer of Consolidated Technology Group Ltd. or
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the date on which the Company issues to an independent non-affiliated third
party such number of shares of its capital stock as shall equal fifty (50%)
percent or more of its total issued and outstanding shares of capital stock
(except for any such issuances in connection with any recapitalization or public
offering of the Company's securities).
4. Confidentiality and Non-Disclosure Covenant.
4.1. During the Term of this Agreement, Executive hereby acknowledges
that he may obtain and be entrusted with unpublished confidential and
proprietary information relating to the Company's present and proposed business
and operations, including, without limitation, financial information relating to
the Company's present and proposed business and operations, the cost and pricing
of the Company's services, the sales and marketing plans and strategies of the
Company, the identity of the radiologists and physicians employed by the Company
and the terms of their employment, proposed acquisitions of the Company, the
names and addresses of the Company's accounts and the terms of all material
agreements to which the Company is a party. All of such information that may be
obtained by Executive shall, for purposes hereof, be referred to as
"Confidential Information". Executive hereby agrees that, unless the
Confidential Information becomes publicly known through legitimate origin not
involving any improper act or omission of Executive, neither he, nor any entity
or person owned or controlled directly or indirectly by him, shall, during the
Term of this Agreement or thereafter, use for his own benefit or for the benefit
of others for any purpose and in any manner whatsoever, divulge to any person,
firm, corporation or other entity or otherwise publish or disclose any
Confidential Information. This provision shall survive the expiration or
termination of this Agreement. Notwithstanding the foregoing, Executive shall
not be in breach of this covenant with respect to any use or disclosure of any
Confidential Information by him which is required as a result of any legal
process served upon him in any judicial or administrative proceeding (provided
that the Company shall be given notice in time to enable it to object to such
disclosure).
4.2. Executive hereby acknowledges and agrees that any actual or
threatened breach of the provisions of this Paragraph may cause irreparable harm
to the Company and may not be remediable by an action at law for damages and,
therefore, the Company shall be entitled to seek, as a non-exclusive remedy, in
any court of competent jurisdiction, all equitable remedies therefor, including,
without limitation, a temporary or permanent injunction or specific performance
of the provisions hereof, without the necessity of showing any actual damage or
that monetary damages would not provide an adequate remedy at law or posting a
bond therefor.
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<PAGE>
5. Representations and Warranties of Executive.
5.1. All action on the part of Executive necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, has been taken and this
Agreement constitutes a valid and legally binding obligation of Executive,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
5.2. The authorization, execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, will
not result in any violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any provision
of any instrument, judgment, order, writ, decree or agreement to which Executive
is a party or by which he is bound.
5.3. There is no action, suit, proceeding, or investigation pending,
or to the knowledge of Executive, currently threatened against Executive, in any
way relating to the validity of this Agreement or the right of Executive to
enter into or to consummate this Agreement and the transactions contemplated
hereby.
5.4. All of the foregoing representations and warranties of Executive
will be true and correct on the first day of the Term of this Agreement.
6. Miscellaneous.
6.1. This Agreement constitutes the sole and entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, between the parties hereto with respect to the subject matter hereof
and may not be changed or modified except by an instrument in writing signed by
the party to be bound thereby. Notwithstanding the foregoing, nothing contained
herein shall modify or supersede the restrictive covenants contained in the
Stock Purchase Agreement and the Asset Purchase Agreement dated July 19, 1994 by
and between J. Sternberg and S. Schulman M.D. Corp. and MD Acquisition
Corporation.
6.2. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and delivered personally, receipt
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<PAGE>
acknowledged, or mailed by registered or certified mail, postage prepaid, return
receipt requested, addressed to the parties hereto as follows (or to such other
address as either of the parties hereto shall specify by notice given in
accordance with this provision) or sent by facsimile transmission (with a copy
mailed by first class mail) to the facsimile numbers set forth below (or to such
other facsimile number as either of the parties hereto shall specify by notice
given in accordance with this provision):
(a) If to the Company:
IMI Acquisition Corp.
160 Broadway
New York, New York 10038
Fax No. 212-233-5023
Attn: Lewis S. Schiller, President
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
Fax No. 914-232-0647
(b) If to Executive:
Ashley Kaye, M.D.
10852 N.W. Sixth Street
Coral Springs, Florida 33071
with a copy to:
Joel Reinstein, Esq.
Crocker Plaza, Suite 801
5355 Town Center Road
Boca Raton, FL 33486
Fax No. 407-393-1909
All such notices, consents, requests, demands and other communications shall be
deemed given when personally delivered as aforesaid, or, if mailed as aforesaid,
on the third business day after the mailing thereof or on the day actually
received, if earlier, except for a notice sent by facsimile transmission or a
notice of a change of address which shall be effective only upon receipt.
6.3. Neither party hereto may assign this Agreement or their
respective rights, benefits or obligations hereunder without the written consent
of the other party hereto. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors, heirs, personal
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<PAGE>
representatives, administrators, executors and permitted assigns. Nothing
contained herein is intended to confer upon any person or entity, other than the
parties hereto, and their respective successors, heirs, personal
representatives, administrators, executors or permitted assigns, any rights,
benefits, obligations, remedies or liabilities under or by reason of this
Agreement.
6.4. No waiver of this Agreement shall be effective unless in writing
and signed by the party to be bound thereby. The waiver by either party hereto
of a breach of any provision of this Agreement, or of any representation,
warranty, or covenant in this Agreement by the other party hereto shall not be
construed as a waiver of any subsequent breach or of any other provision,
representation, warranty, or covenant of such other party, unless the instrument
of waiver expressly so provides.
6.5. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York with respect to contracts made and to be
fully performed therein, without regard to the conflicts of laws principles
thereof. The parties hereto hereby agree that any suit or proceeding arising
under this Agreement shall be brought solely in a federal or state court located
in the City, County and State of New York, except for any suit or proceeding
seeking an equitable remedy hereunder which may be brought in any court of
competent jurisdiction. By his execution hereof, Executive hereby consents and
irrevocably submits to the in personam jurisdiction of the federal and state
courts located in the City, County and State of New York and agrees that any
process in any suit or proceeding commenced in such courts under this Agreement
may be served upon him personally, by certified or registered mail, return
receipt requested, or by Federal Express or other courier service, with the same
full force and effect as if personally served upon him in New York City. Each of
the parties hereto hereby waives any claim that any such jurisdiction is not a
convenient forum for any such suit or proceeding and any defense of lack of in
personam jurisdiction with respect thereto. In the event of any such action or
proceeding, the party prevailing therein shall be entitled to payment from the
other party hereto of its reasonable counsel fees and disbursements in an amount
judicially determined.
6.6. The parties hereto hereby agree that, at any time and from time
to time during the Term hereof, upon the reasonable request of the other party
hereto, they shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required to more
effectively consummate this Agreement and the transactions contemplated thereby
or to confirm or otherwise effectuate the provisions of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this __ day
of September, 1994.
ATTEST: IMI ACQUISITION CORP.
By____________________________
Lewis S. Schiller
Chief Executive Officer
WITNESS:
- -----------------
Ashley Kaye, M.D.
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<PAGE>
Exhibit 10.31
AGREEMENT made as of the 5th day of December, 1994 by and between IMI
ACQUISITION CORP., a Delaware corporation ("IMI") and EXPERT RADIOLOGY NETWORK,
P.A., a Florida corporation ("ERN").
W I T N E S S E T H :
WHEREAS, IMI, through its wholly owned subsidiaries,owns and operates six
magnetic resonance diagnostic imaging centers in the State of Florida generally
known as MRI Center of Boca Raton, MRI Center of Pine Island, MRI Center of
North Miami Beach, MRI Center of South Dade, MRI Center of Orlando and MRI
Center of Oakland Park (the "Facilities"); and
WHEREAS, ERN is wholly owned by Dr. Fred L. Steinberg (Dr. Steinberg"); Dr.
Steinberg is a radiologist employed by ERN who currently renders services to one
or more of the Facilities pursuant to a separate agreement between IMI and
Expert Radiology Network, P.A. dated December 2, 1994 (the "Prior Agreement");
and
WHEREAS, due to the special degree of skill, training and expertise of Dr.
Steinberg, IMI is desirous of engaging the services of ERN to perform radiology
services for the Facilities (and, subject to the terms hereof, other such
facilities that IMI may acquire or establish during the Term of this Agreement),
and ERN is willing to be so engaged, all on and subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
unconditionally acknowledged, the parties hereto do hereby agree as follows:
1. Retention of ERN. During the Term of this Agreement and subject to the
terms hereof, IMI hereby retains ERN, and ERN hereby agrees to such retention,
to perform all radiology services hereinafter described for the Facilities and
for the "Additional Facilities" (hereinafter defined). IMI hereby agrees to
engage ERN to provide all of such services on an exclusive basis except that IMI
may retain other radiologists (i) for the Facilities and Additional Facilities
to the extent required by any applicable law, rule or regulation and (ii) for
the Additional Facilities if, for any reason as determined by IMI in its sole
and absolute discretion, the retention of any such additional radiologist is
necessary or appropriate in connection with the acquisition or establishment of
any Additional Facility. IMI shall pay such other radiologist(s) for their
services and ERN shall have no responsibility for any such payments. ERN shall
be free to render services to third parties during the Term of this Agreement,
subject to the provisions of Paragraph 11 hereof.
<PAGE>
2. ERN's Services.
(a) ERN shall, solely through duly and validly licensed radiologists
employed or engaged by it, read and interpret all diagnostic imaging scans
(including, without limitation, magnetic resonance imaging scans) performed at
the Facilities and Additional Facilities, dictate and review written reports
interpreting such scans and, upon request by IMI, consult with IMI with respect
to such services (the "Services").
(b) ERN hereby acknowledges that this Agreement has been entered into
by IMI solely due to the special degree of skill, training and expertise of Dr.
Steinberg in reading and interpreting magnetic resonance imaging scans and,
therefore, ERN hereby covenants and agrees that, at all times during the Term
hereof, Dr. Steinberg will be employed by it, will devote such amount of his
time as shall be necessary to the performance of ERN's services hereunder, will
supervise and monitor the performance of all other radiologists employed by ERN
and will own at least 51% of the outstanding capital stock of ERN on a fully
diluted basis. In addition, Dr. Steinberg will provide reasonable cooperation
and assistance in connection with IMI's marketing and promotional activities
during the Term of this Agreement. Notwithstanding any provision to this
Agreement to the contrary, IMI acknowledges that Dr. Steinberg has no special
marketing and promotional skills or expertise and IMI shall not have any right
to terminate this Agreement or to institute any action or proceeding against ERN
or Dr. Steinberg for Dr. Steinberg's failure to provide such services. IMI will
provide such of its personnel at each Facility or Additional Facility as shall
be reasonably requested by ERN to assist it in the performance of its services
hereunder (except that such personnel shall not be required to render any
medical services for or on behalf of ERN). Subject to the provisions of
subparagraph (c) hereof, all of the Services rendered by ERN under this
Agreement (other than marketing and promotional services) will be performed at
the Facilities located in Boca Raton and Plantation, Florida.
(c) IMI will provide at the Boca Raton and/or Pine Island MRI
Centers, at its cost, the equipment it deems necessary to enable ERN to review
the diagnostic imaging scans performed at the Facilities and the Additional
Facilities, as soon as practical after the commencement of the Term of this
Agreement. IMI will consult with ERN with respect to such equipment. At such
time as IMI has installed such equipment, ERN will perform its services
hereunder from either of the above Centers in which such equipment is installed.
ERN shall be permitted to use all of such equipment owned or leased by IMI
solely for the performance of ERN's services hereunder. If, at any time during
the Term of this Agreement such equipment is not available or is not able to be
utilized for any reason, ERN will provide the Services contemplated hereunder at
the Facilities located in Boca Raton and Planation, Florida. IMI will repair
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<PAGE>
such equipment or cause such equipment to be repaired, to the extent feasible.
3. Term. The term of this Agreement shall be five (5) years commencing
December 5, 1994 and terminating December 4, 1999 (the "Term"), unless sooner
terminated as hereinafter set forth.
3.1. The Term shall be automatically extended upon the same terms and
conditions set forth herein, unless either party provides the other party with
twelve (12) months written notice of its intention not to renew this Agreement
prior to the expiration of the Term hereof.
3.2. This Agreement may be terminated by IMI prior to the expiration
of the Term hereof only under any of the following circumstances:
(a) The death or disability of Dr. Steinberg, upon five (5)
days notice to ERN. For purposes hereof, "disability" shall mean the physical or
mental inability of Dr. Steinberg to render the services contemplated under this
Agreement for more than ninety (90) consecutive days during any year of the Term
hereof; or
(b) The permanent loss of services of Dr. Steinberg to ERN
for any reason other than as set forth in Paragraph 3.2(a), upon five (5) days
notice to ERN; or
(c) The entry by a court of competent jurisdiction of a
decree or order for relief in respect of ERN in an involuntary case under any
applicable bankruptcy, insolvency, or similar law then in effect or the
appointment of a receiver, liquidator, assignee, custodian, trustee, or
sequestrator of ERN or for any substantial part of its property or an order by
any such court for the wind-up or liquidation of ERN's affairs; or a petition
initiating an involuntary case under any such bankruptcy, insolvency, or similar
law is filed against ERN and is pending for sixty (60) days without a stay or
dismissal; or ERN commences a voluntary case under any such bankruptcy,
insolvency, or similar law then in effect, or makes any general assignment for
the benefit of its creditors or fails generally to pay its debts as such debts
become due or takes corporate action in furtherance of any of the foregoing; or
(d) The breach of any warranty, representation or covenant
of ERN under Paragraphs 2(b), 4.5, 4.7, 4.8, 10 or 11 hereof which is not cured
within thirty (30) days of notice of such breach from IMI; or
(e) The sale of all, or substantially all, of the assets of
IMI (an "Asset Sale") or the sale by IMI to any
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<PAGE>
non-affiliated person(s) or entity(ies) of such number of the issued and
outstanding shares of Common Stock of IMI that, as a result thereof, neither
Consolidated Technology Group Ltd. and any officer, director, stockholder,
employee or agent thereof and any entity owned or controlled by any of the
foregoing persons or entities own, in the aggregate, less than fifty-one (51%)
percent of the issued and outstanding shares of IMI (a "Stock Sale"), upon
twelve (12) months written notice to ERN; or
(f) A conviction of ERN of any felony or other crime
involving moral turpitude.
3.3. This Agreement may be terminated by ERN prior to the expiration
of the Term hereof only upon any of the following circumstances:
(a) The entry by a court of competent jurisdiction of a
decree or order for relief in respect of IMI in an involuntary case under any
applicable bankruptcy, insolvency, or similar law then in effect or the
appointment of a receiver, liquidator, assignee, custodian, trustee, or
sequestrator of IMI or for any substantial part of its property or an order by
any such court for the wind-up or liquidation of IMI's affairs; or a petition
initiating an involuntary case under any such bankruptcy, insolvency, or similar
law is filed against IMI and is pending for sixty (60) days without a stay or
dismissal; or IMI commences a voluntary case under any such bankruptcy,
insolvency, or similar law then in effect, or makes any general assignment for
the benefit of its creditors or fails generally to pay its debts as such debts
become due or takes corporate action in furtherance of any of the foregoing; or
(b) The failure of IMI to pay ERN any of the compensation
due and payable to it under Paragraph 6 hereof or the breach of Paragraphs 1, 8
(to the extent of the requirement to provide accountings) or 9 hereof by IMI
which is not cured within thirty (30) days of written notice of such breach from
ERN; or
(c) The failure of IMI to order the teleradiology equipment
referred to in Paragraph 2(c) hereof by April 30, 1995, upon six months notice
from ERN (such right of termination, together with ERN's right to receive all
sums to which it is entitled under this Agreement, constituting ERN's sole
remedy for any such failure).
4. Representations and Warranties of ERN. In order to induce IMI to enter
into this Agreement, ERN hereby represents and warrants to IMI as follows:
4.1. ERN is a corporation, duly organized, validly existing, and in
good standing under the laws of the
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State of Florida and has all requisite power and authority to own or lease its
properties and carry on its business as now conducted. ERN is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its operations or
assets.
4.2. All action on the part of ERN and its directors and stockholders
necessary for the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, has been
properly taken and obtained in compliance with the terms of ERN's Certificate of
Incorporation, By-Laws and applicable law, and this Agreement constitutes a
valid and legally binding obligation of ERN, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting generally the enforcement of
creditors' rights and by general principles of equity.
4.3. The authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any violation or be in conflict with or constitute, with or without
the passage of time or giving of notice, either a default under any provision of
ERN's Certificate of Incorporation or By-Laws or any instrument, judgment,
order, writ, decree, agreement to which ERN is a party or by which it is bound
or, to its knowledge, of any provision of any federal, state or local law, rule
or regulation, or an event which will result in the creation of any lien, claim,
charge or encumbrance upon its assets.
4.4. There is no action, suit, proceeding, or investigation pending,
or to the knowledge of ERN, currently threatened against ERN, in any way
relating to the validity of this Agreement or the right of ERN to enter into or
to consummate this Agreement and the transactions contemplated hereby.
4.5. Dr. Steinberg is currently the sole stockholder, officer and
director of ERN and is duly and validly licensed to practice radiology in the
State of Florida. Dr. Steinberg will, at all times during the Term of this
Agreement, own not less than fifty-one (51%) percent of the issued and
outstanding shares of capital stock of ERN (on a fully diluted basis). All
radiologists employed or engaged by ERN during the Term of this Agreement will
be duly and validly licensed as radiologists by the State of Florida and, to the
best knowledge of ERN, will be under no restriction or limitation with respect
to the performance of their services on behalf of ERN.
4.6. ERN, and all radiologists employed or engaged by it, will, at
all times during the Term of this
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Agreement, comply with all laws, rules and regulations applicable to its and
their services hereunder.
4.7. ERN will employ a sufficient number of radiologists during the
Term of this Agreement to perform the Services required under this Agreement,
will read and interpret all diagnostic imaging scans which are the subject of
ERN's services hereunder in a timely and competent manner and will establish
adequate procedures for the monitoring and supervision of all of such
radiologists.
4.8. Provided that IMI makes all payments to ERN required under this
Agreement when due (including any applicable cure period), ERN will, at all
times during the Term of this Agreement, maintain the insurance coverages set
forth on Exhibit "A" hereto, all of the insurance policies for which will name
IMI and the owners of the Facilities and Additional Facilities as additional
insureds and will provide for thirty (30) days prior notice of cancellation to
IMI. ERN will provide copies of all of such insurance policies to IMI and will
give IMI ten (10) days prior written notice of any reduction or other
modification of such insurance of which ERN is aware.
5. Representations and Warranties of IMI. In order to induce ERN to enter
into this Agreement, IMI hereby represents and warrants to ERN as follows:
5.1. IMI is a corporation, duly organized, validly existing, and in
good standing under the laws of the State of Delaware and has all requisite
power and authority to own or lease its properties and carry on its business as
now conducted. IMI is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its operations or assets.
5.2. All action on the part of IMI and its directors and stockholders
necessary for the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, has been
properly taken and obtained in compliance with the terms of IMI's Certificate of
Incorporation, By-Laws and applicable law, and this Agreement constitutes a
valid and legally binding obligation of IMI, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting generally the enforcement of
creditors' rights and by general principles of equity.
5.3. The authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any violation or be in conflict with or constitute, with or without
the passage
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of time or giving of notice, either a default under any provision of IMI's
Certificate of Incorporation or By-Laws or any instrument, judgment, order,
writ, decree, agreement to which IMI is a party or by which it is bound or, to
its knowledge, of any provision of any federal, state or local law, rule or
regulation, or an event which will result in the creation of any lien, claim,
charge or encumbrance upon its assets.
5.4. There is no action, suit, proceeding, or investigation pending,
or to the knowledge of IMI, currently threatened against IMI, in any way
relating to the validity of this Agreement or the right of IMI to enter into or
to consummate this Agreement and the transactions contemplated hereby.
6. Compensation.
6.1. IMI will pay ERN a fee for its Services under this Agreement in
an amount equal to the following percentages of the Gross Revenues (hereinafter
defined) of each Facility and Additional Facility in each year during the Term
of this Agreement (the "Service Fee"):
Amount of Gross Revenues Percentage
0 - Current Revenues of 10%
Each Facility (hereinafter defined)
All amounts in excess of 15% Current Revenues of Each Facility
6.2. For purposes hereof, "Gross Revenues" shall mean all actual
gross sums collected by IMI from the rendering of diagnostic imaging scans less
the amount of patient refunds or allowances therefor and without any other
deduction or offset for any other cost, charge or expense. Gross Revenues will
be calculated for each of the Facilities and Additional Facilities individually
and separately in each year during the Term of this Agreement. In addition,
"Current Revenues of Each Facility" shall mean the gross revenues of each of the
Facilities set forth on Exhibit "B" hereto (and for each of the Additional
Facilities, if any, which will be added by IMI to Exhibit "B" at such time as
any such facility becomes covered by this Agreement). In the event of the
expiration of the Term of this Agreement (or any earlier termination thereof),
ERN shall be entitled to receive an amount equal to the applicable percentage of
all accounts receivable resulting from Services rendered by ERN prior thereto
which are collected by IMI after any such expiration or termination less an
amount equal to all payments made to ERN during the period December 5, 1994 to
February 3, 1995, IMI to pay such amounts to ERN within fifteen (15) days after
its receipt of any such accounts receivable.
-7-
<PAGE>
6.3. It is hereby agreed that for any Additional Facility which is
acquired by IMI during the Term of this Agreement, the Current Revenues of Each
Facility therefor shall be determined by the Gross Revenues of any such facility
during the twelve (12) months immediately preceding the consummation of any such
acquisition while Current Revenues of Each Facility for any Additional Facility
which is established as a "start-up" diagnostic imaging facility by IMI during
the Term of this Agreement shall be determined by the Gross Revenues of any such
facility during the twelve months (12) following the first six (6) months of
operations of any such facility.
6.4. The Service Fee shall be payable to ERN within fifteen (15) days
after the end of each month during the Term of this Agreement, the first such
payment to be due and payable on or before February 15, 1995 (ERN hereby
acknowledging that it has received such payments through January 15, 1995).
6.5. In addition to the Service Fee, IMI will pay ERN an annual fee
for reviewing and developing and implementing new applications for the
diagnostic imaging equipment used by the Facilities and Additional Facilities
and the procedures utilized by such facilities in administering the scans
produced by such equipment in the amount of $36,000 (the "Consulting Fee"),
which fee will be paid quarterly, in advance, on the fifteenth (15th) day of
December, March, June and September of each year during the Term of this
Agreement, the first such payment for December 1994 to be due and payable upon
the execution of this Agreement.
6.6. Except for the Service Fee, the Consulting Fee and the common
stock purchase warrant referred to in Paragraph 9 hereof, ERN shall not be
entitled to any other compensation or benefits of any kind whatsoever under or
in connection with this Agreement.
7. Additional Facilities. In the event that IMI acquires another diagnostic
imaging center or establishes a new "start-up" diagnostic imaging center during
the Term of this Agreement, it will provide written notice to ERN prior to the
commencement of the operations thereof, which notice will contain the name and
address of the center, the diagnostic imaging equipment utilized thereat and the
gross revenues collected at such center during the twelve (12) month period
prior to such acquisition (to the extent such information is or becomes
available to IMI). Provided that ERN and its radiologists are or become duly and
validly licensed in any state where any such center is located which requires
such licensing, ERN shall have the right to notify IMI in writing, within
fifteen (15) days of any such notice from IMI, that such center will be covered
by and become subject to the terms of this Agreement and confirming that it and
such radiologists are or will become so licensed. Any
-8-
<PAGE>
such center for which ERN provides such notice shall be referred to in this
Agreement as an "Additional Facility". IMI shall be free to engage any
radiologist(s) selected by it for any such center if ERN does not provide such
notice, as aforesaid.
8. Accounting and Audits. IMI will provide ERN with monthly accountings
setting forth Gross Revenues and Current Revenues of Each Facility, which
accountings will accompany the Service Fee payments under Paragraph 6. ERN shall
have the right, at one time in each year of the Term of this Agreement, to audit
the books and records of IMI pertaining to the information contained in such
accountings, upon reasonable prior notice and during normal business hours at
IMI's principal office in Florida (currently 636 Glades Road, Boca Raton,
Florida). Any such audit shall be conducted at ERN's expense unless it is
determined as a result thereof that the payment made to ERN was more than three
percent (3%) less than the amount which was correctly due and payable to ERN, in
which case IMI will reimburse ERN for the reasonable costs of such audit.
9. Warrants. In the event that IMI consummates a public offering of its
capital stock during the Term of this Agreement, Consolidated Technology Group
Ltd. ("COTG") hereby agrees to issue and deliver to ERN as soon as practical
thereafter, a common stock purchase warrant on COTG's customary form providing
for the purchase by ERN of one hundred thousand (100,000) unregistered shares of
COTG's Common Stock, $.01 par value, for a period of five (5) years at an
exercise price equal to the closing price of the Common Stock of COTG as
reported by the National Association of Securities Dealers Automated Quotation
System (or by any exchange on which such securities may then be listed) on the
day immediately preceding the day of such exercise. The number of such warrants
shall be subject to adjustment for any stock-splits, reorganizations, mergers,
or the like which occur after the date hereof and prior to the issuance of such
warrant. The issuance of such warrant will be subject to an available exemption
therefor under the Securities Act of 1933, as amended, compliance with the
requirements of all applicable state securities or "blue sky" laws and any
restrictions imposed on such warrant, or the exercise thereof, by COTG's
investment banker. ERN will, upon request by COTG prior to the issuance of such
warrant, execute and deliver to COTG, an investment letter, offeree
questionnaire and any other documentation requested by COTG's counsel in
connection therewith.
10. Confidentiality and Non-Disclosure Covenant. ERN (for purposes of this
Paragraph, ERN shall include any radiologist employed or engaged by it) hereby
acknowledges that, during the Term of this Agreement, it may obtain and be
entrusted with unpublished confidential and proprietary information relating to
IMI's present and proposed business and operations, including, without
limitation, financial information relating to
-9-
<PAGE>
IMI's present and proposed business and operations, the cost and pricing of
IMI's services, the sales and marketing plans and strategies of IMI, the
identity of the radiologists and physicians employed by IMI and the terms of
their employment, proposed acquisitions of IMI, the names and addresses of IMI's
accounts, the terms of all material agreements to which IMI is a party, the
names, addresses and other information concerning the patients of the Facilities
and Additional Facilities, physician referral patterns for the Facilities and
Additional Facilities and other business records and information relating to
IMI's business. All of such information that may be obtained by ERN shall, for
purposes hereof, be referred to as "Confidential Information". The term
"Confidential Information" as used herein shall not include any knowledge or
business experience or technology, applications and techniques which Dr.
Steinberg has acquired or developed prior to the date hereof which are not
subject to protection under any confidentiality covenant to which Dr. Steinberg
or any entity owned or controlled by him is bound pursuant to any agreement
between Dr. Steinberg or any entity owned or controlled by him and J. Sternberg
and S. Schulman M.D. Corp. ("MD Corp.") or International Magnetic Imaging, Inc.
or any affiliate thereof. ERN hereby agrees that, unless the Confidential
Information becomes publicly known through legitimate origin not involving any
improper act or omission of ERN, neither it, nor any entity or person owned or
controlled directly or indirectly by it, shall, during the Term of this
Agreement or at any time thereafter, use for its own benefit or for the benefit
of others for any purpose and in any manner whatsoever, divulge to any person,
firm, corporation or other entity or otherwise publish or disclose any
Confidential Information (except as necessary in connection with the performance
of ERN's services under this Agreement). This provision shall survive the
expiration or termination of this Agreement. Notwithstanding the foregoing, ERN
shall not be in breach of this covenant with respect to any use or disclosure of
any Confidential Information by it which is required as a result of any legal
process served upon it in any judicial or administrative proceeding (provided
that IMI shall be given notice in time to enable it to object to such
disclosure).
11. Restrictive Covenant.
11.1. ERN hereby agrees that, during the Term of this Agreement, it
will not, directly or indirectly, on its own behalf or in the service of or on
behalf of others, whether as an officer, director, stockholder, partner,
trustee, principal, employee, consultant, agent, or owner of any capital stock,
partnership interest or other interest in any corporation, partnership or other
entity, or in any other capacity, own an interest in or perform any services
(including, without limitation, patient referrals) for or on behalf of any
diagnostic imaging facility providing magnetic resonance imaging services which
is located within a ten (10) mile radius of any diagnostic
-10-
<PAGE>
imaging facility of IMI (for these purposes to include any parent, subsidiary or
affiliate thereof) (a "Precluded Business Activity"). Without limiting the
generality of the foregoing, ERN hereby agrees that in the event it is
judicially determined that the specified time period or geographical area or
scope of the foregoing restriction is unreasonable, arbitrary, or against public
policy, contrary to law, invalid or unenforceable, the remaining provisions of
this Paragraph shall not be affected thereby and shall remain in full force and
effect and such lesser time period, geographical area, or scope which is
judicially determined to be reasonable, non-arbitrary and not violative of
public policy, not contrary to law, invalid or unenforceable, may be enforced by
IMI against the ERN in accordance with the terms hereof. Notwithstanding the
foregoing, nothing contained in this Paragraph is intended to nor shall preclude
the ownership or performance of services by ERN of (a) not more than five (5%)
percent of the outstanding securities or warrants of any publicly owned
corporation or other entity engaged in a Precluded Business Activity, provided
that such ownership is solely for investment purposes and is not coupled with
any working relationship between ERN and such corporation or entity, or (b) any
diagnostic imaging facility located outside of such ten (10) mile radius, or (c)
any facility which ERN notifies IMI of prior to any notice from IMI that it has
acquired an Additional Facility under Paragraph 7 hereof (the names and
addresses of three of such facilities for which ERN currently renders services
are set forth on Exhibit "C" attached hereto) or is a diagnostic imaging
facility located within such ten (10) mile radius provided that such facility
does not render magnetic resonance imaging services. The foregoing restrictive
covenant shall terminate upon the expiration or termination of this Agreement.
11.2. ERN hereby acknowledges that the restrictions contained in this
Paragraph 11 and in Paragraph 10 are necessary for the protection of IMI's
business and goodwill and are considered by ERN to be reasonable. Accordingly,
ERN hereby acknowledges and agrees that any actual or threatened breach of the
provisions of either of such Paragraphs may cause irreparable harm to IMI and
may not be remediable by an action at law for damages and, therefore, IMI shall
be entitled to seek, as a non-exclusive remedy, in any court of competent
jurisdiction, all equitable remedies therefor, including, without limitation, a
temporary or permanent injunction or specific performance of the provisions
hereof, without the necessity of showing any actual damage or that monetary
damages would not provide an adequate remedy at law or posting a bond therefor.
11.3. In the event of any breach or threatened breach by ERN of the
provisions of this Paragraph 11 or Paragraph 10, IMI shall be entitled to the
payment or reimbursement of its reasonable attorneys fees and disbursements in
connection therewith.
-11-
<PAGE>
11.4. ERN hereby covenants that every radiologist employed or engaged
by it as of the date hereof has or will within thirty (30) days after the
execution of this Agreement by all parties hereto execute an agreement agreeing
to be bound by the provisions of Paragraphs 10 and 11 hereof (the originals of
which are, or will upon execution, be delivered to IMI) and that every
radiologist who is hereafter employed or engaged by ERN during the Term of this
Agreement will, as a condition of such employment or engagement, execute and
deliver to IMI an instrument agreeing to be bound by the provisions of such
Paragraphs, in form and substance satisfactory to IMI. Any breach of such
instrument or agreement by any such radiologist shall constitute a breach of
this Agreement by ERN. Notwithstanding the foregoing, IMI shall only be entitled
to terminate this Agreement under Paragraph 3.2(d) for a breach of either
Paragraph 10 or 11 hereof by Dr. Steinberg.
12. Indemnification. Each of the parties hereto agrees to defend, indemnify
and hold the other and such other party's parents, subsidiaries, affiliates,
officers, directors, stockholders, agents and employees harmless from and
against all claims, causes of action, demands, damages, liabilities, costs or
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) resulting from or based upon a breach of such party's
representations, warranties or covenants under this Agreement.
13. Records. The ownership and right of control of all records and reports
and all documents in support of or relating thereto shall be and remain the sole
property of IMI provided, however, that ERN shall have access to such reports,
records and documentation as is reasonably necessary to enable it to perform its
services under this Agreement. ERN hereby agrees that, upon the termination or
expiration of this Agreement, it will promptly return to IMI all records,
reports and documents relating to IMI's business which are then in ERN's
possession or control.
14. Miscellaneous.
14.1. This Agreement constitutes the sole and entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, between the parties hereto with respect to the subject matter hereof
and may not be changed, modified or waived, except by an instrument in writing
signed by the party to be bound thereby. This Agreement supersedes the Prior
Agreement and all agreements presently in effect, both oral and written, between
Dr. Steinberg, SMI and any affiliate thereof and MD Corp., IMI and any affiliate
thereof and there are no amounts
-12-
<PAGE>
payable to Dr. Steinberg or SMI thereunder as of the date hereof, except for any
bonus or vacation (one week) compensation under the existing agreement between
Dr. Steinberg, SMI and MD Corp. with respect to the period October 1, 1994
through December 4, 1994.
14.2. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida with respect to contracts made and to be
fully performed therein, without regard to the conflicts of laws principles
thereof.
14.3. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
14.4. The parties hereto hereby agree that, at any time and from time
to time during the Term hereof, upon the reasonable request of the other party
hereto, they shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required to more
effectively consummate this Agreement and the transactions contemplated thereby
or to confirm or otherwise effectuate the provisions of this Agreement.
14.5. Except as set forth herein, neither IMI nor ERN shall be
permitted to assign this Agreement, or their rights and obligations hereunder,
without the written consent of the non-assigning party. Notwithstanding the
foregoing, IMI shall have the right, upon written notice to ERN, to assign this
Agreement (i) to any person or entity which is not owned by or under common
control with IMI in connection with an Asset Sale or a Stock Sale, provided such
assignee agrees in writing to assume all of IMI's obligations under this
Agreement, or (ii) to any subsidiary or affiliated corporation or entity
provided that IMI guarantees all of such assignee's obligations under this
Agreement.
14.6. Each of the parties hereto will bear all costs and expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement except that in the event that an
action at law or in equity is brought to enforce or interpret the provisions of
this Agreement, or to prevent a breach thereof, the party prevailing in such
action shall be entitled to an award of its attorneys' fees in such amount as
shall be established by the court presiding therein.
14.7. ERN is acting solely as an independent contractor and not as an
employee under this Agreement and nothing in this Agreement shall be construed
so as to create any different relationship between the parties hereto.
-13-
<PAGE>
14.8. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the parties hereto as follows (or to such other address as either
of the parties hereto shall specify by notice given in accordance with this
provision) or sent by facsimile transmission (with a copy mailed by first class
mail) to the facsimile numbers set forth below (or to such other facsimile
number as either of the parties hereto shall specify by notice given in
accordance with this provision):
(a) If to IMI: IMI Acquisition Corp. 160 Broadway New York, New York 10038 Fax
No. 212-233-5023
Attn: Lewis S. Schiller Chairman of the Board of Directors
with a copy to:
Robert L. Blessey, Esq. 51 Lyon Ridge Road Katonah, New York 10536 Fax No.
914-232-0647
(b) If to ERN:
Expert Radiology Network, P.A. 2581 No. West 59th Street Boca Raton, Florida
33496 Fax No. 407-998-0640
Attn: Dr. Fred L. Steinberg, President
with a copy to:
Lee Sacks, Esq. Sacks & Zweig 100 Wilshire Boulevard Suite 1300 Santa Monica,
California 90401 Fax No. 310-451-0089
All such notices, consents, requests, demands and other communications shall be
deemed given when personally delivered as aforesaid, or, if mailed as aforesaid,
on the third business day
-14-
<PAGE>
after the mailing thereof or on the day actually received, if earlier, except
for a notice sent by facsimile transmission or a notice of a change of address
which shall be effective only upon receipt.
14.9. This Agreement may be executed in one or more counterparts, each
of which will be deemed an original, but all of which, when taken together,
shall constitute one and the same agreement.
14.10. The Paragraph headings used in this Agreement have been used for
convenience of reference only and are not to be considered in construing or
interpreting this Agreement.
14.11. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of this Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
as of the day and year first above written.
ATTEST: IMI ACQUISITION CORP.
____________________ By:______________________________
Secretary Dr. Stephen A. Schulman
Chief Executive Officer
ATTEST: EXPERT RADIOLOGY NETWORK, P.A.
____________________ By:______________________________
Secretary Dr. Fred L. Steinberg
President
AGREED TO SOLELY AS TO PARAGRAPHS 9 AND 14
ATTEST: CONSOLIDATED TECHNOLOGY GROUP LTD.
____________________ By:_______________________________
Secretary Lewis S. Schiller
Chairman of the Board of Directors
-15-
<PAGE>
AGREED TO SOLELY AS TO PARAGRAPHS 10, 11 AND 14
WITNESS:
- -------------------- ---------------------------------
Dr. Fred L. Steinberg
-16-
<PAGE>
EXHIBIT "A"
SCHEDULE OF INSURANCE
[To be provided by George Mahoney]
<PAGE>
EXHIBIT "B"
CURRENT REVENUES OF EACH FACILITY
Net Cash
Entity Collections
Pine Island $3,149,220
North Miami Beach 2,781,537
Boca Raton 4,521,293
South Dade 2,171,206
Oakland Park 1,962,298
Orlando 1,519,608
<PAGE>
EXHIBIT "C"
PRE-EXISTING FACILITIES
1. East Ocean Magnetic Imaging Center 2010 S.E. Ocean Stuart, Florida 34996
2. Jupiter Hospital MRI 1210 S. Old Dixie Highway Jupiter, Florida 33458
3. Pembroke Pines Diagnostic Center 9050 Pines Blvd. Pembroke Pines, Florida
33024
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
EXHIBIT 11.1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Inception
[September 30, 1994]
Nine months ended Year ended to
September 30, December 31, December 31,
------------- ------------ ------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income - Historical $ 2,613,301 $ 1,864,777 $ 2,682,271 $ 449,217
Net Income Effects of Debt
Retirement - Net of Tax
[Primary] 1,505 -- -- 1,347
--------------- -------------- --------------- --------------
Net Income Adjusted for Primary
Calculation 2,614,806 1,864,777 2,682,271 450,564
Net Income Effects of Debt
Retirement - Net of Tax
[Fully Diluted] 107,721 106,009 142,418 41,789
--------------- -------------- --------------- --------------
Net Income Adjusted for Fully
Diluted Calculation $ 2,722,527 $ 1,970,786 $ 2,824,689 $ 492,353
=============== ============== =============== ==============
Primary Shares Outstanding 14,010,000 13,976,550 14,030,175 13,938,500
=============== ============== =============== ==============
Fully Diluted Shares Outstanding 15,760,000 15,688,500 15,706,375 15,688,500
=============== ============== =============== ==============
Earnings Per Share:
Primary - Notes 1 and 3 $ .17 $ .12 $ .19 $ .03
=============== ============== =============== ==============
Fully Diluted - Notes 2 and 3 $ .17 $ .13 $ .18 $ 03
=============== ============== =============== ==============
</TABLE>
Note 1: Computed by dividing net income by the weighted average number of shares
of Common Stock (9,200,000) and Class A Common Stock (1,000,000) treated as a
single class for all periods presented and adjusting such amounts by items (i)
through (vii) below.
(i) Assumes common stock warrants, issued in October 1994, to purchase an
aggregate of 1,000,000 shares of Common Stock were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $5.00 per common share.
(ii) Assumes that 765,500 incentive stock options to purchase Class A Common
Stock, issued in October 1994, were exercised at the beginning of 1994
and that all proceeds were used to purchase treasury stock at $1.00 per
share for the periods ended September 30, 1996 and 1995 and December 31,
1995 and $.50 per share for the period ended December 31, 1994.
(iii) Assumes that 13,000 incentive stock options to purchase Class A Common
Stock, issued in June 1996 were exercised at the beginning of 1994 and
that all proceeds were used to purchase treasury stock at $1.00 per share
for the periods ended September 30, 1996 and 1995 and December 31, 1995
and $.50 per share for the period ended December 31, 1994.
(iv) Assumes common stock warrants, issued in September 1996, to purchase an
aggregate of 500,000 shares of Class A Common Stock were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $1.00 per share for the periods ended September 30, 1996 and
1995 and December 31, 1995 and $.50 per share for the period ended
December 31, 1994.
(v) Assumes that the following convertible preferred shares were converted to
common stock as follows:
Shares of
Preferred Stock Conversion Rate Common Shares
Series B Preferred 5,000 700 3,500,000
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
EXHIBIT 11.1 [CONTINUED]
- --------------------------------------------------------------------------------
Note 1 [Continued]:
(vi) Assumes for the nine months ended September 30, 1996 and the year ended
December 31, 1995, that incentive stock options to purchase 71,500 shares
of Class A Common Stock, which were granted in September 1995, were
exercised on October 1, 1995 and that all proceeds were used to purchase
treasury stock at $1.00 per share.
(vii) The exercise price of common stock warrants to purchase an aggregate of
1,750,000 shares of Class A common stock exceeded the average market
price during the periods presented, thus such warrants were anti-dilutive
and were excluded from primary earnings per share.
Note 2: Computed by dividing net income by the weighted average number of shares
of Common Stock (9,200,000) and Class A Common Stock (1,000,000) treated as a
single class for all periods presented and adjusting such amounts by items (i)
through (vii) below.
(i) Assumes common stock warrants, issued in October 1994, to purchase an
aggregate of 1,000,000 shares of Common Stock were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $5.00 per common share.
(ii) Assumes common stock warrants, issued in October 1994, to purchase an
aggregate of 1,750,000 shares of Class A Common Stock were exercised at
the beginning of 1994 and that all proceeds were used to purchase
treasury stock at $1.00 per share for the periods ended September 30,
1996 and 1995 and December 31, 1995 and $.50 per share for the period
ended December 31, 1994.
(iii) Assumes that 765,500 incentive stock options to purchase Class A Common
Stock, issued in October 1994, were exercised at the beginning of 1994
and that all proceeds were used to purchase treasury stock at $1.00 per
share for the periods ended September 30, 1996 and 1995 and December 31,
1995 and $.50 per share for the period ended December 31, 1994.
(iv) Assumes that 13,000 incentive stock options to purchase Class A Common
Stock, issued in June 1996 were exercised at the beginning of 1994 and
that all proceeds were used to purchase treasury stock at $1.00 per share
for the periods ended September 30, 1996 and 1995 and December 31, 1995
and $.50 per share for the period ended December 31, 1994.
(v) Assumes common stock warrants, issued in September 1996, to purchase an
aggregate of 500,000 shares of Class A Common Stock were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $1.00 per share for the periods ended September 30, 1996 and
1995 and December 31, 1995 and $.50 per share for the period ended
December 31, 1994.
(vi) Assumes that the following convertible preferred shares were converted to
common stock as follows:
Shares of
Preferred Stock Conversion Rate Common Shares
Series B Preferred 5,000 700 3,500,000
(vii) Assumes for the nine months ended September 30, 1996 and the year ended
December 31, 1995, that incentive stock options to purchase 71,500 shares
of Class A Common Stock, which were granted in September 1995, were
exercised on October 1, 1995 and that all proceeds were used to purchase
treasury stock at $1.00 per share.
Note 3: Computed by using the modified treasury stock method. The repurchase
price for common stock and Class A common stock represents the average market
price for each period presented determined as follows:
Common Stock - $5.00 per share for all periods
Class A Common Stock - $1.00 per share for the periods ended
September 30, 1996 and 1995, and December 31, 1995. -
$.50 per share for the period ended December 31, 1994.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMBINED BALANCE SHEET AND THE COMBINED STATEMENT OF OPERATIONS FILED
AS PART OF THE REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,746,251
<SECURITIES> 0
<RECEIVABLES> 14,552,694
<ALLOWANCES> 2,268,209
<INVENTORY> 0
<CURRENT-ASSETS> 14,209,761
<PP&E> 33,502,200
<DEPRECIATION> 20,853,985
<TOTAL-ASSETS> 45,065,575
<CURRENT-LIABILITIES> 10,008,868
<BONDS> 0
<COMMON> 102,000
0
100
<OTHER-SE> 6,335,592
<TOTAL-LIABILITY-AND-EQUITY> 45,065,575
<SALES> 0
<TOTAL-REVENUES> 23,775,899
<CGS> 0
<TOTAL-COSTS> 18,108,244
<OTHER-EXPENSES> 953
<LOSS-PROVISION> 1,127,500
<INTEREST-EXPENSE> 2,107,693
<INCOME-PRETAX> 2,910,520
<INCOME-TAX> 297,219
<INCOME-CONTINUING> 2,613,301
<DISCONTINUED> 0
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