As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 333-15589
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2
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>
Units, each Unit consisting of two shares of Common
Stock, par value $.01 per share, and two Series A
Redeemable Common Stock Purchase Warrants(2) 690,000 Units $7.00 $4,830,000.00 $1,665.52
Common Stock, par value $.01 per share(3),(4) 1,380,000 Shs. 4.00 5,520,000.00 1,903.45
Underwriter's Options(5) 60,000 Optns. .0001 6.00 .01
Units, each Unit consisting of two shares of Common
Stock, par value $.01 per share, and two Series A
Redeemable Common Stock Purchase Warrants(4),(6) 60,000 Units 11.55 693,000.00 238.97
Common Stock, par value $.01 per share(4),(7) 120,000 Shs. 4.00 480,000.00 165.52
Series B Common Stock Purchase Warrants(8) 1,000,000 Wts. 1.50 1,500,000.00 517.24
Common Stock, par value $.01 per share(4),(9) 1,000,000 Shs. 2.00 2,000,000.00 698.66
--------
Total ............. $5,189.37
=========
====================================================================================================================================
(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 90,000 Units issuable upon exercise of the Underwriter's
over-allotment option.
(3) Represents shares of Common Stock issuable upon exercise of the Series
A Redeemable Common Stock purchase Warrants (the "Warrants") included
in the Units.
(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 60,000 Units.
(6) Represents Units issuable upon exercise of the Underwriter's Options.
(7) Represents shares of Common Stock issuable upon exercise of the
Warrants issuable pursuant to the Underwriter's Options.
(8) Represents Series B Common Stock Purchase Warrants ("Series B
Warrants") to be sold by the Selling Security Holder. See "Selling
Security Holder."
(9) 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 Registration Statement Facing Page,
Statement and Outside Front Prospectus Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Cover Page, Back Cover Page
Cover Pages of Prospectus
3. Summary Information, Risk Factors Prospectus Summary, Risk Factors
and 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 N.A.
Counsel
11. Information with Respect to the (a)-(c) Prospectus Summary, Business
Registrant (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 Position N.A.
on Indemnification for Securities
Act Liabilities
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes two Prospectus, one for the
primary offering of securities by the Company and one for the sale of securities
by a Selling Security Holder. Except for the cover page, page 2 and the back
cover, both Prospectuses are identical. The cover page, page 2 and the back
cover page for the Prospectus relating to the offering by the Selling Security
Holder are included in this Registration Statement following the Prospectus for
the primary offering.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED APRIL 29, 1997
600,000 Units
International Magnetic Imaging, Inc.
Each Unit consists of two shares of Common Stock, par value $.01 per share
and two Series A Redeemable Common Stock Purchase Warrants
------------
International Magnetic Imaging, Inc. (the "Company") is offering
600,000 Units (the "Units"), each Unit consisting of two shares of Common Stock
("Common Stock") and two Series A Redeemable Common Stock Purchase Warrants (the
"Warrants"). The shares of Common Stock and Warrants comprising the Units are
separately transferrable immediately upon issuance. Each Warrant entitles the
holder to purchase one share of Common Stock at $4.00 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 $12.00, subject to adjustment, for a period of 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
Company's securities. The initial public offering price and composition of the
Units 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. The Company and the Underwriter
anticipate that the Units, Common Stock and Warrants will be traded on the NASD
OTC Electronic Bulletin Board under the symbols , and , respectively. However,
there can be no assurance that an active trading market in the Units, Common
Stock or Warrants will develop or be sustained.
This Prospectus is a part of a registration statement which also
relates to the sale by SIS Capital Corp. ("SISC") of Series B Common Stock
Purchase Warrants (the "Series B Warrants") to purchase 1,000,000 shares of
Common Stock and the shares of Common Stock issuable upon exercise of such
Series B Warrants. See "Selling Security Holder." The sale of such securities is
not part of the underwritten public offering. The number of shares of Common
Stock issuable upon exercise of the Series B Warrants represents 83.3% of the
number of shares of Common Stock included in the Units offered pursuant to this
Prospectus and the sale to the public of such shares could significantly
increase the number of shares in the public float. The issuance and sale of such
shares of Common Stock may have a material adverse effect upon both the market
for and the price of the Units, Common Stock and Warrants. See "Risk Factors --
Potential adverse effect of sale by Selling Security Holder."
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.
1. 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 Unit . . . . . . $7.00 $.70 $6.30
- --------------------------------------------------------------------------------
Total (3). . . . . . $4,200,000 $420,000 $3,780,000
================================================================================
(footnotes on page 2)
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 $126,000 ($144,900 if the
Underwriter's over-allotment option is exercised in full), (b) options
(the "Underwriter's Options") to purchase 60,000 Units at an exercise
price equal to 165% of the initial public offering price, and (c) a
two-year consulting agreement pursuant to which the Company will pay
the Underwriter a fee of $71,785 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 $800,000 ($1.33 per Unit) which are payable by the
Company and relate to the Offering by the Company. Expenses relating to
the sale of securities by the Selling Security Holder, estimated at
$5,000, are being paid by the 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 90,000 Units on the same terms and conditions as the Units
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 $4,830,000, $483,000 and $4,347,000, respectively. See
"Underwriting."
SISC, the Company's principal stockholder, presently owns all of the
Company's Common Stock, which is the only class of voting stock. After
completion of this Offering, SISC will own 89.5% of the Common 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 (the "Exchange Act"), 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 Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
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.
The Units 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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
COMMON STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE ELECTRONIC BULLETIN
BOARD OR [OTHER EXCHANGES]. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITER. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF
THE UNITS, COMMON STOCK AND/OR WARRANTS 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 UNITS, COMMON STOCK AND/OR
WARRANTS, AND, IF THE UNDERWRITER PARTICIPATES IN SUCH MARKET, IT MAY BE A
DOMINATING INFLUENCE IN THE TRADING OF SUCH SECURITIES. THE PRICES AND THE
LIQUIDITY OF SUCH 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 and the cancellation of the Series B Convertible Redeemable Preferred
Stock as of December 31, 1996.
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 not engaged in the practice of medicine and does not
employ any physicians to provide medical services. The Company's bills include
fees for the technical services provided by it and the professional services
rendered by the radiologists. The radiologists, who are independent contractors
engaged by the Company, are compensated by the Company pursuant to agreements
with the radiologists. See "Business -- Agreements with Radiologists."
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 owned and 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 capital 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 March 31, 1997, 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 outstanding on a combined basis. The Class A Common Stock
is non-voting stock. At December 31, 1996, the Company owed SISC approximately
$1.4 million. See "Certain Transactions," "Principal Stockholders" and "Selling
Security
- 3 -
<PAGE>
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.
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 and Trans Global. Mr.
E. Gerald Kay, a director of the Company, is also a director of Trans Global.
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 December 31, 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 $2.3 million at December 31, 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. 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. At
December 31, 1996, all of the shares of Series B Preferred Stock were canceled.
THE OFFERING
Securities Offered by the Company: 600,000 Units at $7.00 per Unit. Each
Unit consists of two shares of Common
Stock and two Series A Redeemable Common
Stock Purchase Warrants (the "Warrants").
The shares of Common Stock and Warrants
comprising the Units are separately
transferrable immediately upon issuance.
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
- 4 -
<PAGE>
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 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 Electronic Bulletin Board 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 $4.00
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 $12.00 per
share, subject to adjustment, for a
period of ten consecutive trading days
ending not earlier than three days prior
to the date the Warrants are called for
redemption. The consent of the
Underwriter cannot be granted with
respect to a redemption prior to the date
the Warrants may be exercised.
Use of Proceeds: The net proceeds of this Offering will be
used for working capital and other
corporate purposes. See "Use of
Proceeds."
Risk Factors: Purchase of the Units 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."
Proposed Electronic Bulletin Board 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):
10,400,000 shares of Common Stock(1
1,200,000 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 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
- 5 -
<PAGE>
is non-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 1,200,000 shares of Common Stock and
1,200,000 Warrants included in the 600,000 Units offered hereby.
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
INTERNATIONAL MAGNETIC IMAGING, INC.
Statement of Operations Data:
<TABLE>
<CAPTION>
Years Ended December 31,
September 30, 1994
(Inception)1 to
1996 1995 December 31, 1994
---- ---- -----------------
<S> <C> <C> <C>
Revenue $31,110 $28,044 $6,557
Operating income before other income and taxes 4,425 5,367 1,036
Income before income taxes 1,958 2,891 473
Net income 1,041 1,761 1,775
Net income per share of Common Stock:(2)
Primary .09 .13 .12
Fully diluted .08 .13 .12
Weighted average number of shares of Common
Stock outstanding:(2),(3)
Primary 14,960 15,257 15,185
Fully diluted 14,960 15,257 15,185
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31 1996
-----------------------------------
As Adjusted(4) Actual December 31, 1995
-------------- --------- -----------------
<S> <C> <C> <C>
Working capital (deficiency) $ 955 $(3,271) $(8,131)
Total assets 47,632 44,638 42,016
Long-term debt 21,159 21,159 15,728
Total liabilities 37,484 38,408 36,964
Accumulated earnings 4,578 4,578 3,536
Redeemable Preferred Stock 624 -- --
Stockholders' equity(2),(5) 9,532 6,230 5,052
Net tangible book value (deficiency) per share
of Common Stock(2),(7) (.98) (1.42) (1.72)
</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.
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<PAGE>
(3) All shares of Common Stock and Class A Common Stock issued prior to the
date of this Prospectus are treated as outstanding since inception.
(4) As adjusted to reflect (a) the receipt by the Company of the net
proceeds from the sale of the 600,000 Units offered hereby and (b) the
issuance of shares of Series C Redeemable Preferred Stock ("Series C
Preferred Stock") upon exchange of certain Subordinated Notes for
shares of Series C Preferred Stock. See "Capitalization."
(5) Stockholders' equity includes the liquidation preferences relating to
the Series A Preferred Stock of $4,984 at December 31, 1996. See
"Description of Securities -- Series A Preferred Stock".
(6) 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 divided by the number of outstanding shares of Common Stock and
Class A Common Stock.
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR]1
Statement of Operations Data:
Year Ended December 31,
Nine Months Ended -----------------------
September 30, 1994
------------------ 1993 1992
---- ----
Revenue $21,162 $26,572 $26,718
Pro forma net income(2) 2,208 2,109
Balance Sheet Data:
September 30, 1994 December 31, 1993 December 31, 1992
------------------ ----------------- -----------------
Working capital $ 5,002 $ 2,948 $ 2,773
Total assets 22,080 24,585 27,966
Long-term debt 5,823 5,835 8,514
Total liabilities 10,970 13,495 16,963
Accumulated earnings 6,052 6,032 7,145
Stockholders' equity 11,109 11,090 11,030
(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.
(2) 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 periods.
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. Recent losses. 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 generated net income of $1.0
million for the year ended December 31, 1996, five of its Centers operated at a
loss for the year, and, for the fourth quarter of 1996, the Company incurred a
loss of approximately $1.6 million. The fourth quarter loss resulted from (i)
the establishment in the fourth quarter of a reserve for accounts receivable in
the amount of approximately $1.2 million, as compared with an average reserve of
approximately $375,000 per quarter for the first three quarters of the year as a
result of (a) the deterioration of accounts receivable from liability-related
claims (i.e., services performed for persons who were making a liability-related
claim against a third party), most of which were generated prior to the
Company's acquisition of the Centers in September 1994 and (b) write-offs of
accounts receivable from scan brokers who went out of business, (ii) a reduced
volume in two of the Company's Florida Centers resulting from the change in
Florida law, effective October 1, 1996, which prohibited the use of scan
brokers, (iii) a decrease in procedures performed at the Company's Puerto Rico
Center for workers' compensation claimants resulting from the failure of
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<PAGE>
the Company to offer upgraded equipment necessary to meet competitive
conditions, and (iv) a decrease in referrals from the former partners of one of
the Company's Florida Centers following payment in September 1996 of the balance
of the notes due to such persons from the sale of such Center to the Company in
September 1994. See "Risk Factors -- 3. Reliance and restrictions on patient
referrals," "Risk Factors -- 5. Substantial recent write-off of accounts
receivable," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." No assurance can be given that the factors that
affected the Company in the fourth quarter or the factors that resulted in
losses in five Centers will not affect the Company on a continuing basis.
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, 1996, 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 carryforward 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,
1995 and 1994 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 the Company believes that 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 and its ability to meet the
scheduled debt service payments pursuant to the Company's loan agreements with
DVI. 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 and risk of default. At December 31,
1996, the Company had a working capital deficiency of $3.3 million, as compared
with a working capital deficiency of $8.1 million at December 31, 1995. After
giving effect to the receipt of the net proceeds from this Offering and the
exchange of certain Subordinated Notes for shares of Series C Preferred Stock,
the Company would have working capital of approximately $955,000. The reduction
in the working capital deficiency at December 31, 1996 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 December 31, 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. Of this amount,
approximately $924,000 is due to Dr. Schulman and his wife and the balance of
$6.2 million is due to the other two former stockholder-directors of
IMI-Florida, the wife of one of such persons and 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 and 1997, as
result of which the holders have the right to declare a default. As of the date
of this Prospectus, no default has been declared, but no assurance can be given
that some or all of the holders of such Subordinated Notes will not declare a
default. As a result of the failure of the Company to make the scheduled
payments, approximately $6.8 million of such debt is treated as current
liabilities at December 31, 1996. Any payment by the Company on such
Subordinated Notes may result in a default under certain of the Company's loan
agreements with DVI. In March 1997, the Company entered into an agreement with
Dr. Schulman and his wife (the "Schulman Agreement") pursuant to which,
contemporaneously with the closing of this Offering, they will exchange
Subordinated Notes held by them in the aggregate principal amount of $924,000,
less the $300,000 principal amount of notes due from Dr. Schulman to the
Company, for shares of Series C Preferred Stock. See "Certain Transactions --
Schulman Agreement."
(b) High leverage. The Company's business is highly leveraged.
At December 31, 1996, the Company's debt and capital lease obligations were
$32.5 million, of which $18.5 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
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<PAGE>
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. Furthermore, the inability
of the Company to use Consolidated's tax loss and tax loss carryforwards to
offset its Federal income tax obligations could likewise adversely affect the
Company's ability to make the required debt service payments to DVI. Any default
under the DVI loan agreements could severely impair the Company's ability to
continue in business, and, in the event that DVI declared such a default and
sought to foreclose on its security interests in the Company's assets, could
result in a cessation of operations by the Company or a petition to seek
protection under the Federal Bankruptcy Act. See "Agreements with DVI."
Subordinated Notes in the aggregate principal amount of $700,000 payable to the
former owners of the entities which operated the Kansas City and San Juan
Centers are due in September 1997. The Company is conducting preliminary
discussions with DVI with respect to a loan from DVI for the purpose of paying
such Subordinated Notes. No assurance can be given that the Company will be able
to obtain such financing from DVI or other lenders, in which event a portion of
the proceeds of this Offering may be used for such purposes.
(c) Recent expansion of facilities. The Company has recently
expanded three of its MRI Centers to multi-modality Centers and may expand or
upgrade equipment at other Centers. To date the Company has financed such
expansion principally through equipment financing and any such expansion may be
dependent upon obtaining such financing. Furthermore, the three Centers which
were upgraded during 1996 have not generated sufficient additional revenue or
income from operations to cover the additional financing costs. Furthermore, the
failure of the Company to upgrade its equipment to remain competitive may have a
material and adverse effect upon its business. During the fourth quarter of
1996, the failure of the Company to have competitive equipment materially and
adversely affected the operations of the San Juan Center. Although the equipment
was upgraded in the first quarter of 1997, no assurance can be given that the
San Juan Center will be able to increase its revenues in an amount sufficient to
cover the additional financing costs associated with such upgrade or operate
profitably. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(d) 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 such twelve month period, and no assurance can
be given that the Company will not require additional funds prior to twelve
months after the completion of this Offering, and no assurance can be given as
to the availability or terms of any such financing. To the extent that the
Company seeks to upgrade its equipment or offer additional modalities, it will
require additional financing for such purpose, although, if such funds are not
available, the Company may utilize a portion of the proceeds of this Offering,
which are allocated to working capital and other corporate purposes, for such
purpose. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
4. 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, and, following the payments of the
Subordinated Notes held by the former partner-physicians of one of the Company's
Florida Centers in September 1996, the referrals from such physicians declined
dramatically, which resulted in a net loss for such Center. The percentage of
revenue derived from referrals from such doctors was 24% for 1996 and 1995 and
38% for 1994.
(b) Recent prohibition on 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 9% of the Company's revenue for 1996 and 9% for 1995. However, during the
nine months ended September 30, 1996, 11% of the Company's revenue was derived
from brokered scans. The prohibition of the use of brokered scans at two of the
Company's Centers was a significant cause of the Company's loss in the fourth
quarter of 1996. Although the Company intends to market its services directly to
physicians and health maintenance organizations, there is no assurance that the
Company can or will be able to generate additional scan volume to offset the
loss of business from scan brokers.
The Florida anti-brokering statute has an exemption from the
prohibitions of the law for a so-called "health care network." It is not clear,
because of the absence of judicial or regulatory guidance, whether the
operations of the Company's
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<PAGE>
subsidiary, MRI-Net, Inc. ("MRI-Net"), are included within the health care
network exception to the 1996 Florida anti-brokering law. Although the Company
believes that MRI-Net is a health-care network entity and that its operations
comply with such law, no assurance can be given that 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 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 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."
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<PAGE>
5. Substantial recent write-off of accounts receivable. During the
fourth quarter of 1996, the Company's accounts receivable write-offs were $1.2
million, as compared with average write-offs of $375,000 per quarter for the
first three quarters of the year. The increase in write-offs reflects the
deterioration of accounts receivable from liability-related claims. At December
31, 1996, December 31, 1995 and December 31, 1994, the Company's accounts
receivable collection 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 1996, 1995 and 1994 more than 95% 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 was 26.2 months, 41.9
months and 30.9 months, respectively. Thus, the accounts receivable generated by
liability-related services accounted for 35%, 37% and 48% of accounts
receivables at December 31, 1996, 1995 and 1994, respectively.
6. 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 years
ended December 31, 1996 and 1995, the Company derived approximately 86% and 91%,
respectively, of its revenue from non-government payors and approximately 14%
and 9%, respectively, 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. To the extent that the Company is dependent upon third-party
payors, it will be affected by both reductions in payments and cost containment
and similar policies adopted by such payors. Accordingly, 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 reimbursement rates 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
government 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 will 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 rates for healthcare services could have a material
adverse effect on the Company, unless the Company is otherwise able to offset
any 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 $695 for 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 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 operating at full
capacity during a portion of 1996 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 in 1993, 1994 and 1995 and $81 in 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) Capitation contracts. Capitation contracts typically
provide for payment to a health-care provider of a fixed fee per month on a per
member basis, without regard to the amount or scope of services rendered.
Because the obligations to perform services are not related to the payments, it
is possible that either the cost or the value of the services performed may
significantly exceed the fees received, and there may be a significant period
between the time the services are rendered and payment is received. Because the
risk of loss is borne by the health care provider and not the insurer, it is
possible that the health care provider may sustain a significant loss on the
performance of services pursuant to a capitation contract. The Company has
engaged in negotiations with respect to capitation contracts; however, it has
not entered into any such contracts. Although the Company does not intend to
enter into capitation contracts unless it obtains insurance to cover it against
a loss in the performance of such services, no assurance can be given that any
capitation contracts which it may enter into in the future will not generate
significant losses to the Company.
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<PAGE>
(d) 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."
7. 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 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 not be found to be in violation
of 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."
8. Potential effect of weather conditions on business. During 1996, the
business of the Company's San Juan Center was adversely affected during the
period when San Juan was struck by and recovering from the effects of Hurricane
Hortense. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The effects of hurricanes or other severe weather
conditions include destruction of property, loss of power and a general decline
of business during the period that the area is struck by and recovering from
such weather conditions. Although some of the Company's losses may be covered by
insurance, the San Juan Center suffered a reduction in revenues that was not
covered by insurance. Seven of the Company's Centers are located in areas which
are frequently subject to hurricanes and other severe weather conditions and no
assurance can be given that any or all of these Centers will not be adversely
affected by hurricanes or other adverse weather conditions.
9. 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."
10. 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. The Company
or its subsidiaries are defendants in legal actions
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<PAGE>
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.
11. 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. 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. In Puerto Rico, two competitors recently received a CONs for
MRI facilities and, as of the date of this Prospectus, the Company has been
notified of two CON applications filed with the Department of Health of Puerto
Rico. Therefore, no assurance can be given that the Company's business in Puerto
Rico will not be adversely affected from the issuance of such CONs. See
"Business -- Competition."
12. 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."
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13. Conflict of interest; offering to benefit affiliates.
(a) Obligations to and agreement with principal stockholder.
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 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 December 31, 1996, the Company owed
SISC approximately $1.4 million with respect to such indebtedness.
The Company has entered into 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 present lenders. 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. The services covered by the Trinity agreement are general management
services. See "Certain Transactions."
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 currently 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.
(b) Loans to Dr. Schulman pursuant to his employment
agreement. 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 substantially all of his business time and attention to the business of
the Company, pursuant to an amended employment agreement dated March 31, 1997
(the "Amended Schulman Employment Agreement"), which will become effective upon
completion of this Offering and the Company obtaining the consent of DVI, 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, and to any future
purchaser of such centers. See "Risk Factors -- 14. Dependence on key personnel;
employment agreements," "Management -- Remuneration" and "Certain Transactions."
(c) Potential default on notes due to Dr. Schulman and the
other former stockholder-directors of IMI-Florida. 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 December 31, 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 declared, 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."
(d) Schulman Agreement; creation of additional series of
Preferred Stock. In March 1997, the Company entered into the Schulman Agreement
with Dr. Schulman and his wife pursuant to which, they agreed to reduce the
$924,000 outstanding principal amount of the Subordinated Notes payable to them
by the $300,000 principal amount of the loan from the Company to Dr. Schulman
and exchange such Subordinated Notes for shares of a newly created series of
preferred stock, the Series C Preferred Stock, having an annual non-cumulative
dividend of $75,000 and a redemption price of approximately $624,000. In
connection with such exchange, accrued interest on the $300,000 loan to Dr.
Schulman will be waived. See "Certain Transactions -- Schulman Agreement."
(e) Potential change in terms of Schulman Agreement. The
Schulman Agreement provides that if the other two former stockholder-directors
of IMI-Florida receive more favorable treatment with respect to their
Subordinated Notes than
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is provided to Dr. Schulman pursuant to the Schulman Agreement, the Schulmans
will be entitled to receive such more favorable terms with respect to their
Subordinated Notes, even if such terms are negotiated subsequent to the
completion of this Offering. No assurance can be given that the other two former
stockholder-directors of IMI-Florida will not exchange their Subordinated Notes
on terms that are significantly different from, or more favorable to them than,
the terms of the Schulman Agreement as described in this Prospectus. See
"Certain Transactions -- Schulman Agreement."
(f) Guarantees by Dr. Schulman and former
stockholder-directors of IMI-Florida of certain obligations; indemnification by
the Company. 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 December 31,
1996 on such obligations was $1.3 million, and, at December 31, 1996, the
balance remaining on such obligations was approximately $1.2 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 $396,000 for 1996 and incurred negative cash flow
from such Center of approximately $303,000 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.
(g) Relationship of outside directors with Consolidated and
its affiliates. Mr. Norman J. Hoskin, a director of the Company, is also a
director of Consolidated, Netsmart and Trans Global. Mr. E. Gerald Kay, a
director of the Company, is also a director of Trans Global.
14. Broad discretion as to use of proceeds; potential unspecified
acquisitions. The net proceeds of this Offering are allocated to working
capital. Accordingly, management will have broad discretion with respect to the
expenditure of a substantial portion of the net proceeds of this Offering.
Purchasers of the Units 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."
15. Dependence on key personnel; employment agreements.
(a) Employment agreement with Dr. Schulman. 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 is $500,000 for the contract
year ended September 30, 1997. The Amended Schulman Employment Agreement, among
other provisions, (a) extends the term of his employment until December 31,
2002, (b) provides for an annual base salary of $395,000, commencing on the
closing of this Offering, subject to an annual 3% increase commencing January 1,
1998, (c) permits Dr. Schulman to perform consulting services for two MRI
Centers which are located in Chicago, Illinois and are owned by his wife,
including any future purchaser of such centers, and (d) permits Dr. Schulman to
terminate the agreement at any time, without cause, on six months notice.
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<PAGE>
(b) Employment agreement with Mr. Mahoney. 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, 2007 or such later date as Mr. Mahoney may be required to be
employed by the Company pursuant to the Company's agreements with DVI. Pursuant
to such agreement Mr. Mahoney receives an annual salary of $189,000 for the
contract year ended December 31, 1997 which increases annually thereafter until
2007, for which his base salary is $353,000. The agreement also provides for two
bonuses to Mr. Mahoney. One bonus is equal to the greater of 2 1/2% of
Consolidated's net pre-tax profits or 2 1/2% of Consolidated's net cash flow,
and the other is equal to the greater of 2 1/2% of the Company's net pre-tax
profits or 2 1/2% 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."
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.
(c) 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.
16. 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.
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17. Continued voting control by SISC. SISC, the Company's principal
stockholder, presently owns all of the Company's Common Stock, which is the only
class of voting stock. After completion of this Offering, SISC will own 88.5% of
the Common Stock and 80.7% of the Common Stock and Class A Common Stock in the
aggregate, 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 take any
action required to be taken by stockholders without participation by any other
stockholders. See "Principal Stockholders."
18. 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."
19. 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."
20. 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.
21. 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 seventh 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 Units, the subsequent development of a
trading market, if any, or the market for and liquidity of the Company's
securities. Accordingly, purchasers of the Units offered hereby may suffer a
lack of liquidity in their investment or a material diminution of the value of
their investment.
22. No public market. Prior to this Offering, there has been no public
trading market for the Units, Common Stock or Warrants. Although the Underwriter
intends to apply to have the Units, Common Stock and Warrants included in the
NASD OTC Electronic Bulletin Board, 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.
23. Potential adverse effect of sale by Selling Security Holder. This
Prospectus is a part of a registration statement which also relates to the sale
by SISC of Series B Warrants to purchase 1,000,000 shares of Common Stock and
the shares of Common Stock issuable upon exercise of such 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,
which consent may be granted at any time after the over-allotment option has
been exercised or expires. The sale of such securities is not part of the
underwritten public offering. The number of shares of Common Stock issuable upon
exercise of the Series B Warrants represents 83.3% of the number of shares of
Common Stock offered pursuant to this Prospectus, and the issuance and sale of
such shares could significantly increase the number of shares in the public
float and may have a material
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adverse effect upon both the market for and the price of the Common Stock and
Warrants offered by this Prospectus. See "Selling Security Holder."
24. Arbitrary offering price and terms. The price and composition of
the Units and the exercise price and other terms of the Warrants included in the
Units 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.
25. Proposed trading on the Electronic Bulletin Board and market
illiquidity. The Underwriter has advised the Company that it proposes to have
the Units, Common Stock and Warrants trade on the NASD OTC Electronic Bulletin
Board." Because the Company's securities are not included in The Nasdaq Stock
Market, the liquidity of the Units, Common Stock and Warrants could be impaired,
not only in the number of such 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 such securities than might otherwise be attained.
A significant number of the Units may be sold to customers of
the Underwriter. Such customers may subsequently engage in the sale or purchase
of the Units, Common Stock or Warrants 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 such securities, and, if it participates in
such market, may be a dominating influence in the trading of such securities.
The prices and the liquidity of such securities may be significantly affected by
the degree, if any, of the participation of the Underwriter in such market,
should a market develop.
26. Risks of low-priced stocks; penny stock regulations. Because the
Units, Common Stock and Warrants are not listed on The Nasdaq SmallCap Market,
they may become subject to Rule 15g-9 under the Exchange 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 Units, Common Stock and Warrants and may affect the ability of
purchasers in this Offering to sell any of such securities acquired either
pursuant to this Prospectus or 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 Exchange Act provides for an exception to the penny stock rules
for securities if the issuer has average revenue of at least $6,000,000 for
three years. Since the Company meets this test, the Company believes that its
securities will not be subject to the penny stock rules. However, there can be
no assurance that the Company will continue to qualify for exemption from these
restrictions. If the Units, Common Stock or Warrants become subject to the rules
on penny stocks, the market liquidity for such securities could be severely
adversely affected.
27. 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 $12.00 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."
28. 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
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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."
29. 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
holders of the Series A Preferred Stock are, and the holders of the Series C
Preferred Stock will be, entitled to annual non-cumulative dividends in the
aggregate amounts of $50,000 and $75,000, respectively, 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. No assurance can be given that the
Company will not create additional series of Preferred Stock which may have
mandatory or non-cumulative dividend rights. See "Description of Securities."
30. Dilution of 128% 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 $(.99). A purchaser of Common Stock in this Offering will
experience immediate dilution or $4.48, or 128% of the initial public offering
price of the Common Stock issued pursuant to this Prospectus. See "Dilution."
31. 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 1,000,000 shares of Common Stock issuable upon
conversion of the Class A Common Stock, if and when such shares are converted,
will be deemed acquired at the time of the acquisition of the Class A Common
Stock. 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 Units, Common Stock and
Warrants and may adversely affect the Company's ability to raise capital.
32. 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, 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.
- 19 -
<PAGE>
33. 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.
DILUTION
The net tangible book value of the Company's Common Stock at December
31, 1996 was approximately $(1.42) per share. All share and per share
information included in this Prospectus has been restated to reflect (a) 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 and (b) the cancellation at December
31, 1996 of the 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 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 December 31, 1996, other than as a
result of the sale of the 1,200,000 shares of Common Stock included in the
600,000 Units offered hereby at an initial public offering price of $3.50 per
share, after deducting estimated fees and other estimated expenses of the
Offering, and the exchange of certain Subordinated Notes for shares of Series C
Preferred Stock pursuant to the Schulman Agreement, the Company's net tangible
book value as of December 31, 1996 would have been approximately $(.98) per
share. This amount represents an immediate increase in net tangible book value
per share of approximately $.44 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
$4.49, or 128% of the initial public offering price, to the purchasers of the
Common Stock.
The following table illustrates the dilution of one share of Common
Stock as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share of Common Stock $ 3.50
Net tangible book value per share at December 31, 1996 $(1.42)
Increase per share attributable to sale of the Securities offered hereby .44
-----
Pro forma net tangible book value per share after Offering (.98)
-------
Dilution to public investors $(4.48)*
=======
</TABLE>
- -----------
* If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $(.92) per share of Common
Stock, resulting in an increase in the net tangible book value per
share of $.50 and dilution to the public investors of $4.42 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 88.5% $ 1,000 0.0% $.00002
=======
Public Investors 1,200,000 11.5 4,200,000 100.0 $3.50
---------- ------ ---------- ------ =====
Total 10,400,000 100.0% $4,201,000 100.0%
========== ====== ========== ======
</TABLE>
The following table summarizes, 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.
- 20 -
<PAGE>
<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 89.5% $ 1,000 0.0% $.00002
=======
Public Investors 1,200,000 10.5 4,200,000 100.0 $3.50
---------- ------ ---------- ------ =====
Total 11,400,000 100.0% $4,201,000 100.0%
========== ====== ========== ======
</TABLE>
USE OF PROCEEDS
The Company intends to utilize the net proceeds from the sale of the
Units offered hereby, estimated at approximately $2.9 million (assuming the
Underwriter's over-allotment option is not exercised), for working capital and
other corporate purposes.
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."
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." Furthermore, in the event the Company upgrades any of its
Centers, it intends to finance the cost of upgrading such Centers. However, if
financing is not available, a portion of the proceeds of this Offering may be
used for such purpose.
Subordinated Notes in the principal amount of $700,000 payable to the
former owners of the entities which operated the Kansas City and San Juan
Centers are due in September 1997. The Company is conducting preliminary
discussions with DVI with respect to a loan from DVI for the purpose of paying
such Subordinated Notes. No assurance can be given that the Company will be able
to obtain such financing from DVI or other lenders, in which event a portion of
the proceeds of this Offering may be used for such purposes.
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 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 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.
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
- 21 -
<PAGE>
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 Treasury securities, certificates of deposit or similar
high-quality short-term interest-bearing deposits and securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect (a) the sale of the 600,000 Units
offered hereby and (b) the exchange of certain Subordinated Notes for shares of
Series C Preferred Stock pursuant to the Schulman Agreement.
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------
Actual As Adjusted
------ -----------
(Dollars in thousands)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt(1) $ 3,486 $ 3,486
Current portion of subordinated debt(2) 6,269 6,269
Current portion of subordinated debt -- related party(2) 924 --
Capital lease obligations -- current maturities(3) 1,273 1,273
Due to affiliate(4) 250 250
Covenant not to compete 200 200
------- -------
$12,402 $11,478
======= =======
Long-term debt:
Notes payable(1) $11,525 $11,525
Revolving loan(1) 4,715 4,715
Subordinated debt(2) 312 312
Due to affiliate(4) 1,175 1,175
Capital lease obligations -- long-term portion(3) 2,864 2,864
Deferred interest 568 568
------- -------
21,159 21,159
Redeemable Preferred Stock:
Series C Redeemable Preferred Stock, par value$.01 per share, 300 shares to
be authorized, 30 shares to be issued and outstanding, as adjusted,
redemption value -- $624, liquidation value -- 0(5) -- 624
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(6) -- --
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
9,200,000 shares issued and outstanding and 10,400,000 shares outstanding
as adjusted(7) 92 104
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 1,550 4,840
Accumulated earnings(9) 4,578 4,578
-------- ------
Stockholders' equity 6,230 9,532
--------- ------
Total capitalization $27,389 $31,315
======= =======
</TABLE>
(1) See Note 7 of Notes to International Magnetic Imaging, Inc.
Consolidated Financial Statements.
- 22 -
<PAGE>
(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 and chief executive officer of
the Company, and his wife. See "Certain Transactions," and Notes 2 and
7 of Notes to International Magnetic Imaging, Inc. Consolidated
Financial Statements.
(3) See Note 6 of Notes to International Magnetic Imaging, Inc.
Consolidated Financial Statements.
(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. Consolidated
Financial Statements.
(5) The Series A Preferred Stock has a liquidation preference of $4,984 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 C Preferred Stock has a nominal liquidation preference and
an aggregate redemption price of approximately $624 based on the 30
shares to be issued. The amount shown reflects the redemption price of
the Series C Preferred Stock. The shares are issuable pursuant to the
Schulman Agreement, which includes a provision that, in the event that
the other former director-stockholders of IMI-Florida receive
consideration for their Subordinated Notes which is more favorable to
them then the exchange terms set forth in the Schulman Agreement, Dr.
and Mrs. Schulman will be entitled to such other terms, even if the
transaction occurs subsequent to the completion of this Offering. See
"Certain Transactions -- Schulman Agreement." See "Description of
Securities -- Series C Preferred Stock" for information concerning the
rights, preferences and privileges of the holders of the Series C
Preferred Stock.
(7) Does not include an aggregate of 1,000,000 shares issuable upon
exercise of the Series B Warrants. 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. In the event that the
Series A Common Stock is converted into Common Stock there shall be
issued or reserved for issuance an aggregate of 4,450,000 shares of
Common Stock issuable upon conversion of the Class A Common Stock
(1,000,000 shares) and pursuant to the terms of outstanding warrants
and options to purchase Class A Common Stock (3,475,000 shares). See
"Certain Transactions," "Description of Securities" and "Underwriting."
(8) Does not include an aggregate of 3,475,000 shares of Class A Common
Stock reserved as follows: (a) 2,250,000 shares issuable upon exercise
of the outstanding warrants, (b) 1,200,000 shares issuable upon the
grant of options, rights or other equity-based incentives granted or
available for grant pursuant to the Company's 1994 Long-Term Incentive
Plan, and (c) 25,000 shares of Class A Common Stock issuable upon
exercise of a warrant issuable to Dr. Schulman pursuant to the Schulman
Agreement. See "Certain Transactions."
See "Business -- Property" and Note 6 of Notes to International
Magnetic Imaging, Inc. Consolidated 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 years ended December 31, 1996 and 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.
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>
Years Ended December 31,
------------------------ September 30, 1994
(Inception)(1) to
1996 1995 December 31, 1994
---- ---- -----------------
<S> <C> <C> <C>
Revenue $31,110 $28,044 $6,557
Operating income before other income and taxes 4,425 5,367 1,036
Income before income taxes 1,958 2,891 473
Net income 1,041 1,761 1,775
Net income per share of Common Stock:(2)
Primary .09 .13 .12
Fully diluted .08 .13 .12
Weighted average number of shares of Common
Stock outstanding:3
Primary 14,960 15,257 15,185
Fully diluted 14,960 15,257 15,185
</TABLE>
Balance Sheet Data:
December 31,
-------------
1996 1995 1994
---- ---- ----
Working capital (deficiency) $(3,271) $(8,131) $ 60
Total assets 44,638 42,016 40,911
Long-term debt 21,159 15,728 30,886
Total liabilities 38,408 36,964 40,461
Accumulated earnings 4,578 3,536 449
Stockholders' equity(2) 6,230 5,052 450
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) All shares of Common Stock and Class A Common Stock issued prior to the
date of this Prospectus are treated as outstanding since inception.
- 24 -
<PAGE>
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 and 1992.
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 IMI-Florida for the nine months
ended September 30, 1994 and the related notes which are included elsewhere in
this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended -----------------------
September 30, 1994
------------------ 1993 1992
---- ----
<S> <C> <C> <C>
Revenue $21,162 $26,572 $26,718
Pro forma net income(2) 2,208 2,109
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 December 31, 1992
------------------ ----------------- -----------------
<S> <C> <C> <C>
Working capital $ 5,002 $ 2,948 $ 2,773
Total assets 22,080 24,585 27,966
Long-term debt 5,823 5,835 8,514
Total liabilities 10,970 13,495 16,963
Accumulated earnings 6,052 6,032 7,145
Stockholders' equity 11,109 11,090 11,030
</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.
(2) 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 periods.
INTERNATIONAL MAGNETIC IMAGING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Years Ended December 31, 1996, 1995 and 1994
In the following discussion, the years ended December 31, 1996 and 1995
reflect the operations of the Company. The year ended December 31, 1994 reflects
the operations of the Centers that were acquired from the predecessor companies
as operated by such predecessors for the nine months ended September 30, 1994
and the operations of the Company for the fourth quarter of the year.
The Company is not engaged in the practice of medicine and does not
employ any physicians to provide medical services. The Company's bills, which
include fees for the technical services provided by the Company and the
professional services rendered by the radiologists, are sent to the patient or
third-party payor, whichever is appropriate. The radiologists, who are
independent contractors engaged by the Company and are compensated by the
Company pursuant to agreements between the Company and the radiologists, do not
bill patients for the radiology services related to their services for the
Company. Pursuant to their agreements with the Company, the radiologists read
the scans at the Company's Centers, for which they receive compensation in
accordance with such agreements. For the Florida Centers, the Company paid a fee
that ranges from 10% to 20% of net collections plus a bonus based on specified
criteria. During 1996 and 1995, the radiology fees for the Florida Centers
averaged 11% to 12% of cash collections from MRI procedures and 16% to 17% of
cash collections for multi-modality procedures. At the San Juan Center, the
Company pays 10% of collections plus 3% of annual cash collections between $2
million and $3 million plus 5% of annual cash collections in excess of $3
million. For the Virginia Center, the Company pays a fixed
- 25 -
<PAGE>
annual fee of $275,000 plus 15% of collections in excess of $2.4 million. At the
Kansas City Center, the Company pays a fixed fee per scan which fee ranges from
$75 to $150, depending on the number of scans read. The compensation to the
radiologists is reflected on Statement of Operations as radiology fees.
Net patient service revenue increased $2.6 million, or 10%, from 1995
to 1996, following a decline of $307,000, or 1%, from 1994 to 1995. As noted in
the table below, the mix of procedures by payor class remained relatively level
for the three years, and the reimbursement rate remained relatively level from
1995 to 1996 following a modest decline from 1994 to 1995. Accordingly, the
increase in revenue reflects an increase in scan volume, which increased 32%
from 1995 to 1996 and 9% from 1994 to 1995. A significant portion of the
increase in scan volume for 1996 relates to multi-modality procedures, which
have a lower reimbursement rate than MRI procedures, with the result that the
increase in net patient service revenue increased at a lower rate than the
increase in scan volume.
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 49%, 45% and 34% for
1996, 1995 and 1994, respectively. Contractual adjustments increased
significantly from 1994 to 1996 reflecting a general decrease in reimbursement
rates from all classes of payors and the increase in the Company's brokered scan
business which had a substantially lower reimbursement rate than any of the
Company's other revenue sources. The services provided pursuant to agreements
with third party payors, including managed care organizations, HMOs, certain
insurance companies, Medicare, Medicaid and workers compensation programs, are
generally performed on a fixed fee basis pursuant to a payment schedule set by
the third-party payor.
The Company had no capitated contracts during 1996, 1995 or 1994.
During the fourth quarter of 1996, revenue was approximately $600,000
less than the average revenue for the first three quarters of 1996. This decline
in revenue reflects (i) reduced scan volume in two of the Company's Florida
Centers resulting from the change in Florida law, effective October 1, 1996,
which prohibited the practice of scan brokering, (ii) a decrease in procedures
performed at the Company's San Juan Center for workers' compensation claimants
resulting from the failure of the Company to offer upgraded equipment necessary
to meet competitive conditions, and (iii) a decrease in referrals from the
former partner-physicians of one of the Company's Florida Centers following
payment in September 1996 of the balance of the Subordinated Notes due to such
persons from the sale of such Center to the Company in September 1994. Although
the Company upgraded the equipment in San Juan in 1997 and increased its
marketing efforts for the two Florida Centers whose revenues declined, no
assurance can be given that the Company will be able to replace the lost
revenues. In addition, during the second half of 1996, 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, suffered a decline in revenue.
The percentage of procedure volume was as follows for 1996, 1995 and 1994:
Percentage of Procedure Volume
------------------------------
Class of Payor 1996 1995 1994
- -------------- ---- ---- ----
MRI procedures (representing 89%,
91% and 92%, respectively, of all
revenues for 1996, 1995 and 1994)
Managed care 37% 38% 41%
Commercial 17% 17% 20%
Medicare 13% 9% 14%
Workers' compensation (other than
pursuant to contracts with
workers' compensation insurers) 11% 14% 17%
Brokered scan services 10% 9% --
Contract workers' compensation 6% 6% --
Liability 4% 4% 5%
Other 2% 3% 3%
- 26 -
<PAGE>
Multi-modality procedures, other than
MRI1 (representing 11%, 9% and 8%,
respectively, of all revenues for
1996, 1995 and 1994)
Managed care 84% 85% 85%
Medicare 8% 6% 6%
Commercial 6% 6% 6%
Other 2% 3% 3%
- ------------
(1) Includes CAT scans, nuclear medicine, mammography, fluoroscopy, X-rays
and ultrasound.
Other service revenue and management fee income, which represented only
3.5%, 2.4% and 2.7% of total revenue for 1996,1995 and 1994, respectively,
increased $433,000 from 1995 to 1996 primarily due to the operations of MRI-Net.
Other service revenue and management fee income did not show any significant
fluctuation from 1994 to 1995.
The Company's operating expenses for 1996 increased by $4.0 million, or
18%, from $22.6 million for 1995 to $26.7 million for 1996. Operating expenses
for 1995 increased by $371,000, or 2%, from $22.3 million for 1994 to $22.6
million for 1995. The overall increase in expenses reflected the factors
discussed below.
Radiology fees increased $336,000, or 11%, from $3.0 million in 1995 to
$3.3 million in 1996, and $1.9 million, or 194%, from $1.1 million in 1994 to
$3.0 million in 1995. For 1996 and 1995, radiology fees were generally based on
cash collections related to services performed. Cash collections for services
were $27.4 million and $25.4 million, respectively, for 1996 and 1995,
representing an overall increase of approximately 8%. During 1996 and 1995, the
radiologists were independent contractors pursuant to service agreements with
the Company. During the months of January through November 1994, a significant
portion of the radiology services were performed by radiologists who were
employed by MD Corp., which was affiliated with IMI-Florida, and, accordingly,
compensation to such radiologists of approximately $1.2 million is included in
salaries and benefits rather than radiology fees, which accounts for the
significant increase in radiology fees from 1994 to 1995. Overall payments to
radiologists, whether in the form of radiology fees or compensation, increased
30% from $2.3 million in 1994 to $3.0 million in 1995. This $700,000 increase
reflected (i) contract provisions with radiologists which resulted in larger
fees being paid as certain bonus levels were attained and (ii) a general
increase in fees to radiologists from the amounts that were paid to the
radiologists as employees of MD Corp.
Equipment maintenance costs relate primarily to fixed contract payment
schedules and generally do not fluctuate from year to year 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. Substantially all
maintenance costs for 1996, 1995 and 1994 were incurred pursuant to fixed
maintenance contracts, and, as a result, such costs did not fluctuate
significantly, increasing $39,000 from 1995 to 1996 and decreasing $57,000 from
1994 to 1995.
Patient service costs and expenses consist primarily of film, contrast
agents and utility costs used in MRI and multi-modality procedures. Such costs
increased $289,000, or 15%, from 1995 to 1996. Approximately $104,000 of this
increase related to an increase in medical supplies used by a multi-modality
Center that performs CAT scans, nuclear medicine, mammography, fluoroscopy,
X-rays and ultrasound, which had a significant increase in volume. The remaining
increase is due to the additional procedure volume which inherently requires
more patient service costs which were partially offset by negotiated decreases
in overall per unit film and contrast agent costs.
Salaries and benefits increased $733,000, or 12%, from 1995 to 1996. 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 1996, 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 $1.8 million or 24% from 1994 to 1995. Salaries and
benefits for 1994 include approximately $1.2 million paid to radiologists. In
1995 no radiologists were employed by the Company or MD Corp. and, accordingly,
all fees to radiologists are reflected as radiology fees and not salaries and
benefits. Additionally, during 1995, management implemented a cost reduction
plan which included the reduction of overall salary and wage levels which
accounts for the remaining decrease in salaries and benefits.
Professional services, consisting primarily of legal, accounting and
consulting services, remained relatively level in 1996 and 1995. Professional
services decreased $643,000, or 45%, from 1994 to 1995, which reflects the
significant accounting and legal fees that were incurred by the Company during
1994 in connection with the acquisition.
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<PAGE>
Other management, general and administrative expenses, increased
$765,000, or 19%, from 1995 to 1996. During 1996, one of the Centers was in the
process of relocating to a new facility and, in connection with the relocation,
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 $95,000 for an administrative fee paid to DVI related to the revolver
loan incurred subsequent to 1995 and $40,000 for compensation to temporary
employees of MRI-Net who replaced permanent employees whose compensation in 1995
is included under salaries and benefits. During 1995 and 1994, other management,
general and administrative expenses remained relatively level, decreasing
$80,000, or 2%, from 1994 to 1995.
Provision for bad debts increased $1.5 million, or 176%, from 1995 to
1996. Substantially all of this increase reflects an evaluation of the
collectibility of receivables from liability-related services, which were
generated prior to the September 30, 1994 acquisition of the Centers.
Additionally, during the fourth quarter of 1996, the provision for bad debt was
$850,000 greater than the average of the first three quarters, of which $350,000
resulted from the write-off of amounts due from scan brokers who went out of
business. The remaining $500,000 increase is due to liability-related
receivables whose aging had reached the point where the Company's receivables
policy and evaluation required that such receivables be provided for with an
allowance. Revenue from third-party liability payors represented only 4% of
revenue for 1996 and 1995. Provision for bad debts decreased $242,000, or 22%,
from 1994 to 1995. During 1994, both the revenue and related accounts receivable
included more liability-related receivables, which have a higher reserve than
other revenue.
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 expense increased $224,000, or 8%, from 1995 to 1996, which
reflects the addition of equipment in certain Centers, which was partially
offset by a decrease in Centers where equipment is fully depreciated as of 1996.
Amortization increased $103,000, or 5%, from 1995 to 1996 due to an increase in
capitalized loan costs which were incurred at the beginning of 1996 resulting
from the subordinated debt refinancing with DVI. Depreciation and amortization
expense in total increased $1.2 million, or 33%, from 1994 to 1995, due
primarily to increased amortization from the addition of goodwill, restrictive
covenants and customer lists as part of the September 30, 1994 acquisition.
Interest and other income increased $368,000, or 191%, from 1995 to
1996. 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 1996 and 1995 was $281,000 and $120,000, respectively.
Additionally, 1996 includes a change in an estimate related to a prior period
over-accruals of tangible personal property taxes of approximately $140,000 for
the Company's San Juan Center. Other components of interest income and other
income were not significant for 1996 and 1995. Interest and other income
decreased $385,000, or 67%, from 1994 to 1995, which reflects the inclusion in
1994 of approximately $300,000 of debt forgiveness from certain stockholders of
nonaffiliated companies that were not acquired by the Company in the 1994
acquisition.
Interest expense increased $440,000, or 17%, from 1995 to 1996. 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%. Interest included 10.5% deferred interest on
certain of the debt to DVI. The increase in interest expense from the higher
rate was partially offset by reductions on the debt on which the interest was
paid. Interest expense increased $1.3 million, or 95%, from 1994 to 1995, due to
the fact that as a part of the September 30, 1994 acquisition, approximately $20
million in subordinated debt was incurred with interest rates ranging from 4% to
7%. Other increases in interest expense from 1994 to 1995 were due to additions
of equipment financing and interest from new capital lease obligations.
Loss on sale and disposal of assets, which was $23,000, $104,000 and
$524,000, respectively, for 1996, 1995 and 1994, consisted primarily of
leasehold improvements and medical equipment which was sold or disposed of
during such years.
The Company's current provision for income taxes is comprised of
Federal, state and Puerto Rico income taxes. Federal income taxes for 1996, 1995
and 1994 were $137,000, $1.2 million and $284,000, respectively. Federal income
tax was accrued at the statutory rates for such periods. However, because the
Company files its Federal income tax returns as part of a consolidated group
with Consolidated as the common parent, the actual tax liability was treated as
an amount due to Consolidated and canceled by Consolidated. State income taxes
for 1996, 1995 and 1994 were $225,000, $299,000 and $60,000, respectively.
Puerto Rico income taxes were $74,000 and $23,000 for 1995 and 1994,
respectively. No Puerto Rico income tax was due for 1996. During 1996, the
Company's deferred tax asset was reduced by $555,000, increasing its current
Federal income tax by $513,000, reducing current state income tax by $10,000 and
increasing current Puerto Rico income tax by $52,000. The Company has a state
net operating loss carryforward at December 31, 1996 of $5.1 million which is
available to it to offset state income taxes of certain Centers in which losses
have accumulated and a Puerto Rico net operating loss carryforward of $314,000
which is available to it to offset future Puerto Rico income taxes. Since the
Company and its subsidiaries file state income tax returns
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<PAGE>
on a separate basis, state net operating loss carryforwards are only available
to offset future income in the subsidiaries in which losses have accumulated.
Overall profitability decreased $720,000, or 41%, from 1995 to 1996,
reflecting increased overall costs in excess of gains in net revenues. During
1996, five of the Centers operated at an aggregate net loss of $784,000 while
the remaining Centers generated net income of $1.8 million. During 1995, five of
the Centers operated at an aggregate net loss of $2 million while the remaining
Centers generated aggregate net income of $3.8 million. Overall profitability
remained relatively level for 1995 and 1994, reflecting increased overall costs
in excess of increased revenue of $13,000. During 1994, two of the Centers
operated at an aggregate net loss of $550,000 while the remaining Centers
generated net income of $2.3 million.
During the fourth quarter of 1996, the Company incurred a loss of
approximately $1.6 million. The fourth quarter loss resulted principally from
(i) the establishment in the fourth quarter of a reserve for accounts receivable
in the amount of approximately $1.2 million, as compared with an average reserve
of approximately $375,000 per quarter for the first three quarters of the year
as a result of (a) the deterioration of accounts receivable from
liability-related services, most of which were generated prior to the Company's
acquisition of the Centers in September 1994 and (b) write-offs of accounts
receivable from scan brokers which went out of business, (ii) reduced volume in
two of the Company's Florida Centers resulting from the change in Florida law,
effective October 1, 1996, which prohibited the practice of scan brokers, (iii)
a decrease in procedures performed at the Company's Puerto Rico Center for
workers' compensation claimants resulting from the failure of the Company to
offer upgraded equipment necessary to meet competitive conditions, and (iv) a
decrease in referrals from the former partner-physicians of one of the Company's
Florida Centers following payment in September 1996 of the balance of the notes
due to such former partners from the sale of such Center to the Company in
September 1994. Although the Company has taken steps to address the problems
that affected the fourth quarter, including an increased marketing effort for
the two Florida Centers affected by the reduction in scan volume and the
upgrading of equipment in the San Juan Center, no assurance can be given that
the factors which affected the fourth quarter of 1996 will not affect the
Company in the future.
Liquidity and Capital Resources
At December 31, 1996, the Company had a working capital deficiency of
$3.3 million, a $4.8 million improvement from the working capital deficiency of
$8.1 million at December 31,1995. The Company's principal working capital
consists of cash and cash equivalents. Cash and cash equivalents increased
$128,000 from $1.4 million at December 31, 1995 to $1.5 million at December 31,
1996. During 1996, the Company's net cash provided by operations was $6.6
million. Sources of funds during 1996, other than from operations, includes
$16.1 million from debt financings and $381,000 from refunds of deposits
previously paid. Uses of cash, other than to fund operations, includes $15.7
million for repayment of debt, $4.0 million for fixed asset purchases, $1.4
million for payments on capital lease obligations, $560,000 for payment of loan
costs, $1.1 million for payments to affiliates and $322,000 for offering costs.
Current assets, other than cash, consist of accounts receivable, which
increased by $1.3 million due primarily to increased revenue. The accounts
receivable balances at December 31, 1996, 1995 and 1994 include approximately
35%, 37% and 48%, respectively, of receivables from liability-related services
which have a significantly longer collection period than other accounts
receivable. The accounts receivable collection period from liability-related
services was 26.2 months, 41.9 months and 30.9 months for 1996, 1995 and 1994,
respectively. The improvement in collection from liability-related receivables
resulted from the implementation in early 1995 of a program for
liability-related services pursuant to which the Company requires a letter of
protection, in which the referring attorney agrees to pay the Company's bill on
behalf of his client out of the proceeds of any settlement or court award, and
an assignment of proceeds, which identifies a specific source of payment and
sets forth the patient's liability for the payment of the Company's bills
regardless of the disposition of the claim. The Company's accounts receivable
collection rate for receivables other than liability-related receivables was 3.0
months, 2.4 months and 1.9 months for 1996, 1995 and 1994, respectively. The
increase in the period of time that such receivables are outstanding reflects
longer paying cycles by insurance companies, managed care organizations, HMOs,
Medicare, Medicaid and workers' compensation carriers and other third-party
payors.
Current liabilities decreased by $4.0 million. Current portions of debt
and capital lease obligations decreased by $4.8 million primarily as a result of
refinancings in 1996 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 at December 31, 1996. The Company used the proceeds of
$11.0 million from these loans as follows:
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<PAGE>
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 December 31, 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
of principal or interest due on such notes, as a result of which the holders may
have the right to declare a default against the subsidiaries that issued the
Subordinated Notes. 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. Pursuant to its loan agreements with DVI, the Company's
senior lender, the Company is prohibited from making payments on such notes
until the Company's obligations to DVI have been satisfied However, because of
the failure of the subsidiaries to make the payments on these Subordinated
Notes, the principal amount of such Subordinated Notes are treated as current
liabilities. In March 1997, the Company entered into the Schulman Agreement,
pursuant to which, subject to completion of this Offering and the prior approval
of DVI, Dr. and Mrs. Schulman will exchange $924,000 principal amount of
Subordinated Notes, reduced by the $300,000 loan from the Company to Dr.
Schulman, for shares of Series C Preferred Stock. See "Certain Transactions --
Schulman Agreement." After giving effect to the exchange pursuant to the
Schulman Agreement, the aggregate principal amount of Subordinated Notes due to
the other former stockholder-directors of IMI-Florida, the wife of one of such
persons and the Schulman Affiliated Entities on which payments have not been
made is approximately $6.2 million.
Other significant changes in current liabilities were as follows:
Accounts payable and accrued expenses increased $521,000 reflecting (1)
an increase of $314,000 in trade accounts payable, (2) increased personal
property, real property and intangible taxes of $63,000, (3) increased Health
Care Cost Containment Board ("HCCCB") accruals of $84,000 due to increased net
patient service revenue net of the related bad debt expense on which the HCCCB
accrual is calculated, (4) increased accrued payroll and related expenses and
other expenses of $60,000. The HCCCB is a Florida board that collects a tax on
health related organizations, and has no relation to the Company.
For the year ending December 31, 1996, the Company will file a
consolidated Federal income tax return with Consolidated. As a result, the
Company will accrue Federal income taxes on its Federal taxable income at the
statutory rates for 1996. Because of the use of the tax loss and tax loss
carryforwards, the amount of the taxes saved is treated as an amount due to
Consolidated. However, Consolidated has agreed to forgive the amount due
Consolidated for the use of its Federal income tax loss and tax loss
carryforward, and the Company's working capital and cash flow are increased by
the amount of the net Federal income tax savings.
Other current liabilities decreased $112,000 due to the payment of
amounts due to Consolidated.
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 as MRI applications are continuing to
evolve.
All of the Company's Centers have equipment manufactured by major
medical equipment manufacturers. The MRI hardware, which consists primarily of a
large magnet that has a useful life in excess of 15 to 20 years and related
computer hardware, is the most expensive component in an MRI facility. The
related software used with the hardware requires periodic upgrading, but at a
much lower cost than the hardware, and, it has been the Company's experience
that upgrades are generally financed by the manufacturer. The Company estimates
that during 1997 it will spend between $1.5 million and $2.0 million on MRI
hardware and software and that over the next several years, the Company may
spend $600,000 annually on software
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upgrades. However, it is possible that technological developments and changes in
the markets served by the Company may require the Company to expend
significantly more than the amounts currently budgeted. Although the Company
will seek to obtain financing from the equipment manufacturers, no assurance can
be given that such financing will be available. In addition, the Subordinated
Notes due to the former owners of the Kansas City and San Juan Centers in the
aggregate principal amount of approximately $700,000 are due in September 1997.
The Company's estimated cash requirement for 1997 are expected to be
satisfied from cash flow from operations. During 1996, the Company generated
cash flow from operations of approximately $6.6 million. The principal cash
requirements for 1997, other than operations, are approximately $5.6 million in
debt service and capital lease obligations, and the Company anticipates that
cash flow from operations will be sufficient to meet such debt service
requirements. However, any decline in cash flow from operations, including the
inability to utilize the benefits of Consolidated's tax loss or tax loss
carryforward, could have a material adverse effect upon its ability to meet its
debt service requirements.
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. The Company is engaged in
preliminary discussions with DVI for a $700,000 loan to pay the Subordinated
Notes due in September 1997 in connection with the acquisition of the Kansas
City and San Juan Centers, although no assurance can be given as to the
availability or terms of any such financing. DVI has no affiliation with the
Company or any of the Company's affiliates, and its only relationship to the
Company is as a lender, in which capacity it received warrants to purchase Class
A Common Stock. The Company pays DVI an administrative fee of approximately
$84,000 per year.
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 years, 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 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, 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
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<PAGE>
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."
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 common stock, exclusive of
acquisition costs of $1.3 million. As of December 31, 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."
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<PAGE>
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 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.
<TABLE>
<CAPTION>
Date Service
Center Location Commenced
- ------ -------- ----------
<S> <C> <C>
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
</TABLE>
(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.
(3) 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.
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(4) In September 1996, this Center upgraded its MRI equipment.
(5) The Orlando Center is operated as a joint venture with Kaley Imaging,
Inc. ("Kaley"), which is a subsidiary of U.S. Diagnostic, Inc., a
non-affiliated party, and is co-managed by the Company and Kaley. The
equipment used in this Center has been provided by Kaley, and the
Company's equipment is used for backup and overflow.
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.
In general, each Center has a full-time staff of eight to ten
employees, 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 and does not
employ any physicians to provide medical services. The Company's bills include
fees for the technical services provided by it and the professional services
rendered by the radiologists. The radiologists, who are independent contractors
engaged by the Company, are compensated by the Company pursuant to agreements
with the radiologists. See "Business -- Agreements with Radiologists."
The Company is a participating medical provider for third party payors,
including managed care organizations, HMOs and insurance companies as well as
Medicare, Medicaid and workers compensation programs. The services for such
organizations are performed generally on a fixed fee basis pursuant to a
schedule set by the third-party payor, or, to a lesser extent, pursuant to its
standard charges, which, it believes, generally are within the range of usual
and customary charges in the area in which the services are rendered. In
general, these third party payors pay for such services within a reasonable time
after the bill is rendered, and the collection ratio for such services is high.
To a lesser extent, the Company performs liability-related services, which are
performed for claimants who believe they have a liability claim against a third
party. Since early 1995, the Company implemented two policies relating to its
liability business which have improved collections from such billings. The
Company requires a letter of protection, in which the referring attorney agrees
to pay the Company's bill on behalf of the client from the proceeds of any
settlement or court award, and an assignment of proceeds, which identifies a
specific source of payment and sets forth the patient's liability for the
payment of the Company's bills regardless of the disposition of the claim. Most
of the Company's write-offs of accounts receivable have related to
liability-related receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company markets its services through open houses, lectures,
symposia, direct mail and direct physician marketing. Each Center employs one or
more marketing representatives and an administrator and utilizes the services of
certain radiologists who interpret the Company's scans and market its services
to the local medical community, while the Company's national accounts manager
focuses on marketing to managed care providers and third party payors. The
Company also utilizes the marketing experience and abilities of Dr. Schulman
when required. Dr. Schulman, who has experience both as a physician and the
operator of diagnostic imaging centers, seeks to use this experience to direct
the Company's marketing plan and meet the needs of the physicians and the
medical community. Dr. Schulman does not receive any additional compensation for
such services.
Almost all of the Company's revenue is derived from third-party payors.
For the years ended December 31, 1996 and 1995, the Company derived
approximately 86% and 91%, respectively, of its revenue from non-government
payors and approximately 14% and 9%, respectively, from government sponsored
healthcare programs, principally Medicare and Medicaid. The Company's agreements
with managed care companies provide for the payment to the Company for each
covered procedure based on a specified rate schedule. 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
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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 $695 for 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 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 $81 for 1996, as compared with $95
for 1995, 1994 and 1993.
The Company does not have any capitation contracts, which are contracts
which provide that a health care provider will perform services for a patient
base for a fixed monthly fee, which is generally not dependent upon the amount
of services actually rendered. As a result, it is possible that such contracts
may not generate sufficient cash flow to a health care provider to cover its
costs of performing the services. It is possible that the Company may enter into
such contracts in the future, and no assurance can be given that any such
contracts will be profitable to the Company.
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 24% in
1996 and 1995 and 32% for 1994. At September 30, 1996, the Company paid the
final installment with respect to the Subordinated Notes due to the former
partners or owners of all but two of the Centers. The final payments due on the
Subordinated Notes issued in connection with the acquisition of the remaining
two Centers -- Kansas City and San Juan -- are due in September 1997. One of the
factors contributing to the Company's net loss in the fourth quarter of 1996
resulted from the lack of referrals from the former partners of one of such
Centers. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
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. The prohibition of the use of brokered scans
at two of the Company's Centers was a significant cause of the Company's loss in
the fourth quarter of 1996. 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.
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 radiologists are paid in accordance with agreements between the
Company and such radiologists.
In December 1994, the Company entered into a five-year agreement (the
"ERN Agreement") with ERN, a Florida professional association owned by Dr. Fred
Steinberg, 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 Dr. Steinberg and other radiologists and
specialists employed by ERN. ERN receives a fee for its radiology services in an
amount equal to a percentage, ranging from 10% to 15%, of net collections
received by the Centers, together with an annual consulting fee of $30,000. 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 its behalf.
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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. On February 1, 1997, the Company entered into an agreement with
Premier Radiology Associates, a joint venture entity owned by two independent
radiologists, pursuant to which such entity has been engaged by the Company to
provide, on an exclusive basis, all radiology services for such Center for a
term of five years. The Company is paying such entity for such services a fee
equal to 16.5% of the net collections from such Center, plus $12,000 per year to
be utilized by such radiologists to defray the cost of malpractice insurance and
continuing medical education. Prior to December 1996, ERN also provided
radiology services to the Orlando, Florida Center, which is operated by a joint
venture in which the Company has a 50% interest, pursuant to an agreement with
the joint venture. The agreement was terminated, and radiology services at such
Center are performed by an independent radiologist, who receives a fee in an
amount equal to a percentage, ranging from 13% to 17%, of the net collections of
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 net collections of the Center, subject to
increase with respect to net collections 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 net collections in excess of $2.4 million. The radiologist engaged
by the Kansas Center receives a fee for each study performed of $75 for the
first 275 scans read each year, $100 for the next 75 scans read and $150 for
scans read in excess of 350.
Recently, two disputes have arisen between ERN and the Company. ERN has
claimed that the Company did not pay ERN the fees due it pursuant to the ERN
Agreement, and the Company has claimed that the Company made payments to ERN
which were in excess of the amounts due to ERN pursuant to such agreement. In
addition, the Company and ERN disagree upon the amount of fees due to ERN
subsequent to December 5, 1996 in connection with the engagement by ERN by the
Florida Center with which ERN had an oral agreement. Although the Company
believes that the amounts claimed to be due to the Company from ERN
substantially exceed the amount claimed by ERN to be due to it, no assurance can
be given that the disputes will not be resolved, either through negotiations or
a judicial proceeding, in a manner which will result in a significant payment by
the Company to ERN.
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 approximately
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 1996, the centers participating in the network, including
the Florida Centers, serviced an average of approximately 650 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. Revenue from MRI-Net for 1996 and 1995 constituted
less than 2% of the Company's total revenues for each of such years.
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
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on the reimbursement rates of 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 rates 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, 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, 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 Food and Drug
Administration (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 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 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 may offer mammography in the future, the withdrawal or delay
of such accreditation could result in the revocation of certification, if the
FDA so determines.
Permits and Licensure
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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 healthcare 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. The Company
believes that MRI-Net's operations are different from those in the
aforementioned case because MRI-Net contracts solely with third-party payors to
provide MRI coverage throughout the state. In the Fourth District case, the
services were marketed to providers and patients and not to payors. However, 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. Under
Stark II, physicians are prohibited from making Medicare referrals to an entity
in which they have certain financial relationships, including relationships
arising from the purchase or sale of assets. This prohibition does not apply to
non-Medicare referrals during the period that payments are being made to the
former partners or owners of the Centers, and once all payments have been made,
the physicians are not deemed to have a financial relationship with the Company
or the Centers, and may make Medicare referrals to the Centers. 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 interpretive regulations have not been
issued. Future regulations could require the Company to modify the form of its
relationships with physicians under Stark II. Submission of a claim that a
provider knows or should know is for services for which payment is prohibited
under 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.
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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 or a
Stark II 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. In addition, the Health Act requires HHS to issue
advisory opinions upon request regarding the application of the Anti-kickback
Statute. The Company has not requested an advisory opinion and has no plans to
do so.
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 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
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has an ownership interest. In addition, legislation which prohibits patient
brokering became effective on October 1, 1996. The anti-brokering 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 comply with Florida laws regarding
referrals and patient brokering.
Florida does not prohibit the employment of physicians by a business
corporation to provide medical services. The Company does not employ any
physicians, and it believes that it is in compliance with Florida law and
regulations relating to the engagement of physicians. Although the Company is
unaware of any anticipated changes in law or regulations relating to the
engagement or employment of physicians, it is possible that future changes in
the law may prohibit the Company's arrangements with physicians, which may have
a material adverse effect upon the Company. Florida does not directly prohibit a
health care provider from taking the financial risk of providing health care
services, and there are no laws or regulations that prohibit health care
providers from entering into capitation agreements; however, a health care
provider may not deny or limit health care to a covered person in the event that
the funds available from the capitation payments have been exhausted. Florida
does not presently require either a CON or state registration for the operation
of a diagnostic imaging facility or the use of MRI equipment.
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.
In Kansas, based on interpretations published by the Commissioner of
Insurance, a health care provider may enter into a capitation or other risk
contract with a regulated entity, such as an insurance company or an HMO, to
provided discounted services; however, a health care provider may be deemed to
be engaged in the unlawful business of insurance if it enters into such an
agreement with a self-insured employer or other non-regulated entity.
Kansas does not presently require either a CON or state registration
for the operation of a diagnostic imaging facility or the use of MRI equipment.
However, ionizing radiation devices, such as X-ray equipment, must be registered
with the Kansas Department of Health. The Company does not own or operate
ionizing radiation devices; however, in the event that the Company performs
services in Kansas that use such devices, the Company does not believe that it
will have difficulty obtaining the necessary registration.
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
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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, including MRI facilities,
can be established without obtaining a CON granted by the Secretary of Health.
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, nor has it enacted any statutes which deem the acceptance of financial
risks for patient care by an entity operating in Puerto Rico as engaging in the
insurance business.
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
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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.
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.
Virginia law requires a certificate of public need before a "project"
can be commenced. A project includes the establishment of an MRI center.
Certificates are not transferrable; however, Virginia regulations require
notification of a proposed acquisition of a medical care facility, including an
MRI center, if the cost is $600,000 or more. If the Department of Health finds
a reviewable clinical health service id to be added as a result of a proposed
acquisition, it could require the proposed new owner to obtain a certificate
prior to the acquisition. Virginia does not require licensure of an MRI center.
As of the date of this Prospectus, Virginia does not restrict a health
care provider from accepting the financial risk from patient care as long as the
agreement is with a licensed insurer or HMO.
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
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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 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 approximately $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
approximately $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 has received a report with respect to the conduct of an
independent contractor who regularly performs professional services for one of
its Centers, which conduct may be considered sexual harassment. The Company
believes that its policies and procedures with respect to the behavior of
employees and others who regularly perform services at its Centers are in
compliance with applicable Federal and state laws concerning sexual harassment.
The Company is investigating the reported incidents and has not, as of the date
of this Prospectus, made a determination as to what action, if any, should be
taken. No assurance can be given that, if the reported incidents result in a
legal proceeding against the Company and the claimant prevails, there will not
be a material adverse effect upon the Company.
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See "Business --Agreements with Radiologists" in connection with
certain disputes between the Company and ERN relating to fees due ERN for
radiology services.
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."
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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.
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. In
Puerto Rico, two competitors recently received CONs for MRI facilities and, as
of the date of this Prospectus, the Company has been notified of two CON
applications filed with the Department of Health of Puerto Rico. The Company is
appealing the grants of the most recent CONs. However, no assurance can be given
that the Company will be successful in the appeals. Therefore, no assurance can
be given that the Company's business in Puerto Rico will not be adversely
affected from the issuance of such CONs.
Employees
As of March 31, 1997, the Company had 176 employees, 121 of whom were
involved in Center operations, nine of whom were involved in sales and
marketing, 21 of whom were executive and management employees and 25 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.
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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 36 Chief Financial Officer
Sherri Donaldson 37 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 publicly-held subsidiary of SISC that markets health information
systems and other network based software systems, and Trans Global, a
publicly-held subsidiary of SISC that is engaged in contract engineering. From
January to April 1997, he was also chief executive officer of Lafayette
Industries, Inc., a public corporation formerly controlled by SISC which was
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 SAS Acquisition Corp., which owns and operates two
MRI centers in Illinois. SAS Acquisition Corp. is 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.
Mrs. Sherri Donaldson has been chief operating officer since January
1997. From July 1992 until December 1996, she was a regional director of
operations for the Company and IMI-Florida, and from June 1991 until June 1992,
she was the administrator for the Kansas City Center.
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 and Trans
Global. 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.
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
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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, 1996,
1995 and 1994. 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.
<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 1996 --(1) -- -- -- --
of the Board (since September 1995 --(1) -- -- -- --
30, 1994) 1994 --(1) -- -- -- --
Stephen A. Schulman, M.D., 1996 $362,000 $100,000 $ 43,652(2) -- --
President and Chief Executive 1995 362,000 100,000 43,917(2) -- --
Officer 1994 126,500 -- 289,466(2) -- 400,000(3)
George W. Mahoney, 1996 $140,783 $144,821 $ 6,598 -- --
Chief Financial Officer(4) 1995 132,011 19,236 4,323 -- 250,000(3)
1994 115,911 40,000 -- --
</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 years ended
December 31, 1996 and 1995, the period from August 1, 1994 to December
31, 1994 and the fiscal year ended July 31, 1994, the total
compensation paid or accrued by Consolidated to Mr. Schiller was
$340,000, $250,000, $94,000 and $181,451, respectively.
(2) Other compensation for Dr. Schulman reflects (a) certain insurance and
other benefits, (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 salary and bonus of $97,400, $45,451 and $6,412 for
services rendered by Mr. Mahoney to Consolidated in 1996, 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 owns 10% of Consolidated's or
SISC's equity interest in each of their
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operating subsidiaries and investments. Mr. Schiller has received 10% of SISC's
equity interest in the Company for nominal consideration; however, 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 to enable the Company to file its Federal income tax returns as part of
a consolidated group with Consolidated as the common parent. See "Certain
Transactions." Mr. Schiller has also received 10% of 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, 1996, 1997
and 1998, such base amounts are $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 a February 1996 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 the Schulman
Agreement, the Company has agreed to waive payment by Dr. Schulman of the
accrued interest of approximately $8,000 on his $300,000 loans, such $300,000
loans will be applied to reduce the $924,000 outstanding principal balance of
the Subordinated Notes held by Dr. Schulman and his wife, and such reduced
principal amount of Subordinated Notes will be exchanged for shares of Series C
Preferred Stock.
The Amended Schulman Employment Agreement, which will become effective
upon completion of this Offering and the Company obtaining the approval of DVI,
among other provisions, (a) extends the term of his employment until December
31, 2002, (b) provides for an annual base salary of $395,000, commencing on the
closing of this Offering, subject to an annual 3% increase commencing January 1,
1998, (c) permits Dr. Schulman to perform consulting services for two MRI
Centers which are located in Chicago, Illinois and are owned by his wife,
including any future purchaser of such centers, and (d) permits Dr. Schulman to
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, 2007 or such later date as
Mr. Mahoney may be required to by employed by the Company pursuant to the
Company's agreements with DVI, pursuant to which he received an annual salary of
$177,000 for the contract year ended September 30, 1996. Mr. Mahoney's annual
salary increased to $189,000 for the current contract year, which ends on
September 30, 1997 and increases annually thereafter until the year ended
December 31, 2007, for which his base salary will be $353,000. The agreement
also provides for two bonuses to Mr. Mahoney. One bonus is equal to the greater
of 2 1/2% of Consolidated's net pre-tax profits or 2 1/2% Consolidated's net
cash flow, and the other is equal to the greater of 2 1/2% of the Company's net
pre-tax profits or 2 1/2% 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
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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 and 250,000 shares of Class A Common Stock
granted to Stephen A. Schulman, M.D., president and chief executive officer of
the Company and Mr. George W. Mahoney, chief financial officer of the Company,
respectively.
During the year ended December 31, 1996, no options were granted to any
of the officers named in the compensation table under "Management --
Remuneration."
The following table sets forth information concerning the exercise of
options during the year ended December 31, 1996 and the year-end value of
options held by the officers named in the compensation table under "Management
- -- Remuneration."
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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 -- -- 100,000(2)/ --
--
Stephen A. Schulman, M.D. -- -- 400,000(2)/ $600,000/
-- --
George W. Mahoney -- -- 350,000(4)/ $375,000/
-- --
</TABLE>
(1) The fair market value per share of Class A Common Stock at December 31,
1996 was $2.00.
(2) Represents warrants to purchase 100,000 shares of Class A Common Stock
at $2.00 per share.
(3) Represents incentive stock options to purchase 400,000 shares of Class
A Common Stock of the Company at $.50 per share.
(4) Represents incentive stock options to purchase 250,000 shares of Class
A Common Stock at $.50 per share and warrants to purchase 100,000
shares of Common Stock at $2.00 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 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 $18.4 million at December 31, 1996. The interest rates
on these additional loans (other than the September 1996 loans described below)
range between 10.5% and 11.875% per annum and these loans become due at various
times during the period from September 30, 1999 to September 30, 2002. All
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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, which exercise price has increased to $3.50 per share
at December 31, 1996, and the Company issued to DVI a warrant to purchase
250,000 shares of Class A Common Stock at an exercise price per share equal to
the initial public offering price of the Common Stock in its initial public
offering, which is $3.50 per share. These warrants expire in February 2002. 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.
CERTAIN TRANSACTIONS
Issuance of Securities at Organization
The Company was organized in March 1994 and commenced business in
September 1994. In connection with the organization of the Company, 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. As of December 31, 1996, the exercise
price of the warrants was increased to $3.50 per share. All of the shares of
Series B Preferred Stock were canceled at December 31, 1996. In addition, at
December 31, 1996, SISC canceled all of the warrants to purchase Class A Common
Stock which were owned by it at that date, which consisted of warrants to
purchase an aggregate of 800,000 shares of Class A Common Stock.
Pursuant to the amended employment agreement between Consolidated and
Mr. Lewis S. Schiller, chairman of the board of both the Company and
Consolidated, with certain exceptions, Mr. Schiller owns 10% of SISC's equity
position in its subsidiaries, including the Company. Accordingly, an aggregate
of 850,000 shares of Class A Common Stock, 500 shares of Series B Preferred
Stock (which were canceled at December 31, 1996) and warrants to purchase
150,000 shares of Class A Common Stock of the Company at an adjusted exercise
price of $3.50 per share, 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 connection with the foregoing, Mr. Schiller agreed to
accept Class A Common Stock in lieu of Common Stock, and waived his right to
receive 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 adjusted
exercise price of $3.50 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 an adjusted
exercise price of $3.50 per share. In September 1996, the Company also issued to
SISC a warrant to purchase 250,000 shares of Class A Common Stock at the initial
public offering price per share of Common Stock in the Company's initial public
offering, which is $3.50 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 to SISC
(55,000 shares) and 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. At December 31, 1996, the exercise price of these
warrants was increased to $3.50 per share.
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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 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 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 are to be
issued, 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 the partnerships which operated
the Centers, 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 December 31, 1996, the Company paid principal and
interest of approximately $356,000 to such lender pursuant to such Subordinated
Notes. As of December 31, 1996, principal and interest of approximately $479,000
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
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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
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 December 31, 1996 on
such obligations was $1.3 million, and, at December 31, 1996, the remaining
payments were approximately $1.2 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 $396,000 for
the year ended December 31, 1996 and incurred negative cash flow from such
Center of approximately $303,000 during such year.
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.
Schulman Agreement
In connection with the purchase of the Centers, certain subsidiaries of
the Company issued Subordinated Notes in the aggregate principal amount of
$924,000 to Stephen A. Schulman, M.D. and his wife. Similar Subordinated Notes
in the principal amount of approximately $6.2 million are payable to the other
two former stockholder-directors of IMI-Florida, the wife of one of such persons
and the Schulman Affiliated Entities.
In March 1997, the Company and Dr. and Mrs. Schulman entered into the
Schulman Agreement, pursuant to which Dr. Schulman agreed to reduce the
outstanding $924,000 principal amount of the Subordinated Notes payable to him
and his wife by the $300,000 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 30 shares of Series C
Preferred Stock, having an annual non-cumulative dividend of $75,000, payable in
quarterly installments of $18,750, commencing with the period from the date of
the closing of this Offering to August 31, 1997, a liquidation preference of $50
and a redemption price of approximately $624,000. 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 (excluding any proceeds from the exercise of the Series B
Warrants being offered by the Selling Security Holder), to the redemption of the
Series C Preferred Stock. Dr. Schulman will also receive a five-year warrant to
purchase 25,000 shares of the Class A Common Stock at $3.50 per share. In
connection with the exchange of the Subordinated Notes for shares of Series C
Preferred Stock, the Company has agreed to waive payment by Dr. Schulman of the
accrued interest of approximately $8,000 on his $300,000 notes.
The Amended Schulman Employment Agreement, which is to become effective
upon the closing of this Offering, subject to the Company obtaining DVI's
approval, provides, among other things, (a) the extension of the term until
December 31, 2002, (b) an increase of Dr. Schulman's annual base salary to
$395,000, subject to annual increases of 3%, commencing January 1, 1998, (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, (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, and (f) severance payments of $250,000 in
the event that he terminates the agreement with cause or in the event of a
change of control.
The Schulman Agreement also provides that 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 Agreement 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 owned by him for an equal
number of shares of Common Stock and to exchange any warrants to purchase Class
A Common Stock owned by him 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 Schulman Agreement.
All of the foregoing transactions are subject to and conditioned upon
the consummation of this Offering and the consent of DVI. Because the Schulman
Agreement provides that, if, at any time, which may be before or after the
completion of this Offering, Dr. Kaye or Dr. Sternberg receives more favorable
terms than Dr. and Mrs. Schulman with respect to their Subordinated Notes, Dr.
and Mrs. Schulman will receive such terms, no assurance can be given that the
terms and conditions on which Dr.
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Schulman exchanges his Subordinated Notes will not be significantly different
from, and significantly more beneficial to Dr. Schulman than, the terms of the
Schulman Agreement as described in this Prospectus. The Schulman Agreement does
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.
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 1996 and 1995 were $2.7 million and $3.2 million,
respectively. As of December 31, 1996, the Company owed SISC approximately $1.4
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
did not incur any Federal income tax liability for 1996 or 1995. The total
Federal income tax savings for such years was $137,000 and $1.2 million,
respectively. 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,
1995 and 1994, which resulted in an increase in additional paid-in capital.
The Company has entered into 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 present lenders. 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. The services covered by the Trinity
agreement are general management services, which include services relating to
the development and implementation of the Company's marketing plan, the review
and analysis of expansion opportunities, review and evaluation of financing
arrangements and potential acquisitions and other similar services.
All future transactions, including loans, with officers, directors and
principal stockholders shall be made only for bona fide business purposes and
shall be on terms not less favorable to the Company than that which would be
available from non-affiliated third parties.
- 54 -
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1997 and as adjusted to
give effect to the sale of the 1,200,000 shares of Common Stock included in the
600,000 Units 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% 89.5% 95.5% 86.8%
160 Broadway Common Stock and
New York, NY 10038 550,000 shares of Class A
Common Stock
SIS Capital Corp.(5) 10,200,000 shares of 100.0% 89.5% 91.7% 83.3%
160 Broadway Common Stock and
New York, NY 10038
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% 89.5% 95.8% 87.6%
as a group (six individuals) Common Stock and
(4), (6), (7), (8) 2,214,000 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.
(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, and 100,000 shares of Class A Common Stock issuable upon
exercise of warrants held by Mr. Schiller. Does not include 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) Represents 9,200,000 shares of Common Stock and 1,000,000 shares of
Common Stock issuable upon exercise of Series B Warrants owned by SISC.
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<PAGE>
(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, and 14,000 shares issuable upon the exercise of
incentive stock options held by Mrs. Sherri Donaldson, chief operating
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.
Set forth below is information as to the stock ownership of the Selling
Security Holder as of March 31, 1997:
<TABLE>
<CAPTION>
Amount and Nature Shares
Name and of Beneficial Being Percent of Ownership(1)
Address Ownership Offered Outstanding As Adjusted
------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C>
SIS Capital Corp. 10,200,000(2) 1,000,000 89.5% 80.7%(3)
160 Broadway
New York, NY 10038
</TABLE>
- ----------
(1) The percentages are based on the outstanding Common Stock at March 31,
1997 after giving effect to the sale of the 1,200,000 shares of Common
Stock included in the 600,000 Units offered hereby. The percentage of
ownership of the Common Stock and Class A Common Stock, treated as a
single class, would be 82.3% outstanding and 74.2% as adjusted.
(2) Includes 1,000,000 shares of Common Stock issuable upon exercise of the
Series B Warrants owned by SISC. Mr. Lewis S. Schiller, chairman of the
board of the Company is the chief executive officer of Consolidated,
the parent 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 79.4% and 73.1%, 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 over the counter market, including the
Electronic Bulletin Board, 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
- 56 -
<PAGE>
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 Regulation M, 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.
The number of shares of Common Stock issuable upon exercise of the
Series B Warrants represents 83.3% of the number of shares of Common Stock
included in the Units offered pursuant to this Prospectus, and the sale to the
public of such shares could significantly increase the number of shares in the
public float. The issuance and sale of such shares of Common Stock may have a
material adverse effect upon both the market for and the price of the Units,
Common Stock and Warrants.
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 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 10,400,000 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
- 57 -
<PAGE>
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 is presently one series of Preferred Stock that is authorized and
outstanding -- the Series A Preferred Stock. The Series C Preferred Stock has
been authorized for issuance to Stephen A. Schulman, M.D. pursuant to the
Schulman Agreement. 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 or Series C 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 C Preferred Stock are on a parity with each other as to dividends or upon
liquidation, dissolution or winding up.
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 nor 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 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 C Preferred Stock
The Series C Preferred Stock will consist of 300 shares, of which 30
shares are to be issued pursuant to the Schulman Agreement in exchange for
Subordinated Notes in the principal amount of approximately $624,000. Holders of
shares of Series C Preferred Stock are entitled to non-cumulative annual
dividends of $2,500 per share, or an aggregate of $75,000 with respect to such
30 shares. Such dividends, if declared, are payable quarterly on the first day
of September, December, March and June of each year, commencing September 1,
1997 to holders of record on the 15th day of the previous month. The Company has
no obligations to declare dividends for any quarter, and any dividends payable
on any dividend payment date must be declared prior to the last day of the
dividend payment period.
- 58 -
<PAGE>
The holders of the Series C Preferred Stock have no voting rights
except as required by law. The Series C Preferred Stock is not convertible into
Common Stock or any other class or series of capital stock.
The Series C Preferred Stock may be redeemed in whole at any time and
in part from time to time for $20,806.87 per share, on not less than 30 nor more
than 60 days' notice. The aggregate redemption price for the 30 shares to be
issued pursuant to the Schulman Agreement is $624,206, representing the
principal amount of the Subordinated Notes being exchanged by the Dr. and Mrs.
Schulman. The Series C Preferred Stock is subject to mandatory redemption from
15% of the net proceeds from any sale of equity securities by the Company which
are received by the Company subsequent to 60 days from the closing of this
Offering, including proceeds from the exercise of the Warrants; provided,
however, that there shall be no mandatory redemption with respect to the
issuance of Common Stock upon the exercise of any Series B Warrants which are
registered pursuant to the registration statement of which this Prospectus is a
part, regardless of when such Series B Warrants are exercised. Net proceeds
shall mean the gross proceeds less any underwriting discounts, commissions,
expense allowance and other payments made to the underwriter, placement agent or
warrant solicitation agent and any other expenses of the offering or sale.
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 C Preferred Stock, holders of
shares of Series C Preferred Stock will be entitled to receive from the assets
of the Company an aggregate amount equal to $1.667 per share, or $50 in the
aggregate with respect to the shares being issued pursuant to the Schulman
Agreement. After payment of such preference, the holders of the Series C
Preferred Stock shall have no further rights on liquidation, dissolution or
winding up.
Series A Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled, upon payment of the exercise
price of $4.00 per share, to purchase one share of Common Stock during the
two-year period commencing one year from the date of this Prospectus. 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 (which consent may not be granted with respect to
a redemption prior to the date the Warrants may be exercised), 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 $12, 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 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.
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<PAGE>
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 piggyback 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.
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 1,450,000
shares of Class A Common Stock, which have an exercise price of $3.50. These
warrants expire in September and October 2001 and February 2002. 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 $3.50 per share.
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."
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<PAGE>
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
C Preferred Stock" for information concerning non-cumulative dividends payable
with respect to the Series A Preferred Stock and the Series C Preferred Stock.
Shares Eligible for Future Sale
All of the presently issued and outstanding shares of Common Stock and
Class A Common 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. All of the holders of the
Company's security have agreed that they will not sell their 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 104,000 shares based on the 10,400,000 shares
of Common Stock outstanding upon completion of the sale of the 600,000 Units
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.
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.
- 61 -
<PAGE>
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, 600,000
Units. The Underwriter is committed to purchase and pay for all of the Units
offered hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Units 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 Unit, of which not more than $.
per Unit 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 90,000 additional Units 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 Units.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units sold
(including any Units 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
$71,785 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.
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
Underwriter, for a purchase price of $25, Underwriter's Options to purchase from
the Company up to 60,000 Units at an exercise price of 11.55 per Unit. The
Warrants issuable upon exercise of the Underwriter's Options are identical to
the Warrants included in the Units offered hereby. The Underwriter's Options are
exercisable for a four-year period commencing one year from the date this
Prospectus, except that if the Warrants expire prior to the exercise of the
Underwriter's Option, upon such exercise the Company will issue two shares of
Common Stock and no 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
- 62 -
<PAGE>
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
Regulation M of the Commission under the Exchange Act.
Regulation M 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 up to five business days 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 Units,
Common Stock or Warrants of the Company. The public offering price and
composition of the Units 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 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 seventh
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 Units, the subsequent development of a trading market, if any, or the market
for and liquidity of the Company's securities. Accordingly, purchasers of the
Units 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
- 63 -
<PAGE>
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, Fillmore & Griffin, L.C., 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.
- 64 -
<PAGE>
[This page intentionally left blank]
- 65 -
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
International Magnetic Imaging, Inc. and Subsidiaries:
Report of Independent Auditors..................................... F-3
Consolidated Balance Sheets........................................ F-4
Consolidated Statements of Operations.............................. F-6
Consolidated Statements of Stockholders' Equity.................... F-7
Consolidated Statements of Cash Flows.............................. F-8
Notes to Consolidated Financial Statements......................... F-9
International Magnetic Imaging, Inc. [Predecessor]
Report of Independent Auditors..................................... F-34
Combined Statement of Operations................................... F-35
Combined Statement of Changes in Equity............................ F-36
Combined Statement of Cash Flows................................... F-37
Notes to Combined Statements of Operations, Changes in
Equity, and Cash Flows............................................. F-38
. . . . . . . . .
<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 consolidated balance sheets
of International Magnetic Imaging, Inc. and its subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1996 and
1995 and from date of inception [September 30, 1994] to December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of International Magnetic Imaging, Inc. and its subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for the years ended December 31, 1996 and 1995 and for the
period from September 30, 1994 to December 31, 1994, in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 7, 1997 [Except for Note 24 as
to which the date is March 31, 1997]
F-3
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
------------
1996 1995
---- ----
Assets:
Current Assets:
Cash $ 1,539,245 $ 1,411,490
Accounts Receivable - Net 11,821,950 10,506,041
Prepaid Expenses and Other 253,900 237,944
Deferred Tax Asset 363,967 953,985
------------- -------------
Total Current Assets 13,979,062 13,109,460
------------- -------------
Property and Equipment:
Property and Equipment - Net 9,219,684 7,249,676
Equipment Under Capitalized Leases - Net 3,340,929 2,252,329
------------- -------------
Property and Equipment - Net 12,560,613 9,502,005
------------- -------------
Other Assets:
Goodwill - Net 9,728,912 10,277,160
Restrictive Covenants - Net 825,644 1,926,512
Customer List - Net 4,807,279 5,184,319
Loan Costs - Net 535,411 98,992
Deferred Offering Costs 322,165 --
Deposits and Other 346,663 727,944
Deferred Tax Asset 1,224,398 1,189,611
Note Receivable - Officer 308,296 --
------------- -------------
Total Other Assets 18,098,768 19,404,538
------------- -------------
Total Assets $ 44,638,443 $ 42,016,003
============= =============
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
------------
1996 1995
---- ----
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Other Liabilities $ 2,987,434 $ 2,673,087
Accrued Expenses 1,016,419 814,156
Accrued Radiology Fees 191,336 187,134
Current Income Taxes Payable 652,404 456,281
Current Portion of Long-Term Debt 3,486,408 2,933,082
Current Portion of Obligations Under Capital
Leases 1,272,923 1,140,095
Current Portion of Covenants Not-to-Compete 200,000 266,667
Current Portion of Subordinated Debt 6,268,713 12,653,825
Subordinated Debt - Related Party 924,206 --
Due to Affiliate 250,000 111,514
------------- -------------
Total Current Liabilities 17,249,843 21,235,841
------------- -------------
Noncurrent Liabilities:
Notes Payable 11,525,232 5,909,814
Revolver Loan 4,714,585 --
Obligations Under Capitalized Leases 2,863,752 2,057,580
Subordinated Debt 311,872 4,033,873
Subordinated Debt - Related Party -- 969,000
Covenants Not-to-Compete -- 200,000
Deferred Interest 567,774 --
Due to Affiliate 1,175,397 2,557,794
------------- -------------
Total Noncurrent Liabilities 21,158,612 15,728,061
------------- -------------
Total Liabilities 38,408,455 36,963,902
------------- -------------
Commitments and Contingencies -- --
------------- -------------
Stockholders' Equity:
Preferred Stock - Par Value $.01,
6,000,000 Shares Authorized:
Series A Redeemable Preferred -
5,000 Shares Issued and Outstanding
[Liquidation Value - $4,984,000] 50 50
Common Stock - Par Value $.01,
50,000,000 Shares Authorized,
9,200,000 Shares Issued and Outstanding 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
Additional Paid-in Capital 1,550,346 1,413,813
Retained Earnings 4,577,592 3,536,238
------------- -------------
Total Stockholders' Equity 6,229,988 5,052,101
------------- -------------
Total Liabilities and Stockholders' Equity $ 44,638,443 $ 42,016,003
============= =============
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From date of
Inception
[September 30,
Years ended 1994] to
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Revenue:
Net Patient Service Revenue $ 30,015,345 $ 27,381,738 $ 6,526,644
Other Service Revenue 567,602 449,773 --
Management Fee Income 526,905 212,211 22,901
Radiology Fee Income -- -- 7,791
--------------- --------------- ---------------
Total Revenue 31,109,852 28,043,722 6,557,336
--------------- --------------- ---------------
Costs and Expenses:
Radiology Fees 3,317,784 2,981,862 526,576
Equipment Maintenance 1,261,658 1,223,154 359,842
Patient Service Costs and Expenses 2,224,157 1,934,866 520,839
Salaries and Benefits 6,674,599 5,941,350 1,713,229
Professional Services 801,115 786,608 39,190
Other Management, General and Administrative 4,731,629 3,966,117 946,822
Provision for Bad Debts 2,359,500 855,053 130,637
Depreciation 3,163,616 2,939,841 775,244
Amortization 2,150,410 2,047,681 509,016
--------------- --------------- ---------------
Total Costs and Expenses 26,684,468 22,676,532 5,521,395
--------------- --------------- ---------------
Operating Income Before Other Income [Expense]
and Income Taxes 4,425,384 5,367,190 1,035,941
--------------- --------------- ---------------
Other Income [Expense]:
Equity in Income of Joint Venture 280,752 120,450 --
Interest Income and Other 280,375 72,112 139,727
Interest Expense (3,004,705) (2,565,215) (702,808)
Loss on Disposal of Assets (28,341) (24,893) --
Gain [Loss] on Sale of Assets 5,000 (78,718) --
--------------- --------------- ---------------
Other [Expense] - Net (2,466,919) (2,476,264) (563,081)
--------------- --------------- ---------------
Income Before Income Taxes 1,958,465 2,890,926 472,860
Income Tax Expense [Benefit] 917,111 1,129,427 (1,301,879)
--------------- --------------- ---------------
Net Income $ 1,041,354 $ 1,761,499 $ 1,774,739
=============== =============== ===============
Earnings Per Share:
Primary $ .09 $ .13 $ .12
=============== =============== ===============
Fully Diluted $ .08 $ .13 $ .12
=============== =============== ===============
Weighted Average Number of Shares:
Primary 14,960,000 15,256,286 15,184,786
=============== =============== ===============
Fully Diluted 14,960,000 15,256,286 15,184,786
=============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Class A Common
6,000,000 Shares Stock 50,000,000 Stock 6,000,000
Authorized Par Value $.01 Shares Authorized Shares Authorized
Series A Redeemable 9,200,000 Shares Issued 1,000,000 Shares Issued
5,000 Shares Issued and Outstanding and Outstanding
and Outstanding Par Value $.01 Par Value $.01
# of Shares Amount # of Shares Amount # of Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock 5,000 $ 50 9,200,000 $ 92,000 1,000,000 $ 10,000
Additional Capital Contribution -- -- -- -- -- --
Net Income for the period ended December 31, 1994 -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- -----------
Balance as of December 31, 1994 5,000 50 9,200,000 92,000 1,000,000 10,000
Additional Capital Contribution -- -- -- -- -- --
Net Income for the year ended December 31, 1995 -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- -----------
Balance as of December 31, 1995 5,000 50 9,200,000 92,000 1,000,000 10,000
Additional Capital Contribution -- -- -- -- -- --
Net Income for the year ended December 31, 1996 -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- -----------
Balance as of December 31, 1996 5,000 $ 50 9,200,000 $ 92,000 1,000,000 $ 10,000
========== ========== ========== ========== ========= ===========
(continued)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Paid-in Retained Stockholders'
Capital Earnings Equity
<S> <C> <C> <C>
Issuance of Common Stock $ (101,050) $ -- $ 1,000
Additional Capital Contribution 283,658 -- 283,658
Net Income for the period ended December 31, 1994 -- 1,774,739 1,774,739
----------- ----------- -----------
Balance as of December 31, 1994 182,608 1,774,739 2,059,397
Additional Capital Contribution 1,231,205 -- 1,231,205
Net Income for the year ended December 31, 1995 -- 1,761,499 1,761,499
----------- ----------- ------------
Balance as of December 31, 1995 1,413,813 3,536,238 5,052,101
Additional Capital Contribution 136,533 -- 136,533
Net Income for the year ended December 31, 1996 -- 1,041,354 1,041,354
----------- ----------- ------------
Balance as of December 31, 1996 $ 1,550,346 $ 4,577,592 $ 6,229,988
=========== =========== ============
(concluded)
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From date of
Inception
[September 30,
Years ended 1994] to
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 1,041,354 $ 1,761,499 $ 1,774,739
--------------- --------------- ---------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Bad Debts 2,359,500 855,053 130,637
Depreciation 3,163,616 2,939,841 775,244
Amortization of Intangible Assets and Loan Costs 2,150,410 2,047,681 509,016
Deferred Tax Provision [Benefit] 555,231 (475,196) (1,668,400)
Deferred Interest 567,774 -- --
Loss on Disposal of Equipment 28,341 24,893 --
[Gain] Loss of Sale of Equipment (5,000) 78,718 --
Changes in Operating Assets and Liabilities:
Accounts Receivable - Net (3,675,409) (3,432,240) (680,478)
Prepaid Expenses and Other (15,956) (2,870) 114,355
Accounts Payable and Other Liabilities 712,733 1,177,588 1,288,964
Accrued Radiology Fees 4,202 134,626 52,508
--------------- --------------- ---------------
Total Adjustments 5,845,442 3,348,094 521,846
--------------- --------------- ---------------
Net Cash - Operating Activities 6,886,796 5,109,593 2,296,585
--------------- --------------- ---------------
Investing Activities:
Property and Equipment Additions (3,961,729) (141,076) (1,514,620)
Net [Payments to] Proceeds from Affiliate (1,107,378) 761,634 (750,486)
Refunds [Payments] for Deposits 381,281 (658,281) --
Proceeds from Sale of Equipment 5,000 -- --
Net Cash Companies Acquired -- -- (4,750,462)
Note Receivable - Officer (308,296) -- --
--------------- --------------- ---------------
Net Cash - Investing Activities (4,991,122) (37,723) (7,015,568)
--------------- --------------- ---------------
Financing Activities:
Proceeds from Acquisition Debt -- -- 7,100,000
Proceeds from Lending Institutions 16,126,810 1,210,755 82,376
Payments on Notes Payable and Long-Term Debt (15,662,055) (5,190,329) (765,468)
Payments on Capital Lease Obligations (1,349,836) (1,078,134) (226,875)
Payments of Loan Costs (560,673) (73,722) --
Payments of Offering Costs (322,165) -- --
--------------- --------------- ---------------
Net Cash - Financing Activities (1,767,919) (5,131,430) 6,190,033
--------------- --------------- ---------------
Net Increase [Decrease] in Cash 127,755 (59,560) 1,471,050
Cash - Beginning of Periods 1,411,490 1,471,050 --
--------------- --------------- ---------------
Cash - End of Periods $ 1,539,245 $ 1,411,490 $ 1,471,050
=============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Nature of Operations
International Magnetic Imaging, Inc., a Delaware corporation [the "Company"]
formerly known as IMI Acquisition Corporation, was incorporated in March 1994
and 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 six
corporations and are located in various states and the Commonwealth of Puerto
Rico. Two of the corporations provide management and administrative services to
the centers. The other corporation operates as a referral network through which
patients are referred to diagnostic imaging centers, throughout the State of
Florida, including the Company's Florida centers.
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 consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The seven Florida
centers operate as limited partnerships in which the Company through its
wholly-owned subsidiaries, owns 100% of the limited and general partnership
entities. Such a structure was required to consummate the acquisition under
Florida law due to the notes payable to the former limited partner - physicians.
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. ["PODC"]
IMI Acquisition of Puerto Rico Corporation
IMI Acquisition of Arlington Corp.
IMI Acquisition of Kansas Corp.
Magnetic Resonance Institute of Orlando, Ltd.
Management and Administrative Services:
IMI - Florida MD Acquisition Corp.
Referral Services:
MRI Net, Inc.
[2] Summary of Significant Accounting Policies
The accounting and reporting policies of International Magnetic Imaging, Inc.
and subsidiaries [hereinafter referred to as "IMI" or the "Company"] conform to
generally accepted accounting principles. The following summarizes the more
significant of these policies.
Principles of Consolidation - The consolidated financial statements include the
accounts of International Magnetic Imaging, Inc. and its subsidiaries. All
intercompany transactions have been eliminated in consolidation.
F-9
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[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, 1996 and 1995, the Company had no 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 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 are recorded in
property and equipment accounts 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,
1996, 1995 and 1994 was $3,163,616, $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
restrictive covenants arising from business acquisitions. Goodwill, representing
the excess of the purchase price over the estimated fair value of the net assets
acquired via 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 restrictive covenants are being
amortized over their contractual lives, which is 3 years. Intangible assets are
being amortized on a straight-line basis.
Joint Venture - In August 1995, the Company and Kaley Imaging, Inc. ["Kaley"],
which also operated an MRI center in Orlando, Florida, entered into a joint
venture agreement pursuant to which the Company and Kaley combined to operate an
MRI center in Orlando, although the Company continues to incur expenses with
respect to the equipment formerly used in its Orlando center which expenses are
borne solely by the Company's subsidiary that operated its Orlando center. The
Company and Kaley each have a 50% interest in the joint venture, and the Company
accounts for its interest in the joint venture on the equity method. For the
years ended December 31, 1996 and 1995, the Company recognized income of
$280,752 and $120,450, respectively, from the joint venture. The excess of
distributions received from the joint venture for payments of guaranteed
obligations of the Company over the Company's equity interest in the net income
of the joint venture is included in accounts payable and other liabilities and
amounted to $310,806 at December 31, 1996. The Company's equity interest in the
net income of the joint venture net of distributions amounted to $26,267 at
December 31, 1995 and is included in other assets.
F-10
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Loan Origination Costs - Loan origination costs of $681,270 and $120,597 which
were incurred in connection with financing relating to the business acquisitions
and capital expenditures are shown net of accumulated amortization of $145,859
and $21,605 for the years ended December 31, 1996 and 1995, 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 for the years ended December 31, 1996 and 1995 was
$124,254 and $21,605, respectively.
Amortization of such costs began in January of 1995.
Deferred Offering Costs - Deferred offering costs of $322,165 were incurred with
respect to the Company's proposed initial public offering. Such costs will be
charged against the offering proceeds as a reduction of additional paid-in
capital. If the offering is not consummated, these costs will be expensed at
that time.
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.
Impairment - Certain long-term assets of the Company including goodwill are
reviewed on a quarterly basis as to whether their carrying value has become
impaired, pursuant to guidance established in Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets."
Management considers assets to be impaired if the carrying value exceeds the
future projected discounted net cash flows from related operations. If
impairment is deemed to exist, the assets will be written down to fair value or
projected discounted net cash flows from related operations. Management also
re-evaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of December 31,
1996, management expects these assets to be fully recoverable
Net Patient Service Revenue - Net patient service revenue is recognized at the
net realizable amounts from patients, third-party payors and others at the time
services are rendered. The amount recognized reflects estimated prospective
contractual adjustments, including contractual allowances based on agreements
between the Company and third-party payors.
For the years December 31, 1996 and 1995 and the period from inception
[September 30, 1994] to December 31, 1994, contractual adjustments amounted to
approximately $29,000,000, $22,000,000 and $4,000,000, respectively.
The Company is not engaged in the practice of medicine and does not employ
physicians. The Company, has the legal right to set the fees for the services
rendered, and such fees are billed at the time such services are rendered. The
patient or third-party payor is legally obligated to the Company for the amount
billed. Bills to third-party payors are based on contractual arrangements
between the Company and the third-party payors.
The Company has historically not provided any significant amount of charity
care.
Income Taxes - The Company prepares its consolidated financial statements on the
accrual basis of accounting. Provision has been made for federal and state
income taxes. The Company and its subsidiaries file separate state tax returns.
Although federal income tax returns are filed on a consolidated basis with those
of the parent company, Consolidated, the Company calculates its federal tax
provision on the "separate return basis." Any tax benefit generated by the
utilization of Consolidated's federal tax net operating losses has been recorded
as a liability to Consolidated and then subsequently forgiven, resulting in an
addition to paid-in capital.
F-11
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options and similar equity instruments [collectively, "Options"] issued to
employees, however, the Company will continue to apply the intrinsic value based
method of accounting for options issued to employees prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees" rather than the fair value based method of accounting prescribed by
SFAS No. 123. SFAS No. 123 also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from non-employees.
Those transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
Earnings Per Share - Earnings per share is computed based on the weighted
average number of shares of Common Stock and Class A Common Stock outstanding
for each period presented using the modified "Treasury Stock Method." Due to the
large number of common equivalent shares outstanding, application of the
modified "Treasury Stock Method" was used because the number of shares
obtainable upon exercise of all options and warrants exceeded 20% of the number
of shares outstanding at the end of the period. This results in the assumed
exercise of all anti-dilutive options and warrants as well as dilutive options
and warrants. While conventional earnings per share computational guidance does
not give effect to anti-dilution, exceptions are allowed under the treasury
stock method to aggregate all computations and if the net result is dilutive,
all options and warrants are included, and if the net result is anti-dilutive,
all are excluded. Primary earnings per share and fully diluted earnings per
share include common stock equivalents [options and warrants] which in the
aggregate are dilutive using the modified "Treasury Stock Method." Excess
proceeds from the assumed exercise of common stock equivalents were used to
retire short-term debt and when available, long-term debt. Common stock and
Class A Common Stock was assumed reacquired at the average market price for
primary earnings per share and at the year end market price for fully diluted
earnings per share. The determination of fair market value was made by the
Company's Board of Directors. At December 31, 1996, 1995 and 1994, the net
income effect of the assumed reduction in interest expense [net of tax] from
debt retirement and the average and year end market prices are as follows:
<TABLE>
<CAPTION>
Net Income Effects
of Debt Retirements Average Market Price Year End Market Price
Primary Fully Diluted
Earnings Earnings Class A Class A
Per Share Per Share Common Common Common Common
<S> <C> <C> <C> <C> <C> <C>
December 31,
1996 $ 223,935 $ 117,735 $ 2.25 $ 1.50 $ 3.50 $ 2.00
1995 $ 265,455 $ 234,855 $ .75 $ .75 $ 1.00 $ 1.00
1994 $ 80,591 $ 72,941 $ .25 $ .25 $ .50 $ .50
</TABLE>
Certain options and warrants, issued at or below the initial public offering
price within one year of the filing of the Company's initial public offering,
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
and 5,000 shares of Series A Redeemable Preferred Stock and 5,000 shares of
Series B Preferred Stock [subsequently cancelled at December 31, 1996]. 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.
Reclassification - Certain items have been reclassified to conform with the
current year's presentation.
F-12
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[3] Acquisitions
On September 30, 1994, the Company acquired IMI-Florida and its affiliated
entities, which are identified in Note 1 - Basis of Presentation, in a business
combination accounted for as a purchase. The principal operations of IMI -
Florida are in the establishment and operation of outpatient diagnostic imaging
centers providing MRI services and other diagnostic imaging modalities. The
results of operations of the acquired entities are included in the accompanying
consolidated 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 at the time of
acquisition. Such shares were transferred from Consolidated to SISC, which
generally holds Consolidated's investments in common stock, and from SISC to the
Company. The Company recorded this transfer as a loan payable to SISC [See Note
11]. Pursuant to the acquisition agreement, 83,334 additional shares of
Consolidated's common stock are to be issued to the sellers due to a decline in
the market price of the Consolidated's common stock. The 83,334 shares reflect
an offset to which the Company was entitled if certain levels of net patient
service revenues were not attained. During the two years following the closing
of the acquisition, 250,000 contingent shares that were to be issued in
connection with the acquisition of IMI-Florida based on performance, were not
issued due to the failure of the Company to meet certain net patient service
revenue levels during such two-year period. In addition, 70,000 additional
shares of Consolidated's common stock are to be issued to the sellers in
connection with the acquisitions of the Kansas City and Arlington centers due to
such decline in the stock prices of Consolidated's common stock. 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.
In conjunction with the Company's acquisition of one of the centers, 125,000
shares of Consolidated's common stock was issued to a radiologist in connection
with an amendment to the existing 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 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
------------- ===============
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
----- ===============
The cash portion of the purchase price was simultaneously financed through a
major asset-based lender.
F-13
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[4] Accounts Receivable
Accounts receivable, net of contractual allowances, are summarized as follows:
December 31,
1 9 9 6 1 9 9 5
------- -------
Personal Injury Liability Related Services $ 4,188,335 $ 5,423,870
Managed Care 2,786,959 2,031,822
Commercial Insurance 2,429,950 1,812,313
Workers' Compensation 1,972,751 958,427
Medicare/Medicaid 825,244 559,026
Private Pay 416,937 784,121
Other 232,804 1,426,843
---------------- ---------------
Totals 12,852,980 12,996,422
Less: Allowance for Doubtful Accounts (1,031,030) (2,490,381)
---------------- ---------------
Accounts Receivable - Net $ 11,821,950 $ 10,506,041
------------------------- ================ ===============
Accounts receivable pledged as collateral for borrowings at December 31, 1996
and 1995 was $11,821,950 and $9,969,500, respectively. On a consolidated 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 $600,000 and $2,000,000 at
December 31, 1996 and 1995, respectively.
The changes in the allowance for doubtful accounts are summarized as follows:
D e c e m b e r 31,
------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
Beginning Balance $ 2,490,381 $ 2,351,026 $ 2,394,794
Provision for Doubtful Accounts 2,359,500 855,053 130,637
Recoveries 195,371 255,862 94,848
Charge-offs (4,014,222) (971,560) (269,253)
------------ ------------ ------------
Ending Balance $ 1,031,030 $ 2,490,381 $ 2,351,026
-------------- ============ ============ ============
F-14
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------
[5] Property and Equipment
Property and equipment are summarized as follows:
December 31,
Property Class 1 9 9 6 1 9 9 5
-------------- ------- -------
Land $ 663,830 $ 663,830
Buildings and Improvements 3,466,887 3,242,346
Leasehold Improvements 1,688,335 1,170,377
Medical Equipment 17,489,403 14,590,268
Furniture and Equipment 2,325,783 2,071,906
----------- -----------
Subtotal 25,634,238 21,738,727
Less: Accumulated Depreciation (16,414,554) (14,489,051)
------------ ------------
Property and Equipment - Net $ 9,219,684 $ 7,249,676
---------------------------- ============ ============
Property and equipment pledged as collateral for borrowings had a net book value
of $9,219,684 and $7,249,676 as of December 31, 1996 and 1995, respectively.
[6] Intangibles
The Company acquired its subsidiaries [See Note 3] during 1994. As part of the
purchase agreement, the Company acquired customer lists, restrictive covenants
and goodwill. The intangible assets acquired and the related amortization on the
straight-line method are summarized as follows:
<TABLE>
<CAPTION>
Accumulated Amortization Net of Amortization
Life December 31, December 31,
---- ------------ ------------
Years Cost 1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
----- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Goodwill 20 $ 10,964,865 $ 1,235,953 $ 687,705 $ 9,728,912 $ 10,277,160
Customer Lists 15 $ 5,655,619 $ 848,340 $ 471,300 $ 4,807,279 $ 5,184,319
Restrictive Covenants 3 $ 3,302,597 $ 2,476,953 $ 1,376,085 $ 825,644 $ 1,926,512
</TABLE>
Amortization expense for the periods ended December 31, 1996, 1995 and 1994 was
$2,026,156, $2,026,076 and $509,016, respectively.
[7] Leases
The Company leases real estate for certain of its MRI centers and its
administrative offices under noncancellable operating leases expiring through
2006. 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 2003.
F-15
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[7] 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 6 1 9 9 5
-------------- ------- -------
Medical Equipment:
Boca Raton $ 415,559 $ --
South Dade 387,460 --
San Juan 2,654,340 1,508,390
Greater Kansas City 2,556,284 2,556,284
Orlando 1,625,664 1,625,664
IMI 585,498 350,151
P.O.D.C. 437,663 333,143
------------ -------------
Subtotal 8,662,468 6,373,632
Less: Accumulated Amortization (5,321,539) (4,121,303)
------------ ------------
Equipment Under Capitalized Leases - Net $ 3,340,929 $ 2,252,329
---------------------------------------- ============ ============
Amortization expense of equipment under capitalized leases is included in
depreciation expense.
As of December 31, 1996, the future minimum lease payments under capitalized
leases and noncancellable operating leases are:
Capital Operating
Fiscal Years Leases Leases
1997 $ 1,633,578 $ 681,708
1998 1,452,711 683,059
1999 811,678 693,645
2000 467,616 339,445
2001 309,209 132,254
Thereafter 391,760 446,583
--------------- ----------------
Total Minimum Lease Payments 5,066,552 $ 2,976,694
================
Less Amount Representing Interest (929,877)
---------------
Present Value of Net Minimum
Capitalized Lease Payments 4,136,675
Less: Current Portion of Obligations
Under Capital Leases 1,272,923
---------------
Non-Current Portion of Obligations
Under Capitalized Leases $ 2,863,752
===============
Total rental expense for the periods ended December 31, 1996, 1995 and 1994 was
$710,630, $628,366 and $129,690, respectively.
F-16
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[8] 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. Also, certain loan agreements expressly prohibit
payment of subordinated debt to the former owners of IMI-Florida. 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 a result of which the
holders may have the right to declare a default against such subsidiaries.
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. At December 31, 1996, subordinated notes in the amount of $7,192,919
are recorded as current liabilities.
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 September 1996, certain of the Company's subsidiaries borrowed an aggregate
of $4.0 million from DVI. The loans, which mature in September 2002, are payable
in monthly installments over the term of the loans. The Company pays interest
currently at 11.5% per annum, the payment of 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, which exercise price was changed to $3.50 per share at
December 31, 1996, and the Company issued to DVI a warrant to purchase 250,000
shares of Class A Common Stock at $3.50 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. The
Class A Common Stock is not and will not be publicly traded, thus the minimum
value method of calculating compensation expense was used to determine financing
costs. The costs calculated were not material. 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 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. If such warrant is issued, the Company
will recognize financing costs in accordance with SFAS No. 123 based on the
exercise price per share at date of exercise.
F-17
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------
[8] Long-Term Debt [Continued]
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 31,
1 9 9 6 1 9 9 5
------- -------
Equipment and Leasehold Improvement Debt:
<S> <C> <C>
Note payable in monthly installments of $13,666, which includes
interest at 7.75%; final payment due July 1996. $ -- $ 93,478
Note payable in monthly installments of $16,241; which includes
interest at a rate of 9.5%; final payment due September 1996. -- 147,008
Note payable in monthly installments of $12,830, which includes
interest at a rate of 9.5%; final payment due September 1998. 247,335 371,338
Note payable in monthly installments of $6,488, which includes
interest at 11.5% final payment due May 2000 210,292 260,763
Note payable in monthly installments of $6,488, which includes
interest at 11.5%, final payment due May 2000 210,292 260,763
Note payable in monthly installments of $7,962, which includes
interest at 11.5%, final payment due May 2000. 258,058 319,989
Note payable in monthly installments of $26,000, which includes
interest at 11.447%, final payment due January 2000. 1,890,703 --
Note payable in monthly installments of $17,040, which includes
interest at 11.103%, final payment due January 2002. 781,876 --
Note payable in monthly installments of $39,130, which includes
interest at 11.086%, final payment due September 2002. 1,969,179 --
------------- -------------
Total Equipment and Leasehold Improvement Debt - Forward 5,567,735 1,453,339
------------- -------------
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
Mortgage note payable in monthly installments of $8,333, plus interest at 1%
above the prime rate; balloon payment due
February 1999. 416,667 516,667
Mortgage note payable in monthly installments of $2,942, which
includes interest at 9.75%, balloon payment due November 2000 208,845 222,701
Mortgage note payable in monthly installments of $15,000, plus interest at 1%
above the prime rate; final payment due
May 16, 2000. 611,000 --
------------- -------------
Total Building Debt - Forward $ 1,236,512 $ 1,711,202
</TABLE>
F-18
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[8] Long-Term Debt [Continued]
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Total Equipment and Leasehold Improvement Debt -
Forwarded $ 5,567,735 $ 1,453,339
--------------- ---------------
Total Building Debt - Forwarded 1,236,512 1,711,202
--------------- ---------------
Subordinated Debt:
Note payable in quarterly installments of $110,401, plus interest at
7%; balloon payment due September 1996. 64,525 3,238,396
Note payable in quarterly installments of $78,537, plus interest at
7%; balloon payment due September 1996. 296,081 2,303,765
Note payable in quarterly installments of $92,400, plus interest at
7%; balloon payment due September 1996. 548,236 2,710,403
Note payable in quarterly installments of $28,800, plus interest at
7%; balloon payment due September 1996. -- 844,800
Note payable in quarterly installments of $20,700, plus interest at
7%; balloon payment due September 1996. -- 607,200
Note payable in quarterly installments of $17,100, plus interest at
7%; balloon payment due September 1996. 12,375 501,600
Note payable in quarterly installments of $29,400, plus interest at
7%; balloon payment due September 1996. 271,651 862,400
Note payable in quarterly installments of $11,400, plus interest at
7%; balloon payment due September 1997. 288,800 334,400
Note payable in quarterly installments of $14,400, plus interest at
7%; balloon payment due September 1997. 365,952 422,400
Note payable in quarterly installments of $91,500, plus interest at
7%; balloon payment due September 1997. 2,848,928 2,860,976
Note payable in quarterly installments of $195,925, which includes
interest at 4%; balloon payment due September 1999. 2,808,243 2,970,358
--------------- ---------------
Total Subordinated Debt - Forward $ 7,504,791 $ 17,656,698
</TABLE>
F-19
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[8] Long-Term Debt [Continued]
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Total Equipment and Leasehold Improvement Debt -
Forwarded $ 5,567,735 $ 1,453,339
--------------- ---------------
Total Building Debt - Forwarded 1,236,512 1,711,202
--------------- ---------------
Total Subordinated Debt - Forwarded 7,504,791 17,656,698
--------------- ---------------
Other Debt:
Note payable in monthly installments of $29,124, which includes
interest at 10.5%; final payment due September 1999. 831,651 1,079,498
Note payable in monthly installments of $25,922, which includes
interest at 10.5%; final payment due September 1999. 740,201 960,793
Note payable in monthly installments of $8,684, which includes
interest at 10.5%; final payment due September 1999. 247,961 321,858
Note payable in monthly installments of $10,768, which includes
interest at 10.5%; final payment due September 1999. 307,496 399,135
Note payable in monthly installments of $21,129, which includes
interest at 10.5%; final payment due September 1999. 603,331 783,134
Note payable in monthly installments of $18,807, which includes
interest at 10.5%; final payment due September 1999. 537,044 697,093
Note payable in monthly installments of $10,854, which includes
interest at 10.5%; final payment due September 1999. 309,952 402,322
Note payable in monthly installments of $27,319, which includes
interest at 10.5%; final payment due September 1999. 780,095 1,012,574
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
Notes payable in monthly installments of $15,395, which includes
interest at 11.5%, final payment due September 2002 3,368,452 --
Notes payable in monthly installments of $10,998, which includes
interest at 11.5%, final payment due September 2002 481,210 --
--------------- ---------------
Total Other Debt 8,207,393 5,678,355
--------------- ---------------
Revolver Loan - Due December 1998 at Prime Plus 2.75% 4,714,585 --
--------------- ---------------
Total Debt 27,231,016 26,499,594
Less Current Portion (10,679,327) (15,586,907)
--------------- ---------------
Totals $ 16,551,689 $ 10,912,687
------ =============== ===============
The prime rate at December 31, 1996 and 1995 was 8.25% and 8.5%, respectively.
</TABLE>
F-20
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
- --------------------------------------------------------------------------------
[8] Long-Term Debt [Continued]
Maturities of long-term debt are as follows:
Years ending
December 31,
1997 $ 10,679,327
1998 8,529,580
1999 3,753,589
2000 2,297,334
2001 1,358,897
Thereafter 612,289
---------------
Total $ 27,231,016
----- ===============
Cash paid for interest for the periods ended December 31, 1996, 1995 and 1994
amounted to $2,399,375, $2,175,631 and $709,140, respectively.
[9] 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 IMI-Florida. 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, 1996 and 1995 is
$200,000 and $466,667, respectively. Annual maturities of these obligations are
as follows:
Year ending December 31, 1997 $ 200,000
===============
[10] 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 Delaware 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.
F-21
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
- --------------------------------------------------------------------------------
[10] Capital Stock [Continued]
Common Stock [Continued] - 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 Delaware
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.
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 a registration statement relating to the Company's initial
public offering, the aggregate amount shall be 80% of the Company's
stockholder's equity. 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.
[11] Related Party Transactions
Issuance of Securities at Organization - The Company was incorporated in March
1994 and commenced operations in September 1994. In connection with the
organization of the Company, the Company issued an aggregate of 9,200,000 shares
of Common Stock, 1,000,000 shares of Class A Common Stock to SISC, 5,000 shares
of Series A Preferred Stock, 5,000 shares of Series B Preferred Stock
[subsequently canceled at December 31, 1996], 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.
F-22
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
- --------------------------------------------------------------------------------
[11] Related Party Transactions [Continued]
Issuance of Securities at Organization [Continued] - 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's 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, 1996 and 1995 amounted to approximately $1,400,000 and $2,600,000,
respectively.
Notes Payable - Officer - Approximately $924,000 and $969,000 at December 31,
1996 and 1995, respectively, of the subordinated notes payable issued in
connection with the acquisitions is payable to the President/Chief Executive
Officer ["CEO"] of the Company and his spouse. The CEO was a stockholder in the
predecessor entities. Related party interest expense was approximately $60,000
and $70,000 for the years ended December 31, 1996 and 1995, respectively.
Note Receivable - Officer - On February 7, 1996, the Company loaned $300,000 to
the CEO 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%. Related party interest
income was approximately $8,000 for the year ended December 31, 1996.
Other - In September 1996, the Company issued warrants to purchase 250,000
shares of Class A Common Stock at $3.50 per share to SISC in consideration for
SISC's sale of 250,000 warrants to purchase Class A Common Stock at $2.00 per
share to DVI. The Class A Common Stock is not and will not be publicly traded,
thus the minimum value method of calculating compensation expense was used to
determine compensation expense. The cost calculated was not material. At
December 31, 1996, the warrant issued to SISC was cancelled and the exercise
price of the warrant held by DVI was increased from $2.00 per share to $3.50 per
share.
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's common stock are to
be issued to the sellers. Approximately 35,000 of these shares are to be issued
to the Company's CEO.
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 present lenders. The agreement is renewable by Trinity. Mr.
Lewis Schiller, Chairman of the Board of the Company, is the Chief Executive
Officer of Consolidated, SISC and Trinity. The services to be rendered by
Trinity are general management services.
F-23
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #16
- --------------------------------------------------------------------------------
[12] Income Taxes
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 tax
benefits of $136,533, $1,231,205 and $283,658 for the periods ended December 31,
1996, 1995 and 1994, respectively, received by the utilization of the parent
company's tax net operating losses have been recorded as a liability to the
parent and then subsequently forgiven, resulting in an increase to additional
paid-in capital.
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 comprising the Company's net deferred tax
asset as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Deferred Tax Liabilities $ -- $ --
-------------- ---------------
Deferred Tax Assets:
Allowance for Doubtful Accounts not Currently Deductible 363,967 953,985
Tax Basis of Assets in Excess of Book Basis 1,239,700 1,251,728
State Net Operating Loss Carryforwards 239,799 94,509
-------------- ---------------
Totals 1,843,466 2,300,222
-------------- ---------------
Valuation Allowance 255,101 156,626
-------------- ---------------
Net Deferred Tax Asset 1,588,365 2,143,596
Net Deferred Tax Asset - Current Portion 363,967 953,985
-------------- ---------------
Net Deferred Tax Asset - Non Current $ 1,224,398 $ 1,189,611
------------------------------------ ============== ===============
</TABLE>
The Company has recorded a deferred tax asset of $1,588,365 at December 31,
1996. The realization of the non-current portion of the deferred tax asset of
$1,224,398 is dependent on the Company generating sufficient taxable income in
future years. Although realization is not assured, management believes it is
more likely than not that all of the non-current deferred tax asset will be
realized. The amount of the non-current deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The Company's deferred tax asset valuation allowance was $255,101 and $156,626
as of December 31, 1996 and 1995, respectively. The valuation allowance
represents the tax effects of state operating loss carryforwards and other
temporary differences which the Company does not expect to realize. The increase
in the valuation allowance of $98,475 for the year ended December 31, 1996 is
comprised of the following:
State Net Operating Loss Carryforwards $ 145,290
Tax Basis of Assets in Excess of Book Basis of Assets (18,870)
Allowance for Doubtful Accounts not Currently Deductible (27,945)
----------------
Total $ 98,475
----- ================
F-24
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #17
- --------------------------------------------------------------------------------
[12] Income Taxes [Continued]
The current and deferred income tax components of the provision [benefit] for
income taxes consist of the following:
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, December 31,
------------ ------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 136,533 $ 1,231,205 $ 283,658
Puerto Rico -- 74,309 22,868
State 225,347 299,109 59,995
--------------- ----------------- ---------------
Totals 361,880 1,604,623 366,521
--------------- ----------------- ---------------
Deferred:
Federal 512,712 (438,483) (1,311,347)
Puerto Rico 52,037 8,998 (258,217)
State (9,518) (45,711) (98,836)
--------------- ----------------- ---------------
Totals 555,231 (475,196) (1,668,400)
--------------- ----------------- ---------------
Totals $ 917,111 $ 1,129,427 $ (1,301,879)
------ =============== ================= ===============
</TABLE>
The provision for income taxes varies from the amount computed by applying the
statutory rate for the reasons below:
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, December 31,
------------ ------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Provision Based on Statutory Rates 35.0 % 35.0 % 35.0 %
Benefit of Graduated Rates (1.0) (1.0) (1.0)
State and Puerto Rico Taxes [Net of Federal Benefit] 9.0 7.7 (38.3)
Other 3.8 (2.6) (271.0)
--- ----- -------
Totals 46.8 % 39.1 % (275.3)%
------ ====== ====== ========
</TABLE>
The Company and its subsidiaries file separate state tax returns. As of
December 31, 1996, the Company had state net operating losses of $5,415,000
expiring as follows:
2004 $ 76,000
2005 8,000
2009 190,000
2010 1,367,000
2011 3,774,000
-----------
Total $ 5,415,000
----- ===========
For the years ended December 31, 1996, 1995 and 1994, the Company recorded
liabilities of $136,533, $1,231,205 and $283,658, respectively, payable to its
immediate parent, SISC, for the utilization of federal tax net operating losses
of the consolidated group. These liabilities were forgiven and credited to
paid-in capital.
F-25
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #18
- --------------------------------------------------------------------------------
[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 its CEO 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 [See Note 24].
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's employees perform the diagnostic imaging
scans and the Company engages radiologists and other specialists to read and
interpret the diagnostic imaging scans performed at the centers. The Company has
entered into several agreements 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. Additionally, in
conjunction with the Company's acquisition of one of the centers, 125,000 shares
of Consolidated's common stock were issued to a radiologist in connection with
an amendment to the existing 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. In addition, one agreement contains a provision
for the issuance by Consolidated 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. The Company will incur
expenses for radiology fees in accordance with SFAS No. 123 if such warrant is
issued.
F-26
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #19
- --------------------------------------------------------------------------------
[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
$53,687 and $41,120 for the years ended December 31, 1996 and 1995,
respectively.
The Plan will match employee contributions dollar for dollar with maximum
limitations as follows:
Year in Plan
First $ 500
Second 750
Third 1,000
Fourth 1,250
Fifth 1,500
Sixth 1,750
Seventh or More 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 of its subsidiaries or affiliates. The Plan imposes no
limit on the number of officers and other key employees to whom awards may be
made.
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 Common 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
was the fair market value on the respective dates of grant. All of the options
are presently fully exercisable and have a maximum term of seven years from the
date of grant. No compensation cost was recognized for stock-based employee
awards.
F-27
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #20
- --------------------------------------------------------------------------------
[15] Long-Term Incentive Plan [Continued]
A summary of the activity under the Company's long-term incentive plan is as
follows:
<TABLE>
<CAPTION>
Weighted
Average Contractual
Number of Weighted Average Remaining
Options Exercise Price Life [Years]
<S> <C> <C> <C>
Options Outstanding - September 30, 1994 --
Granted 765,500
Exercised --
Expired --
-------------
Options Outstanding - December 31, 1994 765,500 $ .50 6.75 Years
============
Granted 71,500
Exercised --
Expired --
-------------
Options Outstanding - December 31, 1995 837,000 $ .54 5.83 Years
============
Granted 13,000
Exercised --
Expired --
-------------
Options Outstanding - December 31, 1996 850,000 $ .55 4.85 Years
--------------------------------------- ============= ============
Options Exercisable - December 31, 1996 850,000
--------------------------------------- =============
</TABLE>
If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the minimum value method of SFAS No. 123, the Company
would have recorded compensation expense of approximately $17,000 and $27,000
for the years ended December 31, 1996 and 1995, respectively, and the Company's
net income and net income per share would have been as follows:
Years ended
December 31,
1 9 9 6 1 9 9 5
------- -------
Net Income as Reported $ 1,041,354 $ 1,761,499
============== ===============
Pro Forma Net Income $ 1,024,354 $ 1,734,499
============== ===============
Net Income Per Share as Reported $ .08 $ .13
============== ===============
Pro Forma Net Income Per Share $ .08 $ .13
============== ===============
The fair value of options and warrants [See Note 16] to purchase Class A Common
Stock at date of grant was estimated using the minimum value method with the
following weighted average assumptions:
1 9 9 6 1 9 9 5
------- -------
Expected Life [Years] 7 7
Interest Rate 6.0% 7.0%
Annual Rate of Dividends 0% 0%
Volatility 0% 0%
The weighted average fair value of options at date of grant using the minimum
value method during 1996 and 1995 is estimated at $1.34 and $.38, respectively.
F-28
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #21
- --------------------------------------------------------------------------------
[16] Warrants
Outstanding warrants as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
No. of Warrants Outstanding
Common Class A Exercise FMV at No. of Warrants
Date of Grant Stock Common Price Date of Grant Exercised Expiration Date
------------- ----- ------ ----- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
September 1996 -- 250,000 3.50 2.00 -- February 2002
October 1994 1,000,000 -- 2.00 .50 -- October 2001
October 1994 [A] -- 700,000 3.50 .50 -- October 2001
October 1994 [B] -- 500,000 3.50 .50 -- October 2001
----------- ------------
Total 1,000,000 1,450,000
----- =========== ============
</TABLE>
The weighted average exercise price and weighted average remaining contractual
life of outstanding warrants are as follows:
Weighted Average Weighted Average Remaining
Exercise Price Contractual Life [Years]
December 31,
1996 2.89 4.78
1995 2.82 5.75
1994 2.82 6.75
[A] Warrants to purchase 1,250,000 shares of Class A Common Stock at $2.00 per
share were issued in October 1994. At December 31, 1996, the exercise price was
increased to $3.50 per share and warrants to purchase 550,000 shares of Class A
Common Stock were canceled.
[B] At December 31, 1996, the exercise price was increased from $2.00 per share
to $3.50 per share.
In September 1996, the Company issued warrants to purchase 500,000 shares of
Class A Common Stock at $3.50 per share [250,000 to a related party [See Note
11] and 250,000 to DVI [See Note 8]]. At December 31, 1996, the warrant to
purchase 250,000 shares of Class A Common at $3.50 per share issued to a related
party was cancelled. At December 31, 1996, none of the above warrants issued
were canceled, except as noted above, and all outstanding warrants are
exercisable. At December 31, 1996, their are no additional warrants subject to
grant.
[17] Litigation
The Company is subject to lawsuits arising in the ordinary course of 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. However, no
facts have come to the Company's attention which would result in the estimate of
a loss or range of loss and the Company believes that all such claims except for
immaterial deductibles, will be covered by insurance except as follows:
F-29
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #22
- --------------------------------------------------------------------------------
[17] Litigation [Continued]
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 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
approximately $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 approximately
$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 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 an initial public offering by the Company 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 an initial public 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.
F-30
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #23
- --------------------------------------------------------------------------------
[17] Litigation [Continued]
The Company has received a report with respect to the conduct of an independent
contractor who regularly performs professional services for one of its Centers,
which conduct may be considered sexual harassment. The Company believes that its
policies and procedures with respect to the behavior of employees and others who
regularly perform services at its Centers are in compliance with applicable
Federal and state laws concerning sexual harassment. The Company is
investigating the reported incidents and has not made a determination as to what
action, if any, should be taken. No assurance can be given that, if the reported
incidents result in a claim against the Company and the claimant prevails, there
will not be a material adverse effect upon the Company. [18] 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 $784,000 and $602,000 as of December 31, 1996 and 1995,
respectively.
The Company derived approximately 73% of its net patient service revenues from
operations in the State of Florida in 1996.
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 6 1 9 9 5
Personal Injury Liability Related Services 33 % 42 %
Managed Care 22 % 16 %
Commercial Insurance 19 % 14 %
Workers' Compensation 15 % 7 %
Medicare/Medicaid 6 % 4 %
Private Pay 3 % 6 %
Other 2 % 11 %
------- --------
100 % 100 %
======= ========
[19] 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.
F-31
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #24
- --------------------------------------------------------------------------------
[19] Fair Value of Financial Instruments [Continued]
<TABLE>
<CAPTION>
Carrying Amount Fair Value
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
<S> <C> <C> <C> <C>
Subordinated Debt - Short-Term $ 7,192,919 $ 12,653,825 $ 6,583,170 $ 12,653,825
Notes Payable - Long-Term 16,239,817 5,909,814 16,096,742 5,726,391
Subordinated Debt - Long-Term 311,872 5,002,873 266,130 4,311,924
-------------- -------------- -------------- --------------
Totals $ 23,744,608 $ 23,566,512 $ 22,946,042 $ 22,692,140
------ ============== ============== ============== ==============
</TABLE>
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 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, 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 which is $1,175,397 at December 31,
1996.
[20] Supplemental Disclosures of Cash Flow Information
Cash paid for interest and income taxes amounted to $2,399,375 and $48,029 in
1996, $2,175,631 and $53,764 in 1995 and $709,140 and $-0- in 1994.
During the periods ended December 31, 1996, 1995 and 1994, $136,533, $1,231,205
and $283,658, respectively, of debt due to an affiliate related to allocated
income taxes was forgiven and included in paid-in capital.
During the years ended December 31, 1996 and 1995, the Company acquired
equipment under capitalized leases in the amounts of $2,288,836 and $762,465,
respectively.
During 1995, $103,984 of expenses paid on behalf of an affiliate were applied
against the amount due to affiliate.
During December 1994, the Company entered into an agreement to purchase five
system upgrades for existing MRI centers at a total cost of $1,475,000.
During 1994, the Company utilized stock transferred from an affiliate valued at
$2,919,000 to acquire the centers and related companies.
[21] Proposed Public Offering
In November 1996, the Company filed a registration statement with respect to an
initial public offering of its securities.
[22] Fourth Quarter Data
The Company incurred a loss before income taxes in the fourth quarter of
$952,000. This loss was primarily due to an increase in accounts receivable
charge-offs which increased the provision for doubtful accounts.
F-32
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #25
- --------------------------------------------------------------------------------
[23] New Authoritative Accounting Pronouncement
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. The provisions of SFAS No. 125
must be applied prospectively; retroactive application is prohibited, and early
application is not allowed. SFAS No. 125 is not expected to have a material
impact on the Company. Some provisions of SFAS No. 125, which are unlikely to
apply to the Company, have been deferred by the FASB.
The FASB has issued SFAS No. 128 "Earnings Per Share" and SFAS 129 "Disclosure
of Information About Capital Structure." Both are effective for financial
statements issued for periods ending after December 15, 1997. SFAS No. 128
simplifies the computation of earning per share by replacing the presentation of
primary earnings per share with a presentation of basic earnings per share. The
statement requires dual presentation of basic and diluted earnings per share by
entities with complex capital structures. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity similar to fully diluted earnings per share.
While the Company has not analyzed SFAS No. 128 sufficiently to determine its
long-term impact on per share reported amounts, SFAS No. 128 should not have a
significant effect on historically reported per share loss amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
[24] Subsequent Events
In March 1997, the Company entered into an agreement with the CEO and his wife
pursuant to which they agreed to reduce the outstanding $924,000 principal
amount of the Subordinated Notes payable to them by the $300,000 principal
amount of two loans from the Company to the CEO and exchange such Subordinated
Notes for 30 shares of a newly created series of preferred stock, the Series C
Preferred Stock, having an annual non-cumulative dividend of $75,000, a
liquidation preference of $50 and a redemption price of approximately $624,000.
In connection with such exchange, accrued interest of approximately $8,000 on
the $300,000 loan to the CEO will be waived. The CEO will also receive a
five-year warrant to purchase 25,000 shares of Class A Common Stock at $3.50 per
share.
Pursuant to such agreement, the CEO's employment agreement is to be amended,
effective upon the closing of the Company's initial public offering, subject to
the Company obtaining DVI's approval, to provide, among other things, (a) the
extension of the term until December 31, 2002, (b) an increase in annual base
salary to $395,000, subject to annual increases of 3%, commencing January 1,
1998, (c) the grant to the CEO of the right to terminate his employment
agreement, without cause, upon six months' notice to the Company, (d) a
non-competition covenant by the CEO, (e) the grant to the CEO 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 purchasers of such centers, and (f) severance payments of $250,000
in the event that he terminates the agreement with cause or in the event of a
change of control.
In March 1997, the employment agreement of the CFO, who is also the CFO of
Consolidated, was amended to include among other provisions, (a) the extension
of his term of employment to December 31, 2007 or such later date the CFO may be
required to be employed by the Company pursuant to the Company's agreement with
DVI, (b) annual salary increases until the year ended December 31, 2007, for
which his base salary will be $353,000, (c) increases in his two bonuses from 1%
to 2 1/2% of the greater of Consolidated's net pre-tax profits or Consolidated's
net cash flow and the greater of the Company's net pre-tax profits or the
Company's net cash flow. . . . . . . . . . . .
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
International Magnetic Imaging, Inc. [Predecessor]
We have audited the accompanying combined statements of
operations, changes in equity, and cash flows of International Magnetic Imaging,
Inc. [Predecessor] and its affiliates for the nine months ended September 30,
1994. These combined statements 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 statements of operations, changes in
equity, and cash flows based on our audit.
We conducted our audit 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 the combined statements of operations, changes in equity, and
cash flows. We believe that our audit provides 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, the combined results of operations and cash flows of International
Magnetic Imaging, Inc. [Predecessor] and its affiliates for the nine months
ended September 30, 1994, in conformity with generally accepted accounting
principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
November 22, 1994
F-34
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994.
- --------------------------------------------------------------------------------
Revenue:
Net Patient Service Revenue $ 21,161,740
---------------
Expenses:
Radiology Fees 487,365
Equipment Maintenance 920,394
Patient Service Costs and Expenses 1,401,912
Salaries and Benefits 6,059,210
Professional Services 1,390,211
Other Management, General and Administrative 3,099,641
Provision for Bad Debts 966,018
Depreciation and Amortization 2,459,742
---------------
Total Expenses 16,784,493
---------------
Operating Income Before Other Income [Expense] 4,377,247
Other Income [Expense]:
Loss on Disposal of Assets (523,718)
Interest Income and Other 437,684
Interest Expense (610,435)
---------------
Net Income - Historical 3,680,778
Pro Forma Income Tax Effect [11] 1,472,311
---------------
Pro Forma Net Income $ 2,208,467
===============
See Notes to Combined Statements of Operations, Changes in Equity,
and Cash Flows.
F-35
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CHANGES IN EQUITY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994.
- --------------------------------------------------------------------------------
<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, 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 $ 8,770 $ 5,945,045 $ 592,059 $ (1,594,866) $ 6,584,722 $ (896,000) $ 10,639,730
========== ============ ============== ============= ============= ============= =============
</TABLE>
See Notes to Combined Statements of Operations, Changes in Equity,
and Cash Flows.
F-36
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994.
- --------------------------------------------------------------------------------
Operating Activities:
Net Income $ 3,680,778
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Provision for Bad Debts 966,018
Depreciation and Amortization 2,459,742
Loss on Disposal of Property and Equipment 523,718
Changes in Operating Assets and Liabilities:
Restricted Cash (983,000)
Accounts Receivable - Net (2,571,920)
Prepaid Expenses and Other 2,704,197
Accounts Payable and Other Liabilities (522,558)
--------------
Net Cash - Operating Activities 6,256,975
--------------
Investing Activities:
Property and Equipment Additions - Net (466,429)
Proceeds from Sale of Equipment 469,103
--------------
Net Cash - Investing Activities 2,674
--------------
Financing Activities:
Shareholders' Dividends (1,247,890)
Partners' Distributions (2,883,229)
Payments on Notes Payable and Long-Term Debt (877,366)
Payments on Capital Lease Obligations (654,452)
---------------
Net Cash - Financing Activities (5,662,937)
---------------
Net Increase in Cash and Cash Equivalents 596,712
Cash and Cash Equivalents - Beginning of Years 1,752,826
--------------
Cash and Cash Equivalents - End of Years $ 2,349,538
===============
See Notes to Combined Statements of Operations, Changes in Equity,
and Cash Flows.
F-37
<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 imaging 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 10].
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-38
<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.
F-39
<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.
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 nine months ended September 30, 1994 is $2,374,931.
[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.
Total rental expense for the nine months ended September 30, 1994 is $562,003.
F-40
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS,
Sheet #4
- --------------------------------------------------------------------------------
[4] 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 September 30, 1994 are as
follows:
<TABLE>
<CAPTION>
Par Shares Issued and Common
Value Authorized Outstanding Stock
<S> <C> <C> <C> <C>
S.A.S.G.P., Inc. $ 1.00 500 300 $ 300
Askay, Inc. $ 1.00 7,500 300 $ 300
MRI of Boca Raton, Inc. $ 1.00 7,500 300 $ 300
MRI of South Dade, Inc. $ 1.00 7,500 300 $ 300
Oakland MRI, Inc. $ 1.00 7,500 300 $ 300
MRI of Arlington, Inc. $ 1.00 7,500 300 $ --
MRI of Greater Kansas City, Inc. $ 1.00 7,500 300 $ 300
MRI of Orlando, Inc. $ 1.00 7,500 300 $ 300
</TABLE>
[5] 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.
[6] Supplemental Cash Flow Information
Interest paid during the nine months ended September 30, 1994 amounted to
$585,781.
[7] 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.
[8] 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.
F-41
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS,
Sheet #5
- --------------------------------------------------------------------------------
[9] 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 $ --
----------------------------------------------------- ==============
[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.
F-42
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. [PREDECESSOR] AND AFFILIATED ENTITIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS,
Sheet #6
- --------------------------------------------------------------------------------
[10] Sale of Business
In July 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 the 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.
[11] 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 600,000 Units
by this Prospectus, and, if given or made, such
information or representations must not be relied
on as having been authorized by the Company or by International Magnetic
the Underwriters. This Prospectus does not Imaging, Inc.
constitute an offer to sell or a solicitation of
an offer to buy any securities offered hereby to (Each Unit Consisting of
any person in any jurisdiction in which such offer Two shares of Common
or solicitation was not authorized or in which the Stock and Two Series A
person making such offer or solicitation is not Redeemable Common Stock
qualified to do so or to anyone to whom it is Purchase Warrants)
unlawful to make such offer or 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....................................7
Dilution.......................................20
Use of Proceeds................................21
Capitalization.................................22
Selected Financial Data .......................24
Management's Discussion and Analysis of
Financial Condition and Results of Operations..25
Business.......................................31
Management.....................................45
Agreements with DVI............................49
Certain Transactions...........................50
Principal Stockholders.........................54 PROSPECTUS
Selling Security Holder........................55
Description of Securities......................56
Underwriting...................................61
Legal Matters..................................62
Experts........................................63
Additional Information ....................... 63
Index to Consolidated Financial Statements....F-1
Monroe Parker
Securities, Inc.
Until , 1997 (25 days after the date of
this Prospectus) all dealers effecting
transactions in the Monroe Parker Securities, Inc.
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 APRIL 29, 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 Selling Security Holder.
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 600,000 Units, each
Unit consisting of two shares of Common Stock and two 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, which is the only class of voting stock. After
completion of this Offering, SISC will own 89.5% of the Common 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, as amended (the "Exchange
Act"), which are set forth in Regulation M, may apply to its sales in the market
and has furnished the Selling Security Holder with a copy of Regulation M. 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 Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
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>
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 relied
on as having been authorized by the Company or by International Magnetic
the Underwriters. This Prospectus does not Imaging, Inc.
constitute an offer to sell or a solicitation of
an offer to buy any securities offered hereby to 1,000,000 Series B
any person in any jurisdiction in which such offer Common Stock Purchase
or solicitation was not authorized or in which the Warrants
person making such offer or solicitation is not
qualified to do so or to anyone to whom it is
unlawful to make such offer or 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....................................7
Dilution.......................................20
Use of Proceeds................................21
Capitalization.................................22
Selected Financial Data .......................24
Management's Discussion and Analysis of
Financial Condition and Results of Operations..25
Business.......................................31
Management.....................................45
Agreements with DVI............................49
Certain Transactions...........................50
Principal Stockholders.........................54 PROSPECTUS
Selling Security Holder........................55
Description of Securities......................56
Underwriting...................................61
Legal Matters..................................62
Experts........................................63
Additional Information ....................... 63
Index to Consolidated Financial Statements....F-1
Until , 1997 (25 days after the date of
this Prospectus) all dealers effecting
transactions in the Monroe Parker Securities, Inc.
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>
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
Printing and engraving 10,000.00*
Accountants' fees and expenses 150,000.00*
Legal fees and expenses 365,000.00*
Transfer agent's and warrant agent's fees and expenses 1,000.00*
Blue Sky fees and expenses 60,000.00*
Underwriter's non-accountable expense allowance 126,000.00
Underwriter's consulting agreement 71,785.00
Miscellaneous 5,421.00*
------------
Total $800,000.00*
============
- ----------
* 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) The Registrant was organized in March 1994 and commenced operations
on September 30, 1994. In connection with the organization of the Registrant,
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"). The shares of Series B Preferred
Stock were canceled at December 31, 1996.
(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 and the cancellation as of December 31, 1996 of the Series B
Preferred Stock.
(c) 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. At December 31, 1996, the exercise price was increased
to $3.50, and warrants to purchase 550,000 shares of Class A Common Stock, which
were owned by SISC, were canceled.
(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 persons named in the following table, all of whom (other
than SISC) were employed or engaged by the Company. The exercise price of the
warrants was increased to $3.50 per share at December 31, 1996.
II-1
<PAGE>
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 equal to
the proposed public offering price per share of the Common Stock in the initial
public offering of the Common Stock ($3.50 per share). In September 1996, the
Company issued to SISC a warrant to purchase 250,000 shares of Class A Common
Stock at an exercise price equal to the proposed initial public offering price
per share of the Common Stock ($3.50 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, and, at December 31, 1996, the exercise price of such
warrant was increased to $3.50. See Paragraph (a) of this Item 15. The exercise
price of the warrant held by DVI was increased to $3.50, and the warrants issued
to SISC were canceled at December 31, 1996.
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 Form of Underwriting Agreement.
1.2 Form of Underwriter's Purchase Option.
1.3 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.
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 North 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.
II-2
<PAGE>
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.
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
3.4(3) Certificate of designation with respect to the Series C
Preferred Stock.
4.1 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.
4.21(3) Warrant, dated as of February 10, 1996, to purchase 250,000
shares of Class A Common Stock, at $2.00 per share, issued by
the Registrant to DVI.
4.31(3) Warrant, dated as of September 11, 1996, to purchase 250,000
shares of Class A Common Stock, at $5.00 per share, issued by
the Registrant to DVI.
4.41(3) Warrants, dated as of September 11, 1996, to purchase 250,000
shares of Class A Common Stock, at $5.00 per share, issued by
the Registrant to SISC.
4.51(3) Contingent warrant, dated as if November 1, 2001, to purchase
1,000,000 shares of Common Stock, at an exercise price equal to
80% of the current market price per share of said Common Stock,
as defined therein (the "Contingent Warrant").
4.61(3) Letter, dated September 11, 1996, from the Registrant to DVI
pursuant to which the Contingent Warrant will be issued to DVI.
II-3
<PAGE>
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(1) Unconditional continuing guaranty dated as of January 24, 1996
between DVI and International Magnetic Imaging, Inc.
10.16(1) 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(1) Secured promissory note dated as of January 25, 1996 to DVI.
10.18(1) Unconditional continuing guaranty dated as of January 25, 1996
between DVI and International Magnetic Imaging, Inc.
10.19(1) 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.
10.20(1) 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.
II-4
<PAGE>
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 Agreement dated as of March 31, 1997, between the Registrant
and Dr. Stephen A. Schulman.
10.28(1) Employment agreement dated March 21, 1995, between the
Consolidated Technology Group Ltd. And George W. Mahoney, as
amended through June 16, 1996.
10.29(1) Agreement dated September 30, 1994, between the Registrant and
Dr. James H. Sternberg.
10.30(1) Agreement dated September 30, 1994, between the Registrant and
Dr. Ashley Kaye.
10.31(1) 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 Agreement dated as of January 1, 1997 between the Registrant
and The Trinity Group, Inc.
10.38 Amendment No. 5 dated March 31, 1997, to the employment
agreement dated March 21, 1995, as amended, between the
Consolidated Technology Group Ltd. and George W. Mahoney.
10.39 Amended Employment Agreement dated as of March 31, 1997 between
the Registrant and Stephen A. Schulman, M.D.
10.40 Exclusive radiology agreement dated February 1, 1997 between
Physician's Outpatient Diagnostic Center, Ltd. and Premier
Radiology Associates.
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 Consent of Fillmore & Griffin, L.C.
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) 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.
II-5
<PAGE>
(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 29th day of April, 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
*By LEWIS S. SCHILLER
-----------------
Lewis S. Schiller
Attorney-in-fact
April 29, 1997
Stephen A. Schulman* President and Chief Executive Officer
- -------------------------
Stephen A. Schulman, M.D.
George W. Mahoney* Chief Financial and Accounting Officer
- -------------------
George W. Mahoney
Norman J. Hoskin* Director
- ------------------
Norman J. Hoskin
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 17, 1997 [except for Note 24 as to which the
date is March 31, 1997], accompanying the financial statements of International
Magnetic Imaging, Inc. and our report dated November 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
April 22, 1997
II-8
<PAGE>
CONSENT OF COUNSEL
We consent to the reference to our firm under the caption "Legal Matters"
in this Registration Statement on Form S-1 filed by International Magnetic
Imaging, Inc.
FILLMORE & GRIFFIN, L.C.
Kansas City, Missouri
April 29, 1997
II-9
<PAGE>
Exhibit 1.1
600,000 Units, each Unit consisting of two (2) shares of Common Stock,
par value $.01 per share
and
two (2) Warrants for Common Stock
International Magnetic Imaging, Inc.
UNDERWRITING AGREEMENT
New York, New York
________ __, 1997
Monroe Parker Securities, Inc.
2500 Westchester Avenue
Purchase, New York 10577
International Magnetic Imaging, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to you (the "Underwriter"), an aggregate
of 600,000 Units ("Units"), each consisting of two (2) shares of Common Stock,
par value $.01 per share ("Common Stock"), and two (2) Class A Redeemable
Purchase Warrants for Common Stock ("Warrants"). The Units, Common Stock and
Warrants may be collectively referred to hereinafter as the "Securities". Each
Warrant entitles the registered holder thereof to purchase one (1) share of
Common Stock at an exercise price of $4.00 per share for a period of twenty four
(24) months, commencing ________ __, 1998 (twelve (12) months from the Effective
Date) through ________ __, 2000. The Warrants are subject to redemption by the
Company at any time after ________ __, 199__ (eighteen (18) months from the
Effective Date) or such earlier date with the consent of the Underwriter, at
$.10 per warrant, if the closing bid price per share of Common Stock has equaled
or exceeded $12.00 per share for any 10 consecutive business days ending within
3 days of the written notice of redemption. In addition, the Company proposes to
grant to the Underwriter the option referred to in Section 2(b) to purchase all
or any part of an aggregate of 90,000 additional Units.
<PAGE>
You have advised the Company that you desire to purchase the
Securities. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Securities, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Company" means International Magnetic Imaging, Inc. and/or
each of its subsidiaries ("Subsidiaries"); the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the Act
and included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
2
<PAGE>
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation thereof. It is understood that the statements set forth in
the Prospectus with respect to stabilization, under the heading "Underwriting",
the Risk Factor entitled "Underwriter's Limited Underwriting Experience" and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute for purposes of this Section and Section 6(b) the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company and its Subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation with full corporate power and
authority to own their properties and conduct their business as described in the
Prospectus and are duly qualified or licensed to do business as foreign
corporations and are in good standing in each other jurisdiction in which the
nature of their business or the character or location of their properties
require such qualification, except where the failure to so qualify will not
materially adversely affect the Company's or Subsidiaries' business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company and its Subsidiaries, including the predecessors of the Company, is as
set forth the Company's financial statements contained in the Registration
Statement; the shares of issued and outstanding capital stock of the Company and
its Subsidiaries set forth therein have been duly authorized, validly issued and
are fully paid and nonassessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company or its Subsidiaries have been granted or
entered into by the Company or its Subsidiaries; and the capital stock conforms
to all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The shares of Common Stock underlying the Units, when paid
for, issued and delivered pursuant to this Agreement, will have been duly
authorized, issued and delivered
3
<PAGE>
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the right of creditors
generally or by general equitable principles, and entitled to the rights and
preferences provided by the Certificate of Incorporation, which will be in the
form filed as an exhibit to the Registration Statement. The terms of the Common
Stock conform to the description thereof in the Registration Statement and
Prospectus.
The Warrants, when paid for, issued and delivered pursuant to
this Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance upon the exercise of the Warrants and
when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized validly issued, fully paid and
non-assessable and free of preemptive rights. The Warrant Agreement has been
duly authorized and, when executed and delivered pursuant to this Agreement,
assuming due authorization, execution and delivery by the transfer agent, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Warrants and Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement),
when paid for, issued and delivered pursuant to this Agreement will constitute
valid and legally binding obligations of the Company enforceable in accordance
with their terms and entitled to the benefits provided by the Purchase Option,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for in
accordance with this Agreement, the Purchase Option and the Warrant Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f) This Agreement has been duly and validly authorized,
executed and delivered by the Company. The Company has full power and authority
to authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any governmental authority is required in connection with such
authorization, execution and delivery or in connection with the
4
<PAGE>
authorization, issuance and sale of the Securities or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its Subsidiaries
are not in violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company or its Subsidiaries pursuant to the terms of
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its Subsidiaries is a party or
by which the Company or its Subsidiaries may be bound or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company or its Subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or its
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and its Subsidiaries have good and marketable title to all properties
and assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; all of the material
leases and subleases under which the Company or its Subsidiaries is the lessor
or sublessor of properties or assets or under which the Company and its
Subsidiaries holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company or its Subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or its Subsidiaries
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company and its Subsidiaries own or lease all such properties described in
the Prospectus as are necessary to their operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Moore Stephens, P.C., which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to
5
<PAGE>
the Company, independent public accountants as required by the Act and the Rules
and Regulations.
(j) The financial statements, and schedules together with
related notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or its Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or its
Subsidiaries or any material adverse change or any development involving, so far
as the Company or its Subsidiaries can now reasonably foresee a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties of it which would have a
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the financial condition, business prospects, net worth, or properties
of the Company or its Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the Company, may be asserted against the Company or its
Subsidiaries.
6
<PAGE>
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and each of the Company and the Subsidiaries is in all material
respects complying therewith and owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights and licenses
necessary for the conduct of such businesses and have not received any notice of
conflict with the asserted rights of others in respect thereof. To the best
knowledge of the Company, none of the activities or business of the Company and
its Subsidiaries are in violation of, or cause the Company or its Subsidiaries
to violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a Material Adverse
Effect.
(o) The Company and its Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and Subsidiaries' internal accounting controls and procedures
are sufficient to cause the Company and its Subsidiaries to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
7
<PAGE>
(t) Except as previously disclosed in writing by the Company to
the Underwriter or as disclosed in the Registration Statement, no officer,
director or stockholder of the Company has any National Association of
Securities Dealers, Inc. ("NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter and the
Underwriter agrees to buy from the Company at $6.30 per Unit, at the place and
time hereinafter specified, 600,000 Units (the "First Securities").
Delivery of the First Securities against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York 10022 (or at such other place as may be designated by agreement
between the Underwriter and the Company) at 10:00 a.m., New York time, on _____
__, 1997, or at such later time and date as the Underwriter may designate in
writing to the Company at least two business days prior to such purchase, but
not later than _____ __, 1997 such time and date of payment and delivery for the
First Securities being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 90,000 Units to cover over allotments at the same price per Unit as
the Underwriter shall pay for the First Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities being
referred to herein as the "Option Securities"). This option may be exercised
within 45 days after the effective date of the Registration Statement upon
written notice by the Underwriter to the Company advising as to the amount of
Option Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 60 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option
Securities against payment therefor shall take place at the offices of Bernstein
& Wasserman, LLP, 950 Third Avenue, New York, NY 10022 (or at such other place
as may be designated by agreement between the Underwriter and the Company). The
option granted hereunder may be exercised only to cover over-allotments in the
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sale by the Underwriter of the First Securities referred to in subsection (a)
above. No Option Securities shall be delivered unless all of the First
Securities shall have been delivered to the Underwriter as provided herein.
(c) The Company will make the certificates for the Securities
to be purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing Dates").
The certificates shall be in such names and denominations as you may request, at
least three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to
be purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer or certified or bank
cashier's checks in New York Clearing House funds, payable to the order of the
Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made to or upon the order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022, at the time
and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
you for your account registered in such names and in such denominations as you
may reasonably request.
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement
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<PAGE>
to the Prospectus of which you shall not previously have been advised and
furnished with a copy or to which you or your counsel shall have reasonably
objected in writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (A) the completion by the
Underwriter of the distribution of the Securities contemplated hereby (but in no
event more than nine months after the date on which the Registration Statement
shall have become or been declared effective) and (B) 25 days after the date on
which the Registration Statement shall have become or been declared effective,
the Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Securities.
As soon as the Company is advised thereof, the Company will advise
you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and dealers to use the Prospectus in connection with the sale of
the Securities for such period as in the opinion of counsel to the Underwriter
and the Company the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by the Underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company
and counsel for the Underwriter should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Securities or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may
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reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case the
Representative is required, in connection with the sale of the Securities to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify or
register the Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Securities. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter, up to $150,000
(including the reasonable fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii) to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
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(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year,
but no earlier than the filing of such information with the Commission a balance
sheet of the Company and any of its Subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any Subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing of
such information with the Commission, consolidated summary financial information
of the Company for such quarter in reasonable detail; (iii) as soon as they are
publicly available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon your order, from time to time until
the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Underwriter on the effective date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive
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months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Securities substantially for the purposes set forth under "Use of Proceeds"
in the Prospectus.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) (1) For a period of thirty six (36) months from the First
Closing Date, no officer, director or shareholder of any securities prior to the
offering will, directly or indirectly, offer, sell (including any short sale),
grant any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any securities of the Company without the prior written consent of
the Underwriter, other than as set forth in the Registration Statement. In order
to enforce this covenant, the Company shall impose stop-transfer instructions
with respect to the securities owned by every shareholder prior to the offering
until the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to comply
with any applicable Blue-sky Law, the shares held by such shareholders will be
escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by
the Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of thirty six (36)
months following the First Closing Date, directly or indirectly, offer, sell,
issue or transfer any shares of its capital stock, or any security exchangeable
or exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement including
Form S-8), without the prior written consent of the Underwriter. Options granted
pursuant to plans must be exercisable at the fair market value on the date of
grant.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units,
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Common Stock and the Warrants in the NASDAQ National Market system or the OTC
Bulletin Board, and will use its best efforts to effect and maintain such
listing for at least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any of the
Securities.
(o) On the First Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to you the
Purchase Option. The Purchase Option will be substantially in the form filed as
an Exhibit to the Registration Statement.
(p) (1) On the First Closing Date, the Company will have in
force key person life insurance on the lives of ________and _________ in an
amount of not less than $___________, payable to the Company, and will use its
best efforts to maintain such insurance during the three year period commencing
with the First Closing Date.
(2) On the First Closing Date, the Company will have
employment agreements with its executive officers in form satisfactory to the
Underwriter. The Company will not increase or authorize an increase in the
compensation of any of the executive officers without the express approval of
the Compensation Committee or the entire Board of Directors for a period of two
(2) years from the Effective Date. The Compensation Committee shall be comprised
of two (2) delegates of the Company and one (1) from the Underwriter.
(q) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption of any of the Warrants unless
a registration statement covering the securities underlying the Warrants has
been declared effective by the Commission and remains current at least until the
date fixed for redemption.
(r) For a period of five (5) years following the Effective Date,
the Company will maintain registration with the Commission pursuant to Section
12(g) of the Exchange Act and will provide to the Underwriter copies of all
filings made with the Commission pursuant to the
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Exchange Act. In the event that the Company fails to maintain registration with
the Commission pursuant to Section 12(g) during such five year period, the
Company will provide reasonable access to an independent accountant designated
by the Underwriter, to all books, records and other documents or statements that
reflect the Company's financial status at least once each quarter, at the
Company's expense.
(s) The Company agrees to pay the Underwriter a warrant
solicitation fee of 5.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the holder of the warrant designates the Underwriter in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f) solicitation of
the exercise is in compliance with the NASD Notice to Members 81-38 (September
22, 1981).
(t) For a period of two years from the Effective Date, at the
request of the Underwriter, the Company shall provide promptly, at the expense
of the Company, copies of the Company's daily transfer sheets furnished to it by
its transfer agent and copies of the securities position listings provided to it
by the Depository Trust Company.
(u) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the
Underwriter, equal to five percent (5%) of the first $3,000,000 of the
consideration involved in any transaction, 4% of the next $3,000,000 of
consideration involved in the transaction, 3% of the next $2,000,000, 2% of the
next $2,000,000 and 1% of the excess, if any, for future consummated
transactions, if any, introduced by the Underwriter (including mergers,
acquisitions, joint ventures, and any other business for the Company introduced
by the Underwriter) consummated by the Company (an "Introduced Consummated
Transaction"), in which the Underwriter introduced the other party to the
Company during a period ending five years following the First Closing Date; and
(ii) That any such finder's fee due hereunder will be paid
in cash or other consideration that is acceptable to the Underwriter, at the
closing of the particular Introduced Consummated Transaction for which the
finder's fee is due.
(v) Upon the first Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to the
Underwriter, a two year financial consulting agreement in the form attached as
an Exhibit to the Registration Statement which shall
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require the Company to pay the Underwriter $71,785 on the First Closing Date
(the "Financial Consulting Agreement").
(w) For a period of five (5) years following the Effective Date
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For a period of two (2) years from the Effective Date, the
Company will recommend and use its best efforts to elect a designee of the
Underwriter, as a member of its Board of Directors. Such designee shall receive
no more or less compensation than is paid to other non-management directors of
the Company and shall be entitled to (i) receive reimbursement for all
reasonable costs incurred in attending such meetings, including but not limited
to, food, lodging and transportation; and (ii) serve on the Compensation
Committee of the Board of Directors so long as such director would qualify as
disinterested or for the purpose of election of section 162 (m) of the Internal
Revenue Code of 1986, as amended. To the extent permitted by law, the Company
will agree to indemnify the Underwriter and its designee for the actions of such
designee as a director of the Company. The Company will use its best efforts to
obtain liability insurance not to exceed $50,000 per year in premiums affording
coverage for the acts of its officers and directors, and to include the designee
of the Underwriter as an insured under such policy. The Underwriter shall
alternatively have the right to send another representative from the Underwriter
to observe each meeting of the Board of Directors. The Company agrees to give
the Underwriter written notice of each such meeting and to provide the
Underwriter with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the other directors. Any designee or
representative of the Underwriter who has not been elected or appointed to the
Board of Directors, but who shall be attending a meeting thereof, shall be
required to execute a confidentiality agreement satisfactory to the Company.
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York time,
on the day following the date
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of this Agreement, or at such later time or on such later date as to which you
may agree in writing; on or prior to the Closing Dates no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been instituted or shall be
pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the satisfaction of the
Commission; and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened. If required, the
Prospectus shall have been filed with the Commission in the manner and within
the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Esanu, Katsky, Korins & Siger,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their business
as described in the Registration Statement and Prospectus and are duly qualified
or licensed to do business as foreign corporations and are in good standing in
each other jurisdiction in which the ownership or leasing of their properties or
conduct of their business requires such qualification except where the failure
to qualify or be licensed will not have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of
________ __, 1996 is as set forth in the Registration Statement; the Securities
as set forth in the Registration Statement have been duly authorized and upon
payment of consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description thereof
contained in the Prospectus; to such counsel's knowledge the outstanding shares
of capital stock of the Company and its Subsidiaries have not been issued in
violation of the preemptive rights of any shareholder and to such counsel's
knowledge the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any restrictions
upon the voting or transfer of any of the capital stock except as provided in
the Prospectus or as required by law. The Securities, the Purchase Option and
the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the shares of Common Stock
underlying the Units, and the shares of Common Stock issuable upon exercise of
Warrants, the Purchase Option, and the Warrant Agreement will have been duly
authorized and, when issued and delivered in accordance with their respective
terms, will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights to the best of their knowledge; to the best of their
knowledge, all prior sales by the Company of the
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Company's securities, have been made in compliance with or under an exemption
from registration under the Act and applicable state securities laws; a
sufficient number of shares of Common Stock has been reserved for issuance upon
exercise of the Warrants and Common Stock has been reserved for issuance upon
exercise of the Warrants Underlying the Units contained in the Purchase Option
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration rights other than
those which have been waived or satisfied for or relating to the registration of
any shares of Common Stock;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the Securities as
described in the Registration Statement comply in all material respects with the
descriptions set forth therein, and comply with the Delaware General Corporation
Law, as in effect on the date hereof; each Warrant will be exercisable for one
share of the Common Stock of the Company, respectively, and at the prices
provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company or its Subsidiaries are a party which would
materially adversely affect the business, property, financial condition or
operations of the Company or its Subsidiaries; or which question the validity of
the Securities, this Agreement, the Warrant Agreement or the Purchase Option, or
of any action taken or to be taken by the Company pursuant to this Agreement,
the Warrant Agreement or the Purchase Option; to such counsel's knowledge there
are no governmental proceedings or regulations required to be described or
referred to in the Registration Statement which are not so described or referred
to;
(vi) the execution and delivery of this Agreement, the
Purchase Option or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or constitute
a default under the certificate of incorporation or by-laws of the Company or
its Subsidiaries, or to the best knowledge of counsel after due inquiry, in the
performance or observance of any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company or
its Subsidiaries is a party or by which they or any of their properties is bound
or in violation of any order, rule, regulation, writ, injunction, or decree of
any government, governmental instrumentality or court, domestic or foreign the
result of which would have a Material Adverse Effect;
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(vii) the Registration Statement has become effective
under the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data contained therein,
or omitted therefrom, as to which such counsel need express no opinion) as of
the Effective Date comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information (including without limitation, the pro forma financial
information) and schedules contained therein, as to which such counsel need
express no opinion);
(ix) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or its Subsidiaries is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred to
in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company or its
Subsidiaries is a party of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so summarized,
described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Securities by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky laws and
registration under the Act; and
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(xi) the Units, the shares of Common Stock and the
Warrants have been duly authorized for quotation on either the NASDAQ National
Market System ("NASDAQ") or the OTC Bulletin Board.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(e) You shall have received a letter prior to the Effective
Date and again on and as of the First Closing Date from Moore Stephens, P.C.,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(f) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of the
Closing Dates taking into account for the Option Closing Dates the effect of the
transactions contemplated hereby and the Company or its Subsidiaries shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change, or to the Company or its Subsidiaries's
knowledge, any development involving a prospective material adverse change, in
the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company or its Subsidiaries from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and
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<PAGE>
Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company or its Subsidiaries shall not have incurred any
material liabilities or entered into any material agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
Prospectus; (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against the
Company or its Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company or its Subsidiaries before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company or its Subsidiaries, and (v) you shall have received, at
the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company or its Subsidiaries, dated as of the
First Closing Date, evidencing compliance with the provisions of this subsection
(f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Securities referred to therein will be subject (as of the date hereof
and as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of, Esanu, Katsky, Korins & Siger counsel to
the Company, dated as of the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Securities.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
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(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Moore
Stephens, P.C., dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(e) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Securities
shall be reasonably satisfactory in form and substance to you, and you and
Bernstein & Wasserman, LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge of the
Underwriter or the Company, shall be contemplated by the Commission or the NASD.
The Company and the Underwriter represent that at the date hereof each has no
knowledge that any such action is in fact contemplated against it by the
Commission or the NASD.
(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company, The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree in
writing.
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<PAGE>
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Securities on
exercise of the Over-Allotment Option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities; insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such preliminary
Prospectus or the Prospectus or any such amendment or supplement thereto,
provided, further that the indemnity with respect to any
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<PAGE>
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities or litigation arising from the sale of Securities to any
person if a copy of the Prospectus was not delivered to such person at or prior
to the written confirmation of the sale to such person. This indemnity will be
in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Securities of any applicable state or federal
law or any rule, regulation or instruction thereunder relating to violations
based on unauthorized statements by Underwriter or its representative; provided
that such violation is not based upon any violation of such law, rule or
regulation or instruction by the party claiming indemnification or inaccurate or
misleading information furnished by the Company or its representatives,
including information furnished to the Underwriter as contemplated herein. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying
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<PAGE>
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the reasonable fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, it is advisable for the indemnified party
to be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party. If it is
ultimately determined that indemnification is not permitted, then an indemnified
party will return all monies advanced to the indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon and the
Company shall be responsible for the remaining portion; provided, however, that
if such
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<PAGE>
allocation is not permitted by applicable law then allocated in such proportion
as is appropriate to reflect relative benefits but also the relative fault of
the Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons, and the Company, its officers, directors and controlling
persons shall be entitled to contribution from the Underwriter to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Securities to the Underwriter is consummated, the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriter, in connection with the qualification of the Securities under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and
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furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, and the Blue Sky
Memorandum, any fees relating to the listing of the Units, Common Stock and
Warrants on NASDAQ, OTC Bulletin Board or any other securities exchange, the
cost of printing the certificates representing the Securities; fees for bound
volumes and prospectus memorabilia and the fees of the transfer agent and
warrant agent. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriter hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $126,000. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon exercise
of the overallotment option. In the event the transactions contemplated hereby
are not consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall not be liable for any expenses of the Underwriter, including
the Underwriter's legal fees. In the event the transactions contemplated hereby
are not consummated by reason of the Company being unable to perform its
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees, not to exceed in the aggregate $150,000.
(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a finder
in connection with the proposed offering, and the Company agrees to indemnify
and hold harmless the Underwriter, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason of
such person's or entity's influence or prior contact with the indemnifying
party.
9. Effective Date.
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The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Securities. The time of the initial
public offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Securities, or the time when the Securities
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment (i)
trading in securities on the New York Stock Exchange or the American Stock
Exchange having been suspended or limited, (ii) material governmental
restrictions have been imposed on trading in securities generally (not in force
and effect on the date hereof), (iii) a banking moratorium has been declared by
federal or New York state authorities, (iv) an outbreak of major international
hostilities involving the United States or other substantial national or
international calamity has occurred, (v) a pending or threatened legal or
governmental proceeding or action relating generally to the Company's business,
or a notification has been received by the Company of the threat of any such
proceeding or action, which would materially adversely affect the Company; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition or financial statements of the Company; or (vii) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
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11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $10, and upon the terms and
conditions set forth in the form of Purchase Option annexed as an exhibit to the
Registration Statement, a Purchase Option to purchase an aggregate of 60,000
Units, each Unit consisting of two (2) shares of Common Stock, par value $.01
per share, and two (2) Class A Redeemable Common Stock Purchase Warrants. In the
event of conflict in the terms of this Agreement and the Purchase Option with
respect to language relating to the Purchase Option, the language of the
Purchase Option shall control.
12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that it
is registered as a broker-dealer in all jurisdictions in which it is offering
the Securities and that it will comply with all applicable state or federal laws
relating to the sale of the Securities, including but not limited to, violations
based on unauthorized statements by the Underwriter or its representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter and the
undertakings set forth in or made pursuant to this Agreement will remain in full
force and effect until three years from the date of this Agreement, regardless
of any investigation made by or on behalf of the Underwriter, the Company or any
of its officers or directors or any controlling person and will survive delivery
of and payment of the Securities and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Monroe Parker Securities, Inc., 2500 Westchester
Avenue, Purchase, New York 10577, with a copy sent to Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, New York 10022, Attention: Steven F. Wasserman,
or if sent to the Company, will be mailed, delivered or telecopied and confirmed
to it at 160 Broadway, Suite 901, New York, NY 10038 with a copy sent to Esanu,
Katsky, Korins & Siger, 605 Third Avenue, New York, NY 10158-0038. Notice shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication.
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15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit
of the Underwriter, the Company, any person controlling the Company or the
Underwriter, and directors of the Company, nominees for directors (if any) named
in the Prospectus, its officers who have signed the Registration Statement, and
their respective executors, administrators, successors, assigns and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from the Underwriter of the Securities.
16. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts
each of which shall be deemed to constitute an original and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
INTERNATIONAL MAGNETIC IMAGING, INC.
By: ____________________
Name: Lewis S. Schiller
Title: Chairman
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The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
MONROE PARKER SECURITIES, INC.
By: ______________________
Name: Stephen J. Drescher
Title: Director Corporate Finance
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Exhibit 1.2
Option to Purchase
60,000 Units, each consisting of two (2) shares of Common Stock
and
two (2) Warrants
INTERNATIONAL MAGNETIC IMAGING, INC.
PURCHASE OPTION
Dated: ________ __, 1997
THIS CERTIFIES that Monroe Parker Securities, Inc., 2500 Westchester
Avenue, Purchase, NY 10577 (hereinafter sometimes referred to as the "Holder"),
is entitled to purchase from INTERNATIONAL MAGNETIC IMAGING, INC. (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, up to 60,000 Units, each consisting of two (2) shares of
Common Stock, par value $.01 per share ("Common Stock"), and two (2) Class A
Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles
the registered holder thereof to purchase one (1) share of Common Stock at an
exercise price of $4.00 per share. The Warrants (hereinafter, the "Warrants")
are exercisable for a twenty four (24) month period, commencing ________ __,
1998 (twelve (12) months from the Effective Date). Hereinafter, the shares of
Common Stock and Warrants shall be referred to as an "Option Securities" or
"Securities."
The Securities have been registered under a Registration Statement on
Form SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on ________ __, 1997 (the "Registration Statement"). This Option (the
"Option") to purchase 600,000 Units was originally issued pursuant to an
underwriting agreement between the Company and Monroe Parker Securities, Inc. as
underwriter (the "Underwriter"), in connection with a public offering of 600,000
Units (collectively, the "Public Securities") through the Underwriter, in
consideration of $10.00 received for the Option.
Except as specifically otherwise provided herein, the Common
<PAGE>
Stock and the Warrants issued pursuant to this Option shall bear the same terms
and conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of ________ __, 1997, executed in connection with
such public offering (the "Warrant Agreement"), except that the holder shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Units, the Common Stock and the Warrants included in
the Units, and the shares of Common Stock underlying the Warrants, as more fully
described in paragraph 6 of this Option. In the event of any reduction of the
exercise price of the Warrants included in the Public Securities, the same
changes to the Warrants included in the Option and the components thereof shall
be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between ________ __, 1998 (one (1) year from the Effective
Date) and ________ __, 2002, inclusive, the Holder shall have the option to
purchase Units hereunder at $11.55 per Unit (subject to adjustment pursuant to
paragraph 8 hereof) (the "Exercise Price").
(b) After ________ __, 2002, the Holder shall have no right to
purchase any Option Securities hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Securities
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option shall be
deemed to have been exercised, in whole or in part to the
2
<PAGE>
extent specified, immediately prior to the close of business on the date this
Option is surrendered and payment is made in accordance with the foregoing
provisions of this paragraph 2, and the person or persons in whose name or names
the certificates for shares of Common Stock and Warrants underlying the Units
shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock and Warrants at that time and date. The Common Stock
and Warrants and the certificates for the Common Stock and Warrants so purchased
shall be delivered to the Holder within a reasonable time, not exceeding ten
(10) days, after the rights represented by this Option shall have been so
exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated for a period of one (1) year from the Effective Date, except that
it may be transferred to successors of the Holder, and may be assigned in whole
or in part to any person who is an officer of the Holder or selling group member
of the offering during such period. Any transfer after one (1) year must be
accompanied with an immediate exercise of the Option. Any such assignment shall
be effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Option Securities as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Option Securities purchased hereunder and the
Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable. The Company
further covenants and agrees that during the periods within which this Option
may be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Securities.
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<PAGE>
5. This Option shall not entitle the Holder to any voting, dividend,
or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, whether the Holder holds the
Option or has exercised the Option and holds Option Securities or any of the
securities underlying the Option Securities, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of five
years from the effective date of the Registration Statement, upon the request of
the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the Common Stock, or Warrants included in the
Securities or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action and do any and
all other acts and things which may be reasonably necessary or desirable to
enable such Holder to consummate the public sale or other disposition of the
Registrable Securities, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7 except that the maximum amount which may be recovered
from the Holder shall be limited to the amount of proceeds received by the
Holder from the sale of the Registrable Securities. The Company shall use its
best efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the holders of Registrable Securities requested
to be included in the registration to include such securities in such
underwritten offering on the same terms and conditions as any similar securities
of the Company included therein. Notwithstanding the foregoing, if the managing
underwriter or
4
<PAGE>
underwriters of such offering advises the holders of Registrable Securities that
the total amount of securities which they intend to include in such offering is
such as to materially and adversely affect the success of such offering, then
the amount of securities to be offered for the accounts of holders of
Registrable Securities shall be eliminated, reduced, or limited to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by the
holders of Registrable Securities proposed to be included therein pro rata). The
Holder will pay its own legal fees and expenses and any underwriting discounts
and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a) hereof to
the effect that such holder desires to register under the Act this Option or any
of the underlying securities contained in the Option Securities underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than 60 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option and/or
any of the Securities underlying the Option Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% holder (which for
purposes hereof shall mean any direct or indirect transferee of such holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only two occasions during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the Securities underlying the Option in a registration
statement made by the Company as contemplated by
5
<PAGE>
Section 6(a) or in connection with a request made pursuant to this Section 6(b)
prior to acquisition of the Securities issuable upon exercise of the Option and
even though the Holder has not given notice of exercise of the Option. The 50%
holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option or
separately as to the Common Stock and/or Warrants included in the Option and/or
the Common Stock issuable upon the exercise of the Warrants, and such
registration rights may be exercised by the 50% holder prior to or subsequent to
the exercise of the Option. Within ten business days after receiving any such
notice pursuant to this subsection (b) of paragraph 6, the Company shall give
notice to the other holders of the Options, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the securities underlying the Options of the other
holders. Each holder electing to include its Registrable Securities in any such
offering shall provide written notice to the Company within twenty (20) days
after receipt of notice from the Company. The failure to provide such notice to
the Company shall be deemed conclusive evidence of such holder's election not to
include its Registrable Securities in such offering. Each holder electing to
include its Registrable Securities shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of only one such post-effective amendment or new registration
statement shall be borne by the Company, except that the holders shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing of
any registration statement pursuant to this Section 6(b) otherwise required to
be prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten
6
<PAGE>
public offering and such underwriter has refused in writing, the Company's
request to waive such lock-up. In the event of such postponement, the Company
shall be required to file the registration statement pursuant to this Section
6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall
mean the holder of at least 50% of the Common Stock and the Warrants underlying
the Option (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners as
well as the number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such
7
<PAGE>
underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such
8
<PAGE>
Distributing Holder for use in the preparation thereof; and will reimburse the
Company or any such director, officer, or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the
9
<PAGE>
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Notwithstanding anything to the contrary contained in the Warrant Agreement, in
the event an adjustment to the Exercise Price is effected pursuant to this
Subsection (a) (and a corresponding adjustment to the number of Option
Securities is made pursuant to Subsection (d) below), the exercise price of the
Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising the Option
Securities by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on the record
date mentioned below and the number of additional shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective
10
<PAGE>
immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants; and to the extent that shares of Common
Stock are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidence of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising the Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Option Securities purchasable upon exercise of this Option shall simultaneously
be adjusted by multiplying the number of Option Securities initially issuable
upon exercise of this Option by the Exercise Price in effect on the date hereof
and dividing the product so obtained by the Exercise Price, as adjusted.
11
<PAGE>
(e) For the purpose of any computation under Subsections (b)
or (c) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ or OTC Bulletin Board, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least fifteen
cents ($0.15) in such price; provided, however, that any adjustments which by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 8 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly, but no later than 10 days after any
request for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Option Securities issuable upon
exercise of this Option and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the Holder, at the
address set forth herein, and shall cause a certified copy thereof to be mailed
to its transfer agent, if any. The Company may retain
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<PAGE>
a firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Section 8, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (g), inclusive above.
9. This Agreement shall be governed by and in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, International Magnetic Imaging, Inc., has caused
this Option to be signed by its duly authorized officers under its corporate
seal, and this Option to be dated ________ __, 1997.
INTERNATIONAL MAGNETIC IMAGING, INC.
By: ______________________________
Lewis S. Schiller
Chairman
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,____ Units, each consisting of two (2) shares of Common
Stock, $.01 per value per share, of International Magnetic Imaging, Inc. and two
(2) Warrants and herewith makes payment of $______________ therefor, and
requests that the Warrants and certificates for shares of Common Stock be issued
in the name(s) of, and delivered to _________________________ whose address(es)
is (are) _________________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units,
consisting of two (2) shares of Common Stock and two (2) Warrants of
International Magnetic Imaging, Inc., in the numbers set forth below represented
by the foregoing Option to the extent of _____ Units, and appoints
_______________________ attorney to transfer such rights on the books of
International Magnetic Imaging, Inc., with full power of substitution in the
premises.
Dated:
By: ______________________________
Address:
________________________________
________________________________
________________________________
In the presence of:
<PAGE>
Exhibit 1.3
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
INTERNATIONAL MAGNETIC IMAGING, INC.
600,000 UNITS CONSISTING OF
1,200,000 SHARES OF COMMON STOCK, $.01 PAR VALUE
AND
1,200,000 CLASS A REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1997
Dear Sirs:
1. Monroe Parker Securities, Inc. (the "Underwriter"), has agreed to
offer on a firm commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 600,000 Units, each consisting of two
(2) shares of Common Stock, $.01 par value per share ("Common Stock") of
International Magnetic Imaging, Inc. (the "Company") and two (2) Class A
Redeemable Common Stock Purchase Warrants ("Warrants"), (hereinafter,
collectively referred to as the "Securities"; including any Units offered
pursuant to an over-allotment option, the "Firm Securities"). Each Warrant is
exercisable to purchase one (1) share of Common Stock. The Firm Securities are
more particularly described in the enclosed Preliminary Prospectus, additional
copies of which, as well as the Prospectus (after the effective date), will be
supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Securities, upon the
terms and conditions hereof, from Selected Dealers, who are to act as
principals, including you, who are (i) registered with the Securities and
Exchange Commission (the "Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and members in good standing
with the National Association of Securities Dealers, Inc. (the "NASD"), or (ii)
dealers
<PAGE>
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. The Securities are to be offered to the public at a
price of $7.00 per Unit. Selected Dealers will be allowed a concession of not
less than __% of the aggregate offering price. You will be notified of the
precise amount of such concession prior to the effective date (the "Effective
Date") of the registration statement covering the Securities (the "Registration
Statement"). The offer is solicited subject to the issuance and delivery of the
Securities and their acceptance by the Underwriter, to the approval of legal
matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the Registration
Statement has become effective with the Commission. Subject to the foregoing,
upon execution by you of the Offer to Purchase below and the return of same to
us, you shall be deemed to have offered to purchase the number of Securities set
forth in your offer on the basis set forth in paragraph 2 above. Any oral notice
by us of acceptance of your offer shall be immediately followed by written or
telegraphic confirmation preceded or accompanied by a copy of the Prospectus. If
a contractual commitment arises hereunder, all the terms of this Selected
Dealers Agreement shall be applicable. We may also make available to you an
allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Securities assume and are
applicable only if contractual commitments to purchase are completed in
accordance with the foregoing.
4. You agree that in re-offering the Securities, if your offer is
accepted after the Effective Date, you will make a bona fide public distribution
of same. You will advise us upon request of the Securities purchased by you
remaining unsold, and we shall have the right to repurchase such Securities upon
demand at the public offering price less the concession as set forth in
paragraph 2 above. Any of the Securities purchased by you pursuant to this
Agreement are to be re-offered by you to the public at the public offering
price, subject to the terms hereof and shall not be offered or sold by you below
the public offering price before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made
by you on such date as we may determine by certified or bank cashier's check
payable in New York Clearinghouse funds to Monroe Parker Securities, Inc.
Certificates for the Securities shall be delivered as soon as practicable at the
offices of Monroe Parker Securities, Inc., 2500 Westchester Avenue, Purchase,
New York 10577. Unless specifically authorized by us, payment by you may not be
deferred until delivery of certificates to you.
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6. A Registration Statement covering the offering has been filed with
the Commission with respect to the Securities. You will be promptly advised when
the Registration Statement becomes effective. Each Selected Dealer in selling
the Securities pursuant hereto agrees (which agreement shall also be for the
benefit of the Company) that it will comply with the applicable requirements of
the Securities Act of 1933, as amended, and of the 1934 Act and any applicable
rules and regulations issued under said Acts. No person is authorized by the
Company or by the Underwriter to give any information or to make any
representations other than those contained in the Prospectus in connection with
the sale of the Securities. Nothing contained herein shall render the Selected
Dealers a member of the underwriting group or partners with the Underwriter or
with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state.
8. The Underwriter shall have full authority to take such action as
it may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, except for lack of good faith and except
for obligations assumed by us in this Agreement, and no obligation on our part
shall be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set
forth until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD
(Association") and registered as a broker-dealer or are not eligible for
membership under Section I of the ByLaws of the NASD who agrees to make no sales
within the United States, its territories or possessions or to persons who are
nationals thereof or residents therein and, in making sales, to comply with the
NASD's interpretation with respect to free-riding and withholding. Your
attention is called to the following: (a) Rules 2730, 2740, 2420 and 2750 of the
NASD Conduct Rule of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of Securities from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules and
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releases, and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Securities or its
component securities in the open market or otherwise make a market in such
Securities or otherwise attempt to induce others to purchase such Securities in
the open market. Nothing contained in this paragraph 11 shall, however, preclude
you from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased, and you agree to pay such amount to the
Underwriter on demand.
13. Intentionally omitted.
14. You agree that (i) you shall not recommend to a customer the
purchase of Firm Securities unless you shall have reasonable grounds to believe
that the recommendation is suitable for such customer on the basis of
information furnished by such customer concerning the customer's investment
objectives, financial situation and needs, and any other information known to
you, (ii) in connection with all such determinations, you shall maintain in your
files the basis for such determination, and (iii) you shall not execute any
transaction in Firm Securities in a discretionary account without the prior
specific written approval of the customer.
15. You represent that neither you nor any of your affiliates or
associates owns any Common Stock of the Company.
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16. All communications from you should be directed to the Underwriter
at 2500 Westchester Avenue, Purchase, New York 10577. All communications from us
to you shall be directed to the address to which this letter is mailed.
Very truly yours,
MONROE PARKER SECURITIES, INC.
By: ___________________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1997
[Name of Dealer]
By: ____________________________
Name:
Title:
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TO: Monroe Parker Securities, Inc.
2500 Westchester Avenue
Purchase, New York 10577
We hereby subscribe for ______ Units, each consisting of two (2) shares of
Common Stock, $.01 par value per share, and two (2) Class A Redeemable Common
Stock Purchase Warrants of International Magnetic Imaging, Inc. in accordance
with the terms and conditions stated in the foregoing letter. We hereby
acknowledge receipt of the Prospectus referred to in the first paragraph thereof
relating to said Securities. We further state that in purchasing said Securities
we have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and if we are a foreign dealer and not a member of the NASD, we also
agree to comply with the NASD's interpretation with respect to free-riding and
withholding, and to comply, as though we were a member of the NASD, with the
provisions of Rules 2730 and 2750 of the NASD Conduct Rules.
Name of
Dealer:_____________________________
By: _____________________________
Address:_____________________________
_____________________________
Dated: __________, 1997
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Exhibit 4.1
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1996, by and between International
Magnetic Imaging, Inc., a Delaware corporation (the "Company") and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,000,000 shares of
Common Stock and 1,500,000 Series A Redeemable Common Stock Purchase Warrants
(the "Warrants"), pursuant to an underwriting agreement (the "Underwriting
Agreement") dated as of [ ], 1996, between the Company and Monroe Parker
Securities, Inc. ("Monroe Parker" or the "Underwriter"), the Company may issue
up to one million seven hundred twenty five thousand (1,725,000) Warrants; and
WHEREAS, in connection with the issuance, pursuant to the Underwriting
Agreement, to Monroe Parker or its designees of an option (the "Underwriter's
Option"), the Company may issue up to one hundred fifty thousand (150,000)
Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, as
hereinafter defined, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date of this Agreement at
40 Wall Street, 46th floor, New York, New York 10005.
(b) "Effective Date" shall mean the date that the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing,
<PAGE>
and (b) payment in cash, or by official bank or certified check made payable to
the Company, of an amount in lawful money of the United States of America equal
to the Purchase Price; provided, however, that, subject to Paragraph 4(a) of
this Agreement, if payment shall be made by personal or corporate check, the
exercise of the Warrant shall not be effective until the Warrant Agent shall be
satisfied that the check shall have cleared; provided, further, that if such
payment is made prior to the Warrant Expiration Date or the expiration of a
period during which a reduced Purchase Price is in effect pursuant to Paragraph
9(f) of this Agreement and the check shall not have cleared until after the
Warrant Expiration Date or such other date, then the Warrant shall be deemed to
have been exercised immediately prior to 5:00 P.M. New York City time on the
Warrant Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be six dollars ($6.00) per share with respect to the Warrants,
subject to adjustment from time to time pursuant to the provisions of Paragraph
9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms of
this Agreement, which price shall be ten cents ($.10) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form S-1, File No. [333- ], which was declared
effective by the Commission on [ ], 1996.
(g) "Registered Holder" shall mean, as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Paragraph 6 of this Agreement.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Certificate" shall mean the certificates
(attached hereto as Exhibit A);
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York
City time on the first to occur of (i) [ ], 1999, or (ii) the business day
immediately preceding the Redemption Date, as defined in Paragraph 8(c) of this
Agreement; provided, that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, the Warrant
Expiration Date shall be the next day which is not such a date. Upon notice to
all warrant holders the Company shall have the right to extend the Warrant
Expiration Date.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
(l) "Warrants" shall mean the Warrants.
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2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms of this
Agreement, subject to modification and adjustment as provided in Paragraph 9 of
this Agreement.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the shares of Common Stock issuable upon
the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued hereunder
or otherwise issuable pursuant to the Underwriting Agreement, including those
issuable in exchange for certain outstanding warrants, (ii) those issued on or
after the date of this Agreement, upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised Warrants
held by the exercising Registered Holder, (iii) those issued upon any transfer
or exchange pursuant to Paragraph 6 of this Agreement; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Paragraph 7 of this Agreement; (v) those issued pursuant to the
Underwriter's Option, and (vi) at the option of the Company, in such form as may
be approved by the Board of Directors, to reflect any adjustment or change in
the Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants made pursuant to Paragraph 9 of this Agreement. In
addition, at the discretion of the Company, the Company may authorize the
issuance of additional Warrants, which shall be subject to the provisions of
this Agreement.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Warrants shall be
substantially in the form annexed as Exhibit A to this Agreement, (the
provisions of which are hereby incorporated herein) and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or
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endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage or to the requirements of
Paragraph 2(b) of this Agreement. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer or exchange in
lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued
in registered form. Warrant Certificates shall be numbered serially with the
letter WA or other letters acceptable to the Company and the Warrant Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed the Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Paragraph 4(a) of this Agreement.
4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time during the two year period commencing one year from the
Effective Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein and in the Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
and shall notify the Company in writing of the exercise of the Warrant. Promptly
following, and in any event within five (5) days after the date of such notice
from the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause
to be issued and delivered by the Transfer Agent, to the person or persons
entitled to receive the
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same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of the Representative or
such other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, by the Representative or such other investment
bank or brokerage house, certificates shall immediately be issued without prior
notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing, subject to the provisions of Paragraphs 4(b)
and 4(c) of this Agreement.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after one year from the Effective Date, (i) the market price of the
Company's Common Stock is greater than the Purchase Price then in effect, (ii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant was not held
in a discretionary account, (iv) disclosure of compensation arrangements was
made both at the time of the original offering and at the time of exercise of
the Warrant was not in violation of Rule 10b-6 (as such rule or any successor
rule may be in effect as of such time of exercise) promulgated under the
Securities Exchange Act of 1934, then the Warrant Agent, simultaneously with the
distribution of the Warrant Proceeds to the Company shall, on behalf of the
Company, pay from the Warrant Proceeds, a fee of five percent (5%) (the "Monroe
Parker's Fee") of the Purchase Price to Monroe Parker (a portion of which may be
reallowed by Monroe Parker to the dealer who solicited the exercise, which may
also be Monroe Parker). In the event Monroe Parker's Fee is not paid within ten
(10) days of the date on which the Company receives Warrant Proceeds, then
Monroe Parker's Fee shall begin accruing interest at an annual rate of prime
plus four (4)%, payable by the Company to Monroe Parker at the time the Company
pays Monroe Parker's Fee. Within five (5) business days after exercise, the
Warrant Agent shall send to Monroe Parker a copy of the reverse side of each
Warrant exercised. Monroe Parker shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this Paragraph
4(b). In addition, Monroe Parker and the Company may, at any time during
business hours, examine the records of the Warrant Agent, including its ledger
of original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. The provisions of this Paragraph 4(b) may not be modified, amended or
deleted without the prior written consent of the Representative.
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<PAGE>
(c) In order to enforce the provisions of Paragraph 4(b) of
this Agreement, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount of
Monroe Parker's Fee, which amount will be deducted from the net Warrant Proceeds
to be paid to the Company. The funds placed in the escrow account may not be
released to the Company without a written agreement from Monroe Parker that the
required Monroe Parker's Fee has been received by Monroe Parker.
5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares shall, at the time of delivery in accordance
with this Agreement, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue thereof (other
than those which the Company shall promptly pay or discharge), and that upon
issuance such shares shall be listed on each national securities exchange or
eligible for inclusion in each automated quotation system, if any, on which the
other shares of outstanding Common Stock of the Company are then listed or
eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any Federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
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(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions of this Agreement, the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A reasonable service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchanges, registration or transfer of Warrant Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
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(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
(g) Notwithstanding any other provisions of this Agreement, no
Warrants issued upon exercise of the Underwriter's Option and no shares of
Common Stock issuable upon exercise of such Warrants may be sold, transferred,
assigned or hypothecated for a period of one year from the Effective Date except
to the officers of the Underwriters or to selling group members or officers or
partners thereof, all of whom shall be bound by such restrictions. Until the
expiration of such one-year period, Warrant certificates and stock certificates
shall be marked with a legend referring to such restriction.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
(a) Commencing eighteen (18) months from the Effective Date or
earlier with the consent of Monroe Parker, the Company shall have the right, on
not less than thirty (30) nor more than sixty (60) days notice given prior to
the Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Warrants at the Redemption Price of ten cents ($.10) per Warrant,
provided the Market Price of the Common Stock shall equal or exceed the "Target
Price." The "Target Price" shall mean two hundred and fifty percent (250%) of
the Purchase Price. Market Price for the purpose of this Paragraph 8 shall mean,
if the Common Stock is listed on the NASDAQ System or the New York or American
Stock Exchange, the average last reported sales price (or, if no sale is
reported on any such trading day, the closing bid price) on the principal market
for the Common Stock or, if the Common Stock is not so listed or traded, the
average of the last reported high bid and low asked prices of the Common Stock,
during the ten (10) days ending within three (3) days of the date the Warrants
are called for redemption. Notice of redemption shall be mailed by first class
mail, postage prepaid, not later than
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five (5) business days (or such longer period to which Monroe Parker may
consent) after the date the Warrants are called for redemption. All Warrants
must be redeemed if any Warrants are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request Monroe Parker or the Warrant Agent to mail the notice
of redemption referred to in said Paragraph 8(a) to each of the Registered
Holders of the Warrants to be redeemed, first class, postage prepaid, not
earlier than the sixtieth (60th) day nor later than the thirtieth (30th) day
before the date fixed for redemption, at their last addresses as shall appear on
the records maintained pursuant to Paragraph 6(b) of this Agreement. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice. The
Warrant Agent agrees to mail such notice if requested by the Company or the
Underwriter.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price to be paid, and (iv)
that the right to exercise 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 date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (A) to whom notice was not mailed or (B) whose
notice was defective. An affidavit of the Warrant Agent or of the Secretary or
an Assistant Secretary of the Representative or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant, and any right of the
holders of the Underwriter's Option to receive Warrants upon exercise of the
Underwriter's Option, shall terminate at 5:00 p.m. (New York City time) on the
business day immediately preceding the Redemption Date. After such time, Holders
of the Warrants shall have no further rights except to receive, upon surrender
of the Warrant, the Redemption Price without interest, subject to the provisions
of applicable laws relating to the treatment of abandoned property. In the event
that the Warrants or the Warrant Shares shall not be subject to a current and
effective registration statement under the Securities Act of 1933, as amended,
at any time subsequent to the date the Warrants are called for redemption, the
notice of redemption shall not be effective and shall be deemed for all purposes
not to have been given. Nothing in the preceding sentence shall be construed to
prohibit or restrict the Company from thereafter calling the Warrants for
redemption in the manner provided for, and subject to the provisions of, this
Paragraph 8.
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(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of redemption,
upon presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the Redemption Price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) Notwithstanding any other provision of this Agreement, the
Company shall not call the Warrants for redemption unless there is, at the time
the Warrants are called for redemption, a current and effective registration
statement or a post-effective amendment to the registration statement covering
the issuance of the shares of Common Stock issuable upon exercise of the
Warrants.
(g) In the event that the Underwriter's Option is exercised at
a time subsequent to the redemption of the Warrants but prior to the Warrant
Expiration Date, as defined in Paragraph 1(i)(i) of this Agreement, then,
notwithstanding any other provisions of this Agreement, the Warrants issued upon
such exercise may be redeemed by the Company at any time after issuance.
9. Adjustment of Exercise Price and Number of Securities Issuable
upon Exercise of Warrants.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, subdivide or reclassify
its outstanding Common Stock into a greater number of shares, or combine or
reclassify its outstanding Common Stock into a smaller number of shares or
otherwise effect a reverse split, the Purchase Price in effect at the time of
the record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the holder of any Warrant exercised after such date shall be
entitled to receive the aggregate number and kind of shares which, if such
Warrant had been exercised immediately prior to such time, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed in this Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of Common
Stock (or securities convertible into Common Stock) at a price (or having a
conversion price per share) less than the current market price of the Common
Stock (as defined in
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Paragraph 9(e) of this Agreement) on the record date mentioned below, the
Purchase Price shall be adjusted so that the same shall equal the price
determined by multiplying the Purchase Price in effect immediately prior to the
date of such issuance by a fraction, of which the numerator shall be the number
of shares of Common Stock outstanding on the record date mentioned below plus
the number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants, the Purchase Price shall be
readjusted to the Purchase Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock evidences
of its indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in Paragraph
9(a) of this Agreement) or subscription rights or warrants (excluding those
referred to in Paragraph 9(b) of this Agreement), then in each such case the
Purchase Price in effect thereafter shall be determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as defined in
Paragraph 9(e) of this Agreement), less the fair market value (as determined by
the Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the denominator shall be
the total number of shares or Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(d) Whenever the Purchase Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this Agreement,
the number of shares of Common Stock
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purchasable upon exercise of each Warrant shall simultaneously be adjusted by
multiplying the number of shares issuable upon exercise of each Warrant in
effect on the date thereof by the Purchase Price in effect on the date thereof
and dividing the product so obtained by the Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to Paragraphs
9(b) and (c) of this Agreement, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for thirty (30) consecutive business days commencing forty-five (45) business
days before such date. The closing price for each day shall be the reported last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported high bid and low asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, if the Common Stock is admitted to
trading or listing on the New York or American Stock Exchange or on The Nasdaq
Stock Market if included in such system or if not listed or admitted to trading
on such exchange or system, the average of the highest bid and lowest asked
prices as reported by Nasdaq, or the National Quotation Bureau, Inc. or another
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of Directors
of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Paragraph 9(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Anything in this Paragraph 9 to the
contrary notwithstanding, the Company may, upon notice to the record holders of
the Warrants, in its sole discretion, reduce the Purchase Price of the Warrants,
and, if such reduction is not otherwise required by this Paragraph 9, such
reduction (i) will not, unless the Board of Directors otherwise determines,
result in any change in the number or class of shares of Common Stock issuable
upon exercise of such Warrants, and (ii) may be of limited duration, in which
event the reduction in Purchase Price shall not apply to any Warrants exercised
after the expiration of the time during which the reduced Purchase Price is in
effect.
(g) The Company may retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Paragraph 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Agreement, the holder of any
Warrant thereafter shall become entitled to receive
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any shares of the Company, other than Common Stock, thereafter the number of
such other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Paragraphs 9(a) to (f), inclusive, of this Agreement.
(i) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record and each Warrant issuable upon exercise of the
Underwriter's Option prior to such adjustment of the number of Warrants shall
become that number of Warrants or an Underwriter's Option to purchase that
number of Warrants (calculated to the nearest tenth) determined by multiplying
the number one by a fraction, the numerator of which shall be the Purchase Price
in effect immediately prior to such adjustment and the denominator of which
shall be the Purchase Price in effect immediately after such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Paragraph 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Paragraph 10 of this Agreement, the number
of additional Warrants to which such Holder shall be entitled as a result of
such adjustment or, at the option of the Company, cause to be distributed to
such Holder in substitution and replacement for the Warrant Certificates held by
him prior to the date of adjustment (and upon surrender thereof, if required by
the Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment. With respect to the
Representative's Option, the Company shall give the registered holders of the
Representative's Option notice as to the number of Warrants issuable in respect
of such Representative's Option reflecting such adjustment. Any Warrants or
notice to registered holders of Representative's Option may be mailed by the
Warrant Agent or by first class mail, postage prepaid.
(j) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind
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and number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provisions shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 9. The Company
shall not effect any such consolidation, merger or sale unless, prior to or
simultaneously with the consummation thereof, the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that, as a result of any merger, consolidation or similar transaction, all of
the holders of Common Stock receive and are entitled to receive no consideration
other than cash in respect of their shares of Common Stock, then, at the
effective time of the transaction, the rights to purchase Common Stock pursuant
to the Warrants shall terminate, and the holders of the Warrants shall,
notwithstanding any other provisions of this Agreement or the Warrants, receive
in respect of each Warrant to purchase one (1) share of Common Stock, upon
presentation of the Warrant Certificate, the amount by which the consideration
per share of Common Stock payable to the holders of Common Stock at such
effective time exceeds the Purchase Price in effect on such effective date,
without giving effect to the transaction. In the event that, subsequent to the
effective time, additional cash or other consideration is payable to the holders
of Common Stock of record as of the effective time, the same consideration shall
be payable to the holders of the Warrants to the extent that the total cash then
received by the holders of Common Stock exceeds the Purchase Price in effect at
such effective date, without giving effect to the transaction, with the same
effect as if the Warrants had been exercised on and as of such effective time.
In the event of any merger, consolidation, sale or lease of substantially all of
the Company's assets or reorganization whereby the Company is not the surviving
corporation, in lieu of the foregoing provisions of this Paragraph 9(j), the
Company may provide in the agreement relating to the transaction that each
Warrant shall become, be converted into or be exchanged for, such securities of
the surviving or acquiring corporation or other entity as has a value equal to
the value of the Warrants, the value of the Warrants
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<PAGE>
and securities being issued in exchange therefor to be determined by the
Company's Board of Directors, such determination to be final, binding and
conclusive on the Company and the holders of the Warrants.
(k) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Paragraphs 2(e) and 9(i) of this Agreement, continue to express the
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as to the Purchase Price per share, and the number of
shares purchasable and the Redemption Price therefore were expressed in the
Warrant Certificates when the same were originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice President or Treasurer, of the Company setting forth:
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by first class mail to the Representative and
to each registered holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, constitute prima facie evidence of the facts stated therein.
(m) As used in this Paragraph 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the Effective Date and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the Effective Date or, in the
case of any reclassification, change, consolidation, merger, sale or conveyance
of the character referred to in Paragraph 9(j) of this Agreement, the stock,
securities or property provided for in such section or, in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from
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par value to no par value, or from no par value to par value, such shares of
Common Stock as so reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9, or
as to the amount of any such adjustment, if required, shall be binding upon the
holders of the warrants and the Company if made in good faith by the Board of
Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. If the Company exercises such right
no adjustment which otherwise might be called for pursuant to said Paragraph
9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Paragraph 9 of this Agreement, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(a) If the Common Stock is listed on the New York or American
Stock Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq Stock Market, the current value shall be the
reported last sale price of the Common Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant, or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange or system; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the last reported bid price
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
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11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained in this
Agreement be construed to confer upon the holder of Warrants, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provide in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance of the Warrants, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Paragraph 6 of this Agreement.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired.
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15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined solely
by the provisions of this Agreement. The Warrant Agent shall not, by issuing and
delivering Warrant certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or wilful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary, unless other evidence in respect thereof is
specifically prescribed in this Agreement. The Warrant Agent shall not be liable
for any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or wilful misconduct.
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<PAGE>
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own negligence or wilful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such under
this Agreement, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason, it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
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16. Modification of Agreement. The Warrant Agent and the Company may,
by supplemental agreement, make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law; and provided, further, that Paragraphs 4(b)
and 4(c) may not be modified or amended without the consent of Monroe Parker.
17. Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and, unless otherwise expressly
provided in this Agreement, delivered personally or sent by overnight courier or
messenger against receipt thereof or sent by registered or certified mail (air
mail if overseas), return receipt requested, or by facsimile transmission or
similar means of communication. Notices sent by facsimile transmission or
similar means of communication shall be confirmed by acknowledged receipt or by
registered or certified mail, return receipt requested. Notices shall be deemed
to have been received on the date of personal delivery or telecopy or, if sent
by certified or registered mail, return receipt requested, shall be deemed to be
delivered on the third business day after the date of mailing. Notices shall be
sent to the Registered Holders at their respective addresses on the Warrant
Agent's warrant register, to the Company at 2424 North Federal Highway, Suite
410, Boca Raton, Florida, telecopier (561) 347-5352, Attention: Mr. Lewis S.
Schiller, Chairman of the Board, and Mr. George W. Mahoney, Chief Financial
Officer, to the Warrant Agent at its Corporate Office, telecopier (718)
236-2641. Either party may, by like notice, change the address, person or
telecopier number to which notice should be given.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements entered and to be performed wholly within such State.
19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time
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<PAGE>
to time of Warrant Certificates. Nothing in this Agreement is intended or shall
be construed to confer upon any other person any right, remedy or claim, in
equity or at law, or to impose upon any other person any duty, liability or
obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INTERNATIONAL MAGNETIC IMAGING, INC
By: __________________________
Lewis S. Schiller, CEO
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: __________________________
, Authorized Officer
MONROE PARKER SECURITIES, INC.
By: __________________________
, Authorized Officer
- 21 -
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. WA Warrants
Void after , 1999 or earlier upon redemption.
INTERNATIONAL MAGNETIC IMAGING, INC
SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED or registered assigns (the
"Registered Holder") is the owner of the number of Series A Redeemable Common
Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one (1) fully paid and nonassessable share of Common Stock, par value
$.01 per share ("Common Stock"), of International Magnetic Imaging, Inc., a
Delaware corporation (the "Company"), at any time prior to the Expiration Date
(as hereinafter defined), upon the Subscription Form on the reverse hereof duly
executed, at the corporate office of American Stock Transfer & Trust Company, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$6.00, subject to adjustment as provided in the Warrant Agreement (as
hereinafter defined) (the "Purchase Price") in lawful money of the United States
of America in cash or by official bank or certified check made payable to the
order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of , 1996, by
and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time) on
, 1999 or earlier upon redemption as hereinafter provided. If such date shall in
the State of New York be a holiday or a day on which the banks are authorized or
required to close, then the Expiration Date shall mean 5:00 P.M. (New York City
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized or required to close. Under certain
circumstances as provided in the Warrant Agreement, the period during which the
Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon payment by the Registered Holder of any tax or
other governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificate representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
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<PAGE>
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing, , 1996 or earlier as provided in the Warrant
Agreement, this Warrant may be redeemed at the option of the Company, at a
redemption price of $.10 per Warrant at any time, provided the Market Price (as
defined in the Warrant Agreement) for the Common Stock issuable upon exercise of
such Warrant shall equal or exceed 250% of the Purchase Price. Notice of
redemption shall be given not later than the thirtieth (30th) day nor earlier
than the sixtieth (60th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.10 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant, is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
INTERNATIONAL MAGNETIC IMAGING, INC
Dated:____________ By: ___________________________
Lewis S. Schiller, Chairman
By: ___________________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Warrant Agent
By: _____________________
Authorized Officer
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<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $4.00 PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________________
_____________________________________
_____________________________________
_____________________________________
[please print or type name and address]
and be delivered to
_____________________________________
_____________________________________
_____________________________________
_____________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Monroe Parker Securities,
Inc.
----------------------------------------------
(Name of NASD Member if other than
Monroe Parker Securities, Inc.)
Dated:____________ x___________________________________
___________________________________
___________________________________
Address
___________________________________
Taxpayer Identification Number
___________________________________
Signature Medallion Guaranteed:
___________________________________
- 24 -
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,___________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________________
_____________________________________
_____________________________________
_____________________________________
[please print or type name and address]
__________ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints __________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:____________ x__________________________________________
Signature Medallion Guaranteed
__________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
- 25 -
<PAGE>
Exhibit 10.27
DEBT EXCHANGE AGREEMENT
AGREEMENT dated as of the 31st day of March, 1997, by and among DR.
STEPHEN A. SCHULMAN, an individual residing at 505 South Ocean Boulevard, Boca
Raton, Florida 33432 ("Schulman"), STEPHANIE S. SCHULMAN, an individual residing
at 505 South Ocean Boulevard, Boca Raton, Florida 33432 ("Mrs. Schulman")
(Schulman and Mrs. Schulman hereinafter collectively, "the Schulmans") and
INTERNATIONAL MAGNETIC IMAGING, INC., a Delaware corporation having an office at
2424 North Federal Highway, Boca Raton, Florida 33431 ("IMI").
W I T N E S S E T H:
WHEREAS, on September 30, 1994, IMI's affiliates issued a Subordinated
Promissory Note to the Schulmans jointly, and a Subordinated Promissory Note to
Mrs. Schulman (the "Schulman Notes"); and
WHEREAS, the Schulmans have agreed, subject to the terms and conditions
hereof, to exchange the Schulman Notes for shares of IMI's Series C Redeemable
Preferred Stock (the "Preferred Stock");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Representations and Warranties of the Schulmans. In order to induce
IMI to enter into this Agreement and consummate the transactions provided for
herein and contemplated hereby, the Schulmans, jointly and severally, do hereby
represent and warrant to IMI as follows:
1.1. Schulman and Mrs. Schulman, individually and jointly,
have all requisite power and authority necessary for the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, and this Agreement, when executed and delivered by the
Schulmans to IMI, will constitute the valid and legally binding obligation of
Schulman and Mrs. Schulman 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.
1.2. Neither Schulman nor Mrs. Schulman is in violation or
default of any judgment, order, writ, decree, note, instrument, mortgage, lease,
license, permit, approval, authorization or other agreement to which either of
them is a party or by which either of them is bound (the "Schulman Documents")
or, to the best of the knowledge of either of them,
1
<PAGE>
of any Federal, state, or local law, rule or regulation applicable to either of
them, in either of the foregoing instances, the result of which would materially
adversely affect the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement by the Schulmans and the consummation
of the transactions contemplated hereby by the Schulmans 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 of the Schulman Documents
or an event which will create rights of acceleration, termination, cancellation,
default or loss of rights thereunder, or result in the creation of any lien,
claim, charge or encumbrance upon any property of Schulman or Mrs. Schulman
including, without limitation, the Schulman Notes or the rights of either of
them under this Agreement.
1.3. There is no claim, action, suit, proceeding or
investigation pending or, to the best of the Schulmans' knowledge, threatened
against either of them which in any way might materially adversely affect the
transactions contemplated by this Agreement. Neither Schulman nor Mrs. Schulman
is a party or subject to the provisions of any order, writ, injunction,
judgment, or decree of any court or foreign, Federal, state, local or other
governmental agency, authority or regulatory body which in any way might
materially adversely affect the transactions contemplated by this Agreement.
There is no claim, action, suit, proceeding or investigation by Schulman or Mrs.
Schulman currently pending or which either of them intends to initiate which in
any way might materially adversely affect the transactions contemplated by this
Agreement.
1.4. The Schulmans are the owners, free and clear of all
liens, claims and encumbrances, of the Schulman Notes.
1.5. The Schulman Notes, when delivered by the Schulmans to
IMI at the Closing (hereinafter defined), will be free and clear of all liens,
claims and encumbrances whatsoever, and no assignment or other grant of any
other interest of the Schulmans therein to any third party has now (other than
by Schulman to IMI) or will, on the Closing Date (hereinafter defined), have
been made.
1.6. Exhibit "A" annexed hereto and incorporated herein by
this reference accurately sets forth the outstanding principal balance of each
of the Schulman Notes as of December 31, 1996.
1.7. The Schulmans have read the Term Sheet for the Series C
Redeemable Preferred Stock which is attached hereto as Exhibit "B" and
understand and accept the terms thereof.
2
<PAGE>
1.8. None of the representations or warranties of the
Schulmans contained in this Paragraph 1 is false or misleading in any material
respect or omits to state a fact necessary to make the statements herein not
misleading in any material respect. All of such representations and warranties
are true and correct on the date hereof and will survive the execution of this
Agreement and the Closing of the transactions provided for hereunder and shall
not be merged therein. Except for the representations and warranties of IMI made
in Paragraph 2 hereof, there have been no other representations or warranties
made to the Schulmans by or on behalf of or with respect to IMI upon which the
Schulmans have relied in connection with the negotiation, preparation,
execution, delivery or performance of this Agreement or with respect to the
transactions contemplated hereby.
2. Representations and Warranties of IMI. In order to induce the
Schulmans to enter into this Agreement and consummate the transactions provided
for herein and contemplated hereby, IMI represents and warrants to the Schulmans
as follows:
2.1. 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 the operations of its business and the ownership of
its assets.
2.2. All action on the part of IMI necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby has been taken and
obtained, and this Agreement, when executed and delivered by IMI to the
Schulmans will constitute 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.
2.3. IMI is not in violation or default of any provision of
its Certificate of Incorporation or By-Laws or any judgment, order, writ,
decree, note, instrument, mortgage, lease, license, permit, approval,
authorization or other agreement to which it is a party or by which it is bound
(the "IMI Documents") or, to the best of its knowledge, of any Federal, state,
or local law, rule or regulation applicable to IMI, which, in any of such
instances, might in any way materially adversely affect the transactions
contemplated by this Agreement. IMI has not received any notice of any violation
of any such law, rule or regulation. The authorization, execution, delivery and
3
<PAGE>
performance of this Agreement by IMI and the consummation of the transactions
contemplated hereby by IMI will not result in any violation or be in conflict
with or constitute, with or without the passage of time or giving of notice, a
default under any of the IMI Documents or an event which will create rights of
acceleration, termination, cancellation, default or loss of rights thereunder or
result in the creation of any lien, claim, charge or encumbrance upon any
property of IMI.
2.4. There is no claim, action, suit, proceeding or
investigation pending or, to the best of IMI's knowledge, threatened against IMI
which in any way might materially adversely affect the transactions contemplated
by this Agreement. IMI is not a party or subject to the provisions of any order,
writ, injunction, judgment, or decree of any court or foreign, Federal, state,
local or other governmental agency, authority or regulatory body which in any
way might materially adversely affect the transactions contemplated by this
Agreement. There is no claim, action, suit, proceeding or investigation by IMI
currently pending or which IMI intends to initiate which in any way might
materially adversely affect the transactions contemplated by this Agreement.
2.5. Prior to the Closing Date, IMI will provide the Schulmans
with a true and correct copy of the Certificate of Designations, Rights and
Preferences of the Preferred Stock which will be consistent with the Term Sheet
annexed hereto as Exhibit "B" and be filed by IMI on the Closing Date.
2.6. The Preferred Stock, the Warrants (as hereinafter
defined) and the shares of Class A Common Stock of IMI (the "Class A Common
Stock") issuable upon exercise of the Warrants, and the issuance thereof
pursuant to the terms of this Agreement, have been duly authorized by IMI. The
shares of IMI Preferred Stock issuable pursuant to this Agreement and the shares
of Class A Common Stock issuable upon exercise of the Warrants, when issued,
will be duly and validly issued, fully paid and non-assessable and free and
clear of all liens, claims and encumbrances.
2.7. None of the representations or warranties of IMI
contained in this Paragraph 2 is false or misleading in any material respect or
omits to state a fact necessary to make the statements herein not misleading in
any material respect. All of the foregoing representations and warranties of IMI
are true and correct on the date hereof and will survive the execution of this
Agreement and the Closing of the transactions provided for hereunder and shall
not be merged therein. Except for the representations and warranties of the
Schulmans made in Paragraph 1 hereof, there have been no other representations
or warranties made to IMI by or on behalf of or with respect to the Schulmans
upon which IMI has relied in connection with the negotiation,
4
<PAGE>
preparation, execution, delivery or performance of this Agreement or with
respect to the transactions contemplated hereby.
3. Reduction of Outstanding Promissory Notes. On the Closing Date (as
hereinafter defined), and subject to the Closing of the transactions provided
for herein, IMI will reduce the outstanding principal balance of the Schulman
Notes by an amount equal to the then outstanding principal balance of the two
promissory notes of Schulman to IMI, each dated as of December 26, 1995, in the
aggregate principal amount of Three Hundred Thousand Dollars ($300,000), which
were issued by Schulman to IMI as evidence of loans by IMI to Schulman, and such
promissory notes will be deemed to have been paid in full and the security
interest granted by Schulman to IMI in all of Schulman's right, title and
interest in and to all interests held by him (whether in his name, the name of
Mrs. Schulman, in joint name, or in corporate name) in any of SASGP, Inc.,
Askay, Inc., MRI of Boca Raton, Inc., MRI of Orlando, Inc., MRI of Kansas City,
Inc. and J. Sternberg and S. Schulman M.D. Corp. and in any capital stock of any
corporation which was acquired by IMI or its affiliates on September 30, 1994,
and in the promissory notes of MD Ltd. Partner Acquisition Corporation, will be
terminated. All interest accrued and unpaid on the aforesaid Three Hundred
Thousand ($300,000) promissory notes through the Closing Date is hereby waived
by IMI, on and subject to the Closing.
4. Exchange of Debt.
4.1. On the Closing Date and subject to the Closing of the
transactions provided for herein, Schulman and Mrs. Schulman will exchange all
of the Schulman Notes for thirty (30) shares of the Preferred Stock.
4.2. On the Closing Date and subject to the Closing of the
transactions provided for herein, all interest accrued and unpaid on the
Schulman Notes through the Closing Date is hereby waived by the Schulmans.
5. Issuance of Warrants.
5.1. On the Closing Date and subject to the Closing of the
transactions provided for herein, IMI will issue and deliver to Schulman or his
designee, a Series D Class A Common Stock Purchase Warrant (the "Warrant" or
"Warrants") to purchase up to 25,000 shares of the Class A Common Stock in the
form annexed hereto as Exhibit "C" and incorporated herein by this reference.
The Warrant will be exercisable for a period of five years commencing upon the
closing of IMI's Initial Public Offering (hereinafter defined) at a price per
share of the said Class A Common Stock equal to the public offering price per
share of the Common Stock of IMI sold in the Initial Public Offering.
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<PAGE>
5.2. In addition to the provision in the Warrant with respect
to the conversion of the Class A Common Stock, IMI hereby agrees that if, at any
time during the term of the Warrant or at any time that Schulman or his designee
are holders of Class A Common Stock, Lewis S. Schiller or SIS Capital Corp.
exchanges or converts his or its shares of Class A Common Stock for shares of
Common Stock, then the shares of Class A Common Stock issuable upon the exercise
of the Warrant or then held by Schulman or his designee by virtue of the
exercise thereof will automatically be exchanged for or converted into shares of
IMI's Common Stock. In the event of any such exchange or conversion IMI will,
within five (5) business days thereof, give notice of such event to Schulman, in
accordance with the provisions of Paragraph 11.2 hereof.
5.3. IMI also hereby agrees that it will, subject to the
consent of the underwriter of the Initial Public Offering, use its best efforts
to file with the U.S. Securities and Exchange Commission (the "Commission") a
registration statement for or including the Class A Common Stock, not later than
one hundred twenty (120) days after the end of the second year following the
closing of the Initial Public Offering; provided that there has been no prior
exchange or conversion of the Class A Common Stock issued or issuable pursuant
to an exercise of the Warrant into shares of the Common Stock of IMI.
6. Investment Representations and Covenants of the Schulmans.
6.1. The Schulmans hereby acknowledge their understanding that
the securities of IMI being issued pursuant to this Agreement or to be issued
upon the exercise of the Warrant or upon the exchange, if any, of the Class A
Common Stock into the Common Stock of IMI (the "Securities") are not being
registered pursuant to Section 5 of the Securities Act of 1933, as amended (the
"Act"), on the basis that the issuance thereof is exempt under Section 4(2) of
the Act as a transaction by an issuer not involving any public offering. Such
exemption is predicated, in part, on the Schulmans' representations and
warranties, which are hereby made, that the Securities are being and will be
acquired by Schulman and Mrs. Schulman for his or her own account, for
investment purposes only within the meaning of the Act, with no intention of
assigning any participation or interest therein, and not with a view to the
distribution thereof. The Schulmans understand and acknowledge that the
Securities are "restricted" Securities and have not been registered under the
Act or applicable state securities laws and cannot be sold unless they are
registered under the Act (and the securities laws of the state of their
residence, if applicable) or IMI has received a written opinion of counsel
satisfactory to IMI that, after an investigation of the relevant facts, which
shall be recited in such opinion, such counsel is of the opinion
6
<PAGE>
that such sale, assignment or transfer does not involve a transaction requiring
registration of such Securities under the Act (and, if applicable, the
securities laws of the state of the Schulmans' residence governing resales of
securities acquired from an issuer thereof). The Schulmans understand and agree
that the certificates for the Securities, if and when issued and delivered, will
bear a legend to the aforesaid effect and a "stop transfer" order will be
maintained against the Securities by IMI or its transfer agent.
6.2. The Schulmans also hereby acknowledge their understanding
that the Class A Common Stock is non-voting and that the Initial Public Offering
is an offering of the Common Stock, not the Class A Common Stock, of IMI and
that there is no assurance as to, and IMI has made no representation or warranty
to the Schulmans with respect to, any consummation of the Initial Public
Offering.
6.3. The Schulmans understand and agree that, on the Closing
Date (or prior thereto if requested by the underwriter of the Initial Public
Offering), as a condition to the issuance and delivery to the Schulmans of the
shares of Preferred Stock and the Warrants provided for in this Agreement, they
(or their designees) will execute and deliver to IMI a "Lock-Up" Agreement
identical to the "Lock-Up" Agreement executed by all other holders of the Common
Stock of IMI, with respect to such Preferred Stock and Warrants and the shares
of Class A Common Stock issuable upon the exercise of the Warrants and the
shares of Common Stock into which the shares of Class A Common Stock are
exchangeable or convertible as provided in this Agreement.
7. Most Favored Nation.
7.1. In the event that at any time after the execution of this
Agreement, IMI enters into any agreement with Dr. James H. Sternberg and/or
Marcia Sternberg and/or Dr. Ashley Kaye in connection with any exchange of
Subordinated Notes or any replacement notes issued in lieu thereof held by any
of them for any capital stock of IMI, and such agreement contains, in the
aggregate, terms more favorable to any of such persons than are contained herein
for the benefit of the Schulmans, this Agreement will, subject to the provisions
of Paragraph 7.2 below, be deemed to have been amended to provide such terms for
the benefit of the Schulmans.
7.2. In the event that any agreement referred to in Paragraph
7.1 is entered into, IMI will provide notice and a copy thereof to the Schulmans
within ten (10) days after the execution date thereof. Unless the Schulmans
notify IMI within fifteen (15) business days after receipt of said notice that
the Schulmans believe that this Agreement is amended by reason of the
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<PAGE>
application of Paragraph 7.1 hereof (which notice shall state with reasonable
specificity the reasons for such position), this Agreement shall not be so
amended. If there is a disagreement with respect thereto, and the disagreement
cannot be resolved by IMI and the Schulmans within sixty (60) days following the
delivery of such notice, the dispute may be submitted by either IMI or the
Schulmans to binding arbitration in Palm Beach County, Florida, 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 IMI and the Schulmans 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 and enforced in any court, domestic or foreign, having jurisdiction
thereof.
8. Closing; Closing Date.
8.1. The closing of the transactions provided for in this
Agreement (the "Closing") will take place simultaneously with and is subject to
the closing of the Initial Public Offering pursuant to IMI's registration
statement as filed with the Commission on November 6, 1996 (Registration No.
333-15589) and the written consent of DVI Financial Services, Inc. ("DVI") to
the Amended and Restated Employment Agreement dated as of March 31, 1997 between
Schulman and IMI (the "Closing Date"). The closing will take place in New York,
New York at such location as IMI shall specify on not less than three days
notice to Schulman and Mrs. Schulman.
8.2. Notwithstanding the provisions of Paragraph 8.1, in the
event that (i) the aforesaid registration statement is not declared effective by
the Commission on or before July 31, 1997 or (ii) prior to such registration
statement having been declared effective by the Commission, such registration
statement is withdrawn by IMI or a stop order preventing such registration
statement from being declared effective is issued with respect thereto, or (iii)
IMI determines that any of the representations, warranties or covenants of the
Schulmans hereunder are not accurate or complete, or (iv) IMI determines that
this Agreement must be modified either to comply with the requests of the
underwriter of its proposed public offering or to enable IMI to list its
securities on the Nasdaq Stock Market, or (v) if DVI does not, for any reason,
provide the consent referred to in Paragraph 8.1 above prior to the closing of
the Initial Public Offering IMI shall have the right, on notice to Schulman and
Mrs. Schulman, to terminate this Agreement. In the event of any such
termination, this Agreement shall be null and void, no party hereto shall have
any rights or obligations to any other party hereunder and none of the documents
or instruments between the parties hereto which are referred to herein with
respect to transactions consummated among the parties hereto prior to the
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date of this Agreement will be modified or otherwise affected and shall remain
in full force and effect in accordance with their terms.
9. Documents to be Delivered by the Schulmans. On the Closing Date and
subject to the Closing of the transactions provided for herein, the Schulmans
will deliver to IMI:
(a) the Schulman Notes endorsed "paid in full" dated
as of such date and signed by them; and
(b) the "Lock-Up" Agreement referred to in Paragraph
6.3 hereof.
10. Documents to be Delivered by IMI. On the Closing Date and subject
to the Closing of the transactions provided for herein, IMI will deliver to the
Schulmans:
(a) a certificate or certificates for thirty (30)
shares of the Preferred Stock, registered in the names designated
by the Schulmans prior to the Closing;
(b) the Warrant registered in the name designated
by Schulman prior to the Closing; and
(c) the two promissory notes of Schulman to IMI
in the aggregate principal amount of $300,000 dated as of December 26, 1995,
endorsed "paid in full" dated as of such date and signed by IMI.
11. Legal Representation and Payment of Fees. The Schulmans have been
represented in connection with this Agreement and the transactions contemplated
hereby by independent legal counsel and other advisors of their own choosing,
upon whose advice the Schulmans have relied exclusively. IMI will pay the
reasonable fees and expenses for legal services incurred by the Schulmans in
connection with the negotiation and consummation of this Agreement and the
transactions contemplated hereby, and other fees incurred by them for tax advice
with respect to the matters provided for in this Agreement, up to an aggregate
maximum of $6,000.00. Such fees will be paid at the Closing or, upon the
termination of this Agreement by IMI based upon the occurrence of any of the
events specified in subparagraphs (i), (ii), (iv) or (v) of Paragraph 8.2 hereof
against the presentation and approval by IMI of bills for such fees and
disbursements.
12. Miscellaneous.
12.1. This Agreement, including the Exhibits hereto,
constitutes the sole and entire agreement among the parties hereto with respect
to the subject matter hereof and
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supersedes all prior agreements, representations, warranties, statements,
promises, information, arrangements and understandings, whether oral or written,
express or implied, among 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 or parties to be bound thereby. This Agreement has been
subject to the mutual consultation, negotiation and agreement of the parties
hereto and shall not be construed for or against any party hereto on the basis
of such party having drafted this Agreement.
12.2. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement (the
"Notices"), shall be in writing and delivered personally or by nationally
recognized overnight courier, 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 addresses as any of the parties
hereto shall specify by notice given in accordance with this provision):
(a) If to Schulman or Mrs. Schulman:
Dr. Stephen A. Schulman
505 South Ocean Boulevard
Boca Raton, Florida 33432
with a copy to:
Ronny J. Halperin, Esq.
Kluger, Peretz, Kaplan & Berlin
1970 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
(b) If to IMI:
International Magnetic Imaging, Inc.
2424 North Federal Highway
Boca Raton, Florida 33431
Attn: George Mahoney
Chief Financial Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
All such Notices 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
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earlier, except for a notice of a change of address which shall be effective and
deemed to have been given only upon receipt.
12.3. Except as specifically provided herein, no party hereto
may assign this Agreement or its or their respective rights, benefits or
obligations hereunder without the written consent of the other parties hereto.
12.4. 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 in this Agreement is intended to confer upon any person or entity,
other than the parties hereto, or 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.
12.5. No waiver of any provision of this Agreement or of any
breach thereof shall be effective unless in writing and signed by the party to
be bound thereby. The waiver by any party hereto of a breach of any provision of
this Agreement, or of any representation, warranty, obligation or covenant in
this Agreement by any other party hereto, shall not be construed as a waiver of
any subsequent breach of the same or of any other provision, representation,
warranty, obligation or covenant of such other party, unless the instrument of
waiver expressly so provides.
12.6. 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. The parties hereto hereby agree that any suit or proceeding
arising under or as a result of this Agreement or the consummation of the
transactions contemplated hereby, shall be brought solely in a federal or state
court located in Palm Beach County, Florida, or such other court of competent
jurisdiction as shall be selected by IMI. By their execution hereof, the parties
hereto consent and irrevocably submit to the in personam jurisdiction of the
federal and state courts located in Palm Beach County, Florida, and agree that
any process in any suit or proceeding commenced in such courts under this
Agreement may be served upon them personally or by certified or registered mail,
return receipt requested, or by nationally recognized overnight courier, with
the same force and effect as if personally served upon them in such County and
State. The parties hereto each waive 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.
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12.7. The parties hereto hereby agree that, at any time and
from time to time after the date hereof and through and after the date of
execution hereof, upon the reasonable request of any 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.
12.8. Each party hereto represents and warrants to the other
that he, she or it has been represented by independent counsel of his, her or
its own choosing in connection with the negotiation, preparation, and
consummation of this Agreement. Except as expressly provided in this Agreement,
each of the parties hereto shall bear all of his, her or its respective costs
and expenses incurred in connection with the negotiation, preparation,
execution, consummation, performance and/or enforcement of this Agreement,
including, without limitation, the fees and disbursements of their respective
counsel, financial advisors and accountants. Notwithstanding the foregoing, in
the event of any action or proceeding instituted by any party hereto to enforce
the provisions of this Agreement, the party prevailing therein shall be entitled
to reimbursement by the other party of the reasonable legal costs and expenses
incurred by the prevailing party in connection therewith.
12.9. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which when
taken together, shall constitute one and the same instrument.
12.10. 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.
12.11. 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.
[SIGNATURES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
WITNESS: INTERNATIONAL MAGNETIC IMAGING, INC.
______________________ By: ___________________________
Lewis S. Schiller
Chairman of the Board
WITNESS:
- ---------------------- ----------------------------
Dr. Stephen A. Schulman
WITNESS:
- ----------------------- ----------------------------
Stephanie S. Schulman
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EXHIBIT A
SUBORDINATED NOTES HELD BY SCHULMAN AND MRS. SCHULMAN
Payee Principal Balance
as of December 31, 1996
Stephanie Schulman $471,345.00
Stephen & Stephanie Schulman 452,861.00
----------
TOTAL: $924,206.00
==========
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Exhibit 10.38
Employment Agreement Dated March 31, 1997, Between the Registrant and George W.
Mahoney
Reference is made to the Employment Agreement dated March 21, 1995, as amended
October 31, 1995, November 9, 1995, December 22, 1995, April 1, 1996 and June
16, 1996, 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, 1993 and expire on
December 31, 2007 (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 calendar 2003 shall be $270,000, during calendar 2004 shall
be $269,000, during calendar 2005 shall be $309,000, during calendar 2006 shall
be $331,000 and during calendar 2007 which is the last year during the Term
hereof, the Base Salary shall be $353,000.
3. The references in Paragraph 4(b) of the Agreement to it with respect to
Pre-Tax Profits and Net Cash Flow are hereby amended to change such percentage,
in all such instances, to two and one-half percent (2-1/2%).
4. Paragraph 4(b)(aa) through (dd) is hereby amended and a new subparagraph
(ee) is hereby amended to such Paragraph, all of which shall read as follows:
(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, plus any increase in Dr. Schulman's bonus which exceeds $700,000, plus
any minimum bonus payments or other advances (including expense allowances or
reimbursements) or payments (including dividends) to Dr. Schulman which may be
granted or paid by the Company after February 1, 1995, plus any additional
incentive compensation that may be granted to Dr. Schulman on and after February
1, 1995 (other than stock options) and plus any expenses incurred by the Company
(including legal fees) in connection with the amendment or modification of any
agreement or other documentation to which Dr. Schulman and the Company are
parties;
(cc) $185,000 representing operating expenses attributable to compensation
payable to IMI's management;
(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;
(ee) the amount of all payments made to all officers and directors of the
company or IMI, as the case may be, whether pursuant to existing employment
agreements between such individuals and the Company or IMI, as the case may be,
or otherwise."
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 - 31st
day of March, 1997.
CONSOLIDATED TECHNOLOGY GROUP LTD.
/s/Lewis S. Schiller
Chief Executive officer
/S/George W. Mahoney
<PAGE>
Exhibit 10.39
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 31st day of March, 1997, by and
between DR. STEPHEN A. SCHULMAN, an individual residing at 501 South Ocean
Boulevard, Apt. 102, Boca Raton, Florida 33432 ("Executive") and INTERNATIONAL
MAGNETIC IMAGING, INC., a Delaware corporation with offices at 2424 North
Federal Highway, Boca Raton, Florida 33141 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of owning
and operating outpatient diagnostic imaging centers; and
WHEREAS, Executive and the Company entered into an employment agreement
in October 1994 which was superseded by an undated employment agreement between
Executive and the Company, as further amended by an agreement dated as of
December 26, 1995 (the "Prior Employment Agreements"); and
WHEREAS, the Company is contemplating an initial public offering of its
securities and, in connection therewith, certain modifications to the existing
employment agreement between Executive and the Company are required; and
WHEREAS, for the foregoing reasons, Executive and the Company wish to
restate and amend the terms of Executive's employment as the Chief Executive
Officer and President of the Company, 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 Executive Officer and President, and Executive hereby
accepts such employment, upon and subject to the terms and
conditions set forth in this Agreement.
2. Executive's Duties and Responsibilities.
2.1. Executive will perform all of the services and assume all
of the duties and responsibilities customarily associated with the position of
Chief Executive Officer and President during the Term of this Agreement, subject
to the policies established by and under the direction of the Board of Directors
of the Company. Executive also agrees to perform such other services, and to
assume such other duties and responsibilities, as are consistent with such
position and as the
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Board of Directors may assign to him from time to time during the Term hereof.
2.2. Notwithstanding the provisions of Paragraph 2.1 above,
Executive shall not have the authority to, and shall not consummate, any
agreement or otherwise bind the Company to any obligation in excess of any
amount that may hereafter be established during the Term of this Agreement by
resolution(s) of the Company's Board of Directors.
2.3. 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. Notwithstanding the foregoing, Executive shall be
permitted to spend such of his time as shall be reasonably required to manage,
operate or consult in connection with the diagnostic imaging centers located in
the State of Illinois and owned by SAS Acquisition Corp. (including such
services in connection with or on behalf of any purchaser or prospective
purchaser thereof), or to otherwise protect his ownership interest and
investment therein, provided that such services do not interfere with
Executive's duties, responsibilities and obligations hereunder.
2.4. Executive will perform his services wherever his services
may reasonably be required, but principally at the principal offices of the
Company which are currently located at 2424 North Federal Highway, Boca Raton,
Florida 33141. Notwithstanding the foregoing, if the Company changes its
principal offices to a location outside of Palm Beach, Broward, or Dade counties
in the State of Florida, Executive shall not be required to relocate.
3. Term.
3.1. The term of this Agreement shall commence on the
effective date (the "Effective Date") of the Company's Registration Statement on
Form S-1 (the "Registration Statement") currently on file with the Securities
and Exchange Commission (the "Commission") and shall expire on December 31,
2002, subject to earlier termination as hereinafter provided in Paragraph 3.2
hereof (the "Term"). Unless otherwise agreed to by an instrument in writing
signed by the Company and Executive, this Agreement shall become automatically
void and without any further force or effect, and neither party shall have any
rights or obligations hereunder, in the event the Registration Statement is not
declared effective by the Commission by July 31, 1997 or the proposed Debt
Exchange Agreement by and among the Executive,
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Stephanie S. Schulman and the Company is not consummated or the Company does not
receive the written consent of DVI Financial Services, Inc. to this Agreement
prior to the Effective Date.
3.2. Pursuant to the provisions of Paragraph 3.1 above, the
Term of this Agreement shall be subject to termination by the Company upon the
occurrence of any of the following events:
(a) The death of Executive;
(b) The Permanent Disability (hereinafter defined) of
Executive as provided in Paragraph 6 hereof;
(c) Upon five (5) days notice from the Company in the
event of the breach or default by Executive in the performance or observance of
any of the provisions of Paragraphs 7, 8, or 9 of this Agreement;
(d) Upon five (5) days notice from the Company in the
event of any act of dishonesty or breach of trust by the Executive;
(e) The failure of Executive to perform the customary
duties of his position, or to otherwise comply with the provisions of Paragraph
2 hereof, 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 fails to cure
any such breach within thirty (30) days of such notice; or
(f) A conviction of the Executive for any felony or of
any other crime involving moral turpitude.
3.3. Pursuant to the provisions of subparagraph 3.1 hereof,
the Term of this Agreement shall be subject to termination by the Executive
prior to December 31, 2002 upon the occurrence of any of the following events:
(a) Upon 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 material obligations or covenants under this Agreement, provided that any
such breach or default is not cured within thirty (30) days after notice from
Executive;
(b) Upon five (5) days notice from the Executive in the
event of the filing by or against the Company of a voluntary petition for
bankruptcy, insolvency, receivership, or any similar relief under any federal or
state law and the failure by the Company to dismiss or stay any such bankruptcy,
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<PAGE>
insolvency, receivership or similar proceeding within thirty (30)
days after the commencement hereof;
(c) Upon five (5) days notice from the Executive in the
event of an assignment for the benefit of the Company's creditors or similar
action or a final adjudication of bankruptcy, insolvency, receivership or any
such similar action against the Company;
(d) 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, provided that Executive provides such
notice of termination within thirty (30) days after the Company notifies
Executive of a Change of Control. 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, "reverse merger" of the Company
into another publicly held entity or any of the foregoing or other transactions
which are approved by the Executive, which approval shall not be unreasonably
withheld, conditioned or delayed); or
(e) Upon six months notice to the Company, without any
cause whatsoever.
3.4. Termination of this Agreement by the Executive pursuant
to Paragraph 3.3 hereof shall not be deemed to be an exclusive remedy nor shall
it be deemed to be an election of remedies by the Executive.
4. Compensation; Severance. In consideration of the
performance by the Executive of the services to be performed by
him under this Agreement during the Term hereof, the Company will
pay to the Executive the following compensation:
(a) A base salary at the rate of Three Hundred Ninety Five
Thousand Dollars ($395,000) per annum in each year during the Term hereof (such
base salary to become effective in the first full month following the effective
date of the Registration Statement) (the "Base Salary"), such salary to be paid
to Executive in equal monthly installments (after the deduction of all
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 Board of Directors of the Company
(with Executive not participating or voting with respect to any such
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matter if Executive is a director of the Company). The term "Base Salary" shall
also include all such increases as well as all increases pursuant to
subparagraph 4(b) below.
(b) Commencing January 1, 1998 and on each January 1
thereafter during the Term hereof, the Executive shall receive an increase in
his then Base Salary in an amount equal to three (3%) percent thereof.
(c) The Company shall also pay Executive, in addition to the
Base Salary, in each calendar year during the Term of this Agreement, commencing
with the 1997 calendar year, incentive compensation in an amount equal to the
lesser of ten percent (10%) of Net Pre-Tax Profits or ten percent (10%) of Net
Cash Flow (as such terms are hereinafter defined), less the following amounts in
each calendar year during the Term hereof:
Calendar Year Amount
1997 $500,000
1998 $600,000
1999 $700,000
2000 $800,000
2001 $850,000
2002 $900,000
such amounts being hereinafter referred to as (the "Bonus").
Notwithstanding the foregoing or any other provision in this
Agreement to the contrary, the Company shall pay Executive in each such calendar
year during the Term of this Agreement a maximum Bonus of $700,000 (the "Maximum
Bonus"), and a minimum Bonus of $100,000 (the "Minimum Bonus"). The Minimum
Bonus shall be paid to Executive monthly, in advance, in twelve equal
installments each in the amount of $8,333.33 on the first day of each month of
each such year during the Term hereof.
For purposes hereof, "Net Pre-Tax Profits" shall mean the net
pre-tax income of the Company and "Net Cash Flow" shall mean the net pre-tax
income of the Company, plus depreciation and amortization, less the amount of
all principal debt service payments made by the Company (in both of such
instances, without any deduction for the Bonus), both as determined by the
Company's Chief Financial Officer applying generally accepted accounting
principles consistently applied in each calendar year during the Term hereof.
(d) The Bonus shall be paid 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 30 of each such year (or within ten (10) days after the
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final resolution of any disagreement with respect to the calculation of Net
Pre-Tax Profits or Net Cash Flow pursuant to the terms of subparagraph (e)
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 Bonus in a pro-rated
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 within sixty (60) days after any such termination, unless such
termination results from an occurrence under Paragraphs 3.2(d), 3.2(e), or
3.2(f), in which case, notwithstanding any provision of this Agreement to the
contrary, the Company shall have no obligation to make any payment of the Bonus
to Executive. The Maximum Bonus and the Minimum Bonus, if payable, will also be
pro-rated in any such period.
(e) The Company shall deliver to Executive with each 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. The Executive and his duly
authorized representatives shall have the right, for a period of fifteen (15)
business days following receipt of such report, to obtain from the Company such
documents and information as they may reasonably require to verify the
calculation of such Net Pre-Tax Profits and Net Cash Flow, and the Company will
cooperate with the Executive in providing such documents and information. 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 such disagreement, and the disagreement cannot be
resolved by the Company, the Executive and their respective representatives
within sixty (60) days following the delivery to Executive of such calculations,
the Company's independent accountant and the Executive's accountant shall,
within ten (10) days after such sixty (60) day period, designate one of the
so-called "Big Six" accounting firms to which the items in dispute shall be
submitted. 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 accounting firm), such accounting firm 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. Each of the Company and
the Executive shall bear its own costs in connection with any such dispute and
the reasonable fees and expenses of the "Big Six" accounting firm, if appointed,
related to the resolution of any such dispute shall be shared and paid equally
by the Company and the Executive; provided, however, that in the event the
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changes by such "Big Six" accounting firm in the calculation of Net Pre-Tax
Profits or Net Cash Flow result in an increase of ten (10%) percent or more of
the Net Pre-Tax Profits or Net Cash Flow reported by the Company to the
Executive under this Paragraph, the Company shall pay all of the fees and
expenses related to the resolution of the dispute and in the event such changes
do not result in an increase of ten (10%) percent or more of the Net Pre-Tax
Profits or Net Cash Flow, the Executive shall pay all of such fees and expenses.
(f) Executive and/or his duly authorized representatives 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 (and/or his duly authorized
representative) in the course of any such examination shall be subject to the
provisions of Paragraph 7 hereof.
(g) The Company shall, in addition to the Base Salary and the
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.
(h) In the event of the termination of this Agreement under
subparagraphs 3.3(a) or 3.3(d), the Executive shall be entitled to receive from
the Company, in addition to any amounts provided for in subparagraph (c) above,
severance compensation of Two Hundred Fifty Thousand Dollars ($250,000), such
amount to be payable in twelve (12) equal 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 and the
Bonus, Executive shall receive the following benefits:
5.1. Executive shall be entitled to eight (8) weeks paid
vacation and fifteen (15) paid sick days during each calendar year of the Term
hereof. Vacation and sick pay shall be non-cumulative from year to year.
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.
5.2. The Company shall pay to the Executive during each year
of the Term of this Agreement, $1,000 in order to permit the Executive to
maintain disability insurance providing for the payment to Executive of sixty
(60%) percent of his Base
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Salary for any "disability" as defined in such disability insurance policy (and
shall have no other obligation to Executive for such insurance notwithstanding
any other provision of this Agreement to the contrary). The Company shall 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 in writing
from time to time during the Term of this Agreement. The Company's obligation to
obtain all of such insurance shall be conditioned upon the Company being able to
obtain such major medical, hospitalization, dental, vision and life insurance at
regular rates, without surcharge. The Company shall maintain such medical,
dental, vision and life 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 3.3(a) or 3.3(d) 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, subject to the consent of the Company's insurer,
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 sole beneficiary thereof and Executive will cooperate with the
Company and its insurer with respect thereto. Notwithstanding the foregoing and
except as provided in Paragraph 5.2 hereof, nothing contained herein shall
obligate the Company to obtain or provide disability insurance for the
Executive.
5.3. The Company shall pay Executive a monthly automobile
allowance of $1,000 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 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
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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. Disability.
6.1. In the event the Executive suffers any temporary
disability during the Term hereof, he shall continue to receive one hundred
(100%) percent of the Base Salary and Bonus to which he was entitled at the time
he became so disabled for any period of disability not in excess of six (6)
months in any calendar year during the Term hereof. The term "Permanent
Disability" as used in this Agreement shall mean any disability of the Executive
for a period in excess of six (6) months in any calendar year during the Term
hereof. For purposes of this subparagraph 6.1, the terms "disabled" and
"disability" shall mean (i) any physical or mental illness, injury or other
incapacity which, in the opinion of a doctor reasonably satisfactory to the
Company and the Executive or his legal representative, renders the Executive
unable to perform substantially all of his duties under this Agreement, or (ii)
a judicial determination of incompetence. The date that any such disability
shall be deemed to have commenced shall be the date the Executive first absents
himself from work during a continuous period of disability as determined by the
doctor referred to in this subparagraph 6.1 or the date of judicial
determination of incompetence, as the case may be.
6.2. Upon any Permanent Disability, the Company may at any
time thereafter either reduce the Base Salary to be received by Executive to
sixty (60%) percent of the Base Salary at the time of any such Permanent
Disability (including all payments Executive may receive under any disability
policy) or terminate this Agreement upon thirty (30) days notice to Executive.
7. Confidentiality and Non-Disclosure Covenant. 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 or engagement, 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". Confidential Information, for the purposes of this Agreement,
shall not include the Executive's general knowledge and skill concerning any
aspect of the business of the Company or the
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practice of radiology, however obtained. 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). 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 any agreement or obligation of trust. The
provisions of this Paragraph 7 shall survive the termination or expiration of
the Term of this Agreement.
8. Restrictive Covenant
8.1. Executive acknowledges and recognizes the highly
competitive nature of the business of the Company and its subsidiaries and
affiliates and accordingly 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 or conduct any activity for or on behalf of any medical
diagnostic imaging company or facility, including, without limitation, any
medical diagnostic facility providing magnetic resonance imaging services which
is located within a ten (10) mile radius of any medical diagnostic imaging
facility of the Company (for these purposes to include any parent, subsidiary or
affiliate thereof) owned, in whole or in part, operated, or proposed to be
established or acquired at the date of such expiration or termination, or for
any such medical diagnostic imaging facility which may be located outside any
such ten (10) mile radius but which nevertheless may be reasonably deemed by the
Company to be in competition with any medical diagnostic imaging facility of the
Company located within such area (a "Precluded Business Activity"). For the
purposes of this Paragraph 8.1, the Company agrees that, within ten (10) days
following the expiration or earlier termination of this Agreement, it will
provide the Executive with a list of any
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medical diagnostic imaging facilities then proposed to be established or
acquired. Notwithstanding the foregoing, the performance of the activities
specified in Paragraph 2.3. hereof by the Executive with respect to the
diagnostic imaging centers located in the State of Illinois and owned by SAS
Acquisition Corporation (the "Chicago Centers"), shall not be deemed to be a
Precluded Business Activity. Without limiting the generality of the foregoing,
it is expressly understood and agreed that although Executive and the Company
consider the restrictions contained in this Paragraph 8 to be reasonable, the
Executive agrees that in the event it is finally judicially determined by a
court of competent jurisdiction 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 and unenforceable, the remaining
provisions of this Agreement (including the remaining provisions of this
Paragraph) shall not be rendered void, shall not be affected thereby and shall
remain in full force and effect and the provisions hereof which are the subject
of any such judicial determination shall be deemed amended to apply to any such
lesser time period, geographical area, or scope which is judicially determined
or indicated to be reasonable, non-arbitrary and not violative of public policy,
not contrary to law, invalid and/or unenforceable and such provisions, as
modified, may be enforced by the Company against the Executive in accordance
with the Terms hereof. Notwithstanding the foregoing, (a) 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, (b) nothing in this Paragraph is intended to nor shall preclude the
ownership, directly or indirectly or in any amount, of the Chicago Centers, and
(c) the provisions of this Paragraph 8.1 will not be applicable if this
Agreement is terminated pursuant to the provisions of Paragraph 3.3 hereof.
8.2. Executive will not, at any time during or after the Term
hereof, directly or indirectly, induce any employee or agent of the Company or
any of its subsidiaries or affiliates to engage in any activity in which
Executive is prohibited from engaging under this Paragraph or to terminate his
or her employment or engagement with the Company or any of its subsidiaries or
affiliates, and will not, directly or indirectly, employ or offer employment to
any person who is employed or engaged by the Company or any of its subsidiaries
or affiliates unless such person shall have ceased to be employed by the Company
or any of its subsidiaries or affiliates for a period of at least eighteen (18)
months.
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8.3. Executive hereby acknowledges that the provisions of
Paragraph 7 and this Paragraph 8 hereof are necessary for the protection of the
Company's business and goodwill and are considered by Executive to be
reasonable. Accordingly, Executive hereby acknowledges and agrees that any
actual or threatened breach of the provisions of either of such Paragraphs 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 a law or posting a bond thereof.
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. Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
10.1. All action on the part of the Company necessary for the
authorization, execution, delivery and performance of this Agreement by them and
the consummation of the transactions contemplated hereby, has been taken and
this Agreement constitutes a valid and legally binding obligation of
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the Company, 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.
10.2. 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 the
Company, is a party or by which any of them is bound.
10.3. There is no action, suit, proceeding, or investigation
pending, or to the knowledge of the Company, currently threatened against the
Company, in any way relating to the validity of this Agreement or the right of
the Company to enter into or to consummate this Agreement and the transactions
contemplated hereby.
11. Arbitration. Except for any action under this Agreement for
injunctive or other equitable relief, and except as otherwise expressly provided
in subparagraph 4(e) hereof, 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 Palm Beach County, Florida 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 and enforced in any court, domestic or foreign,
having jurisdiction thereof.
12. Miscellaneous.
12.1. 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, subject to the effectiveness of this Agreement
pursuant to Paragraph 3.1 hereof, the Prior Employment Agreements (except for
that certain Debt Exchange Agreement between the Company, Executive and
Executive's spouse dated as of March 31, 1997, to the extent such agreement
applies to the Company's loan to Executive which is the subject of the
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December 26, 1995 amendment comprising part of the Prior Employment Agreements).
This Agreement may not be changed or modified except by an instrument in writing
signed by the party to be bound thereby. No course of conduct or dealing between
the parties hereto and no custom or trade usage shall be relied upon to vary the
terms of this Agreement. This Agreement has been subject to the mutual
consultation, negotiation and agreement of the parties hereto and shall not be
construed for or against any party hereto on the basis of such party having
drafted this Agreement.
12.2. All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement (the
"Notices") 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 subparagraph):
(a) If to the Company:
International Magnetic Imaging, Inc.
c/o Consolidated Technology Group Ltd.
160 Broadway
New York, New York 10038
Attn: Mr. Lewis S. Schiller
Chief Executive Officer
with a copy to:
George W. Mahoney
Chief Financial Officer
c/o Consolidated Technology Group Ltd.
2424 North Federal Highway
Boca Raton, Florida 33141
and
Robert L. Blessey, Esq
51 Lyon Ridge Road
Katonah, New York 10536
(b) If to Executive:
Dr. Stephen A. Schulman
501 South Ocean Boulevard, Apt. 102
Boca Raton, Florida 33432
with a copy to:
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Ronny J. Halperin, Esq.
Kluger, Peretz, Kaplan & Berlin
1970 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
All such Notices 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.
12.3. Neither party hereto may assign this Agreement or their
respective rights, benefits or obligations hereunder without the written consent
of the other party hereto. Notwithstanding the foregoing, in the event of a
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 subparagraph 3.3(d) 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.
12.4. 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.
12.5. 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. The failure of either party to this Agreement
to insist upon strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
12.6. 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,
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except as expressly otherwise provided herein. By his execution hereof,
Executive hereby consents and irrevocably submits to the in personam
jurisdiction of the American Arbitration Association tribunal located in Palm
Beach County, Florida 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 Florida. 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.
12.7. 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.
12.8. 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 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.
12.9. During and after the Term of this Agreement, the Company
shall defend, indemnify and hold Executive harmless from and against any claims,
causes of action, liabilities, damages, costs or expenses, including without
limitation, all reasonable attorneys' fees and expenses (the "Losses") 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
Delaware and the By-Laws of the Company, except for any Losses caused by
Executive's willful misconduct or gross negligence. This provision will survive
the expiration or termination of the Term of this Agreement.
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12.10. The headings in this Agreement are for convenience of
reference only and shall not affect in any way the construction or
interpretation of this Agreement.
12.11. Each of the parties hereto shall bear all their costs
and expenses in connection with the execution, delivery and performance of this
Agreement, including the fees and disbursements of their respective counsel and
financial and other advisors.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 31st day of March, 1997.
WITNESS: INTERNATIONAL MAGNETIC IMAGING, INC.
_____________________ By_________________________________
Lewis S. Schiller
Chairman of the Board
of Directors
WITNESS:
- --------------------- -----------------------------------
Dr. Stephen A. Schulman
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Exhibit 10.40
EXCLUSIVE RADIOLOGY AGREEMENT
AGREEMENT made as of the 1st day of February 1997 by and
between PHYSICIAN'S OUTPATIENT DIAGNOSTIC CENTER, LTD., a Florida limited
partnership ("PODC") and PREMIER RADIOLOGY ASSOCIATES, P.A., a Florida
professional corporation (the "Radiologist").
W I T N E S S E T H :
WHEREAS, PODC owns and operates a multi-modality
diagnostic imaging center located at 8211 W. Broward Blvd.,
Plantation, Florida (the "Center"); and
WHEREAS, Radiologist is wholly owned by Drs. Robert
Rosensweig ("Dr. Rosensweig") and Donald Puller ("Dr. Puller");
and
WHEREAS, due to the special degree of skill, training and
expertise of Dr. Rosensweig and Dr. Puller, PODC is desirous of engaging the
services of Radiologist to perform radiology services for the Center, and
Radiologist 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 Radiologist. During the Term of this Agreement
and subject to the terms hereof, PODC hereby retains Radiologist, and
Radiologist hereby agrees to such retention, to perform all radiology services
hereinafter described for the Center. PODC hereby agrees to engage Radiologist
to provide all of such services on an exclusive basis except that PODC may
retain other radiologists for the Center to the extent required by any
applicable law, rule or regulation. PODC shall be responsible for the payment to
any such other radiologist(s) for their services and Radiologist shall have no
responsibility for any such payments.
2. Radiologist's Services.
(a) Radiologist shall, solely through Dr. Rosensweig and Dr.
Puller, read and interpret all diagnostic imaging scans (including, without
limitation, magnetic resonance imaging scans) performed at the Center, dictate
and review written reports interpreting such scans and, upon request by PODC,
consult with PODC with respect to such services. In addition, to the extent that
any invasive procedures are performed at the Center, Radiologist will cause Dr.
Rosensweig or Dr. Puller to be present at the Center to supervise such
procedures to the extent such
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supervision is required by applicable law, rule, regulation or the standards
prevailing at such time with respect to the practice of radiology in the area in
which the Center is located or the applicable governing standards or policies of
IMI.
(b) Radiologist hereby acknowledges that this Agreement has
been entered into by PODC solely due to the special degree of skill, training
and expertise of Dr. Rosensweig and Dr. Puller in reading and interpreting
medical diagnostic imaging scans and, therefore, Radiologist hereby covenants
and agrees that, at all times during the Term hereof, Dr. Rosensweig and Dr.
Puller will be employed by Radiologist, will devote such amount of their time as
shall be necessary to the performance of Radiologist's services hereunder, and
will own 100% of the outstanding capital stock of Radiologist on a fully diluted
basis. In addition, Dr. Rosensweig and Dr. Puller will provide reasonable
cooperation and assistance in connection with PODC's marketing and promotional
activities relating to the Center during the Term of this Agreement. PODC will
provide such of its personnel at the Center as shall be reasonably requested by
Radiologist 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 Radiologist). Radiologist shall perform all of the services
rendered by it under this Agreement (other than marketing and promotional
services) at the Center.
(c) Radiologist hereby acknowledges and agrees that (i) it
will abide by, conform to and cooperate with the medical staff appointment,
privilege and credentialing process of PODC or its parent, International
Magnetic Imaging, Inc., to the extent such process is applicable, if at all, to
physicians employed by independent contractors, and (ii) PODC shall have a right
of approval, which right will not be unreasonably exercised, with respect to any
proposed additions to the medical staff of Radiologist.
3. Term.
3.1. The term of this Agreement shall commence on
February 1, 1997 and terminate January 31, 2002 (the "Term"), unless sooner
terminated as hereinafter set forth.
3.2. This Agreement may be terminated by PODC prior to the
expiration of the Term hereof only under any of the following circumstances:
(a) The death or disability or other permanent loss
of services of either Dr. Rosensweig or Dr. Puller, upon five (5) days notice to
Radiologist. For purposes hereof, "disability" shall mean the physical or mental
inability of Dr. Rosensweig or Dr. Puller to render the services
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contemplated under this Agreement for more than forty-five (45) consecutive days
during any year of the Term hereof. No notice of termination under this
subparagraph 3.2(a) shall be effective unless the disability is confirmed by at
least two medical doctors or psychiatrists appointed by PODC to examine Dr.
Rosensweig or Dr. Puller, as the case may be, and report to PODC as to whether a
disability (as defined herein) exists; provided, however, that this condition to
the effectiveness of a notice of termination shall not be operative unless Dr.
Rosensweig or Dr. Puller, as the case may be, extends his full cooperation to
the medical doctors or psychiatrists appointed by PODC to examine him; or
(b) The breach of any warranty, representation,
covenant or obligation of Radiologist under this Agreement which is not cured
within thirty (30) days of notice of such breach from PODC; or
(c) The entry by a court of competent jurisdiction
of a decree or order for relief in respect of Radiologist 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 Radiologist or for any substantial part of its property or an
order by any such court for the wind-up or liquidation of Radiologist's affairs;
or a petition initiating an involuntary case under any such bankruptcy,
insolvency, or similar law is filed against Radiologist and is pending for sixty
(60) days without a stay or dismissal; or Radiologist 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 sale of all, or substantially all, of the
assets of PODC (an "Asset Sale") or the sale to any non-affiliated person(s) or
entity(ies) of fifty percent (50%) or more of the interests of the partners in
the Partnership (a "Partnership Sale"), upon twelve (12) months written notice
to Radiologist; or
(e) A conviction of Radiologist (or its
stockholders) of any felony or other crime involving moral turpitude; or
(f) For any reason, with or without cause, upon
twelve (12) months written notice to Radiologist.
3.3. This Agreement may be terminated by Radiologist
prior to the expiration of the Term hereof only upon any of the
following circumstances:
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(a) The breach of any warranty, representation,
covenant or obligation of PODC under this Agreement which is not cured within
thirty (30) days of notice of such breach from Radiologist; or
(b) The entry by a court of competent jurisdiction
of a decree or order for relief in respect of PODC 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 PODC or for any substantial part of its property or an order by
any such court for the wind-up or liquidation of PODC's affairs; or a petition
initiating an involuntary case under any such bankruptcy, insolvency, or similar
law is filed against PODC and is pending for sixty (60) days without a stay or
dismissal; or PODC 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.
4. Representations and Warranties of Radiologist. In order to
induce PODC to enter into this Agreement, Radiologist hereby represents and
warrants to PODC as follows:
4.1. Radiologist is a professional corporation, duly
organized, validly existing, and in good standing under the laws of the State of
Florida and has all requisite power and authority to own or lease its properties
and carry on its business as now conducted. Radiologist 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 Radiologist 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 Radiologist's Certificate of Incorporation, By-Laws and applicable law,
and this Agreement constitutes a valid and legally binding obligation of
Radiologist, 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
4
<PAGE>
of Radiologist's Certificate of Incorporation or By-Laws or any instrument,
judgement, order, writ, decree or agreement to which Radiologist 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.
4.4. There is no action, suit, proceeding, or investigation
pending, or to the knowledge of Radiologist, currently threatened against
Radiologist, in any way relating to the validity of this Agreement or the right
of Radiologist to enter into or to consummate this Agreement and the
transactions contemplated hereby.
4.5. Dr. Rosensweig and Dr. Puller are currently, and will at
all times during the Term of this Agreement, be the sole stockholders, officers
and directors of Radiologist, are duly and validly licensed to practice
radiology in the State of Florida and certified by the Florida Department of
Business and Professional Regulation. Dr. Rosensweig and Dr. Puller will, at all
times during the Term of this Agreement, own all of the issued and outstanding
shares of capital stock of Radiologist (on a fully diluted basis). Dr.
Rosensweig and Dr. Puller are, and will at all times during the Term of this
Agreement be, providers in good standing with Medicare and Medicaid and are, and
will not be at any time during the Term of this Agreement, under any restriction
or limitation with respect to the performance of their services on behalf of
Radiologist.
4.6. Radiologist will, at all times during the Term of this
Agreement, comply with all laws, rules and regulations applicable to its
services hereunder.
4.7. Radiologist will cause Dr. Rosensweig and Dr. Puller to
read and interpret all diagnostic imaging scans which are the subject of
Radiologist's services hereunder in a timely and competent manner.
4.8. Radiologist will, at all times during the Term of this
Agreement, maintain the insurance coverages set forth on Exhibit "A" hereto, all
of the general liability insurance policies for which will name PODC as an
additional insured and will provide for thirty (30) days prior notice to PODC of
any change of the designation of PODC as an additional insured or cancellation
of any of such policies. Radiologist will provide copies of all of such
insurance policies to PODC and will give PODC ten (10) days prior written notice
of any reduction or other modification of such insurance.
5. Representations and Warranties of PODC. In order to induce
Radiologist to enter into this Agreement, PODC hereby represents and warrants to
Radiologist as follows:
5
<PAGE>
5.1. PODC is a limited partnership, duly organized, validly
existing, and in good standing under the laws of the State of Florida and has
all requisite power and authority to own or lease its properties and carry on
its business as now conducted. PODC 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 PODC 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 PODC's Agreement of Limited
Partnership and applicable law, and this Agreement constitutes a valid and
legally binding obligation of PODC, 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 of time or giving of notice, either a default under any
provision of PODC's Agreement of Limited Partnership or any instrument,
judgment, order, writ, decree or agreement to which PODC 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.
5.4. There is no action, suit, proceeding, or investigation
pending, or to the knowledge of PODC, currently threatened against PODC, in any
way relating to the validity of this Agreement or the right of PODC to enter
into or to consummate this Agreement and the transactions contemplated hereby
6. Compensation.
6.1. PODC will pay Radiologist a fee in consideration of its
services under this Agreement in an amount equal to sixteen and one half (16.5%)
percent of Gross Revenues (hereinafter defined) in each month during the Term of
this Agreement (the "Service Fee").
6.2. For purposes hereof, "Gross Revenues" shall mean all
actual gross sums collected by PODC from the rendering of medical diagnostic
imaging scans performed at the Center, less the amount of any patient refunds or
allowances therefor and without any other deduction or offset for any other
cost, charge or expense. Gross Revenues will be calculated in each month
6
<PAGE>
during the Term of this Agreement. In the event of the expiration of the Term of
this Agreement (or any earlier termination thereof), Radiologist shall be
entitled to receive an amount equal to sixteen and one half (16.5%) percent of
all accounts receivable resulting from services rendered by Radiologist prior
thereto which have not been paid for by PODC and which are collected by PODC
after any such expiration or termination. PODC shall pay such amounts to
Radiologist within fifteen (15) days after its receipt of any such accounts
receivable.
6.3. The Service Fee shall be payable to Radiologist within
fifteen (15) days after the end of each month during the Term of this Agreement
with respect to the Gross Revenues of the immediately preceding month.
6.4. In addition to the Service Fee, PODC will pay $12,000 to
Radiologist, on the date hereof and on each anniversary of the date hereof
during the Term hereof. Such amount will be utilized by Radiologist to defray,
in part, Radiologist's cost of continuing medical education for Dr. Rosensweig
and Dr. Puller and for malpractice insurance premiums.
6.5. Except for the Service Fee and the payments described in
subparagraph 6.4 hereof, Radiologist shall not be entitled to any other
compensation or benefits of any kind whatsoever under or in connection with this
Agreement.
7. Accounting and Audits. PODC will provide Radiologist with monthly
reports setting forth Gross Revenues, which reports will accompany the Service
Fee payments under Paragraph 6 hereof. Radiologist will have the right, at one
time in each year of the Term of this Agreement, upon reasonable prior notice
and during normal business hours at the principal offices of International
Magnetic Imaging, Inc. (currently 2424 North Federal Highway, Boca Raton,
Florida), to audit the books and records of PODC pertaining to the information
contained in such reports. Any such audit shall be conducted at Radiologist's
expense unless it is determined as a result thereof that the payment made to
Radiologist was more than five percent (5%) less than the amount which was
correctly due and payable to Radiologist, in which case PODC will reimburse
Radiologist for the reasonable costs of such audit.
8. Confidentiality and Non-Disclosure Covenant. Radiologist (for
purposes of this Paragraph, Radiologist shall include Dr. Rosensweig and Dr.
Puller) hereby acknowledges that, during the Term of this Agreement, it may
obtain and be entrusted with unpublished confidential and proprietary
information relating to PODC's present and proposed business and operations,
including, without limitation, financial information relating to PODC's present
and proposed business and operations, the cost and pricing of PODC's services,
the sales and marketing plans and
7
<PAGE>
strategies of PODC, the names and addresses of PODC's accounts, the terms of all
material agreements to which PODC is a party, the names, addresses and other
information concerning the patients of the Center, physician referral patterns
for the Center, other business records and information relating to PODC's
business and all such information relating to the business of International
Magnetic Imaging, Inc., PODC's parent. All of such information that may be
obtained by Radiologist shall, for purposes hereof, be referred to as
"Confidential Information". Radiologist hereby agrees that, unless the
Confidential Information becomes publicly known through legitimate origin not
involving any improper act or omission of Radiologist, 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 Radiologist's services under this Agreement). This provision
shall survive the expiration or termination of this Agreement. Notwithstanding
the foregoing, Radiologist 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 PODC shall be given notice in time to
enable it to object to such disclosure).
9. Restrictive Covenant.
9.1. Radiologist (for purposes of this Paragraph, Radiologist
shall include Dr. Rosensweig and Dr. Puller) 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 medical diagnostic
imaging services (including, without limitation, magnetic resonance imaging)
which is located within a ten (10) mile radius of the Center (a "Precluded
Business Activity"). Without limiting the generality of the foregoing,
Radiologist 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 source and effect and such lesser time
period, geographical area, or scope which is judicially determined to be
reasonable, non-arbitrary and not
8
<PAGE>
violative of public policy, not contrary to law, invalid or unenforceable, may
be enforced by PODC against Radiologist in accordance with the terms hereof.
Notwithstanding the foregoing, nothing contained in this Paragraph is intended
to nor shall preclude the ownership by Radiologist of 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 Radiologist and such corporation or entity, or
the reading by Radiologist of ultrasound tests performed by and in the offices
of the physicians listed on Exhibit B hereto.
9.2. Radiologist hereby acknowledges that the restrictions
contained in this Paragraph 9 and in Paragraph 8 are necessary for the
protection of PODC's business and goodwill and are considered by Radiologist to
be reasonable. Accordingly, Radiologist hereby acknowledges and agrees that any
actual or threatened breach of the provisions of either of such Paragraphs shall
cause irreparable harm to PODC and may not be remediable by an action at law for
damages and, therefore, Radiologist consents, as a non-exclusive remedy, to the
entry of preliminary and permanent injunctions by any court of competent
jurisdiction, prohibiting Radiologist from any such breach or further breach of
said Paragraphs and compelling Radiologist to comply with the provisions
thereof, as well as all other equitable remedies therefor, 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.
9.3. In the event of any breach or threatened breach by
Radiologist of the provisions of this Paragraph 9 or Paragraph 8, PODC shall be
entitled to the payment or reimbursement of its reasonable attorneys fees and
disbursements in connection therewith.
10. Indemnification. Each of the parties hereto agrees to defend,
indemnify and hold the other and such other party's parents, subsidiaries,
affiliates, officers, directors, partners, 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, covenants, or obligations under this
Agreement.
11. Records. The ownership and right of control of all records and
reports and all documents of the Center in support of or relating thereto shall
be and remain the sole property of PODC; provided, however, that Radiologist
shall have access to such reports, records and documentation as is reasonably
necessary to enable it to perform its services under this Agreement. Radiologist
hereby agrees that, upon the termination
9
<PAGE>
or expiration of this Agreement, it will promptly return to PODC all records,
reports and documents relating to PODC's business which are then in
Radiologist's possession or control.
12. Miscellaneous.
12.1. 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. Notwithstanding
the foregoing, in the event that the provisions of any applicable federal or
state health care law, rule or regulation require specific actions of
Radiologist with respect to the services contemplated by this Agreement which
actions are not specified herein, this Agreement shall be automatically modified
to comply therewith.
12.2. 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 and shall be enforced solely and exclusively in the State or
Federal courts located in Broward County, Florida.
12.3. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and permitted
assigns.
12.4. 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 assets, deeds,
assignments, transfers, conveyances and assurances as may be reasonably required
to more effectively consummate this Agreement and the transactions contemplated
hereunder or to confirm or otherwise effectuate the provisions of this
Agreement.
12.5. Except as set forth herein, neither PODC nor Radiologist
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, PODC shall have the right, upon written notice to
Radiologist, to assign this Agreement (i) to any person or entity which is not
owned by or under common control with PODC in connection with an Asset Sale or a
Partnership Sale, provided such assignee agrees in writing to assume all of
PODC's obligations under this Agreement, or (ii) to any subsidiary or affiliated
corporation or
10
<PAGE>
entity provided that PODC guarantees all of such assignee's obligations under
this Agreement.
12.6. 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.
12.7. Radiologist is acting solely as an independent
contractor under this Agreement and nothing in this Agreement is intended, nor
shall be construed so as to create, any employer-employee, master-servant,
principal-agent, partnership, joint venture or any different or other
relationship between the parties hereto. Radiologist will be solely responsible
for all income taxes, unemployment contributions, worker's compensation, social
security taxes, and all other taxes, contributions, benefits and withholdings
pursuant to any law or requirement of any governmental body relating to
Radiologist and any person or entity employed or engaged by Radiologist to
render any of the services required under this Agreement.
12.8. 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, receipt acknowledged (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 PODC:
c/o International Magnetic Imaging, Inc.
2424 North Federal Highway
Boca Raton, Florida 33431
Fax No. 407-347-5341
Attn: Dr. Stephen A. Schulman
Chief Executive Officer
Mr. George W. Mahoney
Chief Financial Officer
11
<PAGE>
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
Fax No. 914-232-0647
(b) If to Radiologist:
1756 N.W. 126th Drive
Coral Springs, Florida 33071
Fax No. 954-753-5178
with a copy to:
Mitchell B. Kirschner, Esq.
Mandel, Simowitz, Weisman,
Kirschner & Diaz, P.A.
Boca Corporate Center
2101 Corporate Boulevard, N.W.
Boca Raton, Florida 33431
Fax No. 561-989-0304
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.
12.9. 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.
12.10. 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.
12.11. 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.
[SIGNATURES FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year first above written.
ATTEST: PHYSICIANS OUTPATIENT
DIAGNOSTIC CENTER, LTD.
By: PODC ACQUISITION CORPORATION
General Partner
_______________________ By:_____________________________
Lewis S. Schiller
President
ATTEST: PREMIER RADIOLOGY ASSOCIATES, P.A.
_______________________ By:_____________________________
-----------------------------
Print Name and Title
AGREED TO AND ACCEPTED SOLELY AS TO
PARAGRAPHS 2(b), 8, 9 AND 12 HEREOF
--------------------------------
Robert Rosensweig
--------------------------------
Donald Puller
13
<PAGE>
EXHIBIT "A"
SCHEDULE OF INSURANCE
Workers' Compensation
Professional Liability
- $1,000,000 per occurrence
- $3,000,000 in the aggregate
General Liability
- $1,000,000 per occurrence
- $1,000,000 in the aggregate
(The General Liability insurance must contain coverages
for: 1) patient injury liability coverage and 2)
hired/non-owned vehicle coverage)
14
<PAGE>
EXHIBIT "B"
Radiologist may read ultrasound tests performed in the office for:
1. Broward Ob-Gyn Associates, Coral Springs, FL
2. Broward Gyn Associates, Plantation, FL
3. Dr. Paul Chudnow, Plantation, FL
15
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED PARTNERSHIPS
EXHIBIT 11.1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Inception
[September 30, 1994]
Years ended to
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Net Income - Historical $ 1,041,354 $ 1,761,499 $ 1,774,739
Net Income Effects of Debt Retirement -
Net of Tax [Primary] 223,935 265,455 80,591
-------------- -------------- ----------------
Net Income Adjusted for Primary Calculation $ 1,265,289 $ 2,026,954 $ 1,855,330
============ ============ ================
Net Income Effects of Debt Retirement -
Net of Tax [Fully Diluted] $ 117,735 $ 234,855 $ 72,941
-------------- --------------- --------------
Net Income Adjusted for Fully Diluted Calculation $ 1,159,089 $ 1,996,354 $ 1,847,680
============ ============= ================
Primary Shares Outstanding 14,960,000 15,256,286 15,184,786
============== =============== ===============
Fully Diluted Shares Outstanding 14,960,000 15,256,286 15,184,786
============== =============== ===============
Earnings Per Share:
Primary - Notes 1 and 3 $ .09 $ .13 $ .12
============== =============== =================
Fully Diluted - Notes 2 and 3 $ .08 $ .13 $ .12
============== =============== =================
</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 (viii) below [See Notes 10, 15 and 16].
(i) Assumes that common stock warrants, issued in October 1994, to purchase
an aggregate of 1,000,000 shares of Common Stock at $2.00 per share were
exercised at the beginning of 1994 and that all proceeds were used to
purchase treasury stock. At the average market price of $2.25 per share
and $.75 per share for the years ended December 31, 1996 and 1995 and
$.25 per share for the period ended December 31, 1994.
(ii) Assumes that 765,500 incentive stock options to purchase Class A Common
Stock at $.50 per share, issued in October 1994, were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at the average market price of $1.50 per share and $.75 per share
for the years ended December 31, 1996 and 1995 and $.25 per share for the
period ended December 31, 1994.
(iii) Assumes that warrants, issued in October 1994, to purchase an aggregate
of 1,750,000 shares of Class A Common Stock at $2.00 per share were
exercised at the beginning of 1994, and that all proceeds were used to
purchase treasury stock at the average market price of $.75 per share for
the year ended December 31, 1995 and $.25 per share for the period ended
December 31, 1994.
(iv) Assumes that warrants, issued in October 1994, to purchase an aggregate
of 1,200,000 shares of Class A Common Stock at $3.50 per share were
exercised at the beginning of 1996 and that all proceeds were used to
purchase treasury stock at the average market price of $1.50 per share
for the year ended December 31, 1996 [reflects the cancellation of
warrants to purchase 550,000 shares of Class A Common Stock and the
change of exercise price from $2.00 per share to $3.50 per share at
December 31, 1996].
(v) Assumes that 13,000 incentive stock options to purchase Class A Common
Stock at $1.00 per share, issued in June 1996 were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $3.50 per share for all periods presented.
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED
PARTNERSHIPS
EXHIBIT 11.1 [CONTINUED]
- --------------------------------------------------------------------------------
Note 1 [Continued]:
(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 years ended December 31, 1996 and 1995, that incentive
stock options to purchase 71,500 shares of Class A Common Stock at $1.00
per share, which were granted in September 1995, were exercised on
October 1, 1995 and that all proceeds were used to purchase treasury
stock at the average market price of $1.50 per share and $.75 per share
for the years ended December 31, 1996 and 1995.
(viii) Assumes that warrants, issued in September 1996, to purchase an aggregate
of 250,000 shares of Class A Common Stock at $3.50 per share were
exercised at the beginning of 1996, and that all proceeds were used to
purchase treasury stock at the average market price of $1.50 per share
for the year ended December 31, 1996.
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 (viii) below [See Notes 10, 15 and 16].
(i) Assumes that warrants, issued in October 1994, to purchase an aggregate
of 1,000,000 shares of Common Stock at $2.00 per share were exercised at
the beginning of 1994 and that all proceeds were used to purchase
treasury stock at the year end market price of $3.50 per share for the
year ended December 31, 1996, $1.00 per share for the year ended December
31, 1995 and $.50 per share for the period ended December 31, 1994.
(ii) Assumes that warrants, issued in October 1994, to purchase an aggregate
of 1,750,000 shares of Class A Common Stock at $2.00 per share were
exercised at the beginning of 1994 and that all proceeds were used to
purchase treasury stock at the year end market price of $1.00 per share
for the year ended December 31, 1995 and $.50 per share for the period
ended December 31, 1994.
(iii) Assumes that warrants, issued in October 1994, to purchase an aggregate
of 1,200,000 shares of Class A Common Stock at $3.50 per share were
exercised at the beginning of 1996 and that all proceeds were used to
purchase treasury stock at the average market price of $2.00 per share
for the year ended December 31, 1996 [reflects the cancellation of
warrants to purchase 550,000 shares of Class A Common Stock and the
change of exercise price from $2.00 per share to $3.50 per share at
December 31, 1996].
(iv) Assumes that 765,500 incentive stock options to purchase Class A Common
Stock at $.50 per share, issued in October 1994, were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at the year end market price of $2.00 per share for the year ended
December 31, 1996, $1.00 per share for the year ended December 31, 1995
and $.50 per share for the period ended December 31, 1994.
(v) Assumes that 13,000 incentive stock options to purchase Class A Common
Stock at $1.00 per share, issued in June 1996 were exercised at the
beginning of 1994 and that all proceeds were used to purchase treasury
stock at $3.50 per share for all periods presented.
<PAGE>
INTERNATIONAL MAGNETIC IMAGING, INC. AND SUBSIDIARIES AND RELATED
PARTNERSHIPS
EXHIBIT 11.1 [CONTINUED]
- --------------------------------------------------------------------------------
Note 2 [Continued]:
(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 year ended December 31, 1995, that incentive stock
options to purchase 71,500 shares of Class A Common Stock at $1.00 per
share, which were granted in September 1995, were exercised on October 1,
1995 and that all proceeds were used to purchase treasury stock at the
year end market price of $2.00 per share for the year ended December 31,
1996 and $1.00 per share for the year ended December 31, 1995.
(viii) Assumed that warrants, issued in September 1996, to purchase an aggregate
of 250,000 shares of Class A Common Stock at $3.50 per share were
exercised at the beginning of 1996, and that all proceeds were used to
purchase treasury stock at the year end market price of $2.00 per share
for the year ended December 31, 1996.
Note 3: Computed by using the modified "Treasury Stock Method" because the
number of shares obtainable upon exercise of all options and warrants exceeds
20% of the number of shares outstanding at the end of the period. The repurchase
price for common stock and Class A common stock represents the average market
price for each period presented for the primary calculation and the year end
market price for each period presented for the fully diluted calculation. The
total number of shares of treasury stock acquired is 2,040,000 shares for all
periods presented. The excess proceeds were used to retire short-term debt and
in some cases portions of long-term debt. Certain options and warrants, issued
at or below the initial public offering price within one year of the filing of
the Company's initial public offering, are included in the computation of
earnings per share for all periods presented.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Primary Full Diluted Primary Full Diluted Primary Full Diluted
------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Average Market Price -
Common $ 2.25 $ -- $ .75 $ -- $ .25 $ --
Year End Market Price -
Common $ -- $ 3.50 $ -- $ 1.00 $ -- $ .50
Average Market Price -
Class A Common $ 1.50 $ -- $ .75 $ -- $ .25 $ --
Year End Market Price -
Class A Common $ -- $ 2.00 $ -- $ 1.00 $ -- $ .50
Short-Term Debt Retired $ 3,732,250 $ 1,962,250 $4,424,250 $ 3,914,250 $2,593,069 $2,593,069
Long-Term Debt Retired $ -- $ -- $ -- $ -- $2,779,681 $2,269,681
</TABLE>
<PAGE>
PRIMARY
EARNINGS PER SHARE : DECEMBER 31, 1996
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 700,000 700,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
9/95 - OPTIONS 71,500 71,500
6/96 - OPTIONS 13,000 13,000
9/96 - WARRANTS 250,000 250,000
TOTAL ISSUABLE 1,000,000 2,300,000 3,300,000
TOTAL REACQUIRED (10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,260,000
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (700,000 @ $3.50) 2,450,000
10/94 - WARRANTS (500,000 @ $3.50) 1,750,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
9/95 - WARRANTS (71,500 @ $1) 71,500
6/96 - OPTIONS (13,000 @ $1) 13,000
9/96 - WARRANTS (250,000 @ $3.50) 875,000
---------
TOTAL PROCEEDS 7,542,250
APPLICATION OF PROCEEDS
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $2.25) 2,250,000
10/94 - WARRANTS (700,000 @ $1.5) 1,050,000
10/94 - WARRANTS (500,000 @ $1.5) 750,000
10/94 - OPTIONS (765,500 @ $ 1.5) 1,148,250
9/95 - WARRANTS (71,500 @ $1.5) 107,250
6/96 - OPTIONS (13,000 @ $1.5) 19,500
9/96 - WARRANTS (250,000 @ $1.5) 375,000
---------
5,700,000
LIMITATION
(3,300,000 - 2040000)*1.50 1,890,000
TOTAL PROCEEDS TO REACQUIRE 3,810,000
BALANCE 3,732,250
TO RETIRE SHORT-TERM DEBT 3,732,250
TO RETIRE A PART LONG-TERM DEBT 0
TOTAL APPLICATION OF PROCEEDS 7,542,250
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
(3732250 X 10% NET OF 40% TAX) 223,935
FINAL
TOTAL ISSUABLE PER ABOVE 3,300,000
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,260,000
=========
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,260,000
TOTAL 14,960,000
==========
DECEMBER 31, 1996
NET INCOME 1,041,354
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 223,935
NET INCOME - ADJUSTED 1,265,289
=========
BENCHMARK EPS (NI / 10200000) 0.124
97% TEST 0.120
PRIMARY EPS
1265289/14960000 0.085
<PAGE>
FULLY DILUTED
EARNINGS PER SHARE : DECEMBER 31, 1996
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 700,000 700,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
9/95 - OPTIONS 71,500 71,500
6/96 - OPTIONS 13,000 13,000
9/96 - WARRANTS 250,000 250,000
TOTAL ISSUABLE 1,000,000 2,300,000 3,300,000
TOTAL REACQUIRED
(10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,260,000
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (700,000 @ $3.5) 2,450,000
10/94 - WARRANTS (500,000 @ $3.50) 1,750,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
9/95 - WARRANTS (71,500 @ $1) 71,500
6/96 - OPTIONS (13,000 @ $1) 13,000
9/96 - WARRANTS (250,000 @ $3.50) 875,000
---------
TOTAL PROCEEDS 7,542,250
APPLICATION OF PROCEEDS
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $3.50) 3,500,000
10/94 - WARRANTS (700,000 @ $2.00) 1,400,000
10/94 - WARRANTS (500,000 @ $2.00) 1,000,000
10/94 - OPTIONS (765,500 @ $ 2.00) 1,531,000
9/95 - WARRANTS (71,500 @ $2.00) 143,000
6/96 - OPTIONS (13,000 @ $2.00) 26,000
9/96 - WARRANTS (250,000 @ $2.00 ) 500,000
---------
8,100,000
LIMITATION
(3,300,000 - 2040000)*2.00 2,520,000
TOTAL PROCEEDS TO REACQUIRE 5,580,000
BALANCE 1,962,250
TO RETIRE SHORT-TERM DEBT 1,962,250
TO RETIRE A PART LONG-TERM DEBT 0
TOTAL APPLICATION OF PROCEEDS 7,542,250
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
( 1962250 X 10% NET OF 40% TAX) 117,735
FINAL
TOTAL ISSUABLE PER ABOVE 3,300,000
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,260,000
=========
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,260,000
TOTAL 14,960,000
==========
DECEMBER 31, 1996
NET INCOME 1,041,354
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 117,735
NET INCOME - ADJUSTED 1,159,089
=========
BENCHMARK EPS (NI / 10200000) 0.114
97% TEST 0.110
FULLY DILUTED EPS
1159089/14960000 .077
<PAGE>
PRIMARY
EARNINGS PER SHARE : DECEMBER 31, 1995
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 1,250,000 1,250,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
9/95 - OPTIONS 71,500 71,500
TOTAL ISSUABLE 1,000,000 2,587,000 3,587,000
TOTAL REACQUIRED
(10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,547,000
=========
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (1,250,000 @ $2) 2,500,000
10/94 - WARRANTS (500,000 @ $2) 1,000,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
9/95 - WARRANTS (71,500 @ $1) 71,500
---------
TOTAL PROCEEDS 5,954,250
APPLICATION OF PROCEEDS
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $.75) 750,000
10/94 - WARRANTS (1,250,000 @ $.75) 937,500
10/94 - WARRANTS (500,000 @ $.75) 375,000
10/94 - OPTIONS (765,500 @ $ .75) 574,125
9/95 - WARRANTS (71,500 @ $.75) 53,625
---------
2,690,250
LIMITATION
(3587000 -- 2040000)*.75 1,160,250
TOTAL PROCEEDS TO REACQUIRE 1,530,000
BALANCE 4,424,250
TO RETIRE SHORT-TERM DEBT 4,424,250
TO RETIRE A PART LONG-TERM DEBT 0
TOTAL APPLICATION OF PROCEEDS 5,954,250
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
( 4424250X 10% NET OF 40% TAX) 265,455
FINAL
TOTAL ISSUABLE PER ABOVE 3,587,000
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,547,000
=========
OPTIONS ISSUED
6/96 - OPTIONS- 13,000 @ 1.00 = $13,000 13,000
REACQUIRED ( $13,000/ $3.5) 3,714
------
ISSUED NOT REACQUIRED 9,286
=====
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,556,286
TOTAL 15,256,286
==========
DECEMBER 31, 1995
NET INCOME 1,761,499
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 265,455
NET INCOME - ADJUSTED 2,026,954
=========
BENCHMARK EPS (NI / 10200000) 0.199
97% TEST 0.193
PRIMARY EPS
2026954/15256286 0.133
<PAGE>
FULLY DILUTED
EARNINGS PER SHARE : DECEMBER 31, 1995
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 1,250,000 1,250,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
9/95 - OPTIONS 71,500 71,500
TOTAL ISSUABLE 1,000,000 2,587,000 3,587,000
TOTAL REACQUIRED
(10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,547,000
=========
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (1,250,000 @ $2) 2,500,000
10/94 - WARRANTS (500,000 @ $2) 1,000,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
9/95 - WARRANTS (71,500 @ $1) 71,500
---------
TOTAL PROCEEDS 5,954,250
APPLICATION OF PROCEEDS
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $1.00) 1,000,000
10/94 - WARRANTS (1,250,000 @ $1.00) 1,250,000
10/94 - WARRANTS (500,000 @ $1.00) 500,000
10/94 - OPTIONS (765,500 @ $ 1.00) 765,500
9/95 - WARRANTS (71,500 @ $1) 71,500
---------
3,587,000
LIMITATION
(3587000 -- 2040000)*1.00 1,547,000
TOTAL PROCEEDS TO REACQUIRE 2,040,000
BALANCE 3,914,250
TO RETIRE SHORT-TERM DEBT 3,914,250
TO RETIRE A PART LONG-TERM DEBT 0
TOTAL APPLICATION OF PROCEEDS 5,954,250
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
( 3914250X 10% NET OF 40% TAX) 234,855
FINAL
TOTAL ISSUABLE PER ABOVE 3,587,000
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,547,000
=========
OPTIONS ISSUED
6/96 - OPTIONS- 13,000 @ 1.00 = $13,000 13,000
REACQUIRED ( $13,000/ $3.50) 3,714
------
ISSUED NOT REACQUIRED 9,286
======
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,556,286
TOTAL 15,256,286
==========
DECEMBER 31, 1995
NET INCOME 1,761,499
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 234,855
NET INCOME - ADJUSTED 1,996,354
=========
BENCHMARK EPS (NI / 10200000) 0.196
97% TEST 0.190
FULLY DILUTED EPS
1996354/15256286 0.131
<PAGE>
PRIMARY
EARNINGS PER SHARE : DECEMBER 31, 1994
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 1,250,000 1,250,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
TOTAL ISSUABLE 1,000,000 2,515,500 3,515,500
TOTAL REACQUIRED
(10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,475,500
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (1,250,000 @ $2) 2,500,000
10/94 - WARRANTS (500,000 @ $2) 1,000,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
---------
TOTAL PROCEEDS 5,882,750
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $.25) 250,000
10/94 - WARRANTS (1,250,000 @ $0.25) 312,500
10/94 - WARRANTS (500,000 @ $0.25) 125,000
10/94 - OPTIONS (765,500 @ $ 0.25) 191,375
---------
878,875
LIMITATION
(3515500 -- 2040000)*.25 368,875
TOTAL PROCEEDS TO REACQUIRE 510,000
BALANCE 5,372,750
TO RETIRE SHORT-TERM DEBT 2,593,069
TO RETIRE A PART LONG-TERM DEBT 2,779,681
TOTAL APPLICATION OF PROCEEDS 5,882,750
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
(5372750 X 10% NET OF 40% TAX) @25% 80,591
FINAL
TOTAL ISSUABLE PER ABOVE 3,515,500
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,475,500
=========
OPTIONS ISSUED
6/96 - OPTIONS- 13,000 @ 1.00 = $13,000 13,000
REACQUIRED ( $13,000/ $3.50) 3,714
--------
ISSUED NOT REACQUIRED 9,286
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,484,786
TOTAL 15,184,786
==========
DECEMBER 31, 1994
NET INCOME 1,774,739
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 80,591
NET INCOME - ADJUSTED 1,855,330
=========
BENCHMARK EPS (NI / 10200000) 0.182
97% TEST 0.176
PRIMARY EPS
855330/15184786 0.122
<PAGE>
FULLY DILUTED
EARNINGS PER SHARE : DECEMBER 31, 1994
COMMON COMMON
STOCK STOCK
CLASS A TOTAL
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
10/94 - WARRANTS 1,000,000 1,000,000
10/94 - WARRANTS 1,250,000 1,250,000
10/94 - WARRANTS 500,000 500,000
10/94 - OPTIONS 765,500 765,500
TOTAL ISSUABLE 1,000,000 2,515,500 3,515,500
TOTAL REACQUIRED
(10,200,000 X 20% ) 2,040,000
---------
ISSUED NOT REACQUIRED 1,475,500
=========
PROCEEDS :
10/94 - WARRANTS (1,000,000 @ $2) 2,000,000
10/94 - WARRANTS (1,250,000 @ $2) 2,500,000
10/94 - WARRANTS (500,000 @ $2) 1,000,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
---------
TOTAL PROCEEDS 5,882,750
=========
TOTAL REACQUIRED
10/94 - WARRANTS (1,000,000 @ $.50) 500,000
10/94 - WARRANTS (1,250,000 @ $0.50) 625,000
10/94 - WARRANTS (500,000 @ $0.50) 250,000
10/94 - OPTIONS (765,500 @ $ 0.50) 382,750
---------
1,757,750
LIMITATION
(3515500 -- 2040000)*.50 737,750
TOTAL PROCEEDS TO REACQUIRE 1,020,000
BALANCE 4,862,750
TO RETIRE SHORT-TERM DEBT 2,593,069
TO RETIRE A PART LONG-TERM DEBT 2,269,681
TOTAL APPLICATION OF PROCEEDS 5,882,750
NET INCOME EFFECTS OF DEBT RETIREMENT, NET OF TAX
( 4862750 X 10% NET OF 40% TAX) @25% 72,941
FINAL
TOTAL ISSUABLE PER ABOVE 3,515,500
TOTAL REACQUIRED PER ABOVE 2,040,000
---------
ISSUED NOT REACQUIRED 1,475,500
=========
OPTIONS ISSUED
6/96 - OPTIONS- 13,000 @ 1.00 = $13,000 13,000
REACQUIRED ( $13,000/ $3.50) 3,714
-----
ISSUED NOT REACQUIRED 9,286
10/94 - COMMON 9,200,000 1,000,000 10,200,000
10/94 - PREFERRED 3,500,000 3,500,000
TOTAL 12,700,000 1,000,000 13,700,000
OPTIONS & WARRANTS PER ABOVE 1,484,786
TOTAL 15,184,786
==========
DECEMBER 31, 1994
NET INCOME 1,774,739
NET INCOME EFFECT OF DEBT RETIREMENT - NET OF TAX 72,941
NET INCOME - ADJUSTED 1,847,680
=========
BENCHMARK EPS (NI / 10200000) 0.181
97% TEST 0.176
FULLY DILUTED EPS
1847680/15184786 0.122
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,539,245
<SECURITIES> 0
<RECEIVABLES> 12,852,980
<ALLOWANCES> 1,031,030
<INVENTORY> 0
<CURRENT-ASSETS> 13,979,062
<PP&E> 34,296,706
<DEPRECIATION> 21,736,093
<TOTAL-ASSETS> 44,638,443
<CURRENT-LIABILITIES> 17,249,843
<BONDS> 0
<COMMON> 102,000
0
50
<OTHER-SE> 6,127,938
<TOTAL-LIABILITY-AND-EQUITY> 44,638,443
<SALES> 0
<TOTAL-REVENUES> 31,109,852
<CGS> 0
<TOTAL-COSTS> 24,324,968
<OTHER-EXPENSES> (537,786)
<LOSS-PROVISION> 2,359,500
<INTEREST-EXPENSE> 3,004,705
<INCOME-PRETAX> 1,958,465
<INCOME-TAX> 917,111
<INCOME-CONTINUING> 1,041,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,041,354
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
