<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 5, 1997
MEDICAL RESOURCES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20440 13-3584552
(State of other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
15 State Street, Hackensack, NJ 07601
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (201) 488-6230
1
<PAGE>
ITEM 5. OTHER EVENTS
On November 5, 1997, ZPR Investments, Inc., ZP Investments, Inc., Wyoming
Valley Physicians Imaging Center, L.P., Camp Hill Physicians Imaging Center,
L.P., Wexford Radiology, P.C., Sanoy Medical Group, Ltd., Reading Open Imaging,
P.A., Yonas Zegeye, M.D., and Hirut Seleshi, parties who had agreed to sell five
related imaging centers located in Pennsylvania to the Company brought an action
in the New Castle County Court of Chancery in Delaware against the Company and
five recently formed subsidiaries seeking specific performance of the
acquisition agreements and unspecified breach of contract damages. The
plaintiffs allege that the Company and the subsidiaries failed to consummate the
acquisitions in accordance with the terms of the acquisition agreements. The
aggregate purchase price for the acquisitions is $8.4 million in cash and $5.6
million payable in shares of Company Common Stock based upon the average price
for the five business days preceeding September 21, 1997 (approximately 320,000
shares). The Company is reviewing the plaintiffs' complaint and analyzing its
alternatives.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
On November 7, 1997, William D. Farrell, the President and Chief Operating
Officer of the Company and a director, resigned as an officer and director of
the Company. Mr. Farrell's letter of resignation (the "Resignation Letter") is
attached hereto as Exhibit 17.1.
The Board of Directors denies the claims made by Mr. Farrell in the
Resignation Letter. The following statement sets forth the Company's views as to
the matters referred to in the Resignation Letter:
On October 7, 1997, Mr. William Farrell, Mr. John O'Malley and Mr. Gary
Fields wrote a memorandum to the Board of Directors which was also signed by
other members of management. The memorandum informed the Board that certain of
the Company's stockholders, in response to the Company's disclosures regarding
related-party transactions in its Form 10-Q for the second quarter of 1997, had
asked questions of management regarding the manner in which related-party
transactions are scrutinized by the Company and the Board, and that certain
members of senior management had also expressed concerns.
As set forth in the Company's prior public filings, 712 Advisory Services,
Inc. ("712 Advisory"), a company affiliated with Mr. Gary Siegler, the Chairman
of the Board of the Company, has provided financial advisory services to the
Company on a regular basis, including in connection with financings and
acquisitions. All services rendered by, and fees paid to, 712 Advisory through
June 30, 1997 are disclosed in the Company's quarterly and annual public
filings.
2
<PAGE>
The memorandum further informed the Board that management had previously
retained a law firm on behalf of the Company to review the Company's practices
regarding related-party transactions.
On October 8, 1997, the Board held a meeting to review the issues raised in
the memorandum at which all Directors, including Mr. Farrell, were present. At
that meeting, the Board confirmed that all transactions with related parties
through June 30, 1997 had been previously disclosed and that the more recent
transactions would be disclosed as part of the Company's next quarterly filing.
At this meeting, the Board established an Advisory Committee of the Board
consisting of Messrs. Gary Fuhrman and John Josephson and empowered the
Committee to conduct a review of the related-party transactions. The Advisory
Committee was also granted authority to retain counsel and any other advisors it
deemed necessary in connection with its review. The Board also directed all
directors, officers and employees of the Company to cooperate fully with the
Advisory Committee.
On October 9, 1997, Gary Fields, who was at that time General Counsel, met
with Mr. Stephen Davis, a director of the Company. Mr. John Josephson was also
present for part of the meeting. At that meeting, Mr. Fields stated that Mr.
Farrell, Mr. O'Malley and he wanted, among other things, the following: (i) Mr.
Fields and Mr. O'Malley be appointed to the Board immediately; (ii) Mr. Davis,
Mr. Koffler and either Mr. Fuhrman or Mr. Josephson resign immediately; (iii)
Mr. Siegler resign as Chairman; (iv) the Board search for additional outside
Board members; (v) Mr. Siegler, including any of his affiliates, place all the
stock he controls into a voting trust to be voted by management; (vi) Mr.
Siegler to sell his stock to the Company over time; (vii) 712 Advisory return
all fees paid to it by the Company in 1997; (viii) Mr. Siegler and 712 Advisory
agree to perform no services for competitors; and (ix) the Company divest its
interest in a partnership, controlled by Mr. Siegler, that owns a corporate jet.
On October 10, 1997, the Advisory Committee retained the law firm of
Willkie Farr & Gallagher to represent the Company in connection with its review
of related-party transactions. Willkie Farr has had no prior business
relationships with the Company or any of its directors.
The Advisory Committee, through its counsel, immediately commenced its
review of the related-party transactions. Shortly thereafter, the Company
received letters from Mr. Fields and the law firm he retained objecting to the
formation of the Advisory Committee on the grounds that they believed the
Advisory Committee was not capable of conducting an independent review because,
among other things, in the past the fees paid to 712 Advisory had been approved
by the two directors who now formed the Advisory Committee.
During the next several days, the Company's attempts to interview relevant
personnel and conduct a review were obstructed and delayed. Although Willkie
Farr, as counsel for the Company, was given access to members of the Board as
part of the review, Willkie Farr was allowed to meet with Mr. Fields and Mr.
O'Malley only for limited periods of time. Mr. Fields and Mr. O'Malley also
refused to answer certain
3
<PAGE>
questions. On October 19, Willkie Farr was advised that meetings that had been
scheduled with Mr. William Farrell and his brother, Mr. Robert Farrell, who is
also an officer of the Company, were canceled by them, and that neither they nor
Messrs. Fields and O'Malley would cooperate further with the Company's review.
During the week of October 20, 1997, the Company engaged in a series of
negotiations with Mr. William Farrell, Mr. O'Malley and Mr. Fields in an attempt
to resolve the dispute. The parties discussed a variety of issues, including
possible changes in the composition of the Board, related-party transactions,
and the procedures to govern the ongoing review of them. The negotiations
collapsed after Messrs. Farrell, O'Malley and Fields demanded automatically
renewing four-to-five year contracts and other extraordinary employment-contract
enhancements, including change-of-control benefits. The Company rejected their
demands as contrary to the interests of the Company and its stockholders.
At a meeting of the Board of Directors on October 28, 1997, the directors
unanimously passed a resolution authorizing the Company to add two new
independent directors to the Board, and the new directors are expected to assume
responsibility for the review of related-party transactions. Mr. Farrell agreed
to help identify and make recommendations for such new independent directors. At
the Board meeting, Mr. Siegler informed the Board, as he had previously advised
the Advisory Committee, that he believed that the questions raised concerning
the fees paid to 712 Advisory for services to the Company to be unfounded. He
informed the Board he would accept and be bound by the review conducted by the
Company. The Board also noted that the Company's interest in the partnership
which owned the corporate jet had been repurchased at cost plus interest. With
these actions, the Board believed it had put into place procedures that
appropriately addressed related-party transactions.
On October 30, 1997, Mr. Fields proposed a press release which stated,
among other things, that past events had "led to a deterioration in the working
relationship between senior management and the Board" and warned of the
"inability of the Board and the Company's senior management to maintain a normal
working relationship."
On November 2, 1997, the Board appointed Mr. Lawrence Ramaekers to serve as
the Company's acting Chief Executive Officer, a position that had been vacant
for more than two years. Messrs. Farrell, O'Malley and Fields were instructed to
work with Mr. Ramaekers. During the week of November 3, 1997, Mr. Farrell
confirmed to the Board and Mr. Ramaekers that he intended to work with him for
the benefit of the Company.
Mr. O'Malley and Mr. Fields were requested by the Board to attend a Board
meeting on November 5, 1997 and refused to do so. At that Board meeting, Mr.
Farrell was asked to report on the Company's financial performance and stated
that he was unable to do so at that time. Mr. Ramaekers reported to the Board
that Mr. O'Malley was refusing to cooperate with him.
4
<PAGE>
On November 6, 1997, Mr. Farrell met with Mr. Josephson to start the
process of searching for new independent directors. By letter received by the
Company on November 7, 1997 addressed to the Board, Mr. Farrell resigned as
President and Chief Operating Officer of the Company and as a Director. By
letter dated November 7, 1997, Mr. Fields resigned as Senior Vice President and
General Counsel.
At the Board meeting held on November 8, 1997, the Board accepted the
resignations of Mr. Farrell and Mr. Fields. The Board disputes the
characterization asserted by Mr. Farrell and Mr. Fields that they were
constructively terminated and noted that Mr. Farrell had been specifically
reassured by the Board only two days before that the Board wanted him to work
together with Mr. Ramaekers and did not intend to terminate his employment.
The Board was further informed that Mr. John O'Malley told Mr. Ramaekers
that he would no longer work on the financial statements of the Company for the
third quarter or assist the Company in any financing or acquisition activities
unless the Company paid for him to be separately represented by counsel of his
choice and that such counsel could only be the law firm initially retained by
Mr. Fields. The Board removed Mr. O'Malley as Executive Vice President-Finance
and as Chief Financial Officer, and appointed Mr. Dennis Currier as the
Company's new Chief Financial Officer.
During the period from September 19 to September 24, 1997, prior to the
delivery of the October 7 memorandum to the Board, Mr. William Farrell exercised
certain stock options and immediately sold 52,500 shares of the Company's common
stock at prices ranging from $17.34 to $19.75 per share. Of the stock options he
exercised, options for 15,000 of the shares had an expiration date of October
16, 1997 and the options for the remaining 37,500 shares had an expiration date
of June 20, 1999. Mr. Farrell's gross proceeds from such sales totaled
approximately $986,375.
During the period from September 3 to September 22, 1997, Mr. John
O'Malley, who at that time was Senior Vice President-Finance and Chief Financial
Officer of the Company, sold 24,055 shares of the Company's stock at prices
ranging from $16.75 to $19.00 per share. Mr. O'Malley's gross proceeds from such
sales totaled approximately $425,338.25.
On November 10, 1997, the Company issued a press release, which is attached
hereto as Exhibit 99.1 and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
The following Exhibits are filed as part of this report.
Exhibit 17.1 Letter of Resignation of William D. Farrell.
Exhibit 99.1 Press Release issued by Medical Resources, Inc.,
dated November 10, 1997.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL RESOURCES, INC.
Dated: November 10, 1997 By: /s/Lawrence Ramaekers
----------------------------
Name: Lawrence Ramaekers
Title: Acting Chief Executive Officer
6
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page No.
------- ---------
17.1 Letter of Resignation of William D. Farrell. 9
99.1. Press Release issued by Medical Resources, Inc.,
dated November 10, 1997. 15
<PAGE>
WILLIAM D. FARRELL
14 Bluefield Avenue
Harrington Park, New Jersey 07640
BY HAND DELIVERY
The Board of Directors
Medical Resources, Inc.
c/o Mr. Gary N. Siegler, Chairman
Siegler Collery & Co.
712 Fifth Avenue, 19th Floor
New York, New York 10019
Re: My Constructive Discharge
Gentlemen:
The behavior and actions of the members of the Board of Medical Resources,
Inc. other than myself (the "Siegler Board Members") over the past month have
been truly astounding and deeply troubling to me and to other members of the
Senior Management of Medical Resources, Inc. ("MRI" or the "Company"). More
importantly, that behavior and those actions, culminating earlier this week, in
the Siegler Board Members' decision to deprive me of virtually all of the
duties, responsibilities and discretion as the Company's President and Chief
Operating Officer, force me to conclude that the Siegler Board Members, by their
deeds, effectively have terminated my employment in those two senior executive
positions. The Siegler Board Members have even prohibited me from important
communications with the Company's shareholders, attorneys and financial
analysts. The Siegler Board Members have done so without cause - and, indeed,
for reasons which I believe are improper and illegal. Accordingly, I have no
choice but to recognize that the Siegler Board Members effectively have
discharged me, leaving me no alternative but to resign my positions as an
officer and director of MRI and all affiliated entities.
I tender my forced resignations - which has been compelled by your actions
- - with profound sadness. I have been employed, in one position or another, with
MRI for over 13 years. During those years, I put virtually all my energies often
at great personal and family sacrifice - into assuring MRI's growth and success,
thereby advancing the interests of the Company's shareholders and employees. By
anyone's measure (including your own assessments prior to October 7th) my
efforts - and those of all other members of the Company's Senior Management team
- - have been a huge success.
No doubt the development and growth of MRI and its business strategy since
1990 also reflected the input, guidance and assistance of certain Siegler Board
Members. Nevertheless, as reflected in Senior Management's correspondence with
you and your
1
<PAGE>
counsel, and the correspondence of counsel retained by Senior Management to
represent the Company, it appears that the Siegler Board Members have caused the
Company to: (i) pay, in connection with the acquisitions and financings,
exorbitant amounts in terms of cash and/or warrants; (ii) pay in excess of $1.5
million in cash and 675,000 warrants as advisory fees to an entity associated
with certain Siegler Board Members that were apparently unearned; (iii) acquire
an interest in a corporate jet, at an initial cost in excess of $3 million, that
was unwarranted and done for the benefit of one or more Siegler Board Members;
and (iv) engage in certain non-imaging acquisitions with little or no benefit to
MRI - but of clear and direct benefit to certain Siegler Board Members.
When Senior Management made clear to the Siegler Board Members, in early
October, that Senior Management took those matters very seriously - as did
significant MRI shareholders - the Siegler Board Members' initiated efforts
which inexorably have led to creation of an intolerable and hostile work
environment and to actions which, taken together or separately, have resulted in
my constructive discharge. Those actions include, but are not limited to, those
summarized below:
1. Taking immediate and continuing steps to terminate and prevent
a truly independent and objective review of all 1996 and 1997
related-party transactions of concern to MRI Senior Management
and MRI shareholders. These steps have included the following:
(a) In reaction to our request for a truly independent,
fair, objective and confidential inquiry, the Siegler
Board Members reacted by shutting down that inquiry
and initiating their own under the supervision of the
very board members who approved the transactions in
the first place.
(b) The Siegler Board Members' biased and conflicted
investigation turned into an inquisition of spurious
charges against myself and other members of Senior
Management who have raised concerns regarding
related-party transactions.
(c) After weeks spent refusing to place the investigation
in the hands of truly independent people, the Siegler
Board Members belatedly agreed to do so, but then left
the existing conflicted Board Members and their
counsel involved in the investigation.
(d) The Siegler Board Members' refusal to disclose (i) the
unilateral and unexplained unwinding of the corporate
jet transaction and (ii) the growing
2
<PAGE>
and serious rift between Senior Management and the
Siegler Board Members.
(e) The Siegler Board Members' refusal to make the
appropriate and necessary public disclosure as
prepared and proposed by Senior Management;
2. Taking immediate and continuing steps to prevent me and MRI
Senior Management from consulting or sharing information with
counsel retained to represent the Company or with other
advisors;
3. Making and disseminating false and scurrilous allegations
concerning misconduct and improper personal motives on the
part of Senior Management who raised concerns regarding
related-party transactions. Those allegations have been made
and have been pressed as part of an improper effort to muzzle
me, in an attempt to control and prevent actions on my part
which are entirely legal and appropriate and to deflect blame
away from the Siegler Board Members' actions;
4. Taking steps to disclaim board authorization of a recent
acquisition transaction that the Board was fully aware of (and
approved using accepted procedures) and on which at least two
Siegler Board Members purported to work extensively;
5. Demanding that I take steps and participate in actions with
significant legal implications while, at the same time,
refusing to allow me the opportunity to consult with chosen
Company counsel concerning those issues;
6. Refusing to consult with or apprise me in advance of
significant decisions the Siegler Board Members have made with
respect to the Company, leaving me to read about them in a
Siegler Board Member press release;
7. After October 7th, surreptitiously searching for and retaining
an individual to act as interim CEO to whom I would report
when, in fact, as President and COO, I had filled that role
since at least 1996;
8. Drastically reducing my responsibilities and authority as
President and COO by formal board resolution upon insertion
into Senior Management of the Siegler Board Members' chosen
interim CEO;
9. Taking Board action to restrict any statement between senior
management and shareholders, financial analysts or brokers.
There have been other actions which the Siegler Board Members have taken
which have been a part of my de facto or
3
<PAGE>
constructive discharge as an officer and director of the Company. However, the
nine (9) items set forth above are enough to give you and any other reader a
clear sense that the Siegler Board Members have, by their actions, if not in
words, terminated my employment as MRI's President and COO and nullified my
position. This letter serves only to confirm the sorry state of affairs brought
about by your unfortunate, improper and illegal behavior.
In addition to the grounds set forth above, I am compelled to resign my
position as a member of the Board of MRI because my role in that regard has been
nullified by the actions of the Siegler Board Members. Specifically, over the
past four weeks, Board meetings have been called with little or no notice and
without any indication of the purpose or agenda for such meetings. More
importantly, it is clear that since October 7th, the Siegler Board Members have
held pre-meeting "Board meetings" and have scripted out Board action without
including me in that process. Board meetings have become a charade. Indeed, most
recently the Siegler Board Members surreptitiously recruited and hired an
"interim CEO" and imposed him on this Company without any prior notice or
consultation with me.
Because I have, in fact, been discharged by the Siegler Board Members, without
cause (and improperly), I remain entitled to all benefits under my employment
agreement which exist following a "without cause" termination. In addition, I
believe that I have other contractual, common law and statutory rights and
remedies which I reserve the right to and intend vigorously to pursue under
applicable law. Pursuant to Section 13 of the Securities Exchange Act of 1934, I
request that the Company make an appropriate Form 8-K filing with the SEC
disclosing my resignation from the MRI Board and attaching this letter.
Sincerely,
William D. Farrell
President and Chief Operating
Officer and Director Medical
Resources, Inc.
cc: Stephen M. Davis, Esq. (By Hand)
4
<PAGE>
<PAGE>
- - MEDICAL RESOURCES, INC. EXPECTS 3RD QUARTER EARNINGS OF $0.16 TO $0.19 PER
SHARE
- - ACCEPTS RESIGNATIONS OF COO AND GENERAL COUNSEL
- - APPOINTS NEW CFO
HACKENSACK, NJ, November 10, 1997 -- Medical Resources, Inc. (Nasdaq: MRII)
announced today that it expects its third-quarter earnings to be in the range of
$0.16 to $0.19 per fully diluted share, that it has accepted the resignations of
its Chief Operating Officer and General Counsel and that it has appointed a new
Chief Financial Officer.
The Company stated that it expects net revenues for the third quarter of
1997 to be approximately $60 million, compared to $24.8 million for the third
quarter of 1996. Net income is expected to be approximately $4 million - $5
million, or $0.16 to $0.19 per fully diluted share, compared to $1.8 million, or
$0.15 per fully diluted share, for the third quarter of 1996. The Company
expects to disclose detailed results for the third quarter by the end of the
week.
The Company also announced that its Board of Directors has accepted the
resignation of William D. Farrell, age 35, from his positions as President and
Chief Operating Officer of the Company and as a Director. The Board has also
accepted the resignation of Gary I. Fields, 44, who joined the Company as Senior
Vice President and General Counsel in April 1997. Neither Mr. Farrell nor Mr.
Fields was asked to resign.
1
<PAGE>
The Company has appointed Dennis T. Currier to serve as the Company's Chief
Financial Officer. Mr. Currier, age 53, has more than 20 years experience as a
senior financial and accounting executive, with expertise in the health care
industry. Mr. Currier was a partner at Ernst & Young for seven years, where he
specialized in the health care industry. Mr. Currier is affiliated with Jay Alix
& Associates, a management consulting firm that specializes in interim
management assignments. Mr. Currier replaces John P. O'Malley, 35, who was
removed by the Board of Directors from his positions as Executive Vice President
and Chief Financial Officer. Mr. O'Malley, who joined the Company in September
1996, was removed for failing to fulfill certain of his functions as Chief
Financial Officer.
"Although Bill Farrell contributed to the growth of the Company over the
years, Medical Resources has a deep and experienced management team that has
been instrumental to the Company's success," said Mr. Gary Siegler, Chairman of
the Board of Directors. He added: "This team has the full support of the Board.
Larry Ramaekers, the acting Chief Executive Officer, and Dennis Currier bring
strong skills and significant experience to the Company. This has been a rapidly
growing business and it needs mature, strong management that can provide
leadership and experience in running a large, multi-location company. We believe
that Messrs. Ramaekers and Currier have begun to establish a good working
relationship with the Company's management and we look forward to the Company's
continued
2
<PAGE>
success. The Company will now be able to refocus its efforts on its business and
restore investor confidence."
The Company also announced that it intends to continue its
previously-announced effort to add two more independent directors, as well as
its previously announced review of related-party transactions. Over the past
month, the Board tried to address squarely the issues raised by Messrs. Farrell,
O'Malley and Fields in ways that would be in the best interests of the Company
and its stockholders, while continuing to operate the Company on a day-to-day
basis. Negotiations to resolve a variety of issues between the Board and Messrs.
Farrell, O'Malley and Fields collapsed after they demanded, among other things,
automatically renewing four-to-five year contracts and other extraordinary
employment-contract enhancements, including change-of-control benefits. The
Company rejected their demands as contrary to the interests of the Company and
its stockholders. The Company denies assertions by Mr. Farrell and Mr. Fields
that they were "constructively terminated".
Medical Resources specializes in the ownership, operation and management of
diagnostic imaging centers. The Company operates 101 imaging centers in the
Northeast (58), the Southeast (25), the Midwest (13) and California (5), and
provides network management services to managed care organizations in these
regions. Also through its subsidiary, StarMed Staffing, the Company provides
temporary healthcare staffing to acute and sub-acute care facilities nationwide.
3
<PAGE>
Statements in this press release, other than statements of historical
information, are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks which may cause the
Company's actual results in future periods to differ materially from expected
results. Those risks include, among others, risks associated with the
acquisition of existing imaging centers, management of growth, limitations and
delays in reimbursement and government regulation effects as well as operating
risks. Those and other risks are described in the Company's filings with the
Securities and Exchange Commission (SEC) over the last 12 months, copies of
which are available from the SEC or may be obtained upon request from the
Company.
Contact:
Larry Ramaekers, Acting Chief Executive Officer, Medical Resources, Inc. (201)
488-6230.
Michael Millican, President, Robert Marston and Associates (212) 371-2200
4
