UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
Commission file number 000-19636
HEALTHCARE IMAGING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3119929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Schulz Drive, Red Bank, New Jersey 07701
(Address of principal executive offices) (Zip Code)
(732) 224-9292
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 14, 1997
Common Stock, $.01 par value 6,526,474 shares
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION: PAGE
- ------- ---------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders
Equity - For the six months ended June 30, 1997 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
- ----------
2
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
ASSETS 1997 1996
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 449,015 $ 173,879
Marketable securities - 625,000
Accounts receivable - net 4,654,698 4,328,553
Prepaid expenses and other 194,107 160,021
------- -------
Total current assets 5,297,820 5,287,453
--------- ---------
Property, plant and equipment - net 5,364,145 4,347,745
--------- ---------
Other assets:
Advances to licensee 267,130 351,401
Goodwill - net 129,552 138,806
Due from officer 176,049 176,049
Other non-current assets 386,592 265,278
------- -------
959,323 931,534
------- -------
Total assets $11,621,288 $10,566,732
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 300,000 $ -
Accounts payable and accrued expenses 892,663 1,083,223
Current portion of capital lease
obligations and long-term debt 1,619,322 1,102,559
Reserve for restructuring costs - 150,054
Income taxes payable 6,305 8,304
----- -----
Total current liabilities 2,818,290 2,344,140
--------- ---------
Non-current liabilities:
Capital lease obligations and long-term
debt 2,718,226 2,141,627
Reserve for restructuring costs 391,014 575,589
------- -------
3,109,240 2,717,216
--------- ---------
Minority interests 456,182 500,569
------- -------
Stockholders' equity:
Convertible preferred stock, $.10 par value;
1,000,000 shares authorized, 448,000 shares
and 660,000 shares outstanding at June 30,
1997 and December 31, 1996, respectively 44,800 66,000
Common stock, $.01 par value;
50,000,000 shares authorized, 6,445,974 and
4,961,974 shares outstanding at June 30,
1997 and December 31, 1996, respectively 64,460 49,620
Additional paid-in capital 11,883,038 11,876,678
Accumulated deficit (6,637,187) (6,588,845)
Unearned compensation (117,535) (398,646)
-------- --------
5,237,576 5,004,807
--------- ---------
Total liabilities and stockholders' equity $11,621,288 $10,566,732
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues: $2,425,181 $2,283,056 $5,105,631 $4,637,948
---------- ---------- ---------- ----------
Operating Expenses:
Salaries 652,981 629,580 1,355,684 1,295,649
Other operating
expenses 869,630 618,306 1,731,973 1,203,859
Films and supplies 109,252 114,261 251,570 250,073
Equipment mainte-
nance and repairs 144,170 168,220 317,665 344,269
Professional fees 156,935 135,694 219,536 255,703
Depreciation and
amortization 363,772 385,470 688,625 766,945
Interest 117,938 119,251 225,077 240,924
Gain on sale of
property, plant and
equipment (105,000) - (105,000) -
-------- --------- -------- -------
2,309,678 2,170,782 4,685,130 4,357,422
--------- --------- --------- ---------
Income before non-cash
compensation charge,
minority interests in
joint ventures and
income taxes 115,503 112,274 420,501 280,526
Non-cash compensation
charge (89,265) (368,994) (281,111) (706,431)
Minority interests in
joint ventures (66,642) (99,551) (163,801) (184,990)
------- ------- -------- --------
Operating loss before
income taxes (40,404) (356,271) (24,411) (610,895)
Income tax provision 10,750 15,989 23,931 27,689
------ ------ ------ ------
Net loss $(51,154) $(372,260) $(48,342) $(638,584)
======== ========= ======== =========
Weighted average common
shares outstanding 5,344,589 4,711,974 5,030,029 4,711,974
========= ========= ========= =========
Net loss per common share $(.01) $(.08) $(.01) $(.14)
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Additional Total
---------- -----
Preferred Stock Common Stock Paid-in Accumulated Unearned Stockholders'
--------------- ------------ ------- ----------- -------- -------------
Shares Amount Shares Amount Capital Deficit Compensation Equity
------ ------ ------ ------ ------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 660,000 $66,000 4,961,974 $49,620 $11,876,678 $(6,588,845) $(398,646) $5,004,807
Conversion of Series C Convertible
Preferred Stock (212,000) (21,200) 1,484,000 14,840 6,360
Amortization of unearned
compensation for stock options
and restricted stock grants 281,111 281,111
Net loss for the six months ended
June 30, 1997 (48,342) (48,342)
------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 448,000 $44,800 6,445,974 $64,460 $11,883,038 $(6,637,187) $(117,535) $5,237,576
================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
--------
1997 1996
---- ----
Cash flows from operating activities:
Net loss $(48,342) $(638,584)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 688,625 766,945
Gain on sale of property, plant and
equipment (105,000) -
Amortization of non-cash compensation 281,111 706,431
Minority interests in joint ventures 163,801 184,990
Allowance for doubtful accounts 278,000 25,000
Changes in assets and liabilities:
Accounts receivable (604,145) (72,938)
Prepaid expenses and other (34,086) (104,464)
Advances to licensee 84,271 -
Accounts payable and accrued expenses (190,560) 1,784
Income taxes payable (1,999) 7,651
Other non-current assets (130,798) (12,983)
-------- -------
Net cash provided by operating activities 380,878 863,832
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable securities 625,000 -
Purchases of property, plant and equipment (129,230) (73,484)
-------- -------
Net cash provided by (used in) investing
activities 495,770 (73,484)
------- -------
Cash flows from financing activities:
Net proceeds received from the sale of
Series C Preferred Stock - 1,198,254
Borrowings under the revolving line of
credit 300,000 -
Proceeds from sale of property, plant
and equipment related to restructured
operations 105,000 -
Distributions to limited partners of
joint ventures (208,188) (180,339)
Payments on note payable - (38,979)
Payments on capital lease obligations (616,297) (462,503)
Proceeds from subleases related to
restructured operations 97,843 200,423
Payments against obligations related to
restructured operations (279,870) (595,403)
-------- --------
Net cash (used in) provided by financing
activities (601,512) 121,453
-------- -------
Increase in cash and cash equivalents 275,136 911,801
Cash and cash equivalents at beginning
of period 173,879 281,416
------- -------
Cash and cash equivalents at end
of period $449,015 $1,193,217
======== ==========
6
<PAGE>
HEALTHCARE IMAGING SERVICES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Six Months Ended
June 30,
--------
1997 1996
---- ----
Supplemental Cash Flow Information:
Interest paid during the period $218,121 $245,225
======== ========
Income taxes paid during the period $ 25,931 $ 32,750
======== ========
Supplemental Schedule of Noncash Investing
and Financing Activities:
Capital leases principally
for medical equipment $1,135,084 $250,029
========== ========
Reinstatement of mobile MRI unit
related to previously recorded
restructured operations $421,973 $ -
======== =======
Reinstatement of capital lease
obligation related to previously
recorded restructured operations $574,575 $ -
======== =======
See accompanying notes to consolidated financial statements.
7
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1997
Note 1. - Basis of Presentation
- -------------------------------
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary
to present fairly the Company's financial position as of June 30,
1997 and the related statements of operations and cash flows for
the periods ended June 30, 1997 and 1996. Certain information and
footnote disclosures normally included in annual financial
statements have been omitted from the accompanying interim
consolidated financial statements.
The results of operations for the six months ended June 30,
1997 are not necessarily indicative of the results of operations
expected for the year ending December 31, 1997 or any other period.
The consolidated financial statements included herein should be
read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, as amended by the Company's
Form 10-K/A No. 1, which are on file at the Securities and Exchange
Commission.
Note 2. - Recent Accounting Pronouncements
- ------------------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings Per Share". The statement is effective for periods
ending after December 15, 1997, and changes the method in which
net loss per share will be determined. Adoption of
this statement by the Company will not have a material impact on
net loss per share.
Note 3. - Revolving Line of Credit
- ----------------------------------
Effective December 26, 1996, the Company entered into a Loan and Security
Agreement with DVI Business Credit ("DVIBC"), an affiliate of DVI Financial
Services, Inc. ("DFS"), to provide a secured revolving line of credit to the
Company. The maximum amount available under such credit facility is $2.0
million, with advances limited to seventy-five percent (75%) of eligible
accounts receivable, as determined by DVIBC. Borrowings under the credit
facility bear interest at three percent (3%) over the prime lending rate and are
repayable within two years from the execution of the aforementioned loan and
security agreement. The Company's obligations under the credit facility are
secured by a first security interest in all eligible accounts receivable, other
than those of DFS. Borrowings under this facility will be used for general
corporate purposes and potential acquisitions. The line of credit does not
constrict the Company's
8
<PAGE>
borrowing ability as it relates to the acquisition of new equipment
from DFS. As of June 30, 1997, $300,000 was outstanding under this
credit facility.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
- -----------------------------------
This Quarterly Report contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995 including, without limitation, statements regarding the
sufficiency of the Company's liquidity and sources of capital. Any
statements contained herein which are not historical facts or which
contain the words expect, believe, estimate or anticipate shall be
deemed to be forward-looking statements. These forward-looking
statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially.
Additional information regarding factors that could potentially
affect the Company or its financial results may be included in the
Company's filings with the Securities and Exchange Commission.
Six Months Ended June 30, 1997 vs. June 30, 1996
- ------------------------------------------------
For the six months ended June 30, 1997, revenues were
$5,105,631 as compared to $4,637,948 for the six months ended June
30, 1996, an increase of approximately $468,000. This increase is
primarily due to increased revenues at certain of the Company's MRI
facilities, as well as the commencement of fixed-site MRI services
in May 1997 at Meadowlands Hospital Medical Center located in
Secaucus, New Jersey.
For the six months ended June 30, 1997, operating expenses
were $4,966,241 as compared to $5,063,853 for the six months ended
June 30, 1996, a decrease of approximately $98,000. This decrease
was primarily a result of lower non-cash compensation charges
recorded during the six months ended June 30, 1997 (approximately
$281,000) as compared to June 30, 1996 (approximately $706,000) and
a gain (approximately $105,000) on the sale of one of the Company's
mobile MRI units to an unaffiliated third party. The non-cash
compensation charges result from the grant of (1) stock options and
a restricted stock award to the Company's Chairman of the Board,
President and Chief Executive Officer ( the "CEO") and (2) stock
options to Biltmore Securities, Inc. ("Biltmore") pursuant to a
consulting agreement. See "Liquidity and Capital Resources of the
Company."
The Company's operating expenses before the non-cash
compensation charges and the gain on the sale of the mobile MRI
unit increased approximately $433,000, which is attributable to the
start-up expenses incurred in establishing the recently formed joint
venture at the Meadowlands Hospital Medical Center, as well as
additional employee costs and consulting and marketing fees resulting
from the increased number of procedures being performed at the Company's
facilities.
During the six months ended June 30, 1997, as a corporate
general partner, the Company recorded an additional $17,724 of
losses attributable to the limited partnership interests in the
10
<PAGE>
Philadelphia, Pennsylvania joint venture (the "Philadelphia MRI
facility") in excess of the limited partners' capital accounts.
The operating results for the six months ended June 30, 1996
were substantially affected by the Philadelphia MRI facility which
incurred a loss of $251,241, which loss decreased to $44,310 for
the six months ended June 30, 1997. The Company is negotiating the
purchase of the present limited partners' interests in such joint
venture which it expects to consummate by the end of fiscal 1997.
However, there can be no assurance that these negotiations will be
successfully concluded. In addition, the operating results for the
six months ended June 30, 1997 were adversely effected by
decreasing margins at the Company's Brooklyn MRI facility resulting
from local competitive pressures, as well as the funding of the
expenses associated with the recently formed joint venture at the
Meadowlands Hospital Medical Center during its start-up phase.
Three Months Ended June 30, 1997 vs. June 30, 1996
- --------------------------------------------------
For the three months ended June 30, 1997, revenues were
$2,425,181 as compared to $2,283,056 for the three months ended
June 30, 1996, an increase of approximately $142,000. This
increase is primarily due to increased revenues at certain of the
Company's MRI facilities, as well as the commencement of fixed-site
MRI services at Meadowlands Hospital Medical Center.
For the three months ended June 30, 1997, operating expenses
were $2,398,943 as compared to $2,539,776 for the three months
ended June 30, 1996, a decrease of approximately $141,000. This
decrease was primarily a result of lower non-cash compensation
charges recorded during the three months ended June 30, 1997
(approximately $89,000) as compared to June 30, 1996 (approximately
$369,000) and a gain (approximately $105,000) on the sale of one of
the Company's mobile MRI units to an unaffiliated third party.
The non-cash compensation charges result from the grant of (1)
stock options and a restricted stock award to the CEO and (2) stock
options to Biltmore pursuant to a consulting agreement. See
"Liquidity and Capital Resources of the Company."
The Company's operating expenses before the non-cash
compensation charges and the gain on the sale of the mobile MRI
unit increased approximately $244,000, which is attributable to the
start-up expenses incurred in establishing the recently formed joint
venture at the Meadowlands Hospital Medical Center, as well as
additional employee costs and consulting and marketing fees resulting
from the increased number of procedures being performed at the Company's
facilities.
During the three months ended June 30, 1997, as a corporate
general partner, the Company recorded an additional $12,326 of
losses attributable to the limited partnership interests in the
Philadelphia, Pennsylvania joint venture (the "Philadelphia MRI
facility") in excess of the limited partners' capital accounts.
The operating results for the three months ended June 30, 1996
11
<PAGE>
were substantially affected by the Philadelphia MRI facility which
incurred a loss of $118,268, which loss decreased to $30,815 for
the three months ended June 30, 1997. The Company is negotiating
the purchase of the present limited partners' interests in such
joint venture which it expects to consummate by the end of fiscal
1997. However, there can be no assurance that these negotiations
will be successfully concluded. In addition, the operating results
for the three months ended June 30, 1997 were adversely effected by
decreasing margins at the Company's Brooklyn MRI facility resulting
from local competitive pressures, as well as the funding of the
expenses associated with the recently formed joint venture at the
Meadowlands Hospital Medical Center during its start-up phase.
<PAGE>
Liquidity and Capital Resources of the Company
- ----------------------------------------------
As of January 30, 1996, the Company entered into a one year
consulting agreement with Biltmore. Pursuant to the consulting
agreement, Biltmore agreed to act as a consultant to the Company in
connection with, among other things, corporate finance and
evaluations of possible business partners and agreed to seek to
locate business partners suitable for the Company and assist in the
structuring, negotiating and financing of such transactions. The
consulting agreement provided for the issuance to Biltmore upon
execution thereof of options (the "Biltmore Options") exercisable
to purchase 750,000 shares of Common Stock at a cash exercise price
of $0.75 per share and for the additional issuance to Biltmore of
750,000 shares (the "Biltmore Fee Shares") of Common Stock upon
consummation by the Company by January 30, 1997, which date was
extended to January 30, 1998, of an acquisition of a company (or
companies) with assets of at least $2,500,000 during the term of
the consulting agreement (the "Acquisition"). In connection with
the issuance of the Biltmore Options, the Company recorded a non-
cash compensation charge of $685,800 which was amortized over the
term of the consulting agreement.
As of February 1, 1996, the Company amended its employment
agreement with its CEO. Pursuant to such amendment, the
agreement's expiration date of October 22, 1996 was extended to
October 22, 1997 and during such extension, the CEO's annual base
compensation was reduced from $200,000 to $100,000. In addition,
stock options that the CEO held to purchase an aggregate of 270,000
shares of Common Stock at exercise prices ranging from $1.50 to
$5.00 per share (the "CEO Old Options") were terminated and the
Company granted the CEO options, exercisable until February 1,
2001, to purchase an aggregate of 500,000 shares of Common Stock at
an exercise price of $0.75 per share (the "CEO New Options"). In
connection with the issuance of the CEO New Options, the Company
recorded a non-cash compensation charge of $562,506 which is being
amortized over the twenty-one months ending October 31, 1997. Upon
execution of such amendment, the CEO received from the Company a
restricted stock award of 250,000 shares (the "Restricted Shares")
of Common Stock (the "CEO Award"). The restrictions related to the
12
<PAGE>
CEO Award will lapse upon consummation by the Company of an
Acquisition. In January 1997, the Company extended the required
consummation date of the Acquisition from January 30, 1997 to
January 30, 1998 (subject to stockholder ratification and approval
of such extension, which the Company intends to solicit at its 1997
Annual Meeting of Stockholders) and the expiration date of the
CEO's employment agreement from October 22, 1997 to October 22,
1998. In connection with the issuance of the Restricted Shares,
the Company recorded a non-cash compensation charge of $468,744
which was amortized over the initial twelve-month contingency
period ended January 30, 1997. To the extent the Company does not
consummate an Acquisition meeting the specified standards by
January 30, 1998, the CEO Award will be forfeited and the
previously recorded non-cash compensation charge will be reversed.
As of June 30, 1997, the Company had a cash balance of
$449,015, current assets of $5,297,820 and working capital of
$2,479,530. Cash flows provided by operating activities were
$380,878 for the six months ended June 30, 1997, which consisted
primarily of depreciation and amortization of $688,625,
amortization of non-cash compensation of $281,111, an increase in
the allowance for doubtful accounts receivable of $278,000 and
minority interests in joint ventures of $163,801. Other
significant components of cash flows provided by operating
activities include an increase in accounts receivable of $604,145
due to an increase in the number of procedures being performed, an
increase in other non-current assets of $130,798, primarily due to
costs incurred for potential new business arrangements and a
decrease in accounts payable and accrued expenses of $190,560.
Cash flows provided by investing activities were $495,770,
primarily due to proceeds received from the sale of marketable
securities. Cash flows used in financing activities were $601,512,
which consisted primarily of payments on capital lease obligations
of $616,297, payments against obligations related to restructured
operations of $279,870 and distributions to limited partners of
joint ventures of $208,188, partially offset by borrowings of
$300,000 under the revolving line of credit, proceeds of $105,000
from the sale of one of the Company's mobile MRI units to an
unaffiliated third party and proceeds of $97,843 from the subleases
related to restructured operations.
The Company's Philadelphia MRI facility, which has been
operating since November 1992, continues to operate at a loss.
However, such losses have substantially decreased during the six
months ended June 30, 1997. In order to support the operations of
this facility, the Company has made and continues to make working
capital loans to this joint venture. As of June 30, 1997, the
amount of such working capital loans was approximately $2,435,000
(of which approximately $322,000, inclusive of an intercompany
interest charge of approximately $108,000, was loaned in 1997).
The Company cannot at this time determine when, or if, these loans
will be repaid. The Company is in the process of negotiating the
purchase of the present limited partners interests in this joint
13
<PAGE>
venture which it expects to consummate before year end. However,
there can be no assurance that these negotiations will be
successfully concluded. As noted above, the competitive
environment in which the Brooklyn MRI facility operates has adversely
affected its operating results. In connection with the Company's
review of the viability of this facility, the Company is actively
considering the sale of this facility. However, there can be no
assurance that such a sale will be consummated.
On May 8, 1997, the Company sold one of its remaining mobile
MRI units to an unaffiliated third party for $105,000. The sale
enabled the Company to eliminate the overhead costs associated with
the operation of this mobile MRI unit, thereby resulting in cash
savings.
In November 1996, the Company formed a limited liability
company, of which it owns sixty (60%) percent, with Practice
Management Corporation to provide on-site MRI services to
Meadowlands Hospital Medical Center. The site commenced operations
on May 8, 1997. The Company expects that the initial costs to be
incurred to establish the facility will range between $450,000 and
$600,000. These amounts will be in the form of working capital
loans by the Company to the joint venture. The Company believes
that the start-up phase will last six to nine months, although
there can be no assurances that it will not be a longer period.
The nature of the Company's operations require significant
capital expenditures which have historically been financed through
the issuance of debt and the execution of capital leases, proceeds
received from the Company's initial public offering in November
1991 and sale of the Series C Preferred Stock in February 1996, and
the offering and exercise of warrants. Continued expansion, if
any, of the Company's business will require substantial cash
resources and will have an impact on the Company's liquidity.
Also, such expansions, if any, will require the purchase of
additional MRI units and financing sources to fund the purchase of
these additional units. Historically, the Company has been able to
obtain financing for its medical equipment through a former
significant stockholder, DVI Financial Services, Inc. ("DFS"). The
Company believes it will continue to be able to obtain financing
from DFS as well as other financing sources for its future
equipment needs.
Effective December 26, 1996, the Company entered into a Loan and
Security Agreement with DVI Business Credit ("DVIBC"), an affiliate of
DFS, to provide a secured revolving line of credit to the
Company. The maximum amount available under such credit facility
is $2.0 million, with advances limited to seventy-five percent
(75%) of eligible accounts receivable, as determined by DVIBC.
Borrowings under the credit facility bear interest at three percent
(3%) over the prime lending rate and are repayable within two years
from the execution of the aforementioned loan and security
14
<PAGE>
agreement. The Company's obligations under the credit facility are
secured by a first security interest in all eligible accounts
receivable, other than those of DFS. Borrowings under this
facility will be used for general corporate purposes and potential
acquisitions. The line of credit does not constrict the Company's
borrowing ability as it relates to the acquisition of new equipment
from DFS. As of June 30, 1997, $300,000 was outstanding under this
credit facility.
The Company believes that cash to be provided by operating
activities, the proceeds received from the sale of the Series C
Preferred Stock and availability under the revolving line of credit
will be sufficient to meet its anticipated cash requirements for
its present operations for the next twelve months. If for any
reason the Company's estimates prove inaccurate, the Company is
prepared to adopt additional expense reduction measures in addition
to those already implemented, although there can be no assurance
that any such expense reduction measures will be successful.
15
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Items 1 through 5 have been omitted because the related
information is either inapplicable or has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.45 - Loan and Security Agreement, dated as of
December 26, 1996, between HealthCare Imaging Services,
Inc., Edgewater Imaging Associates, L.P., Wayne Imaging
Associates, L.P., Rittenhouse Square Imaging Associates,
L.P. and DVI Business Credit Corporation
Exhibit 27 - Financial Data Schedule.
(b) The Company has not filed any reports on Form 8-K during
the quarter ended June 30, 1997.
16
<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, thereunto duly authorized.
HEALTHCARE IMAGING SERVICES, INC.
(Registrant)
/s/ ELLIOTT H. VERNON
---------------------
DATE: August 14, 1997
- ---------------------
Elliott H. Vernon,
Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: August 14, 1997 /s/ SCOTT P. MCGRORY
- --------------------- --------------------
Scott P. McGrory,
Vice President - Controller
(Principal Financial and
Accounting Officer)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of December 26,
1996 by and between DVI Business Credit Corporation, a Delaware corporation
("Lender"), and HealthCare Imaging Services, Inc., a Delaware corporation;
Edgewater Imaging Associates, L.P., a New Jersey limited partnership; Wayne
Imaging Associates, L.P., a New Jersey limited partnership; Rittenhouse Square
Imaging Associates, L.P., a Pennsylvania limited partnership ("Borrower") .
SECTION 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions shall apply:
(a) "Account Debtors" shall mean Borrower's customers and all other persons
who are obligated or indebted to Borrower in any manner, whether directly or
indirectly, primarily or secondarily, contingently or otherwise, with respect to
Accounts.
(b) "Accounts" shall mean all accounts, accounts receivable, monies and
debt obligations in any form owing to Borrower (whether arising in connection
with contracts, contract rights, instruments, general intangibles or chattel
paper) arising out of the rendition of services by Borrower whether or not
earned by performance; all deposit accounts, credit insurance, guaranties,
letters of credit, advises of credit and other security for any of the above;
Borrower's Books relating to any of the foregoing.
(c) "Advance" shall mean an advance of loan proceeds constituting all or a
part of the Loan.
(d) "Borrower's Books" shall mean all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(e) "Prime Rate" shall mean the rate of interest announced publicly by Bank
of America from time to time as its prime rate.
(f) "Borrowing Base" shall mean, on the date of determination thereof, an
amount equal to the sum of seventy-five percent (75%) of the Net Collectible
Value for each type of Eligible Account minus the; provided, however, that
workers compensation lien and personal injury claims may never exceed
thirty-five percent (35%) of the Borrowing Base.
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(g) "Cash Flow Ratio" as of any day, a fraction (a) the numerator of which
is equal to (i) the aggregate collections received during the two immediately
preceding calendar months in respect of Eligible accounts receivable divided by
(ii) 2.0 and (b) the denominator of which is an amount equal to the average
daily aggregate NCV of Eligible accounts receivable during such two immediately
preceding calendar months.
(h) "Closing Date" shall mean the date of the first Advance of the Loan.
(i) "Collateral" shall have the meaning specified in Section 3.1 hereof.
(j) "Commitment Amount" shall have the meaning set forth in Section 2.1.
(k) "Distribution" shall mean, with respect to any shares of capital stock
or any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
(l) "Eligible Accounts" shall mean Borrower's accounts receivable from"
compensation authorized, which have been due and payable for one hundred fifty
(150) or fewer days from the date of service and worker's compensation lien and
personal injury claims, which have due and payable for three hundred sixty (360)
or fewer days from the date of service (collectively referred to as "Retail
Accounts").
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof shall include such sections and
any predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
(n) "Event of Default" shall have the meaning specified in Section 10
hereof.
(o) "Fair Value" means (i) with respect to Borrower's assets, if Net Fair
Value is being determined as of a date on or prior to the first anniversary of
the date hereof, the lower of (1) the value of such assets as determined in
accordance with Bankruptcy Code Section 5487 or (2) the value of such assets as
determined in accordance with the state fraudulent conveyance or fraudulent
transfer law that would be applicable to the determination whether the
obligations and/or the security interest relating thereto would constitute a
fraudulent conveyance or a fraudulent transfer (the "Applicable State Law"),
(ii) with respect to Borrower's assets, if Net Fair Value is being determined as
of a date after the first anniversary of the date hereof, the value of such
assets as determined in accordance with the Applicable State Law,
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(iii) with respect to Borrower's liabilities, if Net Fair Value is being
determined as of a date on or prior to the first anniversary of the date hereof,
the lower of (1) the value of such liabilities as determined in accordance with
Bankruptcy Code Section 548 or (2) the value of such liabilities as determined
in accordance with the Applicable State Law, and (iv) with respect to Borrower's
liabilities, if Net Fair Value is being determined as of a date after the first
anniversary of the date hereof, the value of such liabilities as determined in
accordance with the Applicable State Law.
(p) "GAAP" means generally accepted accounting principles set forth in the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board, consistently applied.
(q) "Governmental Authority" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
(r) "Health Care Laws" shall mean all federal, state and local laws
specifically relating to health care providers and health care services,
including, but not limited to, Section 1877(a) of the Social Security Act as
amended by the Omnibus Budget Reconciliation Act of 1993, 42 USC Section 1395nn.
(s) "Indebtedness" of a Person shall mean (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
as of which Indebtedness is to be determined, including any lease which, in
accordance with GAAP would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise than for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
(t) "Lender Expenses" shall mean (i) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Loan Documents that are
paid or advanced by Lender; (ii) filing, recording, publication and search fees
paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any Event of
Default or enforce any provision of the Loan Documents or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, and preparing
for sale or advertising to sell the Collateral, whether or not a sale is
consummated, after the occurrence of an Event of Default; (iv) costs and
expenses of suit
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incurred by Lender in enforcing or defending the Loan Documents or any portion
thereof; (v) costs and expenses incurred by Lender to convert any data submitted
to Lender by Borrower to an acceptable form; and (vi) Lender's reasonable
attorney fees and expenses incurred (before or after execution of this
Agreement) in advising Lender with respect to, or in structuring, drafting,
reviewing, negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Loan Documents or any portion thereof, irrespective of whether
suit is brought.
(u) "Lien" shall mean any security interest, mortgage, pledge, assignment,
lien or other encumbrance of any kind, including any interest of a vendor under
a conditional sale contract or consignment and any interest of a lessor under a
capital lease.
(v) "Loan" shall mean each loan or any other loan or loans made by Lender
to Borrower pursuant to this Agreement.
(w) "Loan Availability" shall mean the lesser of (a) the Commitment Amount
or (b) the Borrowing Base minus the aggregate Advances and other Obligations
outstanding under this Agreement.
(x) "Loan Documents" shall mean (i) this Agreement; (ii) the Note;
(iii) any other agreements or documents hereafter delivered to secure repayment
of the Loan; (iv) the Lock Box Agreement and (v) any other certificates,
documents, instruments, or financing statements delivered by Borrower to Lender
pursuant to the terms of this Agreement.
(y) "Lock Box Agreement" shall mean those certain Lock Box Agreements
between Borrower and any lock box servicer(s) ("servicer(s)") chosen by Lender
and Borrower and the letter of instructions with respect thereto among Lender,
Borrower and Servicer.
(z) "Net Collectible Percentage" shall mean the percentages described on
Exhibit A attached hereto. The Net Collectible Percentage may change from time
to time in Lender's sole and absolute discretion, written notification of which
shall be given to Borrower by Lender.
(aa) "Net Collectible Value" shall mean, for each type of Eligible Account,
the Net Collectible Percentage times the aggregate current outstanding amount
for such type of Eligible Account.
(bb) "Net Fair Value" the amount by which the Fair Value of Borrower's
assets exceeds the Fair Value of Borrower's liabilities (including contingent
liabilities).
(cc) "Note" shall mean the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
(dd) "Obligations" means (i) all obligations (monetary or otherwise) of
Borrower arising under or in connection with this Agreement, the Note and all
other Loan Documents.
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(ee) "Permitted Liens" shall mean (i) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; and (iv) Liens existing on the date of this Agreement
that secure Indebtedness of Borrower outstanding on such date and that are
disclosed on Schedule 1.1 hereto;
(ff) "Person" shall mean an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
(gg) "Proceeds" shall mean all proceeds and products of Collateral and
documents covering Collateral; all property received wholly or partly in trade
or exchange for Collateral; all claims against third parties arising out of
damage, destruction or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
(hh) "Subordinate Obligations" shall mean all Indebtedness of Borrower
subordinated to the Obligations pursuant to subordination and/or intercreditor
agreements in form satisfactory to Lender.
(ii) "Termination Date" shall mean the last day of any term as to which a
written notice of non-renewal pursuant to Section 2.7 has been received or, in
the case of a termination due to a prepayment under Section 2.7, the date of
such prepayment.
(jj) "Unmatured Default" shall mean any event or condition that, with
notice, passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
Section 1.2. Generally Accepted Accounting Principles and Uniform Commercial
Code. All financial terms used in this Agreement, other than those defined in
this Section 1, have the meanings accorded to them under GAAP. All other terms
used in this Agreement, other than those defined in this
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Section 1, have the meanings accorded to them in the Uniform Commercial Code as
enacted in any applicable jurisdiction.
Section 1.3. Construction
(a) Unless the context of this Agreement clearly requires otherwise, the
plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder" and other similar terms in this Agreement refer to this Agreement as
a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Lender or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and its counsel and shall be construed and interpreted
according to the ordinary meaning of the words used so as to accomplish the
purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and relying on the
representations and warranties set forth herein, Lender agrees to make Advances
to Borrower from time to time in an aggregate amount not to exceed the lesser of
(i) Two Million and no/100 Dollars ($2,000,000.00) (the "Commitment Amount"), or
(ii) the Borrowing Base. Within the limits of the Loan Availability, Borrower
may borrow, make repayments pursuant to Section 2.4 and reborrow. If, at any
time, the aggregate Advances and other Obligations outstanding exceed the then
Loan Availability, then Borrower shall pay to Lender a sum sufficient to reduce
the Advances and other Obligations outstanding to an amount not greater than the
Loan Availability. Lender's commitment to make Advances shall expire, and the
amount of the Loan then outstanding shall mature and be repaid by Borrower,
without further action on the part of Lender, on the Termination Date.
Section 2.2. Note. All Loans made by the Lender under this Agreement shall be
evidenced by, and repaid with interest in accordance with, a single promissory
note of Borrower in substantially the form of Exhibit 2.02 duly completed, in
the original principal amount equal to the initial Commitment Amount, dated the
Closing Date, payable to the Lender and maturing as to principal on the
Termination Date (the "Note"). The amount of each Advance and payment of
principal amount received by the Lender shall be recorded in the books and
records of the Lender, which books and records shall, in the absence of manifest
error, be conclusive as to the outstanding balance of and other information
related to the Loan. Lender shall be entitled at any time to endorse on a
schedule attached to the Note the amount and type of each Advance and
information relating thereto.
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Section 2.3. The Borrowing Base. On a weekly basis the Borrowing Base will be
recalculated by adding weekly billings to the prior week's Eligible Accounts and
subtracting deposits and adjustments, if applicable, and then multiplying this
amount by the Net Collectible Percentage. The Borrowing Base shall be calculated
on the basis of the reports delivered to Lender pursuant to Section 5.4.
Section 2.4. Notice of Borrowing. Whenever Borrower desires to borrow under
Section 2.1, Borrower shall deliver to Lender a Drawdown Request Form, in a form
reasonably satisfactory to Lender, signed by an authorized officer no later than
2:00 p.m. Pacific Standard Time at least one (1) business day in advance of the
proposed funding date. The Drawdown Request Form shall specify (i) the funding
date (which shall be a business day) with respect to the requested Loan and
(ii) the amount of the proposed Advance.
Section 2.5. Use of Proceeds. The proceeds of the Loan shall be used by Borrower
to provide working capital.
Section 2.6. Loan Repayment Via Lock Box/Servicer Account. Upon the execution
hereof, Borrower shall become a party to the Lock Box Agreement which provides
for the receipt and processing of Account payments. Borrower shall irrevocably
direct: (i) all non-government payors to remit payment to the servicer's post
office box in Lender's name and control, and (ii) all government payors to remit
payment to a second post office box of such servicer in Borrower's name. Prior
to funding and upon receipt of the lock box post office box number(s), Borrower
shall provide Lender re-direct letters (in a form satisfactory to Lender) to all
of Borrower's payors on Borrower's letterhead, including envelopes for Lender to
process and mail (Lender will add postage which shall be charged to Borrower).
The Lock Box Agreement provides for the servicer to deposit daily all receipts
of the post office boxes into deposit accounts, with non-government payor
receipts paid into an account subject to Lender's control and, government payor
receipts paid into an account in Borrower's name; such accounts shall be (i) at
a financial institution acceptable to Lender, and (ii) governed by terms and
conditions acceptable to Lender. Borrower agrees and acknowledges that all
government payor receipts will be immediately transferred to an account in the
name and control of Lender. Deposits (net of fees) shall be applied to reduce
the Loan balance including Advances, interest, fees, all applicable charges and
other payments, if applicable, within 24 hours. Deposits/receipts will reduce
the Borrowing Base in accordance with Section 2.3 above. Any receipts (net of
such servicer's fees) remaining after all such payments to Lender will be paid
to Borrower within 24 hours of receipt. Borrower shall bear all charges for
establishing and maintaining the post office box accounts and all bank charges
for such deposit accounts. Lender shall deduct from the deposit accounts all
sums Borrower owes to it hereunder, including fees, interest, reimbursements and
principal payments. Any Obligations not paid by such deduction shall be
satisfied by direct payment to Lender at 4041 MacArthur Blvd., Suite 401,
Newport Beach, California 92660. Any amounts hereunder not paid as agreed shall
be assessed a late payment penalty of five percent (5%).
Section 2.7. Term of Agreement; Prepayment. The Term of this Agreement is two
(2) years. Provided that no Event of Default or any Unmatured Event of Default
exists, Borrower may
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terminate this Agreement provided that it pays to Lender an amount equal to two
and one half percent (2.5%) of the Commitment Amount if canceled in year 1 of
the initial term; and one and one half percent (1.5%) of the Commitment Amount
if canceled in year 2. This Agreement shall be renewed for consecutive one (1)
year terms unless this Agreement is terminated, effective as of the last day of
a term, by written notice by Lender or Borrower no later than thirty (30) days
before the expiration of such term. All of Lender's obligations,
responsibilities and duties shall cease upon the date of termination of this
Agreement, except for its obligation to remit excess receipts from the lock box
deposit accounts in accordance with the terms of this Agreement.
Section 2.8. Lender's Fees. Upon execution hereof, Lender shall be entitled to
an origination fee equal to one and one half percent (1.5%) of the Commitment
Amount, less $15,000.00 currently on deposit. Increases to the Commitment Amount
during the term will be charged on the incremental increase at the same
origination percentage. On or before the first day of each month Borrower shall
pay Lender a monthly maintenance fee of One Thousand Two Hundred Fifty and
no/100 Dollars ($1,250.00). Commencing sixty (60) days from the date hereof, on
or before the first day of each month Borrower shall pay Lender an unutilized
loan fee of equal to .5% of the difference between the Commitment Amount and the
average outstanding Loan amount as of the previous month. Lender's fees will be
deducted, when due, directly from receipts from accounts receivable deposited in
accordance with Section 2.6.
Section 2.9. Interest on the Loans. All Advances shall bear interest on the
unpaid principal amount thereof from the date made until paid in full at a
fluctuating rate equal to the Prime Rate plus three percent (3%). Interest shall
be payable monthly in arrears on the first day of each month for the preceding
month. Interest shall be calculated on the basis of a year of 360 days, but for
the actual number of days elapsed. Interest accrued but not paid pursuant to
Section 2.6 shall be treated as an Advance if not otherwise paid within five (5)
days of the end of the month in which it accrues.
Section 2.10. Conditions to the Closing. Lender's obligation to make the initial
Advance hereunder on the Closing Date is subject to Lender's determination that
Borrower as of the date of the Advance has satisfied, and continues to satisfy,
the following conditions:
The representations and warranties set forth in this Agreement and in the
other Loan Documents shall be true and correct on and as of the date hereof and
shall be true and correct in all material respects as of the Closing Date and
Borrower shall have performed all obligations which were to have been performed
by it hereunder.
(b) Borrower shall have executed and delivered to Lender (or shall cause to
be executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Lock Box Agreement;
(v) Payor redirect letters;
(vi) pay-off letters, UCC Termination Statements and Lien Releases as
required to grant Lender a first priority security interest other than Permitted
Liens in Collateral pledged as security for repayment of the Loan;
(vii) certified copies of resolutions of the Board of Directors of Borrower
authorizing the execution and delivery of Loan Documents to be executed by
Borrower; and
(viii) copies of the Articles of Incorporation of Borrower certified by the
Secretary of State of the applicable issuing state.
(ix) a certificate from an officer of Borrower indicating that the
representations and warranties contained herein are true and correct as of the
Closing Date.
(c) Neither an Event of Default nor an Unmatured Default shall have
occurred and be continuing as of the Closing Date,
(d) Borrower or Guarantor shall not have suffered a material adverse change
in its business, operations or financial condition from that reflected in the
Financial Statements of Borrower or Guarantor delivered to Lender or otherwise.
(e) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonably request which shall be
satisfactory to Lender in form and substance.
Section 2.11. If there is more than one Borrower, the obligations hereunder are
joint and several obligations of the Borrowers. Notwithstanding any other
provision hereof, a Borrower's liability for the obligations at any time shall
not exceed the greater of (1) the sum of (a) the total principal of the
obligations that such Borrower directly or indirectly received and (b) the
interest and expenses accrued with respect to such principal, and (2) the
greater of (a) ninety-five percent (95%) of such Borrower's Net Fair Value on
the date hereof, and (b) ninety-five percent (95%) of such Borrower's highest
Net Fair Value during the period commencing after such date and terminating on
the date of determination of liability hereunder
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SECTION 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt payment and
performance of all Obligations, Borrower hereby grants to Lender a continuing
first-priority pledge and security interest in the following property of
Borrower (the "Collateral"), whether now owned or existing or hereafter acquired
or arising and regardless of where located, subject only to Permitted Liens.
This security interest in the Collateral shall attach to all Collateral without
further action on the part of Lender or Borrower. The Collateral shall consist
of the following, subject in each case only to Permitted Liens together with
such third-party consents, lien waivers and estoppel certificates as Lender
shall reasonably require: All of Borrower's present and future Accounts
(including, without limitation, all of Borrower's rights under that certain
Professional Services Agreement dated February 13, 1992 between Borrower and
United Imaging Group; that certain Consulting Services Agreement dated June 29,
1991 between Borrower and Monmouth Diagnostic Imaging, P.A.; that certain
Consulting Services Agreement dated June 26, 1991 between Borrower and Wayne
MRI, P.A.; that certain Consulting Services Agreement dated June 29, 1991
between Borrower and Edgewater Diagnostic Imaging, P.A.; that certain Consulting
Services and License Agreement dated January 27, 1986 as Amended and Assigned
between Borrower and Kings Medical Diagnostic Imaging, P.C.).
SECTION 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower.
The exact name, state law under which Borrower was organized, prior legal names,
current or prior trade names are set forth on Schedule 4.1.
Section 4.2. Mergers and Consolidations. Except as disclosed on Schedule 4.2, no
entity has merged into any of Borrower or been consolidated with Borrower.
Section 4.3. Purchase of Assets. Except as disclosed on Schedule 4.3 no entity
has sold substantially all of its assets to Borrower or sold assets to Borrower
outside the ordinary course of such seller's business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change its name,
business structure or identity or use a new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
Section 5.1. Office and Records of Borrower. Borrower's chief executive offices
are located at: 200 Schulz Drive, Middletown, New Jersey 07701. Borrower
maintains all of its records with respect to Accounts at: 200 Schulz Drive,
Middletown, New Jersey 07701. Borrower has not at any time within the past four
(4) months maintained their chief executive office or their records with respect
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to Accounts at any other location and shall not do so hereafter except with the
prior written consent of Lender.
Section 5.2. Representations. Borrower represents and warrants that each Account
at the time of its assignment to Lender (a) will be owned solely by Borrower,
(b) will be for a liquidated amount maturing as stated in Borrower's Books; (c)
will be a bona fide existing obligation created by the rendition of services to
Account Debtors or their insured by Borrower in the ordinary course of its
business; and (d) will not be subject to any known deduction, offset,
counterclaim, return privilege, or other condition, except as reflected on
Borrower's Books. Borrower shall neither redate any invoices nor reissue new
invoices in full or partial satisfaction of old invoices. Allowances, if any, as
between Borrower and its customers will be on the same basis and in accordance
with the usual customary practices of Borrower as they exist on the date of this
Agreement.
Section 5.3. Returns and Repossessions. Borrower shall notify Lender within five
(5) business days of occurrence of all material claims asserted by Account
Debtors.
Section 5.4. Borrowing Base Reports. Borrower shall on a weekly basis execute
and deliver to Lender, in form and content satisfactory to Lender, (i) a
Borrowing Base report; (ii) a detailed aging of Accounts; and (iii) a charges,
collections and adjustment summary for the week. Borrower shall, upon the
request of Lender execute and deliver to Lender an updated Borrowing Base report
reflecting additional billings, write-offs and deposits and all of Borrower's
accounts receivable data in a computer disc or tape format acceptable to Lender.
On a monthly basis, and no later than the 10th day of each month, Borrower shall
submit to Lender (i) a month-end Borrowing Base Report, (ii) an accounts
receivable aging report as of the last day of the preceding month, and (iii)
charges, collections and adjustments summary for the preceding month. Lender
shall periodically review Borrower's actual adjustments to cash receipts and
write-offs, as well as Borrower's payor profile. To the extent Borrower's
adjustments, write-offs and payor profile materially changes, Lender may, in its
sole discretion, change the Net Collectible Percentage attributable to each type
of account by written notice to Borrower of such change.
Section 5.5. Compliance Certificate. With each final month-end Borrowing Base
report which Borrower delivers to Lender, Borrower also shall deliver to Lender
a Compliance Certificate in the form of Exhibit 5.5 attached hereto, which
Compliance Certificate shall be completed and signed by an officer of Borrower.
Section 5.6. Lender's Rights. Any officer, employee or agent of Lender shall
have the right, at any time or times hereafter, in the name of Lender or its
nominee (including Borrower), with prior notice to Borrower, to verify the
validity, amount or any other matter relating to any Accounts by mail, telephone
or otherwise; and all reasonable costs thereof shall be payable by Borrower to
Lender. Lender, or its designee may at any time after default by Borrower
hereunder notify customers or Account Debtors that Accounts have been assigned
to Lender or of Lender's security interest therein and after default by Borrower
hereunder collect the same directly and charge all reasonable collection costs
and expenses to Borrower's account.
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Section 5.7. Disclaimer of Liability. Lender shall not be liable to Borrower or
any third person for the correctness, validity or genuineness of any instruments
or documents released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event) or for
the existence, character, quantity, quality, condition, value or delivery of any
goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7.
Section 5.8. Post Default Rights. If an Event of Default has occurred and is
continuing hereunder, no discount, credit or allowance shall be granted or
permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default, (i) Borrower may continue
to invoice and bill Account Debtors under discount, credit and allowance
arrangements that Borrower maintained in the ordinary course of business prior
to such Event of Default occurring, and (ii) Account Debtors may, during the
continuance of an Event of Default, utilize discount, credit and allowance
arrangements that Borrower extended to them in the ordinary course of business.
Lender may, after default by Borrower, settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms that Lender considers
advisable, and in such cases, Lender will credit Borrower's account with only
the net amounts received by Lender in payment of such disputed Accounts, after
deducting all Lender Expenses incurred in connection therewith.
Section 5.9. Accounts Owed by Federal Government. If any Accounts shall arise
out of a contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, Borrower shall promptly notify Lender
thereof in writing and take all other action requested by Lender to protect
Lender's Lien on such Accounts under the provisions of the federal laws on
assignment of claims.
Section 5.10. Business Activity Reports. Borrower has filed and shall file all
legally required notices and reports of its business activities with all the
appropriate taxing authorities and the appropriate Governmental Authority of
each jurisdiction in which Borrower is legally required to file such a notice or
report.
SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
Section 6.1. Contracts.
(a) Schedule 6.1. is a true and complete list of all material contracts and
agreements to which Borrower is a party.
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(b) Borrower shall not amend, modify or supplement any contract or
agreement included in the Collateral or waive any provision thereof other than
in accordance with Borrower's standard business practice, nor shall such
standard business practice be materially changed without Lender's consent, which
shall not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed; and Lender shall not
have any obligation or liability under such contracts and agreements by reason
of this Agreement or otherwise.
(d) Borrower need not pay any amount due under any contract or agreement
listed on Schedule 6.1, nor otherwise perform any action required under the
terms of any such contract or agreement, if such payment or performance is being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted, if Lender is notified in advance of such contest, and if
Borrower establishes any reserve or other appropriate provision required by GAAP
and deposits with Lender cash or an acceptable bond reasonably requested by
Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
Section 7.1. Further Assurances. Borrower shall execute and deliver to Lender,
concurrent with Borrower's execution of this Agreement and at any time or times
hereafter at the request of Lender, all financing statements, continuation
financing statements, security agreements, chattel mortgages, assignments,
endorsements of certificates of title, applications for titles, affidavits,
reports, notices, schedules of Accounts, letters of authority and all other
documents Lender may reasonably request, in form satisfactory to Lender, to
perfect and maintain perfected Lender's Liens in the Collateral and in order to
consummate fully all of the transactions contemplated under the Loan Documents.
Borrower hereby irrevocably makes, constitutes and appoints Lender (and any of
Lender's officers, employees or agents designated by Lender) as Borrower's true
and lawful attorney with power to sign the name of Borrower on any of the
above-described documents or on any other similar documents that need to be
executed, recorded or filed in order to perfect or continue to be perfected
Lender's Liens in the Collateral.
Section 7.2. Lender's Duty of Care Lender shall have no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender shall be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as Borrower shall request or agree to in
writing provided that neither failure to comply with any such request nor any
omission to do any such act requested by Borrower shall be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property shall not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
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loss, damage or destruction of the Collateral shall be borne by Borrower.
Section 7.3. Reinstatement of Liens. If, at any time after payment in full by
Borrower of all Obligations and termination of Lender's Liens, any payments on
Obligations previously made by Borrower or any other Person must be disgorged by
Lender for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and Lender's Liens granted hereunder shall be reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and other items necessary to perfect all
terminated Liens.
Section 7.4. Lender Expenses. If Borrower fails, as required by the terms
hereof, (i) to pay any moneys (whether taxes, assessments, insurance premiums or
otherwise) due to third persons or entities, (ii) to make any deposits or
furnish any required proof of payment or deposit or (iii) to discharge any Lien
not permitted hereby, then Lender may, to the extent that it determines that
such failure by Borrower could have a material adverse effect on Lender's
interests in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof. Any amounts paid or
deposited by Lender shall constitute Lender Expenses, shall become part of the
Obligations, shall bear interest at the rate of eighteen percent (18%) per
annum, and shall be secured by the Collateral. Any payments made by Lender shall
not constitute (a) an agreement by Lender to make similar payments in the future
or (b) a waiver by Lender of any Event of Default under this Agreement. Lender
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or Lien and the receipt of the usual official
notice for the payment of moneys to a governmental entity shall be conclusive
evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all sums
expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 7.5. Inspection of Records. During usual business hours, Lender shall
have the right to inspect Borrower's Books and records in order to verify the
amount or condition of, or any other matter relating to, the Collateral and
Borrower's financial condition and to copy and make extracts therefrom. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Lender pursuant to this Agreement and agrees that Lender may
directly contact any such accounting firm or service bureau in order to obtain
such information.
Section 7.6. Waivers. Except as specifically provided for herein, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable.
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SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents to Lender the
following:
Section 8.1. Corporate Status Borrower is a corporation validly existing and in
good standing under the laws of the state of its incorporation; and is qualified
and licensed to do business and is in good standing in any state in which the
conduct of its business or its ownership of property requires that it be so
qualified or licensed, and has the power and authority (corporate and otherwise)
to execute and carry out the terms of the Loan Documents to which it is a party,
to own its assets and to carry on its business as currently conducted.
Section 8.2. Authorization. The execution, delivery, and performance by Borrower
of this Agreement and each other Loan Document have been duly authorized by all
necessary corporate or partnership action. Borrower, has duly executed and
delivered this Agreement and each other Loan Document to which it is a party,
and each of them constitutes a valid and binding obligation of Borrower, as
applicable, enforceable according to its terms except as such enforceability may
be limited by equitable principles and by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally.
Section 8.3. No Breach. The execution, delivery and performance by Borrower of
this Agreement and each other Loan Document to which they are a party (a) will
not contravene any law or any governmental rule or order binding on Collateral;
(b) will not violate any provision of the articles of incorporation, bylaws or
partnership agreement, as applicable, of Borrower; (c) will not violate any
agreement or instrument by which Borrower, as applicable, is bound; (d) do not
require any notice to consent by any Governmental Authority; and (e) will not
result in the creation of a Lien on any assets of Borrower except the Lien to
Lender granted herein.
Section 8.4. Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by or imposed, levied or assessed against Borrower or
any of its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 8.5. Deferred Compensation Plans. Borrower has made all required
contributions to all deferred compensation plans to which it is required to
contribute, and Borrower has no liability for any unfunded benefits of any
single-employer or multi-employer plans. Borrower is not and at no time has been
a sponsor of, provided, or maintained for any employees any defined benefit
plan.
Section 8.6. Litigation and Proceedings. Except as set forth on Schedule 8.6
attached hereto, there are no outstanding judgments against Borrower or any of
its assets and there are no actions or
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proceedings pending by or against Borrower before any court or administrative
agency. Borrower has no knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, except for ongoing which Borrower
is the plaintiff and except as set forth in Schedule 8.6 hereto.collection
matters in which Borrower is the plaintiff and except as set forth in Schedule
8.6 hereto.
Section 8.7. Business. Borrower has all franchises, authorizations, patents,
trademarks, copyrights and other rights necessary to advantageously conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
Section 8.8. Laws and Agreements. Borrower is in compliance with all material
agreements applicable to it, including obligations to contribute to any employee
benefit plan or pension plan regulated by ERISA. Borrower is in material
compliance with all laws applicable to it.
Section 8.9. Ownership of Accounts. Prior to the Lender making any Loan as set
forth herein, the Borrower will be the sole owner of, and have good and
marketable title to the Accounts pledged as security for such Loan.
Section 8.10. No conflict. The granting of a security interest in the pledged
Accounts to the Lender will not violate the terms or provisions of any loan
document or any other agreement to which the Borrower then is a party or by
which it is bound.
Section 8.11. Security Interest. After giving effect to each Loan contemplated
by this Agreement, the Lender will be the holder of a valid perfected first
priority security interest in the pledged Accounts. Accounts pledged to the
lender in connection with any Loan will be free and clear of all liens.
Section 8.12. No Defaults. As of the date on which an Account is pledged to the
Lender pursuant to the terms hereof there shall have been no default under such
Account.
Section 8.13. Origination.Each Account will have been originated by the Borrower
in the ordinary course of its business in accordance with the Borrower's regular
credit approval process and does not contravene any laws, rules or regulations
applicable thereto. No pledged Account will have been selected on any basis
which would have any adverse effect on the Lender.
Section 8.14. Legality. No pledged Account will have been originated in, or be
subject to the laws of, any jurisdiction whose laws would make the terms hereof
or any transaction contemplated hereby unlawful.
Section 8.15. Consents. No consent or approval is required for the pledging of
any Accounts to the Lender pursuant to the terms of this Agreement, except for
such consents or approvals as have been obtained.
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Section 8.16. Financial Condition. All financial statements and information
relating to Borrower that have been or may hereafter be delivered by Borrower to
Lender are accurate and complete and have been prepared in accordance with GAAP.
Borrower has no material obligations or liabilities of any kind not disclosed in
that financial information, and there has been no material adverse change in the
financial condition of Borrower since the date of the most recent financial
statements submitted to Lender.
Section 8.17. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other authorizations
that are required under Health Care Laws applicable to Borrower and it and is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Health Care Laws.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation or
proceeding pending or threatened against Borrower, relating in any way to Health
Care Laws.
Section 8.18. Cumulative Representations. The warranties, representations and
agreements set forth herein shall be cumulative and in addition to any and all
other warranties, representations and agreements that Borrower shall give, or
cause to be given, to Lender, either now or hereafter.
SECTION 9
COVENANTS
Section 9.1. Encumbrance of Collateral. Borrower shall not create, incur, assume
or permit to exist any Lien on any Collateral now owned or hereafter acquired by
Borrower, except for Liens to Lender and Permitted Liens.
Section 9.2. Business Borrower. shall engage primarily in business of the same
general character as that now conducted by Borrower.
Section 9.3. Condition and Repair. Borrower shall maintain in good repair and
working order all properties used in their business and from time to time shall
make all appropriate repairs and replacements thereof.
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Section 9.4. Taxes. Borrower shall pay all taxes, assessments and other
governmental charges imposed upon it or any of its assets or in respect of any
of its franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
Section 9.5. Accounting System. Borrower at all times hereafter shall maintain a
standard and modern system of accounting in accordance with GAAP, with ledger
and account cards or computer tapes, disks, printouts and records that contain
information pertaining to the Collateral that may from time to time be requested
by Lender. Borrower shall not modify or change its method of accounting or enter
into any agreement hereafter with any third-party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm's or service bureau's agreeing to provide to Lender
information regarding the Collateral and Borrower's financial condition.
Section 9.6. Quarterly Financial Statements. Borrower shall furnish Lender as
soon as practicable but in no event later than forty-five (45) days after the
end of each of the first three quarterly fiscal periods of each fiscal year with
unaudited quarterly financial statements in form and substance as required by
Lender, including a balance sheet, an income statement and a statement of cash
flows, prepared in accordance with GAAP together with a certificate executed by
the chief financial officer of Borrower stating that the financial statements
fairly present the financial condition of Borrower as of the date and for the
periods covered and that as of the date of such certificate there has not been
any violation of any provision of this Agreement or the happening of any Event
of Default or Unmatured Default hereunder.
Section 9.7. Annual Financial Statements. Borrower shall furnish Lender as soon
as practicable but in no event later than ninety (90) days after the close of
each fiscal year commencing with fiscal 1996 with audited annual financial
statements, which financial statements shall be prepared in accordance with GAAP
and shall be certified without qualification by an independent certified public
accounting firm satisfactory to Lender. With all financial statements, Borrower
will also deliver a certificate of its chief financial officer attesting that no
Event of Default or Unmatured Default under the Agreement has occurred and is
continuing.
Section 9.8. Borrower shall maintain at all times during the term hereof the
following financial covenants, measured in accordance with GAAP: (i) minimum
Tangible Net Worth of $3,000,000, (ii) Debt to Equity Ratio of not greater than
3.0 to 1.0.
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Section 9.9. Borrower's Cash Flow Ratio shall not be less than twenty percent
(20%) for two (2) consecutive reporting periods.
Section 9.10. Further Information. Borrower shall promptly supply Lender with
such other information concerning its affairs as Lender may reasonably request
from time to time hereafter and shall promptly notify Lender of any material
adverse change in Borrower's financial condition and any condition or event that
constitutes a breach of or event that constitutes an Event of Default under this
Agreement. In addition, Borrower authorizes Lender to contact credit reporting
agencies concerning, Borrower's credit standing. Borrower also authorizes Lender
to utilize Borrower's name in Lender's marketing materials.
Section 9.11. ERISA Covenants. Guarantor or Borrower shall comply with all
applicable provisions of ERISA and all other laws applicable to any deferred
compensation plans with which Guarantor or Borrower is associated, and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 9.12. Restrictions on Merger, Consolidation, Sale of Assets, Issuance of
Stock, etc. Without prior written consent of Lender, Borrower shall not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets in any transaction or
series of related transactions (other than sales in the ordinary course of
business);
(c) liquidate, dissolve or effect a recapitalization or reorganization in
any form of transaction;
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(d) acquire interests of any business in excess of Five Hundred Thousand
Dollars ($500,000.00) in the aggregate in any calendar year in any business
(whether by purchase of assets, purchase of stock, merger or otherwise);
(e) become subject to any agreement or instrument which by its terms would
restrict Borrower's right or ability to perform any of its obligations to Lender
pursuant to the terms of the Loan Documents; or
(f) authorize or issue any additional stock or equity interest.
Section 9.13. Health Care Covenants:
(a) Borrower shall comply in all material respects with, and shall obtain
all permits required by, all Health Care Laws applicable to Borrower.
(b) Borrower shall promptly furnish to Lender a copy of any communication
from any Governmental Authority concerning any possible violation of any Health
Care Laws or any occurrence of which Borrower would be required to notify any
Governmental Authority with jurisdiction over Health Care Laws.
Section 9.14. Distributions. Borrower shall not make any Distributions except as
(i) set forth on Schedule 9.12 hereto, and (ii) authorized by Lender, upon
Borrower's request, which authorization shall not be unreasonably withheld and
which authorization shall not be deemed to authorize any Distributions while an
Event of Default is continuing or if such Distribution would cause an Event of
Default to occur.
Section 9.15. Subordinate Obligations. Borrower shall not voluntarily prepay any
principal (including the making of any sinking fund payment), interest or any
other amount in respect of Subordinate Obligations.
Section 9.16. Amendments. Borrower shall not amend any provision of any
Subordinate Obligation if such amendment would (i) affect any of the
subordination provisions thereof, (ii) advance the date of any required payment
or prepayment thereunder, (iii) make covenants therein more burdensome, when
considered in their entirety, to Borrower, (iv) reduce any default or grace
period therein provided, or (v) otherwise have a material adverse effect on the
interests of Lender.
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SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the following events
shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure shall continue for five (5) business
days after the payment is due;
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof or any other
Loan Document to which it is a party and such failure is not cured as soon as
reasonably practicable and in any event within thirty (30) days after written
notice thereof by Lender;
(c) A court enters a decree or order for relief in respect of Borrower in
an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law then in effect, makes any general assignment for
the benefit of creditors, fails generally to pay its debts as such debts become
due, or takes corporate action in furtherance of any of the foregoing;
(e) Final judgment for the payment of money on any claim in excess of
$50,000 is rendered against Borrower and remains undischarged for twenty (20)
days during which execution is not effectively stayed;
(f) Any guarantor of the Obligations revokes or attempts to revoke its
guaranty of any of the Obligations, or becomes the subject of an insolvency
proceeding of the type described in clauses (c) or (d) above with respect to
Borrower or fails to observe or perform any covenant, condition or agreement to
be performed under any Loan Document to which it is a party;
(g) Borrower makes any payment on account of any Subordinate Obligations,
other than payments specifically permitted by the terms of such subordination or
this Agreement;
(h) Any Person holding any Subordinate Obligations becomes the subject of
any proceeding resulting in the termination of the subordination arrangement,
terminates the subordination arrangement or asserts that it is terminated.
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(i) Any Collateral or any part thereof is sold, agreed to be sold, conveyed
or allocated by operation of law or otherwise;
(j) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $50,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(k) Demand is made for payment of any Indebtedness in excess of $50,000
that was not originally payable upon demand when incurred but the terms of which
were later changed to provide for payment upon demand;
(l) Borrower is enjoined, restrained or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs;
(m) A judgment or other claim in excess of $50,000 becomes a Lien upon any
or all of Borrower's assets, other than a Permitted Lien;
(n) A notice of Lien, levy or assessment in excess of $50,000 is filed of
record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal or other Government Authority; or any tax or debt owing
at any time hereafter to any one or more of such entities becomes a Lien upon
any or all of Borrower's assets and the same is not paid on the payment date
thereof, except to the extent such tax or debt is being contested by Borrower as
permitted in Section 8.4;
(o) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral;
(p) Any of Borrower's assets in excess of $50,000 or any Collateral are
seized, subjected to a distress warrant, levied upon or come into the possession
of any judicial officer;
(q) Any representation or warranty made in writing to Lender by any officer
of Borrower in connection with the transactions contemplated in this Agreement
is materially incorrect when made;
(r) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (e), (j), (k), (m) and (n) hereof
exceeds $100,000; or
(s) Borrower shall fail to direct all receipts for Accounts to the Lock
Box.
(t) As of any day, the Cash Flow Ratio is less than the Designated Cash
Flow Ratio.
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SECTION 11
REMEDIES
Section 11.1. Specific Remedies. Upon the occurrence of any Event of Default:
(a) Lender may cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any other Loan Document, or
under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable immediately,
whereupon they shall immediately become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by Borrower.
(c) Lender may set off against the Obligations all Collateral, balances,
credits, deposits, accounts, or moneys of Borrower then or thereafter held with
Lender, including amounts represented by certificates of deposit.
(d) Lender may pay, purchase, contest or compromise any encumbrance, charge
or Lien that, in the opinion of Lender, appears to be prior or superior to its
Lien and pay all reasonable expenses incurred in connection therewith.
(e) Lender may (i) notify Account Debtors to make payment on Accounts
directly to Lender; (ii) settle, adjust, compromise, extend or renew Accounts,
whether before or after legal proceedings to collect such Accounts have
commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times as Lender deems
advisable; and (vi) complete the performance required of Borrower under any
contract or agreement to which Borrower is a party and out of which Accounts
arise or may arise.
(f) Lender may (i) endorse Borrower's name on all checks, notes, drafts,
money orders or other forms of payment of or security for Accounts or other
Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors or
issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
Section 11.2. Power of Attorney. Borrower hereby appoints Lender (and any of
Lender's officers, employees, or agents designated by Lender) as Borrower's
attorney, with power whether before or after the occurrence of an Event of
Default: (a) to endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Lender's
24
<PAGE>
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender agrees not to exercise the power granted in
clause 11.2(b) prior to the occurrence of an Event of Default and agrees not to
exercise the power granted in clause 11.2(d) prior to notification of Borrower
of its intent to do so, but such limitations do not limit the effectiveness of
such power of attorney at any time. Any person dealing with Lender shall be
entitled to rely conclusively on any written or oral statement of Lender that
this power of attorney is in effect. Lender may also use Borrower's stationery
in connection with exercising its rights and remedies and performing the
Obligations of Borrower.
Section 11.3. Expenses Secured. All expenses, including attorney fees, incurred
by Lender in the exercise of its rights and remedies provided in this Agreement,
in the other Loan Documents or by law shall be payable by Borrower to Lender,
shall be part of the Obligations, and shall be secured by the Collateral.
Section 11.4. Equitable Relief. Borrower recognizes that in the event Borrower
fails to perform, observe, or discharge any of its Obligations or liabilities
under this Agreement, no remedy of law will provide adequate relief to Lender,
and Borrower agrees that Lender shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 11.5. Remedies Are Cumulative. No remedy set forth herein is exclusive
of any other available remedy or remedies, but each is cumulative and in
addition to every other right or remedy given under this Agreement or under any
other agreement between Lender and Borrower or now or hereafter existing at law
or in equity or by statute. Lender may pursue its rights and remedies
concurrently or in any sequence, and no exercise of one right or remedy shall be
deemed to be an election. No delay by Lender shall constitute a waiver, election
or acquiescence by it.
SECTION 12
INDEMNITY
Section 12.1. General Indemnity. Borrower shall protect, indemnify and defend
and save harmless Lender and its directors, officers, agents and employees from
and against any and all loss, cost, liability (including negligence, tort and
strict liability), expense, damage, suits or demands (including fees and
disbursements of counsel) on account of any suit or proceeding before any
Governmental Authority which arises from the transactions contemplated in this
Agreement or otherwise arising in connection with or relating to the Loan and
any security therefor, unless such suit, claim or damages
25
<PAGE>
are caused by the negligence or intentional malfeasance of Lender or its
directors, officer, agents or employees. Upon receiving knowledge of any suit,
claim or demand asserted by a third-party that Lender believes is covered by
this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
SECTION 13
MISCELLANEOUS
Section 13.1. Delay and Waiver. No delay or omission to exercise any right shall
impair any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver on
one occasion shall be limited to that particular occasion.
Section 13.2. Complete Agreement. This Agreement and the Schedules are the
complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
Section 13.3. Severability; Headings. If any part of this Agreement or the
application thereof to any Person or circumstance is held invalid, the remainder
of this Agreement shall not be affected thereby. The section headings herein are
included for convenience only and shall not be deemed to be a part of this
Agreement.
Section 13.4. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective legal representatives, successors and assigns of
the parties hereto; however, Borrower may not assign any of its rights or
delegate any of its Obligations hereunder. Lender (and any subsequent assignee)
may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of Lender; and Lender (or
such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 13.5. Notices. Any notices under or pursuant to this Agreement shall be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
26
<PAGE>
To Borrower: HealthCare Imaging Services, Inc.
200 Schulz Drive
Red Bank, New Jersey 07701
Attention: Elliott Vernon, President
Telephone: (908) 224-9292
Telecopier: (908) 224-9329
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Executive Vice President
Telephone: (714) 474-6100
Telecopier: (714) 474-6199
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esquire
General Counsel
Telephone: (215) 230-2931
Telecopier: (215) 230-3537
Either party may change such address by sending notice of the change to the
other party; such change of address shall be effective only upon actual receipt
of the notice by the other party.
Section 13.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA,
WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.
Section 13.7. Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER
AND BORROWER.
Section 13.8. Submission to Jurisdiction.
(a) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE
COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. BORROWER HEREBY AGREES THAT SERVICE OF
COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE MADE BY
27
<PAGE>
MAILING OR DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE
BEGINNING OF THIS AGREEMENT.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF
LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING
AGAINST BORROWER OR ANY OF ITS PROPERTIES IN THE COURTS OF OTHER
JURISDICTIONS TO THE EXTENT OTHERWISE PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY
ACQUIRE (I) ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA
OR ANY FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY
LEGAL PROCESS OUT OF ANY SUCH COURT (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, OR (ii)
ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN INCONVENIENT FORUM
OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA OR FEDERAL
COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN
ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE LOANS.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by
their duly authorized officers as of the date first above written.
LENDER:
DVI BUSINESS CREDIT CORPORATION
By: /s/CYNTHIA J. COHN
Print Name: CYNTHIA J. COHN
Title: EXECUTIVE VICE PRESIDENT
28
<PAGE>
BORROWER:
HealthCare Imaging Services, Inc.
Edgewater Imaging Associates, L.P.
By: HealthCare Imaging Services
of Edgewater, Inc.,
its General Partner
By: /s/ELLIOTT H. VERNON
-------------------------------
By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON
Title: PRESIDENT
Title: PRESIDENT
Wayne Imaging Associates, L.P. Rittenhouse Square Imaging Assoc.,LP
By: HealthCare Imaging Services, Inc., By: HealthCare Imaging Services of
Rittouse Square its General Partner its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON Print Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
29
<PAGE>
Schedule 1.1
LIENS
[List Permitted Liens]
None, other than DVI.
30
<PAGE>
Schedule 4.1
NAMES OF BORROWERS
[Disclose the exact names, state law under which Borrowers were organized,
prior legal names, current or prior trade names]
1) HealthCare Imaging Services, Inc.; State of Delaware
2) HIS Acquisitions, Inc.; State of Delaware
3) New York MR Associates, L.P.; State of New York
4) Edgewater Imaging Associates, L.P.; State of New Jersey
5) Wayne Imaging Associates, L.P.; State of New Jersey
6) Rittenhouse Square Imaging Associates, L.P.; State of Pennsylvania
31
<PAGE>
Schedule 4.2
MERGERS AND CONSOLIDATIONS
[Disclose Mergers and Consolidations]
None
32
<PAGE>
Schedule 4.3
PURCHASES OF ASSETS
OUTSIDE ORDINARY COURSE OF BUSINESS
[Disclose all assets purchased outside of the ordinary course of business.]
None
33
<PAGE>
Schedule 6.1
CONTRACTS
[List all material Contracts.]
1) Consulting Services Agreement by and between HealthCare Imaging services,
Inc. and Monmouth Diagnostic Imaging, P.A.
2) Consulting Services Agreement by and between HealthCare Imaging Services,
Inc. (successor to New York MR Associates) and Kings Medical Diagnostic Imaging,
P.A.
3) Consulting Services Agreement by and between Jatin Gajarawala, M.D. and
Arnold Olefson, M.D. or their designee, Wayne MRI, P.A. and Wayne Imaging
Associates, L.P.
4) Consulting Services Agreement by and between Edgewater Imaging Associates,
L.P. and Edgewater Diagnostic Imaging, P.A.
5) Excess Capacity License Agreement by and between HealthCare Imaging Services,
Inc. and Alex Tsitsuashvili
6) Excess Capacity License Agreement by and between HealthCare Imaging Services,
Inc. and Core Health, Inc.
34
<PAGE>
Schedule 8.6
LITIGATION AND PROCEEDINGS
[List outstanding judgments against Borrower or any of its assets, actions or
proceedings pending by or against Borrower, other threatened or imminent actions
against Borrower and governmental investigations.]
None
35
<PAGE>
Schedule 9.12
PERMITTED DISTRIBUTIONS
1) Pursuant to the Wayne Imaging Associates, L.P. Limited Partnership Agreement,
the limited partners receive a minority interest distribution.
2) Pursuant to the Restructured Limited Partnership Agreement, the limited
partners receive a minority interest distribution.
36
<PAGE>
EXHIBIT A
Borrowing Base Report
37
<PAGE>
EXHIBIT 5.5
Borrowing Base Report
Compliance Certification
In connection with the Borrowing Base report dated the date hereof delivered by
the Borrower ("Borrower") pursuant to that certain Loan and Security Agreement
by and among the Borrower and DVI Business Credit Corporation, the undersigned
hereby certifies as follows:
1) The Borrower has complied and is in compliance with all of the terms,
covenants and conditions of the Loan and Security Agreement;
2) No Default or Event of Default exists under the Loan and Security Agreement;
3) The representations, warranties and covenants contained in Section 8 of the
Loan and Security Agreement are true as of the date hereof.
Capitalized terms used herein not otherwise defined shall have the respective
meanings ascribed thereto in the Revolving Loan and Security Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed and delivered as of the 26th day of December, 1996.
HealthCare Imaging Services, Inc. Edgewater Imaging Associates, L.P.
By: HealthCare Imaging
Services of Edgewater, Inc.,
its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON Print Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
Wayne Imaging Associates, L.P. Rittenhouse Square Imaging Assoc., L.P.
By: HealthCare Imaging Services, Inc., By: HealthCare Imaging Services of
its General Partner Rittenhouse Square
its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON Print Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
1
<PAGE>
EXHIBIT 2.02
SECURED PROMISSORY NOTE
Dated December 26, 1996
FOR VALUE RECEIVED, the undersigned (collectively and individually "Maker")
jointly and severally hereby promise to pay to DVI Business Credit Corporation
or its assignee (the "Holder") or order, the principal sum of Two Million and
00/100 ($2,000,000.00) or such amount thereof as may be from time to time
advanced hereunder, pursuant to the terms of that certain Loan and Security
Agreement dated as of the date hereof between Holder as Lender, Maker as
Borrower (the "Agreement"), with interest on the unpaid principal balance from
time to time outstanding until paid at the fluctuating rate of interest
announced publicly by Bank of America, NT&SA in San Francisco, California, from
time to time as its prime rate plus three percent (3%) per annum, computed on
the basis of a 360-day year and actual days elapsed, until paid. Interest shall
be payable on the first of each month this Note is outstanding in accordance
with the terms of the Agreement, with all unpaid principal and interest due and
payable in full on the second anniversary of the date hereof.
If any part of the interest due on this Note is not paid when due, it shall be
added to the principal amount of this Note and thereafter bear interest at the
rate provided above. If the specified interest rate shall at any time exceed the
maximum allowed by law, then the applicable interest rate shall be reduced to
the maximum allowed by law.
1) This Note shall be subject to prepayment or redemption in whole or in part at
any time without penalty or premium. Notwithstanding the foregoing, the
Agreement may not be terminated, and will not be terminated by any prepayment,
without payment of the termination fee required pursuant to Section 2.7 of the
Agreement.
2) Principal and interest shall be payable to Holder at 4041 MacArthur Blvd.,
Suite 401, Newport Beach, CA 92660, or such other place as the Holder may, from
time to time in writing, appoint.
3) This Note is made pursuant to, and secured by the Agreement. This Note is
also secured by any Security Documents referred to in the Agreement. The
Agreement and the Security Documents create a lien on and security interest in,
the personal property described therein ("Collateral"). The Agreement and the
Security Documents shall hereinafter be collectively referred to as the "Loan
and Security Documents" and are hereby incorporated by reference in and made a
part of this Note.
4) The occurrence of any Event of Default under the Agreement shall, at the
election of the Holder, make the entire unpaid balance of the principal amount
of this Note and accrued interest immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices or demands of any kind or character.
2
<PAGE>
5) Failure of the Holder to exercise the acceleration option of paragraph 4 of
this Note on the occurrence of any of the events enumerated therein shall not
constitute waiver of the right to exercise such option on the subsequent
occurrence of any of the events enumerated therein.
6) Principal and interest shall be payable in lawful money of the United States
of America which shall be legal tender in payment of all debts and dues, public
and private, at the time of payment. Maker waives presentment, demand for
payment, notice of nonpayment, protest and notice of protest, and all other
notices and demands in connection with the deliver, acceptance, performance,
default or enforcement of this Note. Maker consents to any and all assignments
of this Note, extensions of time, renewals and waivers that may be made or
granted by the Holder. Maker expressly agrees that such assignments, extensions
of time, renewals or waivers shall not affect Maker's liability. Maker agrees
that Holder may, without notice to Maker and without affecting the liability of
Maker, accept additional or substitute security for this Note, release any
security or any party liable for this Note or extend or renew this Note.
7) If Maker shall fail to make any payment of interest or principal, including
the payment due upon maturity, when the same is due and payable and such failure
shall continue for five (5) business days after nonpayment, a late charge by way
of damages shall be immediately due and payable. Maker recognizes that default
by Maker in making the payments herein agreed to be paid when due will result in
the Holder incurring additional expenses, in loss to the Holder of the use of
the money due and in frustration to the Holder in meeting its other commitments.
Maker agrees that, if for any reason Maker fails to pay any amount due under
this Note when due, the Holder shall be entitled to damages for the detriment
caused thereby, but that it is extremely difficult and impractical to ascertain
the extent of such damages. Maker therefore agrees that a sum equal to five
cents ($.05) for each one dollar ($1.00) of each payment which is not received
within five (5) business days after the date it is due and payable is a
reasonable estimate of the said damages to the Holder, which sum Maker agrees to
pay on demand.
8) If action be instituted on this Note (including without limitation, any
proceedings for collection hereof in any bankruptcy or probate matter or case),
or if proceedings are commenced on or under any of the Loan and Security
Documents, Maker promises to pay the Holder all costs of collection and
enforcement including, without limitation, reasonable attorneys' fees.
9) Any and all notices or other communications or payments required or permitted
to be given hereunder shall be effective when received or refused if given or
rendered in writing, in the manner provided in the Agreement.
10) This Note shall inure to the benefit of the Holder's successors and assigns.
References to the "Holder" shall be deemed to refer to the holder(s) of this
Note at the time such reference becomes relevant.
11) If any term, provision, covenant, or condition of this Note is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the rest
of this Note shall remain in full force and effect to the greater extent
permitted by law and shall in no other way be affected, impaired or invalidated.
3
<PAGE>
12) Nothing contained herein or in the Loan and Security Documents shall be
deemed to prevent recourse to and the enforcement against Maker and the
Collateral of all liabilities, obligations and undertakings contained herein and
in the Loan and Security Documents.
13) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION
OF THE STATE AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
MAKER:
HealthCare Imaging Services, Inc. Edgewater Imaging Associates, L.P.
By: HealthCare Imaging Services of
Edgewater, Inc. its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON Print Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
Wayne Imaging Associates, L.P. Rittenhouse Square Imaging Assoc., L.P.
By: HealthCare Imaging Services, Inc., By: HealthCare Imaging Services of
its General Partner Rittenhouse Square
its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Print Name: ELLIOTT H. VERNON Print Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
4
<PAGE>
AMENDMENT NO. 1
TO
LOAN AND SECURITY AGREEMENT ("AGREEMENT")
DATED DECEMBER 26, 1996
BETWEEN
HEALTHCARE IMAGING SERVICES, INC.
EDGEWATER IMAGING ASSOCIATES, L.P.
WAYNE IMAGING ASSOCIATES, L.P.
RITTENHOUSE SQUARE IMAGING ASSOCIATES, L.P.
(COLLECTIVELY HEREIN "BORROWER")
AND
DVI BUSINESS CREDIT CORPORATION ("LENDER")
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the Agreement as follows:
1) Section 1(l) "Eligible Accounts" shall be amended and replaced in its
entirety as follows:
Eligible Accounts shall mean Borrower's accounts receivable from commercial
insurance, Medicare, Medicaid, managed care providers, workers' compensation
authorized, which have been due and payable for one hundred fifty (150) or fewer
days from the date of service, and worker's compensation lien and personal
injury claims, which have been due and payable for one hundred eighty (180) or
fewer days from the date of service, and earned but unbilled charges for
no-fault accounts up to ninety (90) days from the date of service (collectively
referred to as "Retail Accounts").
Any provision in Amendment No. 1 ("Amendment") hereof that may be contrary to
any provision of the Agreement shall prevail and override the Agreement. Except
as expressly set forth herein, all other provisions of this Amendment shall be
interpreted in light of the provisions of the Agreement. Both parties warrant to
each other that this Amendment has been authorized and duly executed and is
binding on both parties hereto as of 31st day of January, 1997.
LENDER:
DVI Business Credit Corporation
By: /s/ ANTHONY J. TUREK
Name: ANTHONY J. TUREK
Title: MANAGING DIRECTOR
BORROWER:
HealthCare Imaging Services, Inc. Edgewater Imaging Assoc., L.P.
By: HealthCare Imaging Serv. of
Edgewater, Inc., its General Partner
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
- ----------------------------- ----------------------------
5
<PAGE>
Name: ELLIOTT H. VERNON Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
Wayne Imaging Associates, L.P. Rittenhouse Square Imaging Assoc., L.P.
By: HealthCare Imaging Services, Inc. By: HealthCare Imaging Services of
its General Partner Rittenhouse Square, its Gen. Part.
By: /s/ELLIOTT H. VERNON By: /s/ELLIOTT H. VERNON
Name: ELLIOTT H. VERNON Name: ELLIOTT H. VERNON
Title: PRESIDENT Title: PRESIDENT
6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 449,015
<SECURITIES> 0
<RECEIVABLES> 4,654,698
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,297,820
<PP&E> 10,951,294
<DEPRECIATION> 5,587,149
<TOTAL-ASSETS> 11,621,288
<CURRENT-LIABILITIES> 2,818,290
<BONDS> 0
0
44,800
<COMMON> 64,460
<OTHER-SE> 5,128,316
<TOTAL-LIABILITY-AND-EQUITY> 11,621,288
<SALES> 0
<TOTAL-REVENUES> 5,105,631
<CGS> 0
<TOTAL-COSTS> 4,966,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (24,411)
<INCOME-TAX> 23,931
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,342)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
