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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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Commission File Number 000-19636
HEALTHCARE IMAGING SERVICES, INC.
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(Exact name of Registrant as Specified in its Charter)
Delaware 22-3119929
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
200 Schulz Drive, Red Bank, New Jersey 07701
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(908) 224-9292
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(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant To Section 12(b) Of The Act: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
----------------------------
(Title of Each Class)
Indicate by check mark whether the registrant (1) has filed all
reports required 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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K of the Securities Act of 1933 is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates
based upon the last reported sale price of the Common Stock on April 28, 1997
was approximately $6,318,000. As of April 28, 1997, there were 4,961,974 shares
of Common Stock outstanding.
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The Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File Number 000-19636) of HealthCare Imaging Services, Inc. (the
"Company") is hereby amended by adding thereto the following Part III:
PART III
ITEM 10. MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY
The members of the Board of Directors of the Company during the fiscal
year ended December 31, 1996, their respective ages and the period during which
they have served as Directors are as follows:
NAME AGE PERIOD DURING WHICH A DIRECTOR
- ---- --- ------------------------------
Dr. George Braff 53 December 1995 - April 1997
Jerold L. Fisher 38 February 1996 - Present
Shawn A. Freidkin 33 May 1996 - Present
Mitchell Hymowitz 35 May 1996 - Present
Dominic A. Polimeni 50 May 1996 - Present
Joseph J. Raymond 61 December 1995 - Present
Elliott H. Vernon 54 July 1991 - Present
George Braff, M.D. has been engaged in the private practice of
medicine for over twenty (20) years, specializing in radiology, and has
partnership interests in several multi-modality imaging centers located in the
New York area. Dr. Braff is also affiliated with, and lectures at, numerous
hospitals located in the New York area. Dr. Braff received his medical degree
from Mount Sinai School of Medicine in New York in 1973 and received a law
degree from New York University School of Law in 1967. Dr. Braff resigned from
the Board of Directors of the Company effective as of April 21, 1997.
Jerold L. Fisher has been the Director of Corporate Finance of
Biltmore Securities, Inc. (a registered broker/dealer based in Fort Lauderdale,
Florida) since June 1995 and has been the President of Fisher Food Corporation
(a manufacturer and distributor of frozen snack foods) since May 1995. From
June 1993 until May 1995 Mr. Fisher was the General Manager of Wrono Enterprise
Corp., a Florida based protective shade and shutter manufacturing company. From
May 1992 until May 1993, Mr. Fisher was employed by ABC Computer Co., Inc., a
Florida based computer company, as controller and from February 1989 until
April 1992, Mr. Fisher was the Chief Financial Officer of Rolleze, Inc., a
California based window and door manufacturing company. From June 1980 until
February 1984, Mr. Fisher was employed by Seymour Schniedman and
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Associates, a CPA firm specializing in mergers and acquisitions. Mr. Fisher
graduated from Boston University School of Business Management in 1980 with a
B.S. degree in Business Administration.
Shawn A. Freidkin has been the President of Paramount Funding
Corporation, a Florida based factoring company specializing in commercial
receivable funding, since July 1992. From January 1990 through June 1992, Mr.
Freidkin was the Vice President of Freidkin Industries, a Florida company
engaged in the aluminum extrusion and eyeglass manufacturing businesses. Mr.
Freidkin is a graduate of Syracuse University School of Management.
Mitchell Hymowitz has been the Principal/Chief Financial Officer of
H&W Hardware Company, Inc. (a retail hardware store) and the Vice President of
220 First Avenue Realty Corp. (a real estate investment company) since
September 1990. Since December 1993, Mr. Hymowitz has been a director of
Questron Technology, Inc. (formerly Judicate, Inc.) ("Question"), a publicly
held company based in Boca Raton, Florida, which, among other things, provides
a broad range of alternative dispute resolution services. From September 1984
until September 1990, Mr. Hymowitz was a Senior Accountant with Paritz &
Company, P.A. (a public accounting firm based in New Jersey). Mr. Hymowitz
received a B.S. in Business Administration with a degree in Accounting from
the State University of New York at Buffalo in 1984.
Dominic A. Polimeni has been President, Chief Operating Officer and a
Director of Questron since March 1995, and Chairman and Chief Executive Officer
of Questron since February 1996. He has also been Chairman, Chief Executive
Officer and Chief Financial Officer of Quest Electronic Hardware, Inc., a
wholly-owned subsidiary of Questron, since October 1994. Since March 1996, Mr.
Polimeni has also been a director of TMCI Electronics, Inc., a publicly held
company based in San Jose, California which provides custom manufacturing and
value-added services to the information technology industry. Mr. Polimeni has
been Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm, since August 1990. Prior to
that he held the position of Chief Financial Officer of Arrow Electronics, Inc.
("Arrow") for four (4) years. He also held several other positions, including
general management positions, with Arrow over an eight-year period. Prior to
that he practiced as a certified public accountant for more than 12 years and
was a partner in the New York office of Arthur Young & Company. He holds a
bachelor of business administration degree from Hofstra University.
Joseph J. Raymond has been President of Transword Management Services,
Inc. (an investment and strategic planning consulting firm, which Mr. Raymond
founded) since April 1996. From July 1992 through August 1996 he was the
Chairman of the Board, Chief Executive Officer and President of Transworld Home
HealthCare, Inc., a publicly-held regional supplier of a broad range of
alternate site healthcare services and products including respiratory therapy,
drug infusion therapy, nursing and para-professional services, home medical
equipment, radiation and oncology therapy and a nationwide specialized mail
order pharmacy ("TWHH"). Prior thereto, he was the Chairman of the Board and
President of Transworld Nursing, Inc., a wholly-owned subsidiary of TWHH, from
its
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inception in 1987. From 1986 through 1991, Mr. Raymond was also the Chairman of
the Board of Raycomm Transworld Industries, Inc., an engineering service
company.
Elliott H. Vernon has been the Chairman of the Board, President and
Chief Executive Officer of the Company since the Company's inception in July
1991. For the past eleven years, Mr. Vernon has also been the managing partner
of MR General Associates, a New Jersey general partnership ("MR General") which
is the general partner of DMR Associates, L.P., a Delaware limited partnership
("DMR Associates"). See "Certain Relationships and Related Transactions." Since
January 1993, Mr. Vernon has also been Of Counsel to the law firm of
Schottland, Aaron, & Manning, Esqs., which firm has offices in New York and New
Jersey. Additionally, from January 1990 to December 1994, Mr. Vernon was the
Executive Vice President and General Counsel of the Wall Street firm of Aegis
Holdings Corporation. Aegis Holdings Corporation offers financial services
through its investment management subsidiary and its capital markets consulting
subsidiary on an international basis. Prior to founding his own law firm in
1973, Mr. Vernon was commissioned as a Regular Army infantry officer in the
United States Army (1964). He is a former paratrooper and Vietnam War veteran
with service in the 82nd Airborne Division and 173rd Airborne Brigade. Upon his
return from Vietnam in 1970, Mr. Vernon served as Chief Prosecutor and Director
of Legal Services at the United States Army Communications Electronics Command
until 1973.
MEETING OF THE BOARD OF DIRECTORS; COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors
held four (4) formal meetings. During fiscal 1996, no incumbent director
attended less than 75% of the aggregate number of meetings of the Board of
Director and committees of the Board of Directors on which he served for such
year. The Company's Board of Directors currently has three (3) standing
committees; the Audit Committee, the Stock Option Committee and the
Compensation Committee.
Audit Committee
The current members of the Audit Committee are Messrs. Freidkin,
Hymowitz and Polimeni. Prior thereto, until December 1996, the members of the
Audit Committee were Messrs. Braff and Fisher. The Audit Committee held two (2)
meetings during fiscal 1996. The general functions of the Audit Committee
include selecting the independent auditors (or recommending such action to the
Board of Directors); evaluating the performance of the independent auditors and
their fees for services and considering the effect, if any, of their
independence; reviewing the scope of the annual audit with the independent
auditors and the results thereof with management and the independent auditors;
consulting with management, internal audit personnel, if any, and the
independent auditors as to the Company's systems of internal accounting
controls; and reviewing the non-audit services performed by the independent
auditors.
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Stock Option Committee
The current members of the Stock Option Committee are Messrs.
Freidkin, Hymowitz and Polimeni. Prior thereto, until December 1996, the
members of the Stock Option Committee were Messrs. Braff and Raymond. The
Stock Option Committee held two (2) meetings during fiscal 1996. The Stock
Option Committee considers and recommends actions of the Board of Directors
relating to matters affecting the Company's stock option plans and is
authorized to make grants under the Company's 1991 Stock Option Plan (the
"1991 Plan").
Compensation Committee
The current members of the Compensation Committee are Messrs.
Freidkin, Hymowitz and Polimeni. The members of the Compensation Committee
prior to December 1996 were Messrs. Braff and Raymond. The Compensation
Committee held two (2) meetings during fiscal 1996. The functions of the
Compensation Committee include approval (or recommendation to the Board of
Directors) of the compensation arrangements for senior management, directors
and other key employees, review of benefit plans in which officers and
directors are eligible to participate, and periodic review of the equity
compensation plans of the Company and the grants under such plans.
COMPENSATION OF DIRECTORS
The Company does not pay non-employee directors any fees in connection
with their services as such; however, the Company reimburses them for all costs
and expenses incident to their participation in meetings of the Board of
Directors and its committees. No remuneration is paid to executive officers
of the Company for services rendered in their capacities as directors of the
Company. Non-employee directors are entitled to participate in the 1996 Stock
Option Plan for Non-Employee Directors (the "1996 Non-Employee Directors
Plan").
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than 10% of the outstanding shares of Common Stock, to file with the
SEC initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company (collectively, "Section 16
reports") on a timely basis. Directors, executive officers and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16 reports. To the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company and certain written
representations that no other reports were required, during fiscal 1996, all
Section 16(a) filing requirements applicable to its directors, executive
officers and greater than 10% beneficial owners were complied with on a timely
basis, except that Biltmore Securities, Inc., a greater than 10% beneficial
owner, did not file a Form 3 with respect to its becoming a greater than
10% beneficial owner of the Company and Mr. Michael F. DeLicce, a former
Executive Vice President and Chief Operating Officer of the Company, also did
not timely file a Form 3 with respect to his becoming an executive officer
of the Company.
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EXECUTIVE OFFICERS OF THE COMPANY
The names of the executive officers of the Company, and certain
information about them, are set forth below:
NAME AGE POSITION
- ---- --- --------
Elliott H. Vernon 54 Chairman of the Board, President and Chief
Executive Officer
Lee H. Turner 47 Senior Vice President
See above for information regarding Mr. Vernon.
Lee H. Turner has been Senior Vice President of the Company since
September 1995. In his prior capacities with the Company, he has served as Vice
President of Marketing and Managed Care of the Company from August 1994 to
September 1995 and the Vice President, Director of Managed Care of the Company
from July 1993 to August 1994. Mr. Turner's responsibilities include
administrative management and strategic planning of marketing and sales
activities of the Company's facilities and other responsibilities as determined
by the Chairman of the Board. Mr. Turner is also responsible for the
development and implementation of the Company's managed care program by
obtaining contracts with indemnity insurance companies, health maintenance
organizations (HMOs), preferred provider organizations and networks (PPOs and
PPNs), third party administrators (TPAs), labor unions and self-insured
corporations. From May 1986 to July 1993, Mr. Turner was a Senior Vice
President for Advanced Diagnostic Imaging, Inc., a developer and operator of
diagnostic imaging facilities, where his responsibilities involved directing
all phases of managed care contracting and marketing services for its
diagnostic imaging centers. He was also responsible for the capitalization of
Advanced Diagnostic Imaging's centers through a network of investment banking
firms. Prior to joining Advanced Diagnostic Imaging, Mr. Turner was an
investment banking executive with LEPERCQ Capital Partners and Muller and
Company in New York.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and each other executive officer of the
Company (whose total annual salary and bonus exceed $100,000) for services
rendered in all capacities to the Company and its subsidiaries during fiscal
1996, 1995 and 1994:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
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Other Restricted
Annual Stock
Compensation Award(s) Options/ All Other
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) ($) SARs (#) Compensation
- --------------------------- ---- ---------- --------- -------- ----- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Elliott H. Vernon,
Chairman of the Board, 1996 $181,923 $111,710 $28,121(2) $468,750 500,000(3) ---
President and Chief 1995 $200,000 --- $29,635(2) --- --- ---
Executive Officer 1994 $188,462 --- $25,000(2) --- 145,000(3) $31,904(4)
Michael J. Rutkin 1996 $108,945(5) --- --- --- --- ---
Former Executive Vice 1995 $120,001 --- --- --- --- ---
President, Chief Operating 1994 $113,077 --- --- --- 37,000 ---
Officer and Secretary
</TABLE>
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(1) Unless noted, the value of perquisites and other personal benefits,
securities and other property paid to or accrued for the named
executive officers did not exceed $50,000, or 10% of such officer's
total reported salary and bonus, and thus are not included in the
table.
(2) Represent payments for personal life and disability insurance made by
the Company on behalf of Mr. Vernon pursuant to Mr. Vernon's
employment agreement.
(3) 70,000 of such options were granted subject to stockholder approval
of the 1991 Plan Amendment, which approval was received at the 1996
Annual Meeting of Stockholders. All of these stock options were
terminated effective as of February 1, 1996, pursuant to an
amendment to Mr. Vernon's employment agreement which provided for a
new stock option grant to purchase an aggregate of 500,000 shares of
Common Stock.
(4) Represents non-interest bearing advance made to Mr. Vernon during
fiscal 1994 which was repaid in fiscal 1996 with a portion of his
fiscal 1996 bonus.
(5) Represents compensation (including severance payments) through October
18, 1996, the date Mr. Rutkin's employment with the Company ceased.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
In October 1991, the Company entered into a five-year employment
agreement with Elliott Vernon, pursuant to which Mr. Vernon agreed to serve as
the Chairman of the Board, President and Chief Executive Officer of the Company
at an annual base salary of $200,000. Although Mr. Vernon is not obligated to
work full-time for the Company, he spends, and intends to continue to spend, a
substantial portion of his time on Company affairs. The employment agreement
provides that if a "constructive termination of employment" shall occur, Mr.
Vernon shall be entitled to a continuation of full salary and bonus
compensation for a period equal to the remainder of the term. "Constructive
termination of employment" is defined in the agreement to include a material
change in Mr. Vernon's responsibilities, removal of Mr. Vernon from his
position as the Company's Chairman of the Board, President or Chief Executive
Officer (other than for "Cause," as defined in the employment agreement) or a
"Change in Control." A "Change in Control" is defined to include a change in
the majority of Directors of the Company which is not approved by the incumbent
directors or an accumulation by any person or group, other than Mr. Vernon, of
in excess of 30% of the outstanding voting securities of the Company. The
Employment Agreement further provides that a constructive termination of
employment shall not include (i) any sale of the business of the Company,
whether through merger, sale of stock or sale of assets which is approved by
the vote of two-thirds of the full Board of Directors and (ii) a change in Mr.
Vernon's title and/or the person or persons to whom Mr. Vernon reports
resulting from a Change of Control approved by the affirmative vote of
two-thirds of the full Board of Directors, so long as it does not result in any
other event constituting a constructive termination of employment.
Mr. Vernon's agreement provides for annual profit sharing with other
executive level employees of a bonus pool consisting of 15% of the Company's
consolidated income before taxes, determined in accordance with generally
accepted accounting principles (the "Bonus Pool"). During the first year of the
term, Mr. Vernon was entitled to two-thirds of the first $300,000 of the Bonus
Pool and one-third of the next $300,000 of the Bonus Pool, and, for the
remainder of the term, he is entitled to fifty percent of the Bonus Pool. Mr.
Vernon is entitled to monthly bonus payments, based upon an estimate of his
full years' entitlement, subject to adjustment at the end of each fiscal
quarter and at the end of each fiscal year. The entitlement of the other
officers of the Company to the remainder of the Bonus Pool will be made by Mr.
Vernon as the Chairman of the Board, President and Chief Executive Officer of
the Company.
As of February 1, 1996, the Company amended its employment agreement
with Mr. Vernon. Pursuant to such amendment, the employment agreement's
expiration date of October 22, 1996 was extended to October 22, 1997 and during
such one-year extension Mr. Vernon's annual base compensation was reduced from
$200,000 to $100,000. Upon execution of such amendment, Mr. Vernon received
from the Company a restricted stock award of 250,000 shares (the "Restricted
Shares") of Common Stock (the "Vernon Award"). The restrictions related to the
Vernon Award will lapse upon consummation by the Company of an acquisition of,
or other business combination with, a company (or companies) with assets of at
least $2,500,000 (the "Acquisition"). In January 1997, the Company extended
the required consummation date of the
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Acquisition from January 30, 1997 to January 30, 1998 (subject to stockholder
ratification and approval of such extension), and the expiration date of
Mr. Vernon's employment agreement from October 22, 1997 to October 22, 1998.
None of the Restricted Shares shall vest until a committee consisting of two or
more "outside directors" of the Company, within the meaning of Section 162(m)
of the Code, shall have certified that the Acquisition has been consummated.
Prior to the vesting of the Vernon Award, (i) the Restricted Shares will be
held in escrow by the Company and will not be assignable or transferable,
except by will or by laws of descent and distribution, and may not be sold,
exchanged, transferred, pledged, or otherwise disposed of at any time and (ii)
Mr. Vernon will not have the right to vote the Restricted Shares (although he
will have all other rights and privileges of a stockholder with respect to such
shares including, without limitation, the right to receive dividends in cash or
other property or other distributions in respect of the Restricted Shares). Mr.
Vernon is entitled to certain demand and "piggyback" registration rights with
respect to such 250,000 shares. At any time commencing April 16, 1996 and
ending April 16, 2000, Mr. Vernon will have the right to demand that the
Company prepare and file, and use its best efforts to cause to become
effective, a registration statement under the Act to permit the sale of the
Registrable Securities. The Company will be obligated to file one (1) such
registration statement for which all expenses (other than fees of counsel for
such holders and underwriting discounts) will be payable by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the information noted for all grants of
stock options made by the Company during fiscal 1996 to each of the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Option/Grants in last Fiscal Year
Individual Grants
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% of Total Potential Realizable
Options Value at Assumed
Granted to Exercise Annual Rates of Stock
Options Employees in Price Expiration Price Appreciation for
Name Grant Date Granted # Fiscal Year ($/SH) Date Option Term(1)
- ---- ---------- --------- ----------- ------ ---- --------------
5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Elliott H. Vernon Feb. 1996 500,000 97.1 0.75 Feb. 2001 821,514 1,134,853
</TABLE>
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(1) The potential realizable values represent future opportunity and have
not been reduced to present value in 1996 dollars. The dollar amounts
included in these columns are the result of calculations at assumed
rates set by the Securities and Exchange Commission for illustration
purposes, and these rates are not intended to be a forecast of the
Common Stock price and are not necessarily indicative of the values
that may be realized by the named executive officer.
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AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND 1996 FISCAL YEAR END
OPTION VALUES
The following table summarizes for each of the named executive
officers the number of stock options or SARs, exercised during fiscal 1996, the
aggregate dollar value realized upon exercise, the total number of unexercised
options and SARs, if any, held at December 31, 1996 and the aggregate dollar
value of in-the-money, unexercised options or SARs, held at December 31, 1996.
The value realized upon exercise is the difference between the fair market
value of the underlying stock on the exercise date and the exercise or base
price of the option or SAR. The value of unexercised, in-the-money options at
fiscal year-end is the difference between its exercise or base price and the
fair market value of the underlying stock on December 31, 1996 (the last
trading day in fiscal 1996), which was $0.9375 per share. These values, unlike
the amounts set forth in the column headed "Value Realized," have not been, and
may never be, realized. The underlying options or SARs have not been, and may
not be, exercised; and actual gains, if any, on exercise will depend on the
value of Common Stock on the date of exercise. There can be no assurance that
these values will be realized.
None of the named executive officers exercised any stock options
during fiscal 1996. The Company does not have any outstanding SARs.
Value of
Number of Unexercised In-
Unexercised the-Money
Options at Options at
Fiscal Year End Fiscal Year End
--------------- ---------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- --------------- -------- ------------- -------------
Elliott H. Vernon -0- -0- 500,000/0 $95,000/$0
Michael J. Rutkin (1) -0- -0- 52,000/10,000 $0/$0
STOCK OPTION PLANS
1991 STOCK OPTION PLAN
Pursuant to the 1991 Plan adopted by the Board of Directors and
stockholders of the Company, stock options exercisable to purchase up to
700,000 shares of Common Stock (subject to appropriate adjustments in the event
of stock splits, stock dividends and similar dilutive events) may be granted
under the 1991 Plan to key employees (including officers who may also be
directors) of the Company and its subsidiaries, as selected by a committee of
the Board of Directors appointed by
- ----------
(1) All stock options held by Mr. Rutkin at December 31, 1996 terminated
as of January 16, 1997 due to the termination of his employment with
the Company on October 18, 1996.
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the Board of Directors to administer the Plan and composed of not less than two
(2) directors who are "disinterested persons," within the meaning of Rule 16(b)
promulgated under the Exchange Act. As of December 31, 1996, approximately
ninety two (92) employees of the Company and its subsidiaries were eligible to
be granted stock options under the 1991 Plan. Stock options granted to
employees may be either incentive stock options (as defined in the Internal
Revenue Code of 1986, as amended (the "Code")) or nonqualified stock options.
The purchase price of the shares of Common Stock issuable upon exercise of a
stock option may not be less than the fair market value of the Common Stock on
the date of grant, in the case of incentive stock options, or 85% of such
value, in the case of nonqualified stock options. The terms of each stock
option and the increments in which it is exercisable are determined by the
Stock Option Committee but the term of a nonqualified stock option generally
may not exceed ten (10) years from the date of grant and the term of an
incentive stock option may in no event be more than ten (10) years from
the date of grant (and shall otherwise be consistent with the Code). No
stock options may be granted under the 1991 Plan after November 2001. The stock
options are non-transferable during the life of the option holder except as
otherwise provided in the 1991 Plan.
On February 13, 1996, the Board of Directors approved, subject to
stockholder approval (which approval was obtained on May 2, 1996), an amendment
to the 1991 Plan increasing the number of shares of Common Stock that may be
subject to options awarded to any participant pursuant to the 1991 Plan from an
aggregate of 200,000 for the term of such plan to 250,000 shares in any given
calendar year.
As of December 31, 1996, stock options exercisable to purchase an
aggregate of 132,600 shares of Common Stock were granted under the 1991 Plan.
18,000 of such stock options are held by an executive officer of the Company.
Such stock options have expiration dates ranging from July 2003 to December
2006 and exercises prices ranging from $1.0625 to $5.00 per share. Such
calculations exclude stock options exercisable to purchase up to 270,000 shares
of Common Stock granted to Mr. Vernon under the 1991 Plan which were terminated
on February 1, 1996.
1996 NON-EMPLOYEE DIRECTORS PLAN
The 1996 Non-Employee Directors Plan is administered by a committee
of the Board of Directors consisting of at least two (2) directors, as
appointed by the Board of Directors. Up to an aggregate of 250,000 shares of
Common Stock may be issued pursuant to stock options awarded under the 1996
Non-Employee Directors Plan. Shares of Common Stock subject to an award which
are not issued prior to expiration or termination of an award may thereafter be
available for future awards under the 1996 Non-Employee Directors Plan and will
not be deemed to increase the aggregate number of shares of Common Stock
available thereunder. The 1996 Non-Employee Directors Plan provides for
appropriate adjustment of shares of Common Stock available thereunder and of
shares of Common Stock subject to outstanding awards in the event of any
changes in the outstanding Common Stock by reason of any recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction.
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Under the 1996 Non-Employee Directors Plan, non-qualified stock
options exercisable to purchase an aggregate of 25,000 shares of Common Stock
were granted to each of the three (3) non-employee directors of the Company on
February 13, 1996, at an exercise price of $1.6875 per share, and non-qualified
stock options exercisable to purchase an aggregate of 25,000 shares of Common
Stock will be granted to the newly elected or appointed non-employee directors
of the Company. To that end, upon the appointment of Messrs. Freidkin, Hymowitz
and Polimeni to the Board of Directors in May 1996, each received stock options
exercisable to purchase 25,000 shares of Common Stock at an exercise price of
$2.09375. Stock options awarded under the 1996 Non-Employee Directors Plan vest
in increments of 40% after the sixth month, 80% after the eighteenth month and
100% after the thirtieth month anniversary of the date of grant. No stock
option may be granted under the 1996 Non-Employee Directors Plan after May 1,
2006. The stock options are non-transferable during the life of the option
holder. Upon termination of a director's service on the Board of Directors, any
stock options vested as of the date of termination may be exercised until the
sixth month anniversary of such date (unless such options expire earlier in
accordance with their terms); provided that if such termination is a result of
such directors's removal from the Board of Directors other than due to his
death or disability, all stock options will terminate immediately.
Prior to 1996, the Company also had a 1991 Directors Stock Option Plan
for non-employee Directors providing for the issuance of options covering up to
60,000 shares of Common Stock to non-employee directors. This plan was replaced
by the 1996 Non-Employee Directors Plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of the Company's
Common Shares as of April 28, 1997, of (i) each person known by the Company to
own beneficially 5% or more of the Common Shares, (ii) each of the Company's
directors and director nominees, (iii) each of the Company's executive officers
and (iv) all of the Company's officers and directors as a group. An asterisk
indicates beneficial ownership of less than 1%.
Number of Percent of
Shares(1) Class
--------- ----------
Biltmore Securities, Inc. (2)....... 1,170,000 19.9%
6700 North Andrews Avenue
Fort Lauderdale, Florida 33309
Elliott H. Vernon (3)............... 1,080,500 20.4%
Robert Foise (4).................... 255,000 5.4%
c/o Executive Air Center
Brainard Airport
Hartford, Connecticut 06614
Jerold L. Fisher (5)................ 10,000 *
Shawn A. Freidkin (5)............... 10,000 *
Mitchell Hymowitz (5)............... 10,000 *
Dominic A. Polimeni (5)............. 10,000 *
Joseph J. Raymond (6)............... 80,000 1.7%
Lee Turner (7)...................... 30,000 *
All directors and .................. 1,230,500 22.6%
executive officers
as a group (7 persons)(3)(5)(6)(7)
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(1) In no case was voting and investment power shared with others.
(2) Includes beneficial ownership of 750,000 shares of Common Stock
issuable upon the exercise of certain currently exercisable stock
options and 420,000 shares of Common Stock issuable upon conversion of
60,000 shares of Series C Convertible Preferred Stock, par value $0.10
per share (the "Series C Preferred Stock"). See "Certain Relationships
and Related Transactions." To date, none of such stock options have
been exercised.
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The Company has been informed that Richard Bronson and Elliot
Loewenstern, President and Chief Executive Officer, respectively, of
Biltmore Securities, Inc. ("Biltmore") may be deemed to be the
beneficial owners of Biltmore. Each of Mr. Bronson and Mr. Loewenstern
also beneficially owns additional shares of Series C Preferred Stock.
Mr. Bronson beneficially owns 1,570,750 shares of Common Stock
representing approximately 25% of the outstanding shares of Common
Stock. The shares of Common Stock beneficially owned by Mr. Bronson
include 400,750 shares of Common Stock issuable upon conversion of
57,250 shares of Series C Preferred Stock owned by him and 1,170,000
shares of Common Stock beneficially owned by Biltmore. Mr. Bronson
disclaims beneficial ownership of an aggregate of 12,000 shares of
Series C Preferred Stock owned by his siblings. Mr. Loewenstern
beneficially owns 1,338,000 shares of Common Stock representing
approximately 22.1% of the outstanding shares of Common Stock. The
shares of Common Stock beneficially owned by Mr. Loewenstern include
an aggregate of 168,000 shares of Common Stock issuable upon
conversion of an aggregate of 24,000 shares of Series C Preferred
Stock held in trust for Mr. Loewenstern's children and 1,170,000
shares of Common Stock beneficially owned by Biltmore. Mr. Loewenstern
disclaims beneficial ownership of an aggregate of 45,250 shares of
Series C Preferred Stock owned by certain of his family members,
including his wife.
(3) Includes beneficial ownership of (A) an aggregate of 500,000 shares
of Common Stock issuable upon exercise of certain currently
exercisable options and (B) an aggregate of 80,500 shares of Common
Stock issuable upon conversion of 11,500 shares of Series C Preferred
Stock and does not include beneficial ownership of an aggregate of
250,000 shares of Common Stock issuable pursuant to the Vernon Award.
(4) Information concerning the number of shares of Common Stock
beneficially owned by Mr. Foise was derived from a Schedule 13D dated
October 9, 1992 filed by Mr. Foise with the Securities and Exchange
Commission (the "SEC"). As of April 28, 1997, no amendments to such
Schedule 13D have been filed with the SEC.
(5) Such shares represent 10,000 shares of Common Stock issuable upon
exercise of certain currently exercisable stock options granted
pursuant to the 1996 Non-Employee Directors Plan.
(6) Such shares represent 70,000 shares of Common Stock issuable upon
conversion of 10,000 shares of Series C Preferred Stock and
10,000 shares of Common Stock issuable upon exercise of certain
currently exercisable stock options granted pursuant to the 1996
Non-Employee Directors Plan.
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(7) Such shares include beneficial ownership of 15,000 shares of Common
Stock issuable upon exercise of certain currently exercisable stock
options and 14,000 shares of Common Stock issuable upon conversion of
2,000 shares of Series C Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1996, Elliott H. Vernon owed the Company $176,049 in
connection with certain non-interest bearing advances. These advances were
scheduled to be repaid by December 31, 1994, but have not been paid to date.
The Company entered into an arrangement, effective September 1, 1994,
pursuant to which it operated solely as a sublessor of its mobile MRI equipment
rather than as an operator of such equipment. Mark R. Vernon, the President and
a significant stockholder of Omni Medical Imaging, Inc. (the "sublessee"), is a
former officer of, and a current consultant to, the Company and the brother of
the Company's Chairman of the Board, President and Chief Executive Officer. The
other stockholders of the sublessee include certain former customers of the
Company with whom the Company had agreements for the use of the mobile MRI
equipment. The Company decided to enter into this restructuring arrangement due
to the competitive pressures associated with the mobile MRI business and in
order to focus its energy and management expertise on fixed-site imaging sites
as well as further diversification in the health care industry. As a result of
the restructuring of its mobile MRI operations, the Company recorded a
restructuring charge in fiscal 1994 in the amount of $2,875,000. In December
1995, due to the sublessee's failure to remain current with its 1995 monthly
payment obligations, the Company repossessed and sold one of its mobile MRI
units for $625,000.
In February 1996, the Company terminated its master agreement with the
sublessee and repossessed the remaining three mobile MRI units from the
sublessee as a result of the failure of the sublessee and certain of its
customers to satisfy their obligations to the Company. In an attempt to satisfy
the past due amounts, the sublessee and its customers provided the Company with
cash and additional patient receivable claims to partially offset the amounts
owed to the Company. The additional patient receivable claims were to
supplement the amounts previously submitted to the Company to satisfy prior
past due indebtedness. The Company soon after returned the three mobile MRI
units to the sublessee. Effective July 27, 1996, the Company again repossessed
the three mobile MRI units due to the sublessee's continuing failure to meet
its obligations to the Company. In August 1996, the Company entered into a
lease purchase agreement with respect to the sale of one of the Company's
mobile MRI units. The lease purchase agreement provided for a $20,000 down
payment upon execution of the agreement, 11 monthly installments of $5,000 each
which commenced October 1, 1996 and a final payment of $35,000 due in September
1997. In November 1996, the Company
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formed a limited liability Company which it intends to operate as a joint
venture with Practice Management Corporation to provide on-site MRI services to
Meadowlands Hospital Medical Center. The Company will own sixty percent (60%)
of this joint venture. It is anticipated that the site will commence operations
on or about May 1, 1997 and will initially provide MRI services utilizing one
of the Company's mobile MRI units.
The Company leases its Brooklyn, New York MRI facility (the "Brooklyn
Facility") from DMR Associates, L.P., a limited partnership ("DMR"), and the
MRI equipment at such facility from DVI Financial Services, Inc., a former
significant stockholder of the Company ("DFS"). DMR is owned by MR General
Associates, L.P., as the general partner ("MR Associates"), and DFS, as a
limited partner. MR Associates is in turn owned by the Company's Chairman of
the Board, President and Chief Executive Officer and another director of the
Company. The Company's lease payments to DMR for fiscal 1996 aggregated
approximately $432,000. Effective December 1996, the Company agreed to
guarantee an approximately $250,000 loan from DFS to DMR. This loan bears
interest at 12% per annum and is repayable over thirty-four (34) months
commencing February 15, 1997.
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 will seek
to find 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 consulting agreement provided that the Biltmore Options only will become
exercisable upon the consummation by the Company of a financing providing gross
proceeds to the Company of at least $900,000 by March 30, 1996 (the
"Financing"), and will be forfeited if the Financing is not consummated by
March 30, 1996. On February 9, 1996, the Company sold 600,000 shares of Series
C Preferred Stock for an aggregate of $1,350,000. Such shares are convertible
into an aggregate of 4,200,000 shares of Common Stock. Upon the sale of the
Series C Preferred Stock on February 9, 1996, the Biltmore Options became fully
vested. The holders of the Biltmore Options and the Biltmore Fee Shares are
also entitled to certain demand and "piggyback" registration rights with
respect to the shares of Common Stock issuable upon exercise of the Biltmore
Options and the Biltmore Fee Shares. Furthermore, in consideration of
Biltmore's placement agent services with respect to the offering of the Series
C Preferred Stock, contemporaneous with the sale of the Series C Preferred
Stock on February 9, 1996, the Company issued 60,000 shares of Series C
Preferred Stock to Biltmore, which are convertible into an aggregate of 420,000
shares of Common Stock. Jerold L. Fisher, a director of the Company, is the
Director of Corporate Finance of Biltmore.
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Dr. George Braff, who resigned as a director of the Company effective
on April 21, 1997, is currently the majority shareholder and officer of three
of the Company's Medical Lessees, Edgewater Diagnostic Imaging, P.A. ("EDI"),
Monmouth Diagnostic Imaging, P.A. ("MDI") and Kings Medical Diagnostic Imaging,
P.C. ("KMDI"). For fiscal 1996, EDI, MDI and KMDI respectively paid the Company
approximately $300,000, $2.9 million and $1.2 million in fees for services
previously rendered. In addition, revenues generated to the Company by EDI, MDI
and KMDI accounted for 7%, 30% and 18%, respectively, of the Company's total
revenues in fiscal 1996. For fiscal 1996, EDI, MDI and KMDI paid Dr. Braff
approximately $24,000, $339,000 and $300,000 in fees for professional services
rendered by him on their behalf. It is anticipated that such entities will
continue to be Medical Lessees of the Company in fiscal 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
-----------------------------------------
April 30, 1997 ELLIOTT H. VERNON
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Scott P. McGrory
-----------------------------------------
April 30, 1997 SCOTT P. MCGRORY
Vice President, Controller
(Principal Financial and Accounting Officer)
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