<PAGE>
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 March 31, 1998
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 May 5, 1998
Common Stock, $.01 par value 10,386,474 shares
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HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Financial Statements:
Consolidated Balance Sheet -
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders
Equity - For the three months ended March 31, 1998 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
2
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<TABLE>
<CAPTION>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
Assets 1998 1997
- ------ ------ -----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 386,725 $ 70,626
Accounts receivable - net 5,932,401 5,375,351
Prepaid expenses and other 223,114 186,082
----------- ----------
Total current assets 6,542,240 5,632,059
--------- ----------
Property, Plant and Equipment - Net 5,898,439 5,518,772
--------- ----------
Other Assets:
Advances to licensee 140,233 197,815
Goodwill - net 1,670,579 1,695,054
Due from officer 264,125 264,125
Other assets 407,278 232,810
--------- -------
Total other assets $ 2,482,215 2,389,804
----------- ---------
Total Assets $14,922,894 $13,540,635
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Borrowings under revolving line of credit $ 1,703,359 $ 1,462,000
Accounts payable and accrued expenses 1,731,098 1,354,200
Current portion of capital lease obligations 1,736,469 1,647,148
Income taxes payable 24,794 16,044
------------- ------
Total current liabilities 5,195,720 4,479,392
----------- ----------
Noncurrent Liabilities:
Capital lease obligations 3,068,977 2,780,447
Reserve for restructuring costs 299,685 321,465
-------------- --------
Total noncurrent liabilities 3,368,662 3,101,912
------------- ---------
Minority Interests 639,774 546,433
------------- ---------
Stockholders' Equity:
Convertible preferred stock, $.10 par value: 1,000,000 shares authorized,
31,500 outstanding at March 31, 1998 and 185,000 outstanding at
December 31, 1997 (Each convertible into seven (7) shares of Common Stock) 3,150 18,500
Common stock, $.01 par value: 50,000,000 shares authorized, 10,386,474
outstanding at March 31, 1998 and 9,286,974 outstanding at December 31, 1997 103,865 92,870
Additional paid-in capital 12,699,033 12,694,678
Accumulated deficit (7,087,310) (7,393,150)
----------- -----------
Total stockholders' equity 5,718,738 5,412,898
------------ -----------
Total Liabilities and Stockholders' Equity $14,922,894 $13,540,635
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(Unaudited)
1998 1997
---- ----
Revenues $3,198,641 $ 2,680,450
---------- ------------
<S> <C> <C>
OPERATING EXPENSES:
Salaries 771,386 702,703
Other operating expenses 743,881 813,143
Films and supplies 127,693 142,318
Equipment maintenance and repairs 138,382 173,495
Consulting and marketing fees 250,449 49,200
Professional fees 95,424 62,601
Depreciation and amortization 424,871 324,853
Interest 194,599 107 139
------- ---------
2,746,685 2,375,452
---------- ---------
Income Before Non-Cash Compensation Charge,
Minority Interests in Joint Ventures and Income
Taxes 451,956 304,998
Non-Cash Compensation Charge -- (191,846)
Minority Interests in Joint Ventures (136,130) (97,159)
----------- ---------
Operating Income Before Income Taxes 315,826 15,993
Income Tax Provision 9,986 13,181
------------ -------
Net Income $ 305,840 $ 2,812
============== ================
Net Income per Common Share - Basic $ .03 $ .00
============== ================
Weighted Average Common Shares
Outstanding - Basic 9,762,235 4,961,974
============== ================
Net Income per Common Share- Diluted $ .03 $ .00
============== ================
Weighted Average Common Shares
Outstanding - Diluted 11,397,184 10,255,754
============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL (DEFICIT) TOTAL
--------------- ------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 185,000 $18,500 9,286,974 $92,870 $12,694,678 $(7,393,150) $5,412,898
Conversion Series C Convertible
Preferred Stock (153,500) (15,350) 1,074,500 10,745 4,605 -- --
Record cashless exercise of stock
option grant 25,000 250 (250)
Net income for three months ended
March 31, 1998 305,840 305,840
----------- ---------- ------------- ----------- ------------- ------------- ----------
BALANCE, MARCH 31, 1998 31,500 $3,150 10,386,474 $103,865 $12,699,033 $(7,087,310) $5,718,738
=========== ========== ============= =========== ============= ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
-------------------------------
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 305,840 $ 2,812
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 424,871 324,853
Amortization of non-cash compensation -- 191,846
Minority interests in joint ventures 136,130 97,159
Allowance for doubtful account 182,000 135,000
Changes in Assets and Liabilities:
Accounts receivable (739,050) (502,784)
Prepaid expenses and other (37,032) (76,292)
Advances to licensee 57,582 (472)
Accounts payable and accrued expenses 376,898 203,833
Income taxes payable 8,750 11,750
Other assets (178,343) (167,913)
---------- ---------
Net cash provided by operating activities 537,646 219,792
---------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of marketable securities -- 625,000
Purchases of property, plant and equipment (1,962) (109,924)
---------- ---------
Net cash (used in) provided by investing activities (1,962) 515,076
---------- ---------
Cash Flows from Financing Activities:
Borrowings under the revolving line of credit 241,359 --
Distributions to limited partners of joint ventures (42,789) (123,078)
Payments on capital lease obligations (396,375) (267,600)
Proceeds received on sublease for restructured operations 34,727 37,043
Payments against reserve for restructuring costs (56,507) (127,138)
---------- ---------
Net cash used in financing activities (219,585) (480,773)
---------- ---------
Increase in cash and cash equivalents 316,099 254,095
Cash and cash equivalents at beginning of period 70,626 173,879
---------- ---------
Cash and cash equivalents at end of period $ 386,725 $ 427,974
========== =========
Supplemental Cash Flow Information:
Interest paid during the period $ 196,893 $ 109,976
========== =========
Income taxes paid during the period $ 1,236 $ 1,431
========== =========
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Capital leases principally for medical equipment $ 774,226 $ -
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
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 March 31, 1998 and the related statements
of operations and cash flows for the periods ended March 31, 1998 and 1997.
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 three months ended March 31, 1998
are not necessarily indicative of the results of operations expected for the
year ending December 31, 1998 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, 1997 which is on file at
the Securities and Exchange Commission.
Note 2. - Revolving Credit Facility
Effective December 26, 1996, the Company entered into a Loan and
Security Agreement with a lender to provide a 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 the lender. Borrowings under the line of
credit bear interest at the rate of 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 collateralized through a grant of a first security
interest in all eligible accounts receivable. The agreement contains customary
affirmative and negative covenants including covenants requiring the Company
to maintain certain financial ratios and minimum levels of working capital.
Borrowings under this credit facility are used to fund working capital
needs as well as acquiring businesses which are complementary to the Company.
At March 31, 1998, the Company had $1,703,359 outstanding under this credit
facility.
Note 3. - Earnings Per Share
Basic earnings per commom share are computed by dividing net income by
the number of weighted average common shares outstanding for the three months
ended March 31, 1998 and 1997. Diluted earnings per common share are computed
by dividing net income by the weighted average number of common shares
outstanding for the three months ended March 31, 1998 and 1997 plus the
incremental shares that would have been outstanding upon the assumed exercise
of dilutive stock options and awards and conversion of the preferred shares.
For the three months ended March 31, 1998 and 1997 diluted earnings per share
was not materially different from basic earnings per share.
7
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The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1998 1997
----------------------------------- -------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $305,840 9,762,235 $0.03 $2,812 4,961,974 $0.00
======= ======
Effect of Dilutive
Securities
Stock options -- 803,544 -- 673,780
Convertible
preferred stock -- 831,405 -- 4,620,000
----------------------- --------------------------
Diluted EPS
Net income $305,840 11,397,184 $0.03 $2,812 10,255,754 $0.00
==================================== ==================================
</TABLE>
Note 4. - Letters of Intent with respect to the acquisition of Jersey Integrated
HealthPractice, Inc.
As the Company previously announced on March 2, 1998, it has decided
to expand its strategic focus into the area of physician practice management.
To that end, the Company has entered into two letters of intent (the "JIHP
Letters of Intent") with respect to the acquisition of all of the outstanding
capital stock of Jersey Integrated HealthPractice, Inc. ("JIHP"), a management
services organization formed and owned by Pavonia Medical Associates, P.A.
("Pavonia") and Liberty Health Care Systems, Inc. ("Liberty") of Jersey City,
New Jersey. Pavonia, one of the largest independent, multi-specialty practices
in New Jersey, is comprised of over 60 physicians serving over 75,000 patients
in 6 locations in New Jersey. In consideration for this acquisition, the
letters of intent provide, among other things, that the Company would pay
and/or issue to Pavonia and Liberty, in the aggregate, (i) $7.0 million in
cash, (ii) 5.5 million shares of the Company's common stock (500,000 shares of
which may be subject to certain post-closing adjustments), and (iii) $5.0
million of convertible redeemable preferred stock of the Company. The preferred
stock would be redeemable by the Company at any time and is convertible, after
the second anniversary of issuance, at the election of the Company or the
holder at the then fair market value of the common stock. The letters of intent
also provide that JIHP would enter into a non-cancelable (subject to certain
limited exceptions) management services agreement with Pavonia, pursuant to
which JIHP would provide all non-medical management services to Pavonia and, in
exchange therefore, would be entitled to an annual management fee equal to the
greater of (x) 10% of the annual gross revenues of Pavonia or (y) $2.0 million
per annum. The consummation of the transactions is subject to several material
conditions including among other things, the receipt of necessary financing,
the approval of the Company's stockholders, the negotiation of definitive
documentation, the absence of material adverse changes and the satisfactory
completion of due diligence. Although, there can be no assurance that the
transaction will be completed, the Company expects, subject to the satisfaction
of all conditions, to consummate it within the next several months.
8
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In furtherance of its objective of establishing physician practice
management operations in New York and New Jersey, the Company is actively
negotiating with several primary care and multi-specialty physician practices,
as well as the faculty practices of several hospitals. The Company has not
entered into any definitive acquisition agreements or administrative service
agreements with respect to its physician practice management operations,
although it expects to do so within the next several months.
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 expansion of the Company's
strategic focus, and 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, including the ability to establish
physician practice management operations, availability of financing,
reimbursement of healthcare costs, delayed payment and risk of non-payment
and reliance on key personnel. Additional information regarding factors that
could potentially affect the Company or its financial results are included in
the Company's other filings with the Securities and Exchange Commission.
For Three Months Ended March 31, 1998 vs. March 31, 1997
For the three months ended March 31, 1998, revenues were $3,198,641 as
compared to $2,680,450 for the three months ended March 31, 1997, an increase
of approximately $518,000. This increase was primarily due to increased
revenues at the Company's multi-modality fixed-site facility in Ocean Township,
New Jersey (approximately $320,000), as well as the commencement of fixed-site
MRI services in May 1997 at the Meadowlands Hospital Medical Center located in
Secaucus, New Jersey (approximately $238,000) (the "Meadowlands MRI Facility")
and the acquisition of a fixed-site MRI facility, with ultrasound, located in
New York City, New York in November 1997 (approximately $204,000) (the "New
York City MRI Facility"), all of which were partially offset by decreased
revenues at the Company's MRI facility located in Brooklyn, New York
(approximately $180,000) (the "Brooklyn MRI Facility").
For the three months ended March 31, 1998, operating expenses were
$2,746,685 as compared to $2,567,298 for the three months ended March 31,
1997, an increase of approximately $179,000. This increase was primarily due
to (i) expenses incurred in connection with the operation of the Meadowlands
MRI Facility (approximately $127,000), (ii) additional operating costs
associated with the New York City MRI Facility (approximately $174,000), (iii)
increased consulting and marketing fees (approximately $201,000), all of which
were partially offset by (iv) certain non-cash compensation charges which were
fully amortized during fiscal 1997 (approximately $192,000 was amortized during
the three months ended March 31, 1997). The non-cash compensation charges
result primarily from the grant of (i) stock options to two of the Company's
former directors, (ii) stock options and a restricted stock award to the
Company's Chairman of the Board, President and Chief Executive Officer (the
"CEO") and (iii) stock options to Biltmore Securities, Inc. ("Biltmore")
pursuant to a consulting agreement. See, "Liquidity and Capital Resources of
the Company."
During the three months ended March 31, 1998, as a corporate general
partner, the Company recorded $13,289 of losses attributable to the limited
partnership interest in the Philadelphia,
10
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Pennsylvania joint venture (the "Philadelphia MRI Facility") in excess of the
limited partners' capital accounts.
Historically, the operating results for the Company have been
negatively impacted by the Philadelphia MRI Facility. However, the Company's
expanded advertising and marketing efforts on behalf of the Philadelphia MRI
Facility has resulted in significantly reduced losses. The Company is
negotiating the purchase of the interest in the Philadelphia MRI Facility not
currently owned by it (i.e., the limited partners' interest) and it expects to
consummate such purchase by the end of fiscal 1998. However, there can be no
assurance as to the timing or consummation of this purchase, or as to the
timing or the magnitude of a restructuring charge, if any, relating to the
Philadelphia MRI Facility. In addition, the operating results of the Company
for the three months ended March 31, 1998 were substantially affected by the
Brooklyn MRI Facility which incurred a loss of $237,597. In connection with
the Company's review of the viability of this facility, the Company is
actively considering the sale, sublease or renegotiation of the terms of the
lease of this facility. However, there can be no assurances that such a sale,
sublease or renegotiation will be successfully concluded.
The Company has not yet made an assessment as to Year 2000 compliance
issues. Therefore, no assurance can be given that the effects of the Year 2000
will not have a material adverse effect on the Company's operation and
financial condition.
Liquidity and Capital Resources of the Company
As of March 31, 1998, the Company had a cash balance of $386,725,
current assets of $6,542,240 and working capital of $1,346,520. Cash flows
provided by operating activities were $537,646 for the three months ended
March 31, 1998, which consisted primarily of depreciation and amortization of
$424,871, an increase in the allowance for doubtful accounts receivable of
$182,000 and minority interests in joint ventures of $136,130. Other
significant components of cash flows provided by operating activities include
an increase in accounts receivable of $739,050 due to an increase in the
number of procedures being performed, an increase in accounts payable and
accrued expenses of $376,898 primarily due to a security deposit received in
the amount of $200,000 relating to the sale of the mobile MRI unit at the
Meadowlands MRI Facility and an extension of the period during which vendors
are paid.
Cash flows used in financing activities were $219,585, which
consisted primarily of payments on capital lease obligations of $396,375,
payments against reserves for restructuring costs of $56,507 and distributions
to limited partners of joint ventures of $42,789, partially offset by
borrowings of $241,359 under the revolving line of credit, proceeds of $34,727
from the sublease of the restructured mobile MRI operations and the Maiden
Choice MRI equipment.
The Company's Philadelphia MRI Facility, which has been operating
since November 1992, continues to operate at a loss. 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 March 31, 1998, the amount
of such working capital loans was approximately $2,702,000 (of which
approximately
11
<PAGE>
$152,000, inclusive of an intercompany interest charge of approximately
$62,000, was loaned in 1998). In order to become profitable, this joint venture
must attain a certain volume of business and it is uncertain whether such
business level will ever be attained. The Company cannot at this time determine
when, or if, these loans will be repaid. 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 1998. However, there can be no
assurance that these negotiations will be successfully concluded or as to the
timing and magnitude of a restructuring charge, if any, relating to the
Philadelphia MRI Facility. In addition, because of the increasingly difficult
operating environment relating to the Company's Brooklyn MRI Facility, the
Company is currently contemplating selling, subleasing or renegotiating the
terms of the lease with respect to this facility.
The nature of the Company's operations require significant capital
expenditures which have been financed through the issuance of debt and capital
leases and proceeds received from the sale of equity securities, including the
Company's initial public offering in November 1991, the sale of the Series C
Preferred Stock in February 1996 and the offering and exercise of warrants.
Continued expansion of the Company's business, including the establishment of
physician practice management operations, will require substantial cash
resources and will have an impact on the Company's liquidity. The Company
believes it will continue to be able to obtain the financing necessary for its
continued expansion.
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, 1999, 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 initial term of the consulting agreement.
In February 1998, the Company entered into an agreement (the
"Biltmore Agreement") with those parties who have been assigned the Biltmore
Options, upon the terms and subject to the conditions set forth in the Biltmore
Agreement, and the rights to the Biltmore Fee Shares pursuant to which the
Company will pay an aggregate of $3,500,000 for the Biltmore Options and the
rights to the Biltmore Fee Shares. The Biltmore Agreement provides that in no
event will the closing of this contemplated transaction occur later than the
ninetieth (90) day following the earlier to occur of (i) the consummation of
the acquisition of Jersey Integrated HealthPractice, Inc. ("JIHP") or (ii) the
Company raising aggregate gross proceeds of $60 million from one or more debt
and/or equity financings. In the event that neither above referenced
contingency is met by June 30, 1998, the Biltmore Agreement shall terminate and
be of no further force or effect.
12
<PAGE>
In November 1996, the Company formed a limited liability company, of
which it owned sixty (60%) percent, with Practice Management Corporation to
provide on-site MRI services to Meadowlands Hospital Medical Center (the
"Meadowlands MRI Facility"). The site commenced operations on May 8, 1997
utilizing one of the Company's mobile MRI units. The operating results of the
Company, for the year ended December 31, 1997 were adversely affected by this
facility which incurred a loss of $383,195. In addition, as of December 31,
1997, the Company made working capital loans to this joint venture of
approximately $941,000 inclusive of management fees and intercompany interest.
Based upon losses sustained and due to the expectation of continuing losses,
the Company has decided to sell the mobile MRI unit and to cease its MRI
services at the Meadowlands MRI Facility. The Company acquired the joint
venture interest not owned by it effective as of December 31, 1997. The Company
has also entered into an agreement for the sale of the mobile MRI unit with an
unaffiliated third party. It is anticipated that the sale of the mobile MRI
unit will be consummated and the operations at the Meadowlands MRI Facility
will be terminated during the second quarter of fiscal 1998. No loss is
anticipated in connection with such sale and cessation of operations of this
facility. The Company anticipates that the decrease in revenues attributable to
the closure of the Meadowlands MRI Facility will be partially offset by an
increase in revenues resulting from the expansion and enhancement of the
Company's MRI facility located in nearby Edgewater, New Jersey.
Effective December 26, 1996, the Company entered into a Loan and
Security Agreement with a lender to provide a 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 the lender. Borrowings under the line of
credit bear interest at the rate of 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 collateralized through a grant of a first security
interest in all eligible accounts receivable. The agreement contains customary
affirmative and negative covenants including covenants requiring the Company
to maintain certain financial ratios and minimum levels of working capital.
Borrowings under this credit facility will be used to fund working capital
needs as well as acquiring businesses which are complementary to the Company.
At March 31, 1998, the Company had $1,703,359 outstanding under this credit
facility.
In December 1997, in conjunction with the JIHP Letters of Intent, the
Company agreed to guarantee a loan of $1,000,000 from DVI Financial Services,
Inc. ("DFS") to JIHP. This loan bears interest at 12% per annum and is payable
in forty-eight (48) monthly installments of $26,330 which commenced February
1998. Pavonia and each physician stockholder of Pavonia have agreed that to the
extent that the Company is or becomes liable in respect of any indebtedness or
other liability or obligation of either Pavonia or JIHP, and the acquisition by
the Company of JIHP is not consummated as contemplated by the JIHP Letters of
Intent, then Pavonia and each physician stockholder of Pavonia agree to
indemnify and hold the Company harmless from and against any such liabilities.
The Company believes that cash to be provided by the Company's
operating activities together with borrowings available from the Company's
revolving line of credit will enable the
13
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Company to meet its anticipated cash requirements for its present operations
for the next twelve months. Continued expansion of the Company's business,
including the establishment of physician practice management operations, will
require additional sources of financing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
14
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PART II - OTHER INFORMATION
Items 1 through 4 have been omitted because the related information
is either inapplicable or has been previously reported.
Item 5. Other Information
On April 24, 1998, the Company issued the press release (the "Press
Release") annexed as Exhibit 99.1 hereto. The Press Release is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.54 - Employment Agreement dated April 13, 1998
between Robert D. Baca and HealthCare Imaging Services, Inc.*
Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - Press Release of HealthCare Imaging Services,
Inc. dated April 24, 1998
* Such exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this
Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
(1) The Company filed a Current Report on Form 8-K/A with
the Securities and Exchange Commission on January 16, 1998.
(i) Item 7. Financial Statements and Exhibits
(a) Audited Financial Statements of M. R. Radiology
Imaging of Lower Manhattan, P.C. for the year ended
December 31, 1996.
(b) Unaudited Financial Statements of M. R. Radiology
Imaging of Lower Manhattan, P.C. for the nine month
period ended September 30, 1997.
(c) Pro Forma Financial Information of the Company and
M. R. Radiology Imaging of Lower Manhattan, P.C.:
(i) Pro Forma Consolidated Condensed Balance
Sheets as of September 30, 1997
(ii) Pro Forma Consolidated Statements of
Operations for the nine months ended
September 30, 1997
(iii) Pro Forma Consolidated Statements of
Operations for the year ended December 31,
1996
(d) Consent of David Fischer & Co., P.A.
15
<PAGE>
(2) The Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission on March 16, 1998.
(i) Item 5. Other Events
(ii) Item 7. Financial Statements and Exhibits
(a) Press Release of HealthCare Imaging Services,
Inc. dated March 2, 1998
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)
Date: May 8, 1998 /s/ Elliott H. Vernon
---------------------
Elliott H. Vernon
Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 8, 1998 /s/ Scott P. McGrory
--------------------
Scott P. McGrory
Vice President - Controller
(Principal Financial and
Accounting Officer)
17
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this
13th day of April, 1998, by and between HIS PPM Co., a Delaware corporation
(the "Company"), and Robert D. Baca ("Employee").
W I T N E S S E T H :
WHEREAS, the Company was formed by HealthCare Imaging Services, Inc.
("HIS") to engage in the physician practice management business;
WHEREAS, Employee has substantial experience with, and has owned and
operated, several physician practice management companies;
WHEREAS, the Company desires to employ and retain Employee as its
President and Chief Operating Officer;
WHEREAS, the Company desires to assure itself of Employee's continued
employment in a managerial capacity and to compensate him for such employment;
and
WHEREAS, Employee is willing to be employed by Company upon the terms
and subject to the conditions contained in this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ Employee, and Employee
hereby agrees to serve the Company, for the Term (as defined in Section 2
below) of this Agreement, in the position and with the duties and
responsibilities set forth in Section 3 below, and upon the other terms and
subject to the conditions hereinafter stated.
2. TERM. The initial term (the "Initial Term") of this Agreement shall
commence on April 13, 1998 (the "Commencement Date") and shall continue until
the third anniversary of that date (the "Initial Expiration Date"); provided,
however, that this Agreement at all times shall be subject to earlier
termination in accordance with the provisions hereof. On the Initial Expiration
Date and each anniversary of the Initial Expiration Date, the term of this
Agreement automatically shall be extended for an additional one (1) year term
(the "Extended Term") unless either party gives written notice to the other not
less than one hundred and eighty (180) days prior to the end of the then
current Term that it does not desire to extend the Term. For purposes of this
Agreement, "Term" means the Initial Term and, as so extended, the Extended
Term.
<PAGE>
3. POSITION, DUTIES AND RESPONSIBILITIES.
3.1 Position, Duties and Responsibilities. During the Term,
Employee shall serve as the President and Chief Operating Officer of the
Company, and shall be responsible for the duties attendant to such office,
which duties will be generally consistent with his position as an executive
officer of the Company and which will generally utilize his business and
professional experience prior to the date hereof, and such other managerial
duties and responsibilities with the Company, its subsidiaries or divisions as
may be assigned by the Chairman of the Board of Directors and/or Board of
Directors of the Company (the "Board"). Employee will report directly to the
Chairman of the Board and the Chief Executive Officer of the Company.
Employee's duties shall be performed principally at the Company's executive
offices which are located in the New York City Metropolitan Area (as defined
below), and Employee shall not be required to perform duties which would
necessitate changing his present residence, unless Employee otherwise agrees in
writing. For purposes of this Agreement, the term "New York City Metropolitan
Area" shall encompass the City of New York and the territory within fifty miles
from that city in any direction. Employee acknowledges and agrees that, in
connection with his employment hereunder, he may be required to travel on
behalf of the Company.
3.2 Services to be Provided. During the Term, Employee shall
devote all of his working time, attention and energies to the affairs of the
Company and its subsidiaries and divisions and shall faithfully and diligently
perform his duties and responsibilities hereunder and use his best efforts in
the performance of his duties and responsibilities to promote its and their
best interests; provided, however, that nothing herein shall preclude Employee
from (i) serving on the boards of directors of a reasonable number of other
corporations, trade associations or charitable organizations, (ii) engaging in
charitable activities and community affairs or (iii) managing his personal
investments and affairs; provided, however, that, in the reasonable
determination of the Board, such activities do not interfere with the
performance of Employee's duties and responsibilities under this Agreement and
subject in each case to the covenants contained in Section 11.
4. SALARY.
4.1 Base Salary. During the Term, Employee shall be paid a
base salary (the "Base Salary"), payable in equal installments at such
intervals as the other executive officers of the Company are paid but not less
often than bi-weekly, at an annual rate of two hundred twenty five thousand
dollars ($225,000). On each anniversary date of the Commencement Date during
the Term, the annual rate of the Base Salary shall be increased (but not
decreased) by (a) the same percentage as the increase during the immediately
preceding calendar year in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for All Urban Consumers (1962-1984 =
100) (the "CPI") or (b) such greater amount as may be determined by the Board.
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<PAGE>
4.2 Bonus Compensation. As promptly as practicable after the
execution of this Agreement, the Company and Employer will endeavor to create a
bonus program with respect to the Company's physician practice management
operations, to include such performance goals and other criteria, including
Employee's participation therein, as the Company and Employee mutually agree.
4.3 Equity Opportunity. Concurrently with the execution of
this Agreement, HIS and Employee shall enter into the following stock option
agreements (i) a stock option agreement (a form of which is attached hereto as
Exhibit A) providing for the grant to Employee under the HIS' 1997 Omnibus
Incentive Plan (the "Plan"), of stock options to purchase an aggregate of two
hundred thousand (200,000) shares of common stock, par value $.01 per share, of
HIS (the "Common Stock") at an exercise price equal to $[the closing sales
price on the date the employment agreement is executed] per share and (ii) a
stock option agreement (a form of which is attached hereto as Exhibit B)
providing for the grant to Employee under the Plan, of stock options to
purchase an aggregate of one hundred fifty thousand (150,000) shares of Common
Stock with an exercise price of $7.50, $10.00 and $12.00 per share,
respectively, for each 50,000 share tranche. The stock options described in
clauses (i) and (ii) above shall vest and be exercisable as set forth in their
respective stock option agreement and the Plan.
5. EMPLOYEE BENEFITS.
5.1 Benefit Programs. In addition to the benefits expressly
provided for herein, during the Term, Employee shall participate with other
members of senior management of the Company in any pension, profit-sharing,
stock option or similar plan or program of the Company and/or HIS now existing
or established hereafter for the benefit of the Company's employees or senior
executives of the Company or its subsidiaries generally, to the extent that he
remains eligible under the general provisions thereof. Employee shall also be
entitled to participate in any group insurance, hospitalization, medical,
health and accident, disability or similar plan or program of the Company
and/or HIS now existing or established hereafter for the benefit of the
Company's employees or executives of the Company and its subsidiaries
generally, to the extent that he is eligible under the general provisions
thereof.
5.2 Automobile. In furtherance and not in limitation of
Section 5.1 hereof, the Company will pay to Employee, on the first day of each
month during the Term, a monthly automobile allowance of one thousand dollars
($1,000) to help defray the costs associated with Employee's acquisition (by
lease or otherwise) of an automobile and the insurance and maintenance thereof.
5.3 Vacation; Personal Days. During the Term, Employee shall
be entitled to four (4) weeks annual vacation with pay during each year of his
employment hereunder provided that the vacation days taken do not materially
interfere with the operations of the Company. Such vacation may be taken, in
Employee's discretion, at such time or times as are not inconsistent with the
reasonable business needs of the Company. Employee shall not be entitled
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<PAGE>
to additional compensation in the event that Employee, due to the needs of the
Company, is unable to take such vacation during any year of his employment
hereunder. Employee shall also be entitled to all paid holidays and personal
days given by the Company or HIS to their respective executives.
5.4 Insurance. Employee agrees that the Company and/or HIS
may at any time and for the Company's or HIS', as the case may be, own benefit,
apply for and take out life, health, accident, and/or other insurance covering
Employee either independently or together with others in any amount which the
Company and/or HIS, as the case may be, deems to be in its best interests. The
Company and/or HIS shall own all rights in any such insurance policies and in
the cash values and proceeds thereof and, except as otherwise provided,
Employee shall not have any right, title or interest therein. Employee agrees
to assist the Company and/or HIS, as the case may be, at the Company's or HIS',
as the case may be, expense, in obtaining any such insurance by, among other
things, submitting to the customary examinations and correctly preparing,
signing and delivering such applications and other documents as may be required
by insurers.
5.5 Office Space. The Company shall furnish Employee with a
private office suitable for an executive officer and full-time secretarial
assistance.
6. EXPENSES. Employee is authorized to incur reasonable expenses in
connection with the promotion of the Company's business, including, but not
limited to, the purchase of computer and telecommunications equipment necessary
for Employee to perform his duties hereunder, business entertainment expenses
and expenses for Employee's travel and similar items. To that end, the Company
shall reimburse Employee, upon presentation of appropriate vouchers or receipts
and in accordance with the Company's expense reimbursement policies, for all
reasonable expenses incurred by Employee in connection with the performance of
his duties under this Agreement.
7. TERMINATION. Employee's employment under this Agreement may be
terminated without any breach of this Agreement only under the following
circumstances:
7.1 Death. Employee's employment shall terminate upon his
death.
7.2 Disability. In the event Employee shall be unable to
render the services or perform his duties hereunder by reason of illness,
injury or incapacity (whether physical, mental, emotional or psychological) for
a period of either (a) ninety (90) consecutive days or (b) one hundred eighty
(180) days in any consecutive three hundred sixty-five (365) day period (either
of such events shall constitute a "Disability" for purposes of this Agreement),
the Company shall have the right to terminate this Agreement.
7.3 Termination of Employment of Employee by the Company for
Cause. The Company may terminate the employment of Employee for Cause (as
hereinafter defined). The term "Cause," as used herein, shall mean (a)
Employee's willful misconduct or gross neglect
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<PAGE>
in the performance of his duties hereunder, (b) the material breach of this
Agreement by Employee, which breach, to the extent curable prior to the Company
suffering material injury (economic or otherwise), shall remain unremedied for
ten (10) days after Employee shall have been given notice of such breach,
provided that no such notice or cure period shall apply to any breach that has
been concealed by Employee, (c) the final, non-appealable conviction of
Employee of, or a plea of guilt or nolo contendere, in respect to, a felony
involving dishonesty or which constitutes a crime of moral turpitude, (d)
habitual drug or alcohol abuse or (e) the conviction of, or the entry of an
order or consent decree with respect to a violation or purported violation of
any state or federal securities laws.
Employee shall not be deemed to have been terminated
for Cause unless and until, after reasonable notice to Employee and an
opportunity for him, together with his counsel, to be heard before the Board,
the Board has determined (by affirmative vote of a majority of the full Board,
excluding Employee) that Employee was guilty of the conduct described in clause
(a), (b) or (d) of the preceding paragraph, and delivered to Employee a Notice
of Termination (as defined below) stating such determination and specifying the
particulars thereof in detail.
7.4 Termination of Employment by Employee for Good Reason.
Employee may terminate his employment hereunder for Good Reason (as hereinafter
defined). For purposes of this Agreement, "Good Reason" shall mean (i) a Change
in Control (as defined below), (ii) a change in his position, duties, authority
or responsibilities or any other action by the Company which results in a
material diminution of the position, duties, authority, or responsibility of
Employee, (iii) a reduction in Employee's Base Salary as in effect on the date
of this Agreement or as the same may be increased from time to time, or a
reduction in Employee's other benefits unless, with respect to a reduction of
benefits, all members of senior management of the Company are similarly
affected, (iv) the Company shall materially breach any provision of this
Agreement, which breach shall continue unremedied for twenty (20) days, (v)
failure of the Company to obtain from any successor the assumption of or the
agreement to perform this Agreement (as contemplated in Section 16 hereof), or
(vi) any purported termination of Employee's employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 7.6.
For purposes of this Agreement, a "Change in Control"
of the Company shall mean a change in control of a nature that would be
required to be reported, with respect to HIS, in a current report on Form 8-K,
as in effect on the date of this Agreement, or pursuant to Section 13 or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
including, without limitation, (A) the acquisition of "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, by
any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than the Company or Employee or an entity directly or indirectly
controlled by HIS or Employee, of securities of the Company or HIS representing
a majority of the combined voting power of the Company's or HIS', as the case
may be, then outstanding securities, (B) the failure, for any reason, of the
individuals who presently
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<PAGE>
constitute the Board of Directors of the Company or HIS (the "Incumbent Board")
to constitute at least a majority thereof, provided that any director whose
election has been approved in advance by directors representing at least
two-thirds (2/3) of the directors comprising the Incumbent Board shall be
considered, for these purposes, as though such director were a member of the
Incumbent Board, (C) the stockholders of the Company or HIS, as the case may
be, approve a merger or consolidation of the Company or HIS, as the case may
be, with any other corporation (other than an affiliate of HIS), other than a
merger or consolidation which would result in the voting securities of the
Company or HIS, as the case may be, outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least a majority of the
combined voting power of the voting securities of the Company or HIS, as the
case may be, or such surviving entity outstanding immediately after such merger
or consolidation and such merger or consolidation occurs; or (D) the
stockholders of the Company or HIS, as the case may be, approve a plan of
complete liquidation of the Company or HIS, as the case may be, or an agreement
for the sale or disposition by the Company or HIS, as the case may be, of all
or substantially all of the Company's or HIS' assets.
7.5 Termination of Employment by the Company or Employee.
Either party may terminate this Agreement if the Company or Employee become
subject to an order of a court of competent jurisdiction or other governmental
or arbitral body restricting Employee from providing services to the Company or
otherwise restricting the Company from availing itself of Employee's services.
7.6 Notice of Termination. Any termination of Employee's
employment by the Company or by Employee (other than a termination pursuant to
Section 7.1 above) shall be communicated by written Notice of Termination to
the other party. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific provision in this
Agreement relied upon to effect such termination and shall set forth a
reasonably detailed description of the basis for termination of Employee's
employment under the provision so indicated. Any purported termination not
satisfying the requirements of this Section 7.6 shall not be effected.
7.7 Date of Termination. "Date of Termination" shall mean (a)
if Employee's employment is terminated by his death, the date of his death and
(b) if Employee's employment is terminated for any other reason, the date
specified in the Notice of Termination (which date may be the date of such
Notice of Termination); provided that if within thirty (30) days after the
Notice of Termination is given pursuant to Section 7.3(a), (b) or (d), Employee
notifies the Company that a dispute exists concerning the termination, the Date
of Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties or by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal having expired and no appeal having
been perfected); provided, further that if the Company prevails in its
determination to terminate Employee for Cause in such arbitration or
litigation, the Date of Termination shall be the date specified in the
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<PAGE>
Notice of Termination; provided, further, that until such dispute is finally
determined, the Company shall be entitled to suspend all compensation and
benefits to which Employee was entitled hereunder and Employee agrees during
the pendency of such dispute not to hold himself out as an officer or employee
of the Company or to take any actions purportedly on its behalf.
8. COMPENSATION UPON TERMINATION.
8.1 Compensation Upon Termination For Death. In the event of
the death of Employee during the Term, Employee's designated beneficiary, or,
in the absence of such designation, the estate or other legal representative of
Employee (collectively, the "Estate"), shall be paid within thirty (30) days of
Employee's death, an amount equal to the sum of Employee's unpaid Base Salary
through the month in which Employee's death occurred, as well as all unpaid and
accrued incentive compensation (including, if applicable, an annual bonus)
through the Date of Termination. Employee's entitlement to the incentive
compensation shall be pro-rated for any fiscal year which has commenced but not
ended prior to the Date of Termination and be due and payable as soon as
practicable after the end of each fiscal year. The Estate shall be entitled to
other death benefits in accordance with the terms of the Company's benefit
programs and plans and the other provisions of this Agreement, and the Estate
shall be entitled to continue to participate in such benefit programs and plans
until the end of the Term on the same terms and conditions as Employee
participated immediately prior to the Date of Termination to the extent
permissible under the general terms and provisions of such programs and plans.
8.2 Compensation Upon Termination for Disability. If
Employee's employment hereunder is terminated for Disability, Employee shall be
paid, within thirty (30) days of the Date of Termination, an amount equal to
the sum of Employee's unpaid Base Salary through the month in which such date
occurred, as well as all unpaid and accrued incentive compensation (including,
if applicable, an annual bonus) through the Date of Termination. Employee's
entitlement to the incentive compensation shall be pro-rated for any fiscal
year which has commenced but not ended prior to the Date of Termination and be
due and payable as soon as practicable after the end of each fiscal year. The
Company shall continue to pay Employee the Base Salary (as and when such Base
Salary would have been paid had such termination not taken place) for a period
of six months after the month in which such Date of Termination occurred. The
amounts provided for above shall be reduced by any disability benefits received
by Employee from disability policies paid for by the Company. Employee shall be
entitled to other disability compensation and benefits in accordance with the
Company's benefit programs and plans and the other provisions of this
Agreement.
8.3 Compensation Upon Termination for Cause. (a) If
Employee's employment is terminated by the Company for Cause, the Company shall
pay Employee his Base Salary through the date the Notice of Termination is
given at the rate in effect at the time Notice of Termination is given, as well
as all accrued and unpaid incentive compensation (including an annual bonus, if
applicable) through the date the Notice of Termination is given, and the
Company shall have no further obligations to Employee under this Agreement;
provided,
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<PAGE>
however, that if Employee (i) is terminated pursuant to Section 7.3(a), (b) or
(d) and (ii) notifies the Company within 30 days after the date the Notice of
Termination is given that a dispute exists concerning the termination, and such
dispute is finally determined in favor of Employee, either by a mutual written
agreement of the parties or by a binding and final arbitration award or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal having expired and no appeal having been perfected) then the Company
shall pay to Employee an amount equal to his Base Salary for the period from
the date the Notice of Termination was given through the date the dispute was
finally determined. Employee's entitlement to incentive compensation,
including, if applicable, an annual bonus, shall be pro-rated for any fiscal
year which has commenced but not ended prior to the Date of Termination and be
due and payable as soon as practicable after the end of each fiscal year.
(b) If Employee's employment is terminated by the Company or
Employee pursuant to Section 7.5, the Company shall pay Employee his Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, as well as all accrued and unpaid incentive
compensation (including an annual bonus, if applicable) through the Date of
Termination, and the Company shall have no further obligations to Employee
under this Agreement. Employee's entitlement to incentive compensation shall be
pro-rated for any fiscal year which has commenced but not ended prior to the
Date of Termination and be due and payable as soon as practicable after the end
of each fiscal year.
8.4 Improper Termination; Good Reason. (a) Subject to the
provision of Section 8.4(b) hereof, if (x) in breach of this Agreement, the
Company shall terminate Employee's employment other than pursuant to Section
7.1, 7.2, 7.3 or 7.5 (it being understood that a purported termination pursuant
to Section 7.3 which is disputed and finally determined not to have been proper
shall be a termination by the Company in breach of this Agreement) or (b)
Employee shall terminate his employment for Good Reason, then:
(i) The Company shall pay Employee his full Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, as well as all accrued incentive compensation
(including, if applicable, an annual bonus) through the Date of Termination.
(Employee's entitlement to incentive compensation shall be pro-rated for any
fiscal year which has commenced but not ended prior to the Date of Termination
and be due and payable as soon as practicable after the end of each fiscal
year.
(ii) In lieu of all salary and incentive
compensation payments which Employee would have earned under this Agreement but
for his termination, the Company shall pay to Employee, as liquidated damages,
an amount equal to the product of (A) the sum of (1) the Base Salary in effect
as of the Date of Termination and (2) the average of the bonus compensation
paid or payable to Employee with respect to the three years preceding the year
in which the Date of Termination occurs (or such lesser period as Employee may
have been employed), whether or not such years were a part of the Term, and (B)
the lesser of (1) the number of months remaining in the Term divided by twelve
(12) and (2) one and one-half (1.5),
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<PAGE>
such amount to be payable to Employee over a period of months equal to the
lesser of (x) the number of months remaining in the Term and (y) eighteen (18),
in equal bi-monthly installments on the fifteenth and last day of each month,
commencing on the fifteenth day of the month following the month in which the
Date of Termination occurs.
(b) If, within one (1) year after the occurrence of a Change
of Control, (x) in breach of this Agreement, the Company shall terminate
Employee's employment other than pursuant to Section 7.1, 7.2, 7.3 or 7.5 (it
being understood that a purported termination pursuant to Section 7.3 which is
disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement) or (y) Employee shall terminate his
employment for Good Reason, then
(i) The Company shall pay Employee his full Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, as well as all accrued incentive compensation
(including, if applicable, an annual bonus) through the Date of Termination.
Employee's entitlement to incentive compensation shall be pro-rated for any
fiscal year which has commenced but not ended prior to the Date of Termination
and be due and payable as soon as practicable after the end of each fiscal
year.
(ii) In lieu of all salary and incentive
compensation payments which Employee would have earned under this Agreement but
for his termination, the Company shall pay to Employee, as liquidated damages,
an amount equal to the present value, based on the Applicable Federal Rate (as
defined in Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code")), of the product of (A) the sum of (1) the Base Salary in effect
as of the Date of Termination and (2) the average of the bonus compensation
paid or payable to Employee with respect to the three years preceding the year
in which the Date of Termination occurs (or such lesser period as Employee may
have been employed), whether or not such years were a part of the Term, and (B)
the lesser of (1) the number of months remaining in the Term divided by twelve
(12) and (2) one and one-half (1.5) (such payment being referred to as the
"Termination Payment"). All payments under this clause (ii) shall be made on or
before the tenth day following the Date of Termination. Employee shall not be
required to mitigate the amount of compensation payable to Employee hereunder,
by securing other employment or otherwise, nor will such compensation be
reduced by reason of Employee securing other employment or for any other
reason.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify Employee to the fullest
extent (x) permitted by applicable law consistent with the Company's
Certificate of Incorporation and ByLaws as in effect on the date hereof, and
(y) provided to the Company's Chief Executive Officer, with respect to any acts
or non-acts he may have committed while he was an officer, director, and/or
employee (i) of the Company or any subsidiary or affiliate thereof, or (ii) at
the request of the Company, of any other entity.
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<PAGE>
(b) The Company agrees to maintain for Employee a directors'
and officers' liability insurance policy not less favorable than any policy
that the Company maintains for its directors and executive officers in general.
10. CONFIDENTIAL INFORMATION.
10.1 Employee hereby acknowledges that, in the course of his
employment by the Company, he will have access to secret and confidential
information which relates to or affects all aspects of the business and affairs
of the Company, its subsidiaries, affiliates (including HIS) or divisions, and
which are not available to the general public ("Confidential Information").
Without limiting the generality of the foregoing, Confidential Information
shall include information relating to the Company's, HIS' and their respective
subsidiaries', affiliates' and divisions' financial data, strategic business
plans, inventions, developments, specifications, technical and engineering
data, business ideas, trade secrets, products under development, production
methods and processes, sources of supply, marketing plans, and the names of any
customers or prospective customers or of any persons who have or shall have
traded or dealt with the Company. Accordingly, Employee agrees that, except as
required by the performance of his duties hereunder, he will not, at any time
during the Term and for a period commencing on the Date of Termination and
concluding upon the earlier to occur of (a) three (3) years after such Date of
Termination and (b) the date subsequent to such Date of Termination upon which
the Company is in material breach of any material provision of this Agreement
(provided that Employee notifies the Company in writing of such breach and the
Company does not cure such breach within thirty (30) days of the receipt of
such notice from Employee), disclose or furnish any Confidential Information to
any person, firm, corporation or other entity without the express prior written
consent of the Company. Notwithstanding the foregoing, the term Confidential
Information shall not include information or data which (i) is now or hereafter
in the public domain, other than as a result of the breach of this Section 10
by Employee, (ii) prior to the date of commencement of Employee's employment by
the Company was known to Employee, (iii) is lawfully acquired by Employee from
a third party who, to Employee' s knowledge, is not prohibited from disclosing
such data or information to Employee or (iv) is required to be disclosed by
court order or other legal process.
10.2 Employee hereby acknowledges and agrees that any and all
models, prototypes, notes, memoranda, notebooks, drawings, records, plans,
documents or other material in physical form which contain or embody
Confidential Information, whether created or prepared by Employee or by others
("Confidential Materials"), which are in Employee's possession or under his
control, are the sole property of the Company. Accordingly, Employee hereby
agrees that, upon the termination of his employment with the Company, whether
pursuant to this Agreement or otherwise, or at the Company's earlier request,
Employee shall return to the Company all Confidential Materials and all copies
thereof in his possession or under his control and shall not retain any copies
of Confidential Materials.
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11. NON-COMPETITION.
11.1 Employee agrees that he shall not, so long as he shall
be employed by the Company in any capacity (whether pursuant to this Agreement
or otherwise), own, manage, operate, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any business, firm or corporation which is or may be in
competition with the diagnostic imaging or physician practice management
business of the Company, HIS or their respective subsidiaries or affiliates
without the express written consent of the Company; provided, however, that
Employee shall be entitled to perform those services which he currently
performs for [Newtown Medical Center and MSO ("NMC")] and to maintain his
current interest in NMC until such time as (x) the Board determines in its
reasonable discretion that NMC is deemed to be in competition with the Company
or (y) Employee's participation in NMC is detracting from the performance of
his duties hereunder, whereupon Employee will promptly (and in any event,
within one year of such Board determination) divest any and all interest in NMC
and cease performing any services for NMC.
11.2 As a condition to employing Employee and in
consideration of all of the payments and benefits payable hereunder, Employee
agrees that for a period commencing on the effective Date of Termination of his
employment with the Company (for any reason whatsoever) and concluding upon the
earlier to occur of (a) eighteen (18) months after the such Date of Termination
and (b) the date subsequent to such Date of Termination upon which the Company
is in material breach of any material provision of this Agreement (provided
that Employee notifies the Company in writing of such breach and such breach is
not cured within thirty (30) days of the receipt of such notice from Employee),
Employee (i) shall not own, manage, operate, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any business, firm or corporation which is engaged in or
competes with the business of the Company or its subsidiaries or affiliates as
such business is constituted on the Date of Termination and (ii) shall not, on
his behalf or on behalf of any person or entity directly or indirectly,
solicit, place or recruit (x) any employee who has been employed by the Company
or its subsidiaries or affiliates at any time during the twelve (12) months
immediately preceding such solicitation, (y) any person or entity who is a
client or customer of the Company or its subsidiaries or affiliates or (z) any
supplier, lender, lessor or any other person or entity which has a business
relationship with the Company or any of its subsidiaries or affiliates, with a
view to influencing or inducing such employee, client or customer to terminate
or materially lessen his, her or its relationship with the Company or any of
its subsidiaries or affiliates or any physician who at the time has a business
relationship with the Company or any of its subsidiaries or affiliates, or to
develop relationships with Employee or any other person that would have the
same effect.
11.3 Anything to the contrary herein notwithstanding, the
provisions of this Section 11 shall not be deemed violated by the purchase
and/or ownership by Employee of shares of any class of equity securities (or
options, warrants or rights to acquire such securities, or any securities
convertible into or exchangeable or exercisable for such securities) (a) of the
- 11 -
<PAGE>
Company (or any successor thereto), (b) representing (together with any
securities which would be acquired upon the exercise of any such options,
warrants or rights or upon the conversion of any other security convertible
into or exchangeable or exercisable for such securities) five percent (5%) or
less of the outstanding shares of any such class of equity securities of any
issuer whose securities are traded on a national securities exchange or listed
by The Nasdaq Stock Market, the National Quotation Bureau Incorporated or any
similar organization; provided, however, that Employee shall not be otherwise
connected with or active in the business of the issuers described in this
clause (b), or (c) of any entity which is then employing Employee not in breach
of this Section 11.
12. REMEDY FOR BREACH. Employee hereby acknowledges that, in the event
of any breach or threatened breach by him of any of the provisions of Sections
10 or 11 of this Agreement, the Company would have no adequate remedy at law
and could suffer substantial and irreparable damage. Accordingly, Employee
hereby agrees that, in such event, the Company shall be entitled, and
notwithstanding any election by the Company to claim damages, to obtain a
temporary and/or permanent injunction to restrain any such breach or threatened
breach or to obtain specific performance of any such provisions, all without
prejudice to any and all other remedies which the Company may have at law or in
equity.
13. INDEPENDENCE AND SEVERABILITY OF COVENANTS. Executive acknowledges
and agrees that the covenants and other provisions set forth in Sections 10, 11
and 12 are reasonable, including with respect to duration, geographic scope,
activity and subject matter, and that he is receiving valuable and adequate
consideration for such covenants under this Agreement. The parties acknowledge
that it is their intention that all such covenants and provisions be
enforceable to the fullest extent possible under applicable law. If any
provision set forth in Sections 10, 11 or 12 is found to be unenforceable in
any instance, such finding shall not preclude any other enforcement of such
provisions and the provisions of Section 23 will apply. If any provision set
forth in Sections 10, 11 or 12 is found to be invalid, such finding of
invalidity shall not effect the validity of the remaining provisions and the
provisions of Section 23 will apply.
14. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered personally, by
registered or certified mail (return receipt requested), postage prepaid, by
overnight courier or by telecopy (immediately followed by telephone
confirmation of delivery of such telecopy with the intended recipient of such
notice and by notice in writing sent promptly by overnight courier or by
registered or certified mail as provided above) to the parties to this
Agreement at the following addresses or at such other address for a party as
shall be specified by like notice:
To the Company: HIS PPM Co.
200 Schulz Drive
Red Bank, NJ 07701
Telephone: (732) 224-9292
- 12 -
<PAGE>
Telecopy: (732) 224-9362
With copies to: Scott M. Zimmerman, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 891-9379
Telecopy: (212) 758-9526
To Employee: Robert D. Baca
45 Eisenhard Dr.
Ivyland, PA 18974
Telephone: 215-322-7891
Telecopy: 215-322-7884
With copies to: Judy Mackarey, Esq.
All such notices and communications shall be deemed to have been
received on the date of personal delivery or delivery by overnight courier, on
the date that the telecopy is confirmed as having been received or on the third
business day after the mailing thereof if sent by registered or certified mail
(return receipt requested), postage prepaid, as the case may be.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the employment matters contemplated
herein and supersedes all prior agreements or understandings among the parties
related to such employment matters.
16. BINDING EFFECT; THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns and upon Employee. "Successors
and assigns" shall mean, in the case of the Company, any successor pursuant to
a merger, consolidation, or sale, or other transfer of all or substantially all
of the assets of the Company. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Employee to compensation from the Company in the same amount and on the same
terms as if Employee terminated his employment for Good Reason, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used
in this Agreement, "Company" shall mean HIS PPM Co. and any successor to its
business and/or assets.
- 13 -
<PAGE>
17. NO ASSIGNMENT. Except as contemplated by Section 16 above, this
Agreement shall not be assignable or otherwise transferable by either party.
18. AMENDMENT OR MODIFICATION; WAIVER. No provision of this Agreement
may be amended or waived unless such amendment or waiver is authorized by the
Board and is agreed to in writing, signed by Employee and by an officer of the
Company thereunto duly authorized. Except as otherwise specifically provided in
this Agreement, no waiver by either party hereto of any breach by the other
party hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or at any prior or subsequent time.
19. FEES AND EXPENSES. The Company hereby agrees to reimburse Employee
for attorney's fees incurred by Employee with respect to the negotiation of
this Agreement, provided, that in no event shall such amount exceed $7,000. The
Company and Employee agree that, if either party institutes any action or
proceeding to enforce any rights the party has under this Agreement, or for
damages by reason of any alleged breach of any provision of this Agreement, or
for a declaration of each party's rights or obligations hereunder or to set
aside any provision hereof, or for any other arbitral or judicial remedy, each
party shall be responsible for its own costs and expenses incurred thereby,
including but not limited to, attorneys' fees and disbursements.
20. GOVERNING LAW; ARBITRATION. The validity, interpretation,
construction, performance and enforcement of this Agreement shall be governed
by the internal laws of the State of New Jersey, without regard to its
conflicts of law rules. Any controversy or claim arising out of or relating to
this Agreement, shall be settled by arbitration in accordance with the rules of
the American Arbitration Association, and judgment upon such award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Monmouth County, New Jersey or such other place as
may be agreed upon at the time by the parties to the arbitration. The expense
of such arbitration shall be borne by the Company.
21. TITLES. Titles to the Sections and subsections in this Agreement
are intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any Section.
22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, which together shall constitute one agreement. It shall not be
necessary for each party to sign each counterpart so long as each party has
signed at least one counterpart.
23. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction.
- 14 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
HIS PPM CO.
By: /s/ Elliott H. Vernon
---------------------------------------
Name: Elliott H. Vernon
Title: Chairman, President and Chief
Executive Officer
/s/ Robert D. Baca
---------------------------------------
ROBERT D. BACA
- 15 -
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $386,725
<SECURITIES> 0
<RECEIVABLES> 5,932,401
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,542,240
<PP&E> 11,441,005
<DEPRECIATION> 5,542,566
<TOTAL-ASSETS> 14,922,894
<CURRENT-LIABILITIES> 5,195,720
<BONDS> 0
0
3,150
<COMMON> 103,865
<OTHER-SE> 5,611,723
<TOTAL-LIABILITY-AND-EQUITY> 14,922,894
<SALES> 0
<TOTAL-REVENUES> 3,198,641
<CGS> 0
<TOTAL-COSTS> 2,746,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 315,826
<INCOME-TAX> 9,986
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,840
<EPS-PRIMARY> 0.03
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<PAGE>
PRESS RELEASE
-------------
FOR IMMEDIATE RELEASE Contact: Elliott H. Vernon
President, Chairman of the Board
and Chief Executive Officer
(732) 224-9292
HEALTHCARE IMAGING SERVICES, INC. ANNOUNCED TODAY
-------------------------------------------------
THE APPOINTMENT OF ROBERT D. BACA, CPA AS PRESIDENT
---------------------------------------------------
AND CHIEF OPERATING OFFICER OF THE NEWLY FORMED
-----------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT DIVISION
--------------------------------------
Middletown, New Jersey - April 24, 1998 - HealthCare Imaging Services,
Inc. announced today the appointment of Robert D. Baca, CPA as President and
Chief Operating Officer of the newly formed Physician Practice Management
Division. Mr. Baca will be responsible for the day to day operations of this
division. Mr. Baca has over ten years experience in the field of physician
practice management. His experience includes the establishment of one of the
first Independent Physician Associations in the Philadelphia, Pennsylvania
market. He was previously Senior Vice President of Corporate Development for
Medical Resources, Inc., a publicly-traded imaging company with over 100
imaging centers throughout the United States. Prior to joining Medical
Resources, Mr. Baca was the CEO and CFO of Capstone Management, Inc., a
diagnostic imaging company with 12 imaging centers located in 7 states, which
was acquired by Medical Resources in May 1997.
Mr. Baca received his Masters degree in Taxation from Villanova Law School
in 1985 and received a B.S. in Accounting from the University of Delaware in
1978. Commenting on the appointment of Mr. Baca, Elliott H. Vernon, Chairman of
the Board, President and Chief Executive Officer of the Company stated: "Mr.
Baca's extensive managerial experience in the area of physician practice
management will enhance the Company's ability to successfully develop its
physician practice management operations and will position the Company to
efficiently respond to the challenges in this growing field".
HealthCare Imaging Services, Inc. is a healthcare management and services
company, currently specializing in magnetic resonance imaging, that provides
state-of-the-art healthcare equipment, facilities and services to physicians,
hospitals and other healthcare providers. As previously announced, the Company
is expanding its strategic direction into the area of physician practice
management and is currently pursuing several opportunities in this area. The
Company (through its operating subsidiaries) currently operates seven imaging
facilities located in Brooklyn and New York City, New York; Edgewater, Ocean
Township, Wayne and Secaucus, New Jersey and Philadelphia, Pennsylvania.
