<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 2, 1998
HEALTHCARE IMAGING SERVICES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-19636 22-3119929
---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
200 Schulz Drive, Red Bank, New Jersey 07701
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 224-9292
NOT APPLICABLE
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to an asset purchase agreement (the "Purchase
Agreement"), dated as of September 16, 1998, among HealthCare Imaging Services,
Inc. (the "Company"), Echelon MRI, P.C., Mainland Imaging Center, P.C., North
Jersey Imaging Management Associates, L.P., Bloomfield Imaging Associates,
P.A., Irving N. Beran, M.D., P.A. (collectively, the "Beran Entities"), the
estate of Irving N. Beran, Deceased, Mrs. Phyllis Beran and Sam Beran, M.D.
(collectively, the "Beran Stockholders"), the Company acquired substantially
all of the Beran Entities' assets and properties that pertain to the three
diagnostic imaging facilities, one radiology/x- ray/ultrasound facility and
certain other radiology facilities operated by the Beran Entities, at the
following locations:
1. Echelon MRI, P.C.:
108 Somerdale Road
Voorhees, New Jersey 08043
(MRI Facility)
2. Mainland Imaging Center, P.C.:
1418 New Road 612 Atlantic Avenue
Northfield, New Jersey 08225 Ocean City, New Jersey 08226
(MRI Facility) (X-ray office)
3. Bloomfield Imaging Associates, P.A.:
350 Bloomfield Avenue
Bloomfield, New Jersey 07003
(MRI Facility)
4. Irving N. Beran, M.D., P.A.:
2512 Atlantic Avenue 429 White Horse Pike
Atlantic City, New Jersey 08401 Atco, New Jersey 08004
(Ultrasound office) (X-ray office)
600 Somerdale Road 640 N. Black Horse Pike
Suites, 113, 116 and 117 Williamstown, New Jersey 08094
Voorhees, New Jersey 08043 (X-ray office)
(X-ray office)
The acquisition was consummated on October 2, 1998, to be effective as of
October 1, 1998. The Company intends to continue to use the acquired assets in
the operation of these facilities.
The consideration given by the Company for the Beran Entities'
assets was (i) the assumption of certain obligations and liabilities of the
Beran Entities, (ii) cash in the amount of $11,500,000 and (iii) the issuance
of 887.385 shares of Series D Cumulative Accelerating
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<PAGE>
Redeemable Preferred Stock of the Company (the "Series D Preferred Stock")
having an aggregate liquidation preference of $9,317,542.50 (i.e., $10,500 per
share liquidation preference). The purchase price is subject to an adjustment
based on the value of the Beran Entities' accounts receivable as of the closing
date. The purchase price was determined through arms'-length negotiations
between the Company and the Beran Entities. The Company also loaned the Beran
Entities an aggregate of $2,500,000, which loan bears interest at 8% per annum
and matures upon the earliest to occur of (a) the redemption by the Company of
all outstanding shares of Series D Preferred Stock, (b) December 31, 1999, or
(c) the conversion into common stock, par value $0.01 per share, of the Company
(the "Common Stock") of a majority of the shares of Series D Preferred Stock
issued in connection with the Purchase Agreement. The Company used the proceeds
of a loan from DVI Financial Services Inc. to pay the cash portion of the
purchase price and to fund the loan to the Beran Entities.
The preferences and rights of the Series D Preferred Stock, and
certain covenants of the Company related to the issuance thereof, are set forth
in the Certificate of Designations, Preferences and Rights of the Series D
Preferred Stock filed by the Company with the Secretary of State of the State
of Delaware on October 2, 1998 (the "Certificate"). A copy of the Certificate
is attached hereto as an exhibit and is incorporated herein by reference. Among
other things, dividends on the Series D Preferred Stock will accrue commencing
on the date of issuance (the "Issue Date") at the rate of 8% of the liquidation
preference and will increase by an additional 2% upon each three month
anniversary of the date of issuance; provided, however, that in no event will
the dividend rate be in excess of 15% of the liquidation preference. All
accrued and unpaid dividends will be payable quarterly in cash commencing
January 10, 1999. After March 1, 1999 (the "Convertibility Date"), the holders
of the Series D Preferred Stock will be entitled to convert the Series D
Preferred Stock into Common Stock equal to the quotient of (x) the aggregate
liquidation preference of the Series D Preferred Stock being converted divided
by (y) the Conversion Price (as hereinafter defined); provided that unless the
Company obtains stockholder approval of the issuance of the Series D Preferred
Stock, the holders of the Series D Preferred Stock only will be able to convert
into Common Stock representing in the aggregate 19.9% of the outstanding Common
Stock as of the Issue Date. The "Conversion Price" shall be equal to the
average of the market prices for the Common Stock for the twenty (20)
consecutive trading days immediately preceding the Convertibility Date and
shall be subject to adjustment in certain circumstances. The holders of the
Series D Preferred Stock will be entitled to vote, on an as-converted basis,
with the holders of the Common Stock as one class on all matters submitted to a
vote of Company stockholders; provided that unless the Company obtains
stockholder approval of the issuance of the Series D Preferred Stock, the
holders of the Series D Preferred Stock will not be able to exercise their
aggregate voting rights in excess of 19.9% of the outstanding Common Stock as
of the Issue Date. The Company may redeem the Series D Preferred Stock, in
whole but not in part (unless otherwise consented to by the holders of a
majority of the then outstanding Series D Preferred Stock), at any time at its
liquidation preference plus all accrued and unpaid dividends to the date of
redemption. The Series D Preferred Stock may not be transferred until the
Convertibility Date.
In connection with the acquisition, each of the Beran Entities and
the Beran Stockholders
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<PAGE>
also has entered into a non-competition agreement with the Company. No other
material relationship exists between the Company (or any of its affiliates, any
director or officer of the Company or any associate of any such director or
officer) and the Beran Entities or the Beran Stockholders.
On October 8, 1998, the Company issued a press release (the
"Press Release") regarding the consummation of the above-referenced
acquisition. A copy of the Press Release is attached hereto as an exhibit and
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) Financial statements of businesses acquired
i) Audited Combined Financial Statements of the Beran
Entities for the years ended December 31, 1997 and 1996
(1) Independent Auditors' Report
(2) Financial Statements:
A. Combined Balance Sheets as of December 31, 1997
and 1996
B. Combined Statements of Income and Retained
Earnings/Partners' Capital for the years ended
December 31, 1997 and 1996
C. Combined Statements of Cash Flows for the years
ended December 31, 1997 and 1996
(3) Notes to Combined Financial Statements
(4) Supplementary Information
A. Schedule I -Combined Operating Expenses for the
years ended December 31, 1997 and 1996
B. Schedule II -Combining Balance Sheets as of
December 31, 1997
C. Schedule III -Combining Statements of Income and
Retained Earnings/Partners' Capital for the year
ended December 31, 1997
D. Schedule IV -Combining Statements of Cash Flows
for the year ended December 31, 1997
E. Schedule V -Combining Operating Expenses for the
year ended December 31, 1997
F. Schedule VI -Combining Balance Sheets as of
December 31, 1996
G. Schedule VII -Combining Statements of Income and
Retained Earnings/Partners' Capital for the
year ended December 31, 1996
H. Schedule VIII -Combining Statements of Cash
Flows for the year ended December 31, 1996
I. Schedule IX -Combining Operating Expenses for
the year ended December 31, 1996
ii) Unaudited Combined Financial Statements of the Beran
Entities for the six months ended June 30, 1998
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<PAGE>
(1) Combined Balance Sheet as of June 30, 1998
(2) Combined Statements of Income and Retained
Earnings/Partners' Capital for the six months ended
June 30, 1998
(3) Combined Statements of Cash Flows for the six months
ended June 30, 1998 (4) Schedule I - Combined
Operating Expenses for the six months ended
June 30, 1998.
b) Pro Forma financial information
At this time, it is impractical to file the required pro
forma financial information. Such pro forma financial
information will be filed as soon as practical, but no later
than 60 days after the date on which this Report on Form 8-K
must be filed.
c) Exhibits
(2.1) Asset Purchase Agreement, dated as of September 16,
1998, among HealthCare Imaging Services, Inc.,
Echelon MRI, P.C., Mainland Imaging Center, P.C.,
North Jersey Imaging Management Associates, L.P.,
Bloomfield Imaging Associates, P.A., Irving N.
Beran, M.D., P.A., the estate of Irving N. Beran,
Deceased, Mrs. Phyllis Beran and Sam Beran, M.D.
(4.1) Certificate of Designations, Preferences and Rights
of Series D Cumulative Accelerating Redeemable
Preferred Stock of HealthCare Imaging Services,
Inc.
(23.1) Consent of David Fischer & Company, P.A.
(99.1) Press Release of HealthCare Imaging Services, Inc.
dated October 8, 1998.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEALTHCARE IMAGING SERVICES, INC.
(Registrant)
Dated: October 16, 1998 By: /s/ Elliott H. Vernon
-----------------------
Name: Elliott H. Vernon
Title: Chairman of the Board,
President and Chief
Executive Officer
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<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1 - 2
Financial Statements:
Combined Balance Sheets 3 - 4
Combined Statements of Income and Retained Earnings/Partners' Capital 5
Combined Statements of Cash Flows 6
Notes to Combined Financial Statements 7 - 16
Supplementary Information
Schedule I - Combined Operating Expenses 18
Schedule II - Combining Balance Sheets - 1997 19 - 20
Schedule III - Combining Statements of Income and Retained Earnings/Partners'
Capital - 1997 21
Schedule IV - Combining Statements of Cash Flows - 1997 22 - 23
Schedule V - Combining Operating Expenses - 1997 24
Schedule VI - Combining Balance Sheets - 1996 25 - 26
Schedule VII - Combining Statements of Income and Retained Earnings/Partners'
Capital - 1996 27
Schedule VIII - Combining Statements of Cash Flows - 1996 28 - 29
Schedule IX - Combining Operating Expenses - 1996 30
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Officers and Directors
North Jersey Imaging Management Associates, L.P.
Bloomfield Imaging Associates, P.A.
Mainland Imaging Center, P.C.
Irving N. Beran, M.D., P.A.
Echelon MRI, P.C.
1751 Rolling Lane
Cherry Hill, New Jersey
We have audited the accompanying combined balance sheets of North Jersey
Imaging Management Associates, L.P., Bloomfield Imaging Associates, P.A.,
Mainland Imaging Center, P.C., Irving N. Beran, M.D., P.A., and Echelon MRI,
P.C. (collectively the "Entities") as of December 31, 1997 and 1996, and the
related combined statements of income and retained earnings/partners' capital
and cash flows for the years then ended. These combined financial statements
are the responsibility of the Entities' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Entities as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principals.
<PAGE>
Our audits were conducted for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental combining
financial information on pages 18 - 30 are presented for purposes of additional
analysis and is not a required part of the basic combined financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the basic combined financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic combined financial
statements taken as a whole.
/s/ David Fischer & Company, P.A.
- ---------------------------------
David Fischer & Company, P.A.
Morristown, New Jersey
August 18, 1998
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,129,146 $ 1,634,420
Accounts receivable, net 5,817,540 6,547,378
Prepaid expenses 123,139 48,720
Loans receivable 16,035 12,464
Deferred income taxes 229,000 288,000
------------------ -----------------
Total Current Assets 7,314,860 8,530,982
------------------ -----------------
Property and Equipment
Medical equipment 8,464,035 7,631,912
Leasehold improvements 1,331,933 1,276,862
Office furniture 134,971 105,740
Vehicles 27,863 36,380
Signs 6,068 6,068
------------------ -----------------
9,964,870 9,056,962
Accumulated Depreciation (6,643,026) (6,587,676)
------------------ -----------------
3,321,844 2,469,286
------------------- -----------------
Other Assets 327,855 256,716
------------------ -----------------
Total Assets $ 10,964,559 $ 11,256,984
================== =================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
- 3 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt $ 413,733 $ 505,623
Notes payable-officer 597,159 887,390
Accounts payable and accrued expenses 308,691 247,916
Income taxes payable 3,635,239 1,733,347
Deferred income taxes 1,495,000 2,126,000
------------------ -----------------
Total Current Liabilities 6,449,822 5,500,276
------------------ -----------------
Long-term debt, net of current portion 1,218,552 1,056,285
------------------ -----------------
Minority interests 562,468 1,013,270
------------------ -----------------
Commitments and Contingencies
Stockholders' and Partners' Equity:
Common stock ($1.00 and $10.00 par value, 1,100 and 200
shares authorized, issued, and outstanding, respectively.) 3,100 3,100
Additional paid-in-capital 429,250 429,250
Retained earnings/partners' capital 2,301,367 3,254,803
------------------ -----------------
2,733,717 3,687,153
------------------ -----------------
Total Liabilities and Stockholders'/Partners' Equity $ 10,964,559 $ 11,256,984
================== =================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
- 4 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS/PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Income-Fees $ 11,284,932 $ 11,963,317
Operating Expenses - Schedule I 5,775,612 5,856,883
Depreciation and amortization 1,128,478 816,699
------------------ -----------------
Income Before Other Income (Expense) 4,380,842 5,289,735
------------------ -----------------
Other Income (Expense)
Interest income 29,616 29,022
Interest expense (148,249) (128,256)
Gain (loss) on disposal and abandonment (259,120) 9,116
------------------ -----------------
(377,753) (90,118)
------------------ -----------------
Income Before Provision (Benefit) for Income Taxes 4,003,089 5,199,617
------------------ -----------------
Provision (Benefit) for Income Taxes
Current 2,004,333 1,789,946
Deferred (572,000) 39,770
------------------ -----------------
1,432,333 1,829,716
------------------ -----------------
Minority Interests in Income of Combined Entities (417,091) (480,180)
------------------ -----------------
Net Income 2,153,665 2,889,721
Beginning Retained Earnings/Partners' Capital 3,254,803 3,045,082
Increase in Controlling Interests 220,433 -
Distributions (3,327,534) (2,680,000)
------------------ -----------------
Ending Retained Earnings/Partners' Capital $ 2,301,367 $ 3,254,803
================== =================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
- 5 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,153,665 $ 2,889,721
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,128,478 816,699
(Gain) loss on disposal or abandonment 259,120 (9,116)
Minority interest 417,091 480,180
(Increase) Decrease in:
Accounts receivable 729,837 (468,435)
Prepaid expenses (74,419) 60,935
Deposits 12,325 (7,533)
Deferred income taxes 59,000 (31,000)
Increase (decrease) in:
Accounts payable and accrued expenses 60,775 43,562
Deferred income taxes (631,000) 197,000
Income taxes payable 1,901,893 1,604,246
------------------ -----------------
Total Adjustments to net income 3,863,100 2,686,538
------------------ -----------------
Net Cash Provided by Operating Activities 6,016,765 5,576,259
------------------ -----------------
Cash Flows From Investing Activities:
Proceeds from sale of property and equipment 384,876 12,766
Capital expenditures (2,658,497) (1,250,560)
Deposits on equipment (50,000) (227,500)
Loans receivable (3,571) 11,701
------------------ -----------------
Net Cash Used in Investing Activities (2,327,192) (1,453,593)
------------------ -----------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 675,000 900,000
Payments on long-term debt (604,622) (714,208)
Increase in loan fees - (2,413)
Increase in controlling interest 220,433 -
Controlling interest distributions (3,327,534) (2,680,000)
Minority interest distributions (867,893) (720,000)
Note payable - officer 475 25,000
Loan payable (290,706) (10,500)
------------------ -----------------
Net Cash Used in Financing Activities (4,194,847) (3,202,121)
------------------ -----------------
Net Increase (Decrease) in Cash and Cash Equivalents (505,274) 920,545
Cash and Cash Equivalents - Beginning 1,634,420 713,875
------------------ -----------------
Cash and Cash Equivalents - Ending $ 1,129,146 $ 1,634,420
================== =================
Supplemental Disclosures of Cash Flow Information Cash paid during the years
for:
Interest $ 148,249 $ 128,256
================== =================
Income Taxes $ 116,415 $ 56,572
================== =================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
- 6 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. BUSINESS ACTIVITY AND ORGANIZATION
Irving N. Beran, M.D., P.A. (a corporation) was incorporated on
July 5, 1972 and operates several radiology offices in New Jersey. The
Entity also operated a separate office in Norristown, Pennsylvania,
which was closed in January, 1997. The results of operations from this
closed office in 1997 and 1996 were not material. Revenues from the
closed office for 1997 and 1996 were approximately $82,000 and
$181,000 with related expenses of approximately $249,000 and $220,000,
respectively.
Bloomfield Imaging Associates, P.A. (an S corporation) was
incorporated on July 1, 1990 for the purpose of operating a medical
diagnostic imaging facility in Bloomfield, New Jersey.
Echelon MRI, P.C. (an S corporation) was incorporated on June 8,
1988 for the purpose of operating a medical diagnostic imaging
facility in Voorhees, New Jersey.
Mainland Imaging Center, P.C. (an S corporation) was
incorporated on July 29, 1991 for the purpose of operating a medical
diagnostic imaging facility in Northfield, New Jersey.
North Jersey Imaging Management Associates, L.P. (a limited
partnership) was formed to provide management, administrative, billing
and collection services ("Management Services") to Bloomfield Imaging
Associates, P.A. ("Physician Group") to enable Physician Group to
operate a medical practice. The Limited Partnership provides
non-professional and non-technical personnel, medical equipment, a
facility for the Physician Group practice, and maintains the medical
equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant policies followed:
A. BASIS OF COMBINATION
The accompanying combined financial statements include
the accounts of Irving N. Beran, M.D., P.A., North Jersey
Imaging Management Associates, L.P., Bloomfield Imaging
Associates, P.A., Echelon MRI, P.C. and Mainland Imaging
Center, P.C. (collectively the "Entities" or "Irving N.
Beran, M.D., P.A. and Affiliates"), all of which are under
common control. Since Mainland Imaging Center, P.C. and
Echelon MRI, P.C. are not owned 100% by Entities under common
control, the accompanying financial statements include
amounts for minority interests. All significant intercompany
accounts and transactions between the Entities have been
eliminated in combination.
B. BASIS OF ACCOUNTING
The accompanying combined financial statements have been
prepared on the accrual basis of accounting whereby revenues
are recognized when earned and expenses are recognized when
the obligation is incurred.
C. USE OF ESTIMATES
The preparation of combined financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the combined financial statements and the reported amounts
of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates.
- 7 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all cash balances and
highly liquid investments with an initial maturity of three
months or less. The Entities place its cash with one (1) high
credit quality financial institution located in New Jersey.
On several occasions during 1997 and 1996, the Entities' cash
balances exceeded the Federal Deposit Insurance Corporation
insurance limit of $100,000 per financial institution. The
Entities have not experienced any losses in such accounts,
and Management believes they are not exposed to any
significant credit risk with respect to such accounts.
E. ACCOUNTS RECEIVABLE
The Entities extend credit without collateral to their
patients, most of whom are residents of New Jersey and are
insured under third-party payor agreements. The portion of
accounts receivable from patients and third-party payors,
included in the Entities' accounts receivable as of December
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ----------------
<S> <C> <C>
No fault insurance 77% 79%
Commercial 8% 7%
Liability and Workers' Compensation 10% 9%
Self Pay and Other Third-Party Payors 5% 5%
---------------- ----------------
100% 100%
================ ================
</TABLE>
The Entities' accounts receivable are shown net of an
allowance for doubtful accounts and contractual adjustments
which consists of the Entities' estimate of amounts that will
not be collected from patients and other third-party payors.
The combined allowances as of December 31, 1997 and 1996 were
approximately $3,859,000 and $3,614,000, respectively.
F. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation
is provided using accelerated cost recovery methods, which
approximates the straight-line method, over the following
estimated useful lives:
Medical equipment 5-7 years
Leasehold improvements 39 years, or life of lease
(whichever is shorter)
Furniture and fixtures 5-7 years
Signage 7 years
Vehicles 5 years
- 8 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
ENTITY 1997 1996
---------- ------------------ -----------------
<S> <C> <C>
Irving N. Beran, M.D., P.A. $ 74,753 $ 147,878
Echelon MRI, P.C. 236,610 18,952
Mainland Imaging Center, P.C. 192,252 289,719
North Jersey Imaging Management Associates, L.P. 622,666 358,338
------------------ -----------------
$ 1,126,281 $ 814,887
================== =================
</TABLE>
G. LOAN FEES
Loan fees for Mainland Imaging Center, P.C. were
amortized on the straight-line basis over the term of the
capital lease obligation of sixty (60) months which ended in
1997. Amortization expense for 1997 and 1996 was $650 and
$1,561, respectively.
Loan fees for North Jersey Imaging Management
Associates, L.P. are being amortized on the straight-line
basis over the terms of the respective bank loans from
forty-eight (48) to sixty (60) months. Amortization expense
for 1997 and 1996 was $1,547 and $251, respectively.
H. IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum for the expected
future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the
Entities for bank loans with similar terms and maturities,
the fair value of the Entities' notes payable and long-term
debt approximates the carrying value. Furthermore, the
carrying value of all other financial instruments potentially
subject to valuation risk (principally consisting of cash and
cash equivalents, accounts receivable, deposits, accounts
payable and accrued expenses) also approximates fair value
due to the short maturity of those instruments.
J. REVENUE RECOGNITION
The Entities record fee income for providing magnetic
resource imaging (MRI) and radiology services to their
patients. Fee income is recorded net of estimated contractual
adjustments by third party payors in the year in which the
services are rendered. Any difference between such estimates
and the ultimate settlements are reflected upon settlement of
the receivable.
- 9 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. INCOME TAXES
The Entities account for income taxes under the asset
and liability method. Accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Accordingly, the effect
on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
L. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
issued Statement No. 130, "Reporting Comprehensive Income,"
and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," both of which were
required to be adopted on January 1, 1998. Statement 130
required financial statement reporting of all non-owner
related changes in equity for the periods being presented.
Statement 131 requires disclosure of revenue, earnings, and
other financial information pertaining to business segments
by which a company is managed, as well as factors used by
management to determine segments. The Entities believe
adoption of Statement 130 and Statement 131 will not have a
material impact on the financial statements.
3. LOANS RECEIVABLE
Loans receivable represent unsecured and non-interest bearing
demand loans from Irving N. Beran, M.D., P.A. and Echelon MRI, P.C. to
employees and a stockholder.
4. NOTES PAYABLE - OFFICER
The Entities' notes payable to one (1) officer as of December
31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Irving N. Beran, M.D., P.A. - Unsecured and non-interest bearing
loans due on demand. $ 555,642 $ 862,142
Mainland Imaging Center, P.C. - Loan payable to an officer,
unsecured, due on demand and without interest. 8,758 -
North Jersey Imaging Management Associates, L.P. - Note payable
to an officer, unsecured, due on demand and without interest. 25,723 25,248
Echelon MRI, P.C. - Note payable to an officer, unsecured, due
on demand and without interest. 7,036 -
------------------ -----------------
$ 597,159 $ 887,390
================== =================
</TABLE>
- 10 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
The Entities' long-term debt and capitalized lease obligations as of
December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Irving N. Beran, M.D., P.A. - Note payable - bank, due in
monthly installments of $4,458 plus interest at 9.5%. The
note was scheduled to mature in February 1998 and was repaid
in May 1997. The note was secured by equipment. $ - $ 44,814
Echelon MRI, P.C. - Note payable - individual, unsecured,
payable in sixty (60) monthly installments of $3,597
including interest at 8%. Payments began February 1, 1993
with final payment due January 1, 1998. The Entity acquired
75 shares of common stock from a former stockholder in
exchange for this note. 3,573 44,648
Mainland Imaging Center, P.C. - Unsecured note payable to an
officer in one hundred twenty (120) monthly installments of
$6,885 including interest at 7%. The loan is scheduled to
mature in December 2004. 456,208 505,027
Capital lease obligation - G.E. Medical Systems - payable in monthly
installments of $36,017 including interest at 10%. The lease was
secured by medical equipment and was due and paid in May 1997. - 141,127
North Jersey Imaging Management Associates, L.P. - Note
payable to Commerce Bank, N.A. in the original amount of
$900,000. The loan is payable in forty-eight (48) monthly
installments of $22,077 including interest. The interest
rate at December 31, 1997 was 8.5%. The loan is secured by
all of the assets of the Entity and the personal guarantees
of its partners. Final payment is due September 1, 2000. 596,504 826,292
</TABLE>
- 11 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------------ ---------------
<S> <C> <C>
North Jersey Imaging Management Associates, L.P. - Note
payable to Corestates Bank, N.A. in the original amount of
$675,000. The note was issued in the name of all of the
Entities but the loan proceeds were utilized by North Jersey
Imaging Management Associates, L.P. The loan is payable in
sixty (60) monthly principal installments of $11,250 plus
interest at 1% below the prime rate. The interest rate at
December 31, 1997 was 7.5%. The loan is secured by a lien
on the equipment, the personal guarantees of the partners,
the Estate of Irving N. Beran, M.D. and Irving N. Beran,
M.D., P.A. Final payment is due in May 2002. 576,000 -
1,632,285 1,561,908
Less, Current Portion (413,733) (505,623)
------------------- -----------------
$ 1,218,552 $ 1,056,285
================== =================
</TABLE>
The required principal payments for the years subsequent to
December 31, 1997 are as follows:
YEAR AMOUNT
------ ------------
1998 $ 413,733
1999 433,638
2000 326,379
2001 199,542
2002 105,208
Thereafter 153,785
------------------
$ 1,632,285
6. RENT
Irving N. Beran, M.D., P.A.
In addition to the leases described in Note 7, the Entity leases other
offices under month to month or year to year operating leases. These
annual rentals amounted to $28,865 and $113,550 for 1997 and 1996,
respectively.
Mainland Imaging Center, P.C.
In addition to the rent paid to a related party, the Entity leases an
office in Ocean City, New Jersey under a month to month operating
lease. Included in rent expense is $1,500 paid under the Ocean City
lease for 1997.
- 12 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
7. RELATED PARTY TRANSACTIONS
Irving N. Beran, M.D., P.A.
Irving N. Beran, M.D., P.A. leases part of its operating facilities on
a year to year basis from a non-combined related party at a monthly
rental of $4,500. Rent expense was $54,000 in 1997 and 1996.
Irving N. Beran, M.D., P.A. has annual contracts for management
services and radiologist fees with related Entities. These
transactions have been eliminated in combination.
Bloomfield Imaging Associates, P.A.
Bloomfield Imaging Associates, P.A. has an annual contract for
management services with a related Entity. These transactions have
been eliminated in combination.
Echelon MRI, P.C.
Echelon MRI, P.C. leases its operating facility on a month to month
basis from a non-combined related party at a monthly rental of $6,000.
Rent expense was $72,000 in 1997 and 1996. During 1997, additional
space was leased from the same party. Rent expense for this additional
space was $18,500.
Echelon MRI, P.C. has an annual contract for management services with
a related Entity. These transactions have been eliminated in
combination.
Mainland Imaging Center, P.C.
Mainland Imaging Center, P.C. has an annual contract for radiologist's
services with a related Entity. These transactions have been
eliminated in combination.
Mainland Imaging Center, P.C. leases its operating facility under a
month to month operating lease from a non-combined related party. Rent
expense paid was $72,000 for 1997 and 1996.
North Jersey Imaging Management Associates, L.P.
North Jersey Imaging Management Associates, L.P. has an annual
management services contract with a related Entity in which it earns
revenue. These transactions have been eliminated in combination.
Rent expense of $5,700 for 1997 and 1996 was paid to a related limited
partner for office space rented on a month to month basis.
8. INCOME TAXES
Although Bloomfield Imaging Associates, P.A., Echelon MRI, P.C., and
Mainland Imaging Center, P.C. are organized as sub-chapter S
corporations and North Jersey Imaging Management Associates, L.P. as a
partnership under Federal and state laws, the accompanying financial
statements include a provision for income taxes as if the Entities
were taxable as C corporations.
- 13 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
8. INCOME TAXES (CONTINUED)
The 1997 and 1996 provisions for income taxes consists of the
following:
<TABLE>
<CAPTION>
1997 FEDERAL STATE AND LOCAL TOTAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Current $ 1,473,324 $ 531,009 $ 2,004,333
Deferred (486,000) (86,000) (572,000)
-------------- ------------- ---------------
$ 987,324 $ 445,009 $ 1,432,333
============== ============= ===============
1996
Current $ 1,342,759 $ 447,187 $ 1,789,946
Deferred 33,800 5,970 39,770
-------------- ------------- ---------------
$ 1,376,559 $ 453,157 $ 1,829,716
============== ============= ===============
</TABLE>
The 1997 income tax provision for Irving N. Beran, M.D., P.A. includes
a benefit of approximately $60,000, as a result of the utilization of
Federal and state net operating loss carryforwards. Irving N. Beran,
M.D., P.A. has available as of December 31, 1997 Federal and state net
operating loss carryovers of approximately $576,000 and $550,000,
respectively, expiring at various dates through 2011.
The difference between the actual income tax expense and the tax
expense computed by applying the statutory Federal income tax rate to
the net income before taxes is attributable to the following:
<TABLE>
<CAPTION>
1997 1996
DOLLARS PERCENTAGE DOLLARS PERCENTAGE
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Statutory Federal income tax rate $ 1,361,050 34.0 % $ 1,767,869 34.0 %
State and local income taxes 350,465 8.8 295,143 5.7
Deferred state taxes (56,760) (1.4) 3,940 .1
Other (222,422) (5.6) (237,236) (4.6)
------------- --------- --------------- -----
Actual income tax expense $ 1,432,333 35.8 % $ 1,829,716 35.2 %
============= ========= ============= =========
</TABLE>
- 14 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
tax effects of significant items comprising the Entities' net deferred
income taxes as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards $ 229,000 $ 288,000
Deferred tax liability:
Conversion of cash to accrual basis of accounting (1,495,000) (2,126,000)
------------------- ------------------
Net deferred income taxes $ (1,266,000) $ (1,838,000)
=================== ==================
Current tax asset 229,000 288,000
Current tax liability (1,495,000) (2,126,000)
------------------- ------------------
Net deferred income taxes $ (1,266,000) $ (1,838,000)
=================== ==================
</TABLE>
9. COMMITMENTS
North Jersey Imaging Management Associates, P.A. leases its operating
facilities under a non-cancelable operating lease expiring March 31,
2001. The lease was executed by the general partner and assigned to
the Entity. The following is a schedule of future minimum rental
payments required under the operating lease for years subsequent to
December 31, 1997:
YEAR AMOUNT
---- ------------------
1998 $ 137,370
1999 144,239
2000 151,450
2001 38,319
------------------
$ 471,378
==================
Rent expense for 1997 and 1996 was $130,829 and $113,837,
respectively.
The Entities have entered into several contracts for the purchase of
equipment and equipment upgrades from Picker International, Inc.
("Picker") The Entities' have deposited $277,500 with Picker. The
Entities have requested a release from these contracts and refund of
the deposits. Picker has denied the cancellation and refund request
and offered a counter-proposal which would require the Entities to
purchase three (3) MRI units or upgrades. The Picker proposal would
require application of the deposit and an additional investment of
$697,500 to purchase the equipment. The Picker proposal has been
rejected by the Entities and no legal action has been taken either by
the Entities or Picker regarding the dispute.
- 15 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
10. CONTINGENCIES
Irving N. Beran, M.D., P.A. and Echelon MRI, P.C. are each a
codefendant in lawsuits alleging malpractice. Management, based upon
advice of legal counsel, is of the opinion that the liability, if any,
will be covered by insurance and will not have a material adverse
effect on the Entities' financial position or results of operations.
Bloomfield Imaging Associates, P.A. has been named as an interested
party and not as an actual participant in multiple lawsuits alleging
fraud in connection with claims submitted by policy beneficiaries.
Similar claims have been settled upon refund by the Entity of the fees
collected. Management, based upon advice of legal counsel, is of the
opinion that the liability, if any, will be covered by insurance and
will not have a material adverse effect on the Entities' financial
position or results of operations.
Mainland Imaging Center, P.C. is a codefendant in a lawsuit alleging
malpractice. It is management's belief, based upon advice of legal
counsel, that any potential assessment will be covered by the Entity's
malpractice insurance. The Entity is also a codefendant in a lawsuit
filed by an employee of a related company alleging hazardous working
conditions. Management, based upon advice of legal counsel, is of the
opinion that the liability, if any, will be covered by insurance and
will not have a material adverse effect on the Entities' financial
position or results of operations.
11. SUBSEQUENT EVENT
The Entities are currently negotiating an agreement with Healthcare
Imaging Services, Inc. ("HIS") to sell substantially all of their
assets. In exchange, HIS agreed to pay the Entities approximately
$21,000,000, subject to adjustment, payable in cash and by delivery of
convertible, redeemable preferred stock. HIS has also agreed to lend
the Entities an additional $2,500,000 secured by the HIS preferred
stock. In addition, HIS agreed to assume certain liabilities due under
continuing contracts and operating leases.
- 16 -
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE I - COMBINED OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Advertising $ 70,337 $ 68,101
Automobile - 200
Bad debts 245,000 380,000
Cleaning 24,679 24,562
Condo fees 4,680 4,290
Donations 15,120 2,710
Dues and subscriptions 7,579 11,631
Employee benefits 177,102 150,551
Entertainment 17,487 10,841
Gifts 9,262 3,732
Insurance 177,856 166,876
Licenses 24,172 28,149
Postage 33,875 30,585
Maintenance contracts 202,306 372,112
Medical supplies 319,187 378,354
Miscellaneous 5,533 2,477
Moving and storage 38,109 -
Office expenses 84,315 79,343
Outside services 29,789 149
Patient transportation 211,163 360,447
Payroll-officer 109,136 175,715
Payroll-doctors 1,014,303 998,931
Payroll-office 1,587,966 1,337,158
Payroll taxes 206,006 178,679
Professional fees 178,225 133,260
Rent 383,394 431,087
Repairs and maintenance 313,111 199,232
Security 1,336 509
Taxes-miscellaneous 8,028 12,981
Telephone 69,474 66,542
Travel 66,373 64,287
Utilities 140,709 183,392
------------------ -----------------
$ 5,775,612 $ 5,856,883
================== =================
</TABLE>
See Independent Auditors' Report.
- 18 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE II - COMBINING BALANCE SHEETS
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND IRVING N.
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING BERAN, MD, P.A.
------------- ------------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 440,748 $ 95,540 $ - $ 536,288 $ 397,567 $ 52,505
Accounts receivable, net 1,954,387 2,660,378 (1,954,387) 2,660,378 1,142,340 622,781
Due from affiliates - - - - - 301,120
Prepaid expenses 23,413 22,896 - 46,309 17,946 26,556
Loans receivable - - - - - 10,035
Deferred income taxes - - - - - 229,000
------------ ----------- ------------ ----------- ----------- --------------
TOTAL CURRENT ASSETS 2,418,548 2,778,814 (1,954,387) 3,242,975 1,557,853 1,241,997
------------ ----------- ----------- ----------- ----------- --------------
PROPERTY AND EQUIPMENT
Medical equipment 2,320,510 - - 2,320,510 2,297,064 1,441,512
Leasehold improvements 339,226 - - 339,226 571,823 95,234
Office furniture 41,669 - - 41,669 9,314 67,369
Vehicles - - - - - 27,863
Signs - - - - 1,705 2,667
------------ ----------- ----------- ----------- ----------- --------------
2,701,405 - - 2,701,405 2,879,906 1,634,645
Accumulated Depreciation (1,169,314) - - (1,169,314) (2,351,735) (1,484,359)
------------ ----------- ----------- ----------- ----------- --------------
1,532,091 - - 1,532,091 528,171 150,286
------------ ----------- ----------- ----------- ----------- --------------
OTHER ASSETS 77,435 - - 77,435 135,420 15,000
------------ ----------- ----------- ----------- ----------- --------------
$ 4,028,074 $ 2,778,814 $(1,954,387) $ 4,852,501 $ 2,221,444 $ 1,407,283
============ =========== ============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
ECHELON
MRI ELIMINATIONS COMBINED
----------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 142,786 $ - $ 1,129,146
Accounts receivable, net 1,392,041 - 5,817,540
Due from affiliates - (301,120) -
Prepaid expenses 32,328 - 123,139
Loans receivable 6,000 - 16,035
Deferred income taxes - - 229,000
----------- ----------- ------------
TOTAL CURRENT ASSETS 1,573,155 (301,120) 7,314,860
----------- ----------- ------------
PROPERTY AND EQUIPMENT
Medical equipment 2,404,949 - 8,464,035
Leasehold improvements 325,650 - 1,331,933
Office furniture 16,619 - 134,971
Vehicles - - 27,863
Signs 1,696 - 6,068
----------- ----------- -----------
2,748,914 - 9,964,870
Accumulated Depreciation (1,637,618) - (6,643,026)
----------- ----------- -----------
1,111,296 - 3,321,844
----------- ----------- -----------
OTHER ASSETS 100,000 - 327,855
----------- ----------- -----------
$ 2,784,451 $ (301,120) $10,964,559
=========== =========== ===========
</TABLE>
See Independent Auditors' Report.
- 19 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE II - COMBINING BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND IRVING N.
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING BERAN, MD, P.A.
------------ ------------ ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 357,811 $ - $ - $ 357,811 $ 52,349 $ -
Note payable-officer 25,723 - - 25,723 8,758 555,642
Accounts payable and accrued 69,383 1,993,247 (1,954,387) 108,243 220,023 69,478
expenses
Due to affiliate - - - - 14,176 -
Income taxes payable 925,029 262,955 - 1,187,984 326,988 -
Deferred income taxes - 276,000 - 276,000 372,000 353,000
------------ ------------ ------------ ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 1,377,946 2,532,202 (1,954,387) 1,955,761 994,294 978,120
------------ ------------ ------------ ----------- ----------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current 814,693 - - 814,693 403,859 -
portion
------------ ------------ ------------ ----------- ------------ -----------
MINORITY INTERESTS - - - - 261,483 -
------------ ------------ ------------ ----------- ------------ -----------
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock - 100 - 100 1,000 1,000
Additional paid-in capital (25,000) - - (25,000) 298,750 -
Retained earnings (deficit) - 246,512 - 246,512 262,058 428,163
Partners' capital 1,860,435 - - 1,860,435 - -
------------ ------------ ------------ ----------- ------------ -----------
1,835,435 246,612 - 2,082,047 561,808 429,163
------------ ------------ ------------ ----------- ------------ -----------
$ 4,028,074 $ 2,778,814 $(1,954,387) $ 4,852,501 $ 2,221,444 $ 1,407,283
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
ECHELON
MRI ELIMINATIONS COMBINED
--------------- ------------ -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 3,573 $ - $ 413,733
Note payable-officer 7,036 - 597,159
Accounts payable and accrued 197,891 (286,944) 308,691
expenses
Due to affiliate - (14,176) -
Income taxes payable 2,120,267 - 3,635,239
Deferred income taxes 494,000 - 1,495,000
------------- ----------- ------------
TOTAL CURRENT LIABILITIES 2,822,767 (301,120) 6,449,822
------------- ----------- ------------
LONG-TERM LIABILITIES
Long-term debt, net of current - - 1,218,552
portion
------------- ----------- ------------
MINORITY INTERESTS 300,985 - 562,468
------------- ----------- ------------
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock 1,000 - 3,100
Additional paid-in capital 155,500 - 429,250
Retained earnings (deficit) (495,801) - 440,932
Partners' capital - - 1,860,435
------------- ----------- ------------
(339,301) - 2,733,717
------------- ----------- ------------
$ 2,784,451 $(301,120) $10,964,559
============= =========== ============
</TABLE>
See Independent Auditors' Report.
- 20 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE III - COMBINING STATEMENT OF INCOME AND
RETAINED EARNINGS/PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
------------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME - FEES $ 3,074,798 $ 4,213,408 $(3,074,798) $ 4,213,408 $ 2,119,305
OPERATING EXPENSES - SCHEDULE V 1,421,493 3,921,016 (3,074,798) 2,267,711 1,188,675
DEPRECIATION AND AMORTIZATION 624,213 - - 624,213 192,902
----------- ----------- ----------- ----------- -----------
INCOME BEFORE OTHER INCOME (EXPENSE) 1,029,092 292,392 - 1,321,484 737,728
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest Income 8,836 946 - 9,782 4,793
Miscellaneous Income - - - - -
Interest Expense (94,039) - - (94,039) (36,727)
Loss on disposal and abandonment (33,385) - - (33,385) -
----------- ----------- ---------- ----------- -----------
(118,588) 946 - (117,642) (31,934)
----------- ----------- ---------- ----------- -----------
INCOME BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES 910,504 293,338 - 1,203,842 705,794
----------- ----------- ---------- ----------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES
Current 512,674 134,823 - 647,497 283,566
Deferred (472,000) (5,000) - (477,000) (4,000)
----------- ----------- ---------- ----------- -----------
40,674 129,823 - 170,497 279,566
----------- ----------- ---------- ----------- -----------
MINORITY INTERESTS IN INCOME OF
COMBINED ENTITIES - - - - (113,145)
---------- ---------- ---------- ---------- -----------
NET INCOME 869,830 163,515 - 1,033,345 313,083
BEGINNING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL 2,315,599 502,997 - 2,818,596 (66,370)
INCREASE IN CONTROLLING INTERESTS - - - - 167,135
DISTRIBUTIONS (1,324,994) (420,000) - (1,744,994) (151,790)
----------- ----------- ---------- ----------- -----------
ENDING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL $ 1,860,435 $ 246,512 $ - $ 2,106,947 $ 262,058
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INCOME - FEES $ 1,943,503 $ 3,544,611 $ (535,895) $11,284,932
OPERATING EXPENSES - SCHEDULE V 1,521,678 1,333,443 (535,895) 5,775,612
DEPRECIATION AND AMORTIZATION 74,753 236,610 - 1,128,478
----------- ----------- ----------- -----------
INCOME BEFORE OTHER INCOME (EXPENSE) 347,072 1,974,558 - 4,380,842
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest Income - 15,041 - 29,616
Miscellaneous Income - - - -
Interest Expense (15,396) (2,087) - (148,249)
Loss on disposal and abandonment (225,735) - - (259,120)
----------- ----------- ---------- -----------
(241,131) 12,954 - (377,753)
----------- ----------- ---------- -----------
INCOME BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES 105,941 1,987,512 - 4,003,089
----------- ----------- ---------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES
Current - 1,073,270 - 2,004,333
Deferred 46,000 (137,000) - (572,000)
----------- ----------- ---------- -----------
46,000 936,270 - 1,432,333
----------- ----------- ---------- -----------
MINORITY INTERESTS IN INCOME OF
COMBINED ENTITIES - (303,946) - (417,091)
----------- ----------- ---------- -----------
NET INCOME 59,941 747,296 - 2,153,665
BEGINNING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL 368,222 134,355 - 3,254,803
INCREASE IN CONTROLLING INTERESTS - 53,298 - 220,433
DISTRIBUTIONS - (1,430,750) - (3,327,534)
---------- ----------- ---------- -----------
ENDING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL $ 428,163 $ (495,801) $ - $ 2,301,367
=========== =========== ========== ===========
</TABLE>
See Independent Auditors' Report.
- 21 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE IV - COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 869,830 $ 163,515 $ - $ 1,033,345 $ 313,083
Adjustment to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 624,213 - - 624,213 192,902
Loss in disposal or abandonment 33,385 - - 33,385 -
Minority interest share of income - - - - 113,145
(INCREASE) DECREASE IN:
Accounts receivable 304,896 324,097 (304,896) 324,097 187,230
Prepaid expenses (4,627) (22,896) - (27,523) (13,321)
Deposits - - - - -
Deferred income taxes - - - - -
INCREASE (DECREASE) IN:
Accounts payable and accrued expenses 17,716 (289,995) (304,896) 32,617 (176,668)
Deferred income taxes (472,000) (5,000) - (477,000) (4,000)
Income taxes payable 512,674 123,684 - 636,358 283,566
----------- ----------- ------------ ----------- -----------
TOTAL ADJUSTMENTS TO NET INCOME 1,016,257 129,890 - 1,146,147 582,854
----------- ----------- ------------ ----------- -----------
NET CASH PROVIDED BY OPERATING 1,886,087 293,405 - 2,179,492 895,937
ACTIVITIES
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 5,100 - - 5,100 -
Capital expenditures (1,037,283) - - (1,037,283) (90,243)
Deposits on equipment 57,500 - - 57,500 (107,500)
Loans receivable - - - - -
Due from affiliates - - - - -
----------- ----------- ------------ ----------- -----------
NET CASH PROVIDED BY/USED IN INVESTING (974,683) - - (974,683) (197,743)
ACTIVITIES
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 675,000 - - 675,000 -
Payments on long-term debt (328,788) - - (328,788) (189,946)
Increase in controlling interest - - - - 167,135
Controlling interest distributions (1,324,994) (420,000) - (1,744,994) (151,790)
Minority interest distributions - - - - (215,345)
Note payable - officer 475 - - 475 -
Loan payable - - - - 8,758
Loan to affiliate - - - - 14,176
----------- ----------- ------------ ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (978,307) (420,000) - (1,398,307) (367,012)
----------- ----------- ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 59,941 $ 747,296 $ - $ 2,153,665
Adjustment to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 74,753 236,610 - 1,128,478
Loss in disposal or abandonment 225,735 - - 259,120
Minority interest share of income - 303,946 - 417,091
(INCREASE) DECREASE IN:
Accounts receivable (149,169) 367,679 - 729,837
Prepaid expenses (13,612) (19,963) - (74,419)
Deposits 12,325 - - 12,325
Deferred income taxes 59,000 - - 59,000
INCREASE (DECREASE) IN:
Accounts payable and accrued expenses (2,495) (5,117) 212,438 60,775
Deferred income taxes (13,000) (137,000) - (631,000)
Income taxes payable - 981,969 - 1,901,893
----------- ----------- ----------- -----------
TOTAL ADJUSTMENTS TO NET INCOME 193,537 1,728,124 212,438 3,863,100
----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING 253,478 2,475,420 212,438 6,016,765
ACTIVITIES
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 379,776 - - 384,876
Capital expenditures (453,189) (1,077,782) - (2,658,497)
Deposits on equipment - - - (50,000)
Loans receivable (10,035) 6,464 - (3,571)
Due from affiliates 198,262 - (198,262) -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY/USED IN INVESTING 114,814 (1,071,318) (198,262) (2,327,192)
ACTIVITIES
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - - - 675,000
Payments on long-term debt (44,814) (41,074) - (604,622)
Increase in controlling interest - 53,298 - 220,433
Controlling interest distributions - (1,430,750) - (3,327,534)
Minority interest distributions - (640,324) - (867,893)
Note payable - officer - - - 475
Loan payable (306,500) 7,036 - (290,706)
Loan to affiliate - - (14,176) -
----------- ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (351,314) (2,064,038) (14,176) (4,194,847)
----------- ----------- ----------- -----------
</TABLE>
See Independent Auditors' Report.
- 22 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE IV - COMBINING STATEMENT OF CASH FLOWS EARNINGS/PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
--------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (66,903) (126,595) - (193,498) 331,182
CASH AND CASH EQUIVALENTS - BEGINNING 507,651 222,135 729,786 66,385
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 440,748 $ 95,540 $ - $ 536,288 $ 397,567
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFO.
CASH PAID DURING THE YEAR FOR:
Interest $ 94,039 $ - $ - $ 94,039 $ 36,727
=========== =========== ============ =========== ===========
Income Taxes $ - $ 12,334 $ - $ 12,334 $ -
=========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 16,978 (659,936) - (505,274)
CASH AND CASH EQUIVALENTS - BEGINNING 35,527 802,722 - 1,634,420
------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 52,505 $ 142,786 $ - $ 1,129,146
============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFO.
CASH PAID DURING THE YEAR FOR:
Interest $ 15,396 $ 2,087 $ - $ 148,249
============ =========== =========== ===========
Income Taxes $ - $ 104,081 $ - $ 116,415
============ =========== =========== ===========
</TABLE>
See Independent Auditors' Report.
- 23 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE V - COMBINING OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
--------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Advertising $ 18,940 $ - $ - $ 18,940 $ 3,635
Bad debts - 218,000 - 218,000 110,000
Cleaning - - - - 4,354
Condo fees 4,680 - - 4,680 -
Donations 1,750 8,400 - 10,150 305
Dues and subscriptions 444 - - 444 400
Employee benefits 30,089 19,541 - 49,630 32,025
Entertainment 3,779 - - 3,779 776
Gifts 2,728 - - 2,728 3,284
Insurance 16,224 35,891 - 52,115 23,683
Licenses 934 2,000 - 2,934 4,357
Postage 18,195 - - 18,195 7,095
Maintenance contracts 71,341 - - 71,341 20,966
Management fees - 3,074,798 (3,074,798) - -
Medical supplies 91,114 - - 91,114 89,041
Miscellaneous 450 - - 450 -
Moving and storage 8,201 - - 8,201 -
Office expenses 23,032 1,847 - 24,879 13,144
Outside services - 4,100 - 4,100 -
Patient transportation 143,162 - - 143,162 13,101
Payroll-officer 49,400 4,615 - 54,015 -
Payroll doctors - 267,499 - 267,499 -
Payroll-office 557,940 174,854 - 732,794 207,096
Payroll-taxes 55,997 28,936 - 84,933 23,654
Professional fees 17,062 80,076 - 97,138 31,968
Radiology fees - - - - 328,702
Rent 136,529 - - 136,529 73,500
Repairs and maintenance 86,036 - - 86,036 122,491
Security 382 - - 382 509
Taxes - miscellaneous 502 - - 502 -
Telephone 23,605 25 - 23,630 11,612
Travel 33,255 434 - 33,689 12,846
Utilities 25,722 - - 25,722 50,131
---------- ---------- ----------- ---------- ----------
$1,421,493 $3,921,016 $(3,074,798) $2,267,711 $1,188,675
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Advertising $ 1,893 $ 45,869 $ - $ 70,337
Bad debts (33,000) (50,000) - 245,000
Cleaning 12,386 7,939 - 24,679
Condo fees - - - 4,680
Donations 2,050 2,615 - 15,120
Dues and subscriptions 5,118 1,617 - 7,579
Employee benefits 58,276 37,171 - 177,102
Entertainment 296 12,636 - 17,487
Gifts - 3,250 - 9,262
Insurance 54,171 47,887 - 177,856
Licenses 14,771 2,110 - 24,172
Postage 8,585 - - 33,875
Maintenance contracts 26,174 83,825 - 202,306
Management fees - 207,193 (207,193) -
Medical supplies 66,060 72,972 - 319,187
Miscellaneous 2,894 2,189 - 5,533
Moving and storage 29,908 - - 38,109
Office expenses 20,677 25,615 - 84,315
Outside services 21,689 4,000 - 29,789
Patient transportation 24,602 30,298 - 211,163
Payroll-officer 48,582 6,539 - 109,136
Payroll doctors 546,804 200,000 - 1,014,303
Payroll-office 332,962 315,114 - 1,587,966
Payroll-taxes 57,132 40,287 - 206,006
Professional fees 23,169 25,950 - 178,225
Radiology fees - - (328,702) -
Rent 82,865 90,500 - 383,394
Repairs and maintenance 55,509 49,075 - 313,111
Security - 445 - 1,336
Taxes - miscellaneous 7,501 25 - 8,028
Telephone 21,020 13,212 - 69,474
Travel 8,894 10,944 - 66,373
Utilities 20,690 44,166 - 140,709
---------- ---------- --------- ----------
$1,521,678 $1,333,443 $(535,895) $5,775,612
========== ========== ========= ==========
</TABLE>
See Independent Auditors' Report.
- 24 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE VI - COMBINING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
----------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 507,651 $ 222,135 $ - $ 729,786 $ 66,385
Accounts receivable, net 2,259,283 2,984,476 (2,259,283) 2,984,476 1,329,570
Due from affiliates - - - - -
Prepaid expenses 18,786 - - 18,786 4,625
Loans receivable - - - - -
Deferred income taxes - - - - -
----------- ------------ ------------ ----------- ------------
Total Current Assets 2,785,720 3,206,611 (2,259,283) 3,733,048 1,400,580
----------- ------------ ------------ ----------- ------------
PROPERTY AND EQUIPMENT
Medical equipment 2,157,209 - - 2,157,209 2,236,241
Leasehold improvements 294,232 - - 294,232 525,043
Office furniture 30,222 - - 30,222 8,435
Vehicles - - - - -
Signs - - - - 1,705
----------- ------------ ------------ ----------- ------------
2,481,663 - - 2,481,663 2,771,424
Accumulated Depreciation (1,305,043) - - (1,305,043) (2,141,244)
----------- ------------ ------------ ----------- ------------
1,176,620 - - 1,176,620 630,180
----------- ------------ ------------ ----------- ------------
OTHER ASSETS 115,821 - - 115,821 28,570
----------- ------------ ------------ ----------- ------------
$ 4,078,161 $ 3,206,611 $ (2,259,283) $ 5,025,489 $ 2,059,330
=========== ============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ --------- ------------ -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 35,527 $ 802,722 $ - $ 1,634,420
Accounts receivable, net 473,612 1,759,720 - 6,547,378
Due from affiliates 499,382 - (499,382) -
Prepaid expenses 12,944 12,365 - 48,720
Loans receivable - 12,464 - 12,464
Deferred income taxes 288,000 - - 288,000
------------- ------------ ------------ -----------
Total Current Assets 1,309,465 2,587,271 (499,382) 8,530,982
------------- ------------ ------------ -----------
PROPERTY AND EQUIPMENT
Medical equipment 1,905,594 1,332,868 $ - 7,631,912
Leasehold improvements 131,937 325,650 - 1,276,862
Office furniture 56,164 10,919 - 105,740
Vehicles 36,380 - - 36,380
Signs 2,667 1,696 - 6,068
------------- ------------ ------------ -----------
2,132,742 1,671,133 - 9,056,962
Accumulated Depreciation (1,740,381) (1,401,008) - (6,587,676)
------------- ------------ ------------ -----------
392,361 270,125 - 2,469,286
------------- ------------ ------------ -----------
OTHER ASSETS 12,325 100,000 - 256,716
------------- ------------ ------------ -----------
$ 1,714,151 $ 2,957,396 $ (499,382) $11,256,984
============= ============ ============ ===========
</TABLE>
See Independent Auditors' Report.
- 25 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE VI - COMBINING BALANCE SHEET
DECEMBER 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 229,788 $ - $ - $ 229,788 $ 189,946
Note payable-officer 25,248 - - 25,248 -
Accounts payable and accrued expenses 51,667 2,283,242 (2,259,283) 75,626 396,691
Due to affiliate - - - - -
Income taxes payable 412,355 139,272 - 551,627 43,422
Deferred income taxes 472,000 281,000 - 753,000 376,000
---------- ---------- ----------- ---------- ----------
TOTAL CURRENT LIABILITIES 1,191,058 2,703,514 (2,259,283) 1,635,289 1,006,059
---------- ---------- ----------- ---------- ----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 596,504 - - 596,504 456,208
---------- --------- ----------- ---------- ----------
MINORITY INTERESTS - - - - 363,683
--------- --------- ----------- ---------- ----------
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock - 100 - 100 1,000
Additional paid-in-capital (25,000) - - (25,000) 298,750
Retained earnings (deficit) - 502,997 - 502,997 (66,370)
Partners' capital 2,315,599 - - 2,315,599 -
---------- ---------- ----------- ---------- ----------
2,290,599 503,097 - 2,793,696 233,380
---------- ---------- ----------- ---------- ----------
$4,078,161 $3,206,611 $(2,259,283) $5,025,489 $2,059,330
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 44,814 $ 41,075 $ - $ 505,623
Note payable-officer 862,142 - - 887,390
Accounts payable and accrued expenses 71,973 203,008 (499,382) 247,916
Due to affiliate - - - -
Income taxes payable - 1,138,298 - 1,733,347
Deferred income taxes 366,000 631,000 - 2,126,000
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 1,344,929 2,013,381 (499,382) 5,500,276
---------- ---------- ---------- ----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion - 3,573 - 1,056,285
---------- ---------- ---------- ----------
MINORITY INTERESTS - 649,587 - 1,013,270
---------- ---------- ---------- ----------
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock 1,000 1,000 - 3,100
Additional paid-in-capital - 155,500 - 429,250
Retained earnings (deficit) 368,222 134,355 - 939,204
Partners' capital - - - 2,315,599
---------- ---------- ---------- ----------
369,222 290,855 - 3,687,153
---------- ---------- ---------- ----------
$1,714,151 $2,957,396 $ (499,382) $11,256,984
========== ========== ========== ==========
</TABLE>
See Independent Auditors' Report.
- 26 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE VII - COMBINING STATEMENT OF INCOME
AND RETAINED EARNINGS/PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
--------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME-FEES $3,190,529 $4,268,541 $(3,190,529) $ 4,268,541 $1,937,410
OPERATING EXPENSES - SCHEDULE IX 1,343,689 3,780,981 (3,190,529) 1,934,141 1,100,280
DEPRECIATION AND AMORTIZATION 358,589 - - 358,589 291,280
---------- ---------- ----------- ----------- ----------
INCOME BEFORE OTHER INCOME (EXPENSE) 1,488,251 487,560 - 1,975,811 545,850
---------- ---------- ----------- ----------- ----------
OTHER INCOME (EXPENSE)
Interest income 7,013 825 - 7,838 2,854
Miscellaneous income - - - - -
Interest expense (26,601) - - (26,601) (87,909)
Gain on disposal and abandonment 6,000 - - 6,000 2,350
---------- ---------- ----------- ----------- ----------
(13,588) 825 - (12,763) (82,705)
---------- ---------- ----------- ----------- ----------
INCOME BEFORE PROVISION (BENEFIT) FOR TAXES 1,474,663 488,385 - 1,963,048 463,145
---------- ---------- ----------- ----------- ----------
PROVISION (BENEFIT) FOR INCOME TAXES
Current 412,355 145,671 - 558,026 43,422
Deferred 188,000 17,941 - 205,941 (27,871)
---------- ---------- ----------- ----------- ----------
600,355 163,612 - 763,967 15,551
---------- ---------- ----------- ----------- ----------
MINORITY INTERESTS IN INCOME OF COMBINED
ENTITIES - - - - (170,085)
---------- ---------- ----------- ----------- ----------
NET INCOME 874,308 324,773 - 1,199,081 277,509
BEGINNING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL 2,166,291 553,224 - 2,719,515 (281,879)
DISTRIBUTIONS (725,000) (375,000) - (1,100,000) (62,000)
---------- ---------- ----------- ----------- ----------
ENDING RETAINED EARNINGS (DEFICIT)/PARTNERS'
CAPITAL $2,315,599 $ 502,997 $ - $ 2,818,596 $ (66,370)
========== ========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
INCOME-FEES $ 2,272,559 $3,985,200 $(500,393) $11,963,317
OPERATING EXPENSES - SCHEDULE IX 1,983,849 1,339,006 (500,393) 5,856,883
DEPRECIATION AND AMORTIZATION 147,878 18,952 - 816,699
----------- ---------- --------- -----------
INCOME BEFORE OTHER INCOME (EXPENSE) 140,832 2,627,242 0 5,289,735
----------- ---------- --------- -----------
OTHER INCOME (EXPENSE)
Interest income - 18,330 - 29,022
Miscellaneous income - - - -
Interest expense (7,764) (5,982) - (128,256)
Gain on disposal and abandonment 766 - - 9,116
----------- ---------- --------- -----------
(6,998) 12,348 - (90,118)
----------- ---------- --------- -----------
INCOME BEFORE PROVISION (BENEFIT) FOR TAXES 133,834 2,639,590 - 5,199,617
----------- ---------- --------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES
Current - 1,188,498 - 1,789,946
Deferred 73,000 (211,300) - 39,770
----------- ---------- --------- -----------
73,000 977,198 - 1,829,716
----------- ---------- --------- -----------
MINORITY INTERESTS IN INCOME OF COMBINED
ENTITIES - (310,095) - (480,180)
----------- ---------- --------- -----------
NET INCOME 60,834 1,352,297 - 2,889,721
BEGINNING RETAINED EARNINGS (DEFICIT)/
PARTNERS' CAPITAL 307,388 300,058 - 3,045,082
DISTRIBUTIONS - (1,518,000) - (2,680,000)
------------ ---------- --------- ------------
ENDING RETAINED EARNINGS (DEFICIT)/PARTNERS'
CAPITAL $ 368,222 $ 134,355 $ - $3,254,803
============ ========== ========= ============
</TABLE>
See Independent Auditors' Report.
- 27-
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE VIII - COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
--------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 874,308 $ 324,773 $ - $1,199,081 $ 277,509
---------- ---------- ---------- ---------- ----------
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 358,589 - - 358,589 291,280
Gain on disposal or abandonment (6,000) - - (6,000) (2,350)
Minority interest share of income - - - - 170,085
(INCREASE) DECREASE IN:
Accounts receivable (388,690) (513,026) 388,690 (513,026) (72,423)
Prepaid expenses 32,619 12,141 44,760 829
Deposits (7,533) - - (7,533) -
Deferred income taxes - - - - -
INCREASE (DECREASE) IN:
Accounts payable and accrued expenses 8,301 398,540 388,690 18,151 84,990
Deferred income taxes 188,000 32,000 - 220,000 36,000
Income taxes payable 412,355 122,533 - 534,888 (20,449)
---------- ---------- ----------- ---------- ----------
TOTAL ADJUSTMENTS 597,641 52,188 - 649,829 487,962
---------- ---------- ----------- ---------- ----------
NET CASH PROVIDED BY OPERATING 1,471,949 376,961 - 1,848,910 765,471
ACTIVITIES
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Property and Equipment 6,000 - - 6,000 6,000
Capital expenditures (1,179,478) - - (1,179,478) (15,354)
Deposits on equipment (100,000) - - (100,000) (27,500)
Loans receivable - - - - -
Due from affiliates - - - - -
---------- ---------- ----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,273,478) - - (1,273,478) (36,854)
---------- ---------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60,834 $1,352,297 $ - $ 2,889,721
---------- ---------- --------- -----------
Adjustment to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 147,878 18,952 - 816,699
Gain on disposal or abandonment (766) - - (9,116)
Minority interest share of income - 310,095 - 480,180
(INCREASE) DECREASE IN:
Accounts receivable (143,416) 260,430 - (468,435)
Prepaid expenses 3,066 12,280 - 60,935
Deposits - - - (7,533)
Deferred income taxes (31,000) - - (31,000)
INCREASE (DECREASE) IN:
Accounts payable and accrued expenses 10,143 83,546 (153,268) 43,562
Deferred income taxes 104,000 (163,000) - 197,000
Income taxes payable - 1,089,807 - 1,604,246
---------- ---------- --------- -----------
TOTAL ADJUSTMENTS 89,905 1,612,110 (153,268) 2,686,538
---------- ---------- --------- -----------
NET CASH PROVIDED BY OPERATING 150,739 2,964,407 (153,268) 5,576,259
ACTIVITIES
---------- ---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Property and Equipment 766 - - 12,766
Capital expenditures (16,684) (39,044) - (1,250,560)
Deposits on equipment - (100,000) - (227,500)
Loans receivable 3,641 8,060 - 11,701
Due from affiliates (153,268) - 153,268 -
---------- ---------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES (165,545) (130,984) 153,268 (1,453,593)
---------- ---------- --------- -----------
</TABLE>
See Independent Auditors' Report.
- 28 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE VIII - COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
-------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 900,000 - - 900,000 -
Payments on long-term debt (73,708) - - (73,708) (541,014)
Increase in loan fees (2,413) - - (2,413) -
Controlling interest distributions (725,000) (375,000) - (1,100,000) (62,000)
Minority interest distributions - - - - (38,000)
Note payable - officer - - - - -
Loan payable - - - - (10,500)
--------- --------- ----------- ---------- ----------
NET CASH PROVIDED BY/USED IN FINANCING
ACTIVITIES 98,879 (375,000) - (276,121) (651,514)
--------- --------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 297,350 1,961 - 299,311 77,103
CASH AND CASH EQUIVALENTS (OVERDRAFT) -
BEGINNING 210,301 220,174 - 430,475 (10,718)
--------- ---------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $ 507,651 $ 222,135 $ - $ 729,786 $ 66,385
========= ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFO
CASH PAID DURING THE YEAR FOR:
Interest $ 26,601 $ - $ - $ 26,601 $ 87,909
========= ========== =========== ========== ==========
Income Taxes $ - $ 6,181 $ - $ 6,181 $ -
========= ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - - - 900,000
Payments on long-term debt (61,559) (37,927) - (714,208)
Increase in loan fees - - - (2,413)
Controlling interest distributions - (1,518,000) - (2,680,000)
Minority interest distributions - (682,000) - (720,000)
Note payable - officer 25,000 - - 25,000
Loan payable - - - (10,500)
------------ ---------- ---------- -----------
NET CASH PROVIDED BY/USED IN FINANCING
ACTIVITIES (36,559) (2,237,927) - (3,202,121)
------------ ---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (51,365) 595,496 - 920,545
CASH AND CASH EQUIVALENTS (OVERDRAFT) -
BEGINNING 86,892 207,226 - 713,875
------------ ---------- ---------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 35,527 $ 802,722 $ - $1,634,420
============ ========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFO
CASH PAID DURING THE YEAR FOR:
Interest $ 7,764 $ 5,982 $ - $ 128,256
============ ========== =========== ===========
Income Taxes $ - $ 50,391 $ - $ 56,572
============ ========== =========== ===========
</TABLE>
See Independent Auditors' Report.
- 29 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE IX - COMBINING OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
N. J. BLOOMFIELD MAINLAND
IMAGING IMAGING ELIMINATIONS TOTAL IMAGING
--------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Advertising $18,991 $ - $ - $ 18,991 $ 5,268
Automobile - 200 - 200 -
Bad debts - 127,000 - 127,000 157,000
Cleaning - - - - 3,185
Condo fees 4,290 - - 4,290 -
Donations 1,000 1,000 - 2,000 360
Dues and subscriptions 2,083 - - 2,083 275
Employee benefits 15,605 6,667 - 22,272 19,991
Entertainment 1,291 - - 1,291 1,502
Gifts 2,732 - - 2,732 1,000
Insurance 11,750 29,105 - 40,855 22,163
Licenses 5,549 2,000 - 7,549 5,476
Postage 20,482 - - 20,482 6,220
Maintenance contracts 174,357 - - 174,357 38,256
Management fees - 3,190,529 (3,190,529) - -
Medical supplies 118,915 - - 118,915 85,625
Miscellaneous 394 - - 394 -
Moving and storage - - - - -
Office expenses 21,240 1,485 - 22,725 7,877
Outside services - - - - -
Patient transportation 230,070 - - 230,070 11,633
Payroll-officer 45,000 - - 45,000 -
Payroll-doctors - 261,897 - 261,897 -
Payroll-office 357,590 128,844 - 486,434 158,337
Payroll taxes 30,540 24,359 - 54,899 16,948
Professional fees 35,095 7,865 - 42,960 26,974
Radiology fees - - - - 257,134
Rent 119,537 - - 119,537 72,000
Repairs and maintenance 23,764 - - 23,764 131,241
Security - - - - -
Taxes-miscellaneous 4,578 - - 4,578 -
Telephone 19,440 30 - 19,470 11,621
Travel 35,217 - - 35,217 13,113
Utilities 44,179 - - 44,179 47,081
========== =========== ========== ========== ==========
$1,343,689 $3,780,981 $(3,190,529) $1,934,141 $1,100,280
========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
IRVING N.
BERAN, MD, ECHELON
P.A. MRI ELIMINATIONS COMBINED
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Advertising $ 5,064 $ 38,778 $ - $ 68,101
Automobile - - - 200
Bad debts 39,000 57,000 - 380,000
Cleaning 12,322 9,055 - 24,562
Condo fees - - - 4,290
Donations 350 - - 2,710
Dues and subscriptions 6,004 3,269 - 11,631
Employee benefits 76,661 31,627 - 150,551
Entertainment 573 7,475 - 10,841
Gifts - - - 3,732
Insurance 63,205 40,653 - 166,876
Licenses 10,124 5,000 - 28,149
Postage 3,883 - - 30,585
Maintenance contracts 52,704 106,795 - 372,112
Management fees - 243,259 (243,259) -
Medical supplies 118,062 55,752 - 378,354
Miscellaneous 2,083 - - 2,477
Moving and storage - - - -
Office expenses 25,096 23,645 - 79,343
Outside services 149 - - 149
Patient transportation 61,440 57,304 - 360,447
Payroll-officer 125,687 5,028 - 175,715
Payroll-doctors 543,627 193,407 - 998,931
Payroll-office 450,162 242,225 - 1,337,158
Payroll taxes 73,256 33,576 - 178,679
Professional fees 33,802 29,524 - 133,260
Radiology fees - - (257,134) -
Rent 167,550 72,000 - 431,087
Repairs and maintenance 28,484 15,743 - 199,232
Security - 509 - 509
Taxes-miscellaneous 8,403 - - 12,981
Telephone 23,975 11,476 - 66,542
Travel 6,455 9,502 - 64,287
Utilities 45,728 46,404 - 183,392
=========== ========== ========== ==========
$ 1,983,849 $1,339,006 $ (500,393) $5,856,883
=========== ========== ========== ==========
</TABLE>
See Independent Auditors' Report.
- 30 -
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED BALANCE SHEET
JUNE 30, 1998
ASSETS
JUNE 30, 1998
(UNAUDITED)
-----------
Current Assets:
Cash and cash equivalents $ 1,435,555
Accounts receivable, net 5,717,996
Prepaid expenses 100,177
Loans receivable 18,658
Deferred income taxes 271,923
---------------
Total Current Assets 7,544,309
---------------
Property and Equipment:
Medical equipment 8,482,618
Leasehold improvements 1,353,610
Office furniture 140,316
Vehicles 27,863
Signs 6,068
---------------
10,010,475
---------------
Accumulated Depreciation (7,162,230)
---------------
2,848,245
---------------
Other Assets 331,987
---------------
Total Assets $ 10,724,541
===============
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED BALANCE SHEET
JUNE 30, 1998
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
JUNE 30, 1998
(UNAUDITED)
-----------
Current Liabilities:
Current portion of long-term debt $ 421,274
Notes payable-officer 595,401
Accounts payable and accrued expenses 303,214
Income taxes payable 4,322,591
Deferred income taxes 1,533,793
---------------
Total Current Liabilities 7,176,273
---------------
Long-term debt, net of current portion 1,012,612
---------------
Minority interests 467,270
---------------
Commitments and Contingencies
Stockholders' and Partners' Equity:
Common stock ($1.00 and $10.00 par value, 1,100 and
200 shares authorized, issued and outstanding,
respectively) 3,100
Additional paid-in-capital 429,250
Retained earnings/partners' capital 1,636,036
---------------
2,068,386
---------------
Total Liabilities and Stockholders'/Partners'
Equity $ 10,724,541
===============
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED
EARNINGS/PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
JUNE 30, 1998
(UNAUDITED)
---------------
Income-Fees $ 5,036,086
Operating Expenses - Schedule I 2,811,141
Depreciation and amortization 520,072
--------------
Income Before Other Income (Expense) 1,704,873
--------------
Other Income (Expense)
Interest income 8,016
Interest expense (57,668)
--------------
(49,652)
Income Before Provision for Income Taxes 1,655,221
--------------
Provision for Income Taxes
Current 708,258
Deferred 25,493
--------------
733,751
--------------
Minority Interests in Income of Combined Entities (187,551)
--------------
Net Income 733,919
Beginning Retained Earnings/Partners' Capital 2,301,367
Distributions (1,399,250)
--------------
Ending Retained Earnings/Partners' Capital $ 1,636,036
==============
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
JUNE 30, 1998
(UNAUDITED)
-----------
Cash Flows From Operating Activities:
Net Income $ 733,919
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 520,072
Minority Interest 187,551
(Increase) Decrease in:
Accounts receivable 99,544
Prepaid expenses 22,962
Other assets (4,132)
Increase (Decrease) in:
Accounts payable and accrued expenses (5,477)
Deferred income taxes (4,130)
Income taxes payable 687,352
---------------
Total Adjustments to net income 1,503,742
---------------
Net Cash Provided by Operating Activities 2,237,661
--------------
Cash Flows From Investing Activities:
Capital expenditures (46,473)
Loans receivable (2,623)
---------------
Net Cash Used in Investing Activities (49,096)
---------------
Cash Flows From Financing Activities:
Payments on long-term debt (200,157)
Distributions (1,399,250)
Minority interests distributions (282,749)
---------------
Net Cash Used in Financing Activities (1,882,156)
---------------
Net Increase in Cash and Cash Equivalents 306,409
Cash and Cash Equivalents - Beginning 1,129,146
---------------
Cash and Cash Equivalents - Ending $ 1,435,555
===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 57,668
===============
Income Taxes $ 52,199
===============
<PAGE>
IRVING N. BERAN, M.D., P.A. AND AFFILIATES
SCHEDULE I - COMBINED OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1998
JUNE 30, 1998
(UNAUDITED)
----------------
Advertising $ 18,626
Automobile 4,440
Cleaning 8,821
Condo fees 2,340
Donations 3,500
Dues and subscriptions 4,626
Employee benefits 62,353
Entertainment 22,988
Gifts 1,076
Insurance 93,588
Licenses 3,838
Postage 21,706
Maintenance contracts 83,931
Medical supplies 127,525
Office expenses 25,298
Outside services 42,893
Patient transportation 70,907
Payroll-officer 82,000
Payroll-doctors 499,432
Payroll-office 882,267
Payroll taxes 127,674
Professional fees 55,775
Rent 209,332
Repairs and maintenance 228,605
Security 127
Taxes-miscellaneous 2,487
Telephone 32,147
Travel 31,429
Utilities 61,410
----------------
$ 2,811,141
================
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
(2.1) Asset Purchase Agreement dated as of September 16,
1998, among HealthCare Imaging Services, Inc.,
Echelon MRI, P.C., Mainland Imaging Center, P.C.,
North Jersey Imaging Management Associates, L.P.,
Bloomfield Imaging Associates, P.A., Irving N.
Beran, M.D., P.A., the estate of Irving N. Beran,
Deceased, Mrs. Phyllis Beran and Sam Beran, M.D.
(4.1) Certificate of Designations, Preferences and Rights
of Series D Cumulative Accelerating Redeemable
Preferred Stock of HealthCare Imaging Services, Inc.
(23.1) Consent of David Fischer & Company, P.A.
(99.1) Press Release of HealthCare Imaging Services, Inc.
dated October 8, 1998.
<PAGE>
ASSET PURCHASE AGREEMENT
dated as of September 16, 1998
by and among
HEALTHCARE IMAGING SERVICES, INC.,
ECHELON MRI, P.C.,
MAINLAND IMAGING CENTER, P.C.,
NORTH JERSEY IMAGING MANAGEMENT ASSOCIATES, L.P.,
BLOOMFIELD IMAGING ASSOCIATES, P.A.,
IRVING N. BERAN, M.D., P.A.,
THE ESTATE OF IRVING N. BERAN, DECEASED
MRS. PHYLLIS BERAN
and
SAM BERAN, M.D.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C> <C>
DEFINITIONS..........................................................................................- 1 -
Section 1.01 Definitions........................................................................- 1 -
Section 1.02 Rules of Construction.............................................................- 11 -
ARTICLE II
PURCHASE AND SALE OF ASSETS.........................................................................- 11 -
Section 2.01 Sale and Purchase of Assets.......................................................- 11 -
Section 2.02 Excluded Assets...................................................................- 13 -
Section 2.03 Liabilities Transferred...........................................................- 13 -
Section 2.04 Transfer of Assets................................................................- 15 -
Section 2.05 Purchase Price and Adjustments....................................................- 15 -
Section 2.06 Closing Date Statements...........................................................- 15 -
Section 2.07 Accounts Receivable Adjustment....................................................- 16 -
Section 2.08 Payment of Purchase Price and Adjustments.........................................- 17 -
Section 2.09 Work Papers.......................................................................- 17 -
Section 2.10 Allocation of Purchase Price......................................................- 17 -
Section 2.11 Clearance Certificates............................................................- 18 -
Section 2.12 Transfer Taxes....................................................................- 18 -
ARTICLE III
THE CLOSING.........................................................................................- 18 -
Section 3.01 Closing Date......................................................................- 18 -
Section 3.02 Deliveries by the Purchaser at the Closing........................................- 19 -
Section 3.03 Deliveries by the Sellers at the Closing..........................................- 20 -
Section 3.04 Power of Attorney.................................................................- 21 -
Section 3.05 Non-Assignable Assets.............................................................- 22 -
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE STOCKHOLDERS................................................................................- 23 -
Section 4.01 Organization and Qualification....................................................- 23 -
Section 4.02 Authority.........................................................................- 23 -
Section 4.03 Consents and Approvals; No Violations.............................................- 24 -
Section 4.04 Capitalization....................................................................- 24 -
Section 4.05 Subsidiaries......................................................................- 24 -
Section 4.06 Articles of Incorporation and By-laws.............................................- 24 -
Section 4.07 Compliance With Laws; Licenses....................................................- 24 -
Section 4.08 Litigation; Investigations........................................................- 25 -
Section 4.09 Taxes.............................................................................- 25 -
- ii -
<PAGE>
Section 4.10 Employee Benefit Plans; ERISA.....................................................- 27 -
Section 4.11 Labor Relations...................................................................- 28 -
Section 4.12 Insurance Policies................................................................- 28 -
Section 4.13 Financial Statements and Books and Records........................................- 29 -
Section 4.14 No Material Adverse Change........................................................- 30 -
Section 4.15 Absence of Liabilities............................................................- 30 -
Section 4.16 Absence of Specified Changes......................................................- 30 -
Section 4.17 Corporate Names...................................................................- 32 -
Section 4.18 Real Property; Leases.............................................................- 32 -
Section 4.19 Equipment and Personal Property...................................................- 33 -
Section 4.20 Intellectual Property.............................................................- 33 -
Section 4.21 Software..........................................................................- 34 -
Section 4.22 Contracts.........................................................................- 34 -
Section 4.23 Inventory.........................................................................- 34 -
Section 4.24 Directors, Officers and Employees.................................................- 35 -
Section 4.25 Title, Condition and Sufficiency of Assets; Conduct of Practice...................- 35 -
Section 4.26 Transactions with Affiliates......................................................- 35 -
Section 4.27 Absence of Certain Practices......................................................- 35 -
Section 4.28 Accounts Payable..................................................................- 36 -
Section 4.29 Accounts Receivable...............................................................- 36 -
Section 4.30 Records...........................................................................- 36 -
Section 4.31 Fraud and Abuse/Referrals.........................................................- 36 -
Section 4.32 Third-Party Payors................................................................- 37 -
Section 4.33 Compliance with Medicare and Medicaid Programs....................................- 37 -
Section 4.34 Rate Limitations and Rates........................................................- 37 -
Section 4.35 Participation in Audits...........................................................- 37 -
Section 4.36 Reimbursement Documentation.......................................................- 37 -
Section 4.37 Environmental Laws................................................................- 37 -
Section 4.38 Patients..........................................................................- 38 -
Section 4.39 Medical Waste.....................................................................- 38 -
Section 4.40 Bulk Sales........................................................................- 38 -
Section 4.41 Liabilities and Indebtedness......................................................- 38 -
Section 4.42 Investment Intent.................................................................- 38 -
Section 4.43 Disclosure........................................................................- 39 -
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.....................................................- 39 -
Section 5.01 Organization and Qualification....................................................- 39 -
Section 5.02 Authority.........................................................................- 39 -
Section 5.03 Consents and Approvals; No Violations.............................................- 40 -
ARTICLE VI
CERTAIN COVENANTS...................................................................................- 40 -
- iii -
<PAGE>
Section 6.01 Access to Information.............................................................- 40 -
Section 6.02 Conduct of Business in Normal Course..............................................- 41 -
Section 6.03 No Solicitation...................................................................- 43 -
Section 6.04 Notification of Certain Matters...................................................- 44 -
Section 6.05 Supplements to Schedules..........................................................- 44 -
Section 6.06 Confidentiality...................................................................- 44 -
Section 6.07 Facilities Employees..............................................................- 46 -
Section 6.08 Obligations and Indebtedness......................................................- 46 -
Section 6.09 Purchase Orders...................................................................- 47 -
Section 6.10 Mainland Facility.................................................................- 47 -
Section 6.11 Recoupment Claims.................................................................- 47 -
ARTICLE VII
CONDITIONS TO EACH PARTY'S OBLIGATIONS..............................................................- 47 -
Section 7.01 Governmental Authorizations; Consents.............................................- 47 -
Section 7.02 Absence of Litigation.............................................................- 47 -
Section 7.03 No Injunction.....................................................................- 48 -
ARTICLE VIII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS.................................................- 48 -
Section 8.01 Accuracy of Representations and Warranties........................................- 48 -
Section 8.02 Performance by the Sellers........................................................- 48 -
Section 8.03 Non-Competition Agreement.........................................................- 48 -
Section 8.04 Casualty Losses; Material Change..................................................- 48 -
Section 8.05 Assets............................................................................- 48 -
Section 8.06 Financial Statements..............................................................- 49 -
Section 8.07 Compliance with Laws..............................................................- 49 -
Section 8.08 Leases............................................................................- 49 -
Section 8.09 Consents and Approvals............................................................- 49 -
Section 8.10 Stockholder Approval..............................................................- 49 -
Section 8.11 Opinion of Counsel................................................................- 49 -
Section 8.12 FIRPTA Certificate................................................................- 49 -
Section 8.13 Obligations and Indebtedness......................................................- 49 -
Section 8.14 Notes.............................................................................- 50 -
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS....................................................- 50 -
Section 9.01 Accuracy of Representations and Warranties........................................- 50 -
Section 9.02 Performance by Purchaser.........................................................- 50 -
Section 9.03 Opinion of Counsel................................................................- 50 -
Section 9.04 Registration Rights Agreement.....................................................- 50 -
- iv -
<PAGE>
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND INDEMNIFICATION OBLIGATIONS.....................................................................- 50 -
ARTICLE XI
INDEMNIFICATION.....................................................................................- 51 -
Section 11.01 General Indemnity.................................................................- 51 -
Section 11.02 Limitation on Indemnification Liabilities.........................................- 52 -
Section 11.03 Indemnification Procedure.........................................................- 53 -
ARTICLE XII
TERMINATION.........................................................................................- 55 -
Section 12.01 Right to Terminate................................................................- 55 -
Section 12.02 Obligations to Cease..............................................................- 55 -
ARTICLE XIII
OBLIGATIONS AFTER THE CLOSING.......................................................................- 56 -
Section 13.01 Tax Returns; Tax Periods Ending on or Before the Closing Date.....................- 56 -
Section 13.02 Employees and Employee Benefits...................................................- 56 -
Section 13.03 Tax Audits........................................................................- 56 -
Section 13.04 Further Assurances and Cooperation................................................- 56 -
Section 13.05 Access............................................................................- 57 -
Section 13.06 Consent of the Sellers' Accountants...............................................- 57 -
Section 13.07 Closing Period Financial Statements...............................................- 57 -
Section 13.08 Stockholders' Meeting.............................................................- 57 -
Section 13.09 Change of Name....................................................................- 58 -
Section 13.10 Transfer Restrictions on Series D Stock...........................................- 58 -
Section 13.11 Recoupment Claims.................................................................- 58 -
ARTICLE XIV
MISCELLANEOUS.......................................................................................- 59 -
Section 14.01 Publicity.........................................................................- 59 -
Section 14.02 Costs.............................................................................- 59 -
Section 14.03 Headings..........................................................................- 59 -
Section 14.04 Notices...........................................................................- 59 -
Section 14.05 Assignment and Successors.........................................................- 60 -
Section 14.06 Binding Effect....................................................................- 60 -
Section 14.07 Governing Law; Forum; Process.....................................................- 60 -
Section 14.08 Entire Agreement..................................................................- 61 -
Section 14.09 Counterparts......................................................................- 61 -
Section 14.10 Severability......................................................................- 61 -
Section 14.11 No Prejudice......................................................................- 61 -
Section 14.12 Parties in Interest...............................................................- 61 -
- v -
<PAGE>
Section 14.13 Amendment and Modification........................................................- 61 -
Section 14.14 Waiver............................................................................- 61 -
Section 14.15 Knowledge.........................................................................- 61 -
Section 14.16 Consents..........................................................................- 61 -
- vi -
</TABLE>
<PAGE>
SCHEDULES
---------
Schedule 1.01 Location of Facilities
Schedule 1.02 Stockholders
Schedule 2.01(a) Accounts Receivable
Schedule 2.01(b) Assumed Contracts
Schedule 2.01(c) Personal Property
Schedule 2.01(d) Licenses
Schedule 2.01(f) Computer Software
Schedule 2.01(g) Patents
Schedule 2.01(h) Real Property Leases
Schedule 2.01(i) Tangible Assets
Schedule 2.01(j) Corporate Names
Schedule 2.02(b) Tax Refunds
Schedule 2.02(c) Insurance Policies
Schedule 2.02(d) Prepaid Assets
Schedule 2.02(e) Security Deposits
Schedule 2.02(f) Deposits with Picker International, Inc.
Schedule 2.02(g) Excluded Contracts
Schedule 2.02(h) Non-transferable Licenses
Schedule 2.03(a)(i) Assumed Liabilities
Schedule 2.03(b)(vi) Terminated Purchase Orders
Schedule 2.03(b)(viii) Vista Upgrade
Schedule 3.02 New Leases
Schedule 2.04 Permitted Liens
Schedule 4.03 Consents and Approvals
Schedule 4.04 Capitalization
Schedule 4.07 Permits
Schedule 4.08 Litigation
Schedule 4.09 Taxes
Schedule 4.10 Employee Benefit Plans
Schedule 4.12 Insurance Policies
Schedule 4.13 Financial Statements
Schedule 4.14 Material Adverse Changes
Schedule 4.15 Liabilities
Schedule 4.16 Specified Changes
Schedule 4.17 Corporate Names
Schedule 4.18 Real Property/Leases
Schedule 4.19 Equipment and Personal Property
Schedule 4.20 Intellectual Property
Schedule 4.21 Software
Schedule 4.22 Contracts
Schedule 4.23 Inventory
- vii -
<PAGE>
Schedule 4.24 Directors, Officers and Employees
Schedule 4.25 Liens
Schedule 4.26 Transactions with Affiliates
Schedule 4.27 Absence of Certain Practices
Schedule 4.29 Accounts Receivable
Schedule 4.32 Third Party Payor Contracts
Schedule 4.38 Adverse Relationships with Patients
Schedule 4.44 Residence Addresses
Schedule 5.03 Purchaser's Consents
Schedule 6.02 Conduct of Business pending Closing
Schedule 6.07 Vacation
Schedule 6.08 Obligations and Indebtedness
Schedule 13.08 Meeting Proposals
Schedule 14.16 Consents
EXHIBITS
---------
Exhibit 1 Form of Non-Competition Agreement
Exhibit 2 Form of Note and Pledge and Security Agreement
Exhibit 3 Certificate of Designations, Preferences and Rights of Series D
Cumulative Accelerating Redeemable Preferred Stock
Exhibit 4 Form of Escrow Agreement
Exhibit 5 Opinion of Counsel to the Purchaser
Exhibit 6 Form of Assignment and Assumption Agreement
Exhibit 7 Form of Lease
Exhibit 8 Registration Rights Agreement
Exhibit 9 Form of Voting Agreement
Exhibit 10 Opinion of Counsel to the Sellers
Exhibit 11 Form of FIRPTA Certificate
- viii -
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of September 16, 1998, by and among HealthCare Imaging Services, Inc., a
Delaware corporation (the "Purchaser"), and Echelon MRI, P.C., a New Jersey
professional corporation, Mainland Imaging Center, P.C., a New Jersey
professional corporation, North Jersey Imaging Management Associates, L.P., a
New Jersey limited partnership, Bloomfield Imaging Associates, P.A., a New
Jersey professional corporation, and Irving N. Beran, M.D., P.A., a New Jersey
professional corporation (referred to collectively herein as the "Sellers" and
each individually as a "Seller"), the estate of Irving N. Beran, Deceased (the
"Estate"), Mrs. Phyllis Beran ("Mrs. Beran") and Sam Beran, M.D. ("Dr. Beran";
the Estate, Mrs. Beran and Dr. Beran are referred to herein collectively as the
"Stockholders" and each individually as a "Stockholder").
WHEREAS, the Sellers currently operate three diagnostic imaging
facilities, one radiology/x- ray/ultrasound facility and certain other radiology
facilities located at the addresses set forth on Schedule 1.01 (referred to
herein collectively as the "Facilities" and each individually as a "Facility")
and are engaged in the provision of diagnostic imaging services (the
"Practice");
WHEREAS, the Stockholders own a majority of the Capital Stock, as the
case may be, in each of the Sellers;
WHEREAS, the Purchaser desires to acquire from the Sellers and the
Sellers desire to sell to the Purchaser, substantially all of the Sellers'
assets and properties that pertain to the Facilities upon the terms and subject
to the conditions set forth in this Agreement; and
WHEREAS, the Board of Directors of the Purchaser and the requisite
stockholders or other equity owners, the Board of Directors, general partner or
other governing board, as the case may be, of each Seller has, or will have
prior to the consummation of the transactions contemplated herein, duly approved
the transactions contemplated herein upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements contained herein and other good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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Section 1.01 Definitions. As used throughout this Agreement, the
following terms have the following meanings:
"Accounts Receivable Adjustment" has the meaning ascribed thereto in
Section 2.07.
<PAGE>
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of Capital Stock,
by contract or otherwise.
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Allocation" has the meaning ascribed thereto in Section 2.10.
"Allocation Notice" has the meaning ascribed thereto in Section
2.10.
"Assets" means all of the Sellers' properties, assets, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description (including all intangible property, tangible property
and real property of the Sellers), except the Excluded Assets, and any Assets
disposed of by the Sellers prior to the Closing pursuant to and not in violation
of this Agreement, whether owned or leased or otherwise possessed, used or held
for use by the Sellers with respect to the operation of the Facilities and the
Practice, whether or not described in the schedules to this Agreement and
whether or not reflected on the Financial Statements, now in existence or
hereafter acquired by the Sellers prior to the Closing.
"Assumed Liabilities" has the meaning ascribed thereto in Section
2.03(a).
"Bloomfield Facility" means the diagnostic imaging Facility operated
by Bloomfield Imaging Associates, P.A.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital stock or
any form of membership interests, as applicable, including, without limitation,
partnership interests, whether outstanding on the Closing Date or issued after
the Closing Date and any and all rights, warrants or options exercisable or
exchangeable for or convertible into such capital stock.
"Cash Consideration" has the meaning ascribed thereto in Section
2.05.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980.
"Closing" has the meaning ascribed thereto in Section 3.01.
"Closing A/R Adjustment" has the meaning ascribed thereto in Section
2.07.
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"Closing Date" has the meaning ascribed thereto in Section 3.01.
"Closing Date A/R Amount" has the meaning ascribed thereto in
Section 2.06.
"Closing Date A/R Amount Certificate" has the meaning ascribed
thereto in Section 2.06.
"Closing Period" has the meaning ascribed thereto in Section 2.06.
"Closing Period Financial Statements" has the meaning ascribed
thereto in Section 2.06.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" means the Internal Revenue Code of 1986 (or any successor
statute thereto), as amended from time to time.
"Confidential Information" means all non-public information and
records, including the existence and terms of this Agreement, whether written or
oral, concerning the business of any other party hereto; provided, however, that
the term Confidential Information shall not include information or data which
(i) at the time of disclosure is generally available to and known by the public
other than as a result of disclosure in violation of clause (a) or (b) of
Section 6.06, (ii) was or becomes available to a party on a non-confidential
basis from a source other than the other party or its agents or advisors;
provided, however, that such source is not bound by a confidentiality agreement
or obligation of secrecy in respect thereof or (iii) may be disclosed by the
Purchaser pursuant to Section 14.01 hereof.
"Consents" means governmental and third party consents, permits,
approvals, orders, authorizations, qualifications and waivers necessary for the
consummation of the sale of the Assets contemplated hereby.
"Contracts" has the meaning ascribed thereto in Section 4.22.
"Conversion Shares" has the meaning ascribed thereto in Section
5.02.
"Disclosing Party" has the meaning ascribed thereto in Section
6.06(b).
"Echelon Facility" means the diagnostic imaging Facility operated by
Echelon MRI, P.C.
"Environmental Laws" means any applicable federal, state, local or
foreign laws, statutes, rules, regulations, orders, consent decrees, judgments,
permits or licenses, relating to prevention, remediation, reduction or control
of pollution, or protection of the environment, natural
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resources and/or human health and safety, including, without limitation, such
applicable Laws or Licenses relating to (a) solid waste and/or Hazardous
Materials generation, handling, transportation, use, treatment, storage or
disposal, (b) air, water, and noise pollution, (c) soil, ground, water or
groundwater contamination, (d) the manufacture, generation, processing,
handling, distribution, use, treatment, storage, transportation or release,
emission or discharge into the environment of Hazardous Materials, (e)
regulation of underground and above ground storage tanks, (f) the obtaining,
sale, use, storage, disposal or testing of any human blood or blood product and
(g) the disposal of medical waste.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and the rules and regulations thereunder, as amended from time to time.
"Escrow Agent" has the meaning ascribed thereto in Section 2.08.
"Excluded Assets" has the meaning ascribed thereto in Section 2.02.
"Facilities" has the meaning ascribed thereto in the Preamble to
this Agreement.
"Facilities Employees" means all persons employed on the Closing
Date by the Sellers at the Facilities.
"FDA" means the Food and Drug Administration.
"Final Closing Date A/R Amount" has the meaning ascribed thereto in
Section 2.06.
"Final Closing Period Financial Statements" has the meaning ascribed
thereto in Section 2.06.
"Financial Statements" means the 1997 Financial Statements, the 1996
Financial Statements, the 1997 Tax Basis Financial Statements, the 1996 Tax
Basis Financial Statements and the Interim Financial Statements.
"1997 Financial Statements" means the audited financial statements
of the Sellers for the fiscal year ended December 31, 1997, including the
statements of assets, liabilities and stockholders' equity as at December 31,
1997 and the statements of revenues, expenses and retained earnings and the
statement of cash flows and the notes and supplementary information thereto for
the fiscal year ended December 31, 1997, prepared on a accrual basis in
accordance with GAAP, together with the audit opinion of the Sellers'
Accountants thereon.
"1996 Financial Statements" means the audited financial statements
of the Sellers for the fiscal year ended December 31, 1996, including the
statements of assets, liabilities and stockholder's equity as at December 31,
1996 and the statements of revenues, expenses and retained earnings and the
statement of cash flows and the notes and supplementary information thereto for
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the fiscal year ended December 31, 1996, prepared on an accrual basis in
accordance with GAAP, together with the audit opinion of the Sellers'
Accountants thereon.
"FIRPTA Certificate" has the meaning ascribed thereto in Section
8.12.
"GAAP" means U.S. generally accepted accounting principles and
practices set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession that are applicable to the circumstances as
of the date of determination.
"Governmental Authority" means any governmental authority including,
without limitation, any federal, state, territorial, county, municipal or other
governmental agency, board, branch, bureau, commission, court, arbitration
panel, department, authority, body or other instrumentality or political unit or
subdivision or official thereof, whether domestic or foreign.
"Hazardous Materials" means and includes any pollutants, hazardous
or toxic materials, substances or wastes, including: petroleum and petroleum
products and derivatives; asbestos; radon; polychlorinated bi-phenyls;
urea-formaldehyde foam insulation; explosives; radioactive materials; laboratory
wastes and medical wastes (including contaminated clothing, body fluids,
contaminated medical instruments and equipment, catheters, used bandages,
gauzes, needles or other sharp instruments); and any chemicals, materials or
substances designated or regulated as hazardous or as toxic substances,
materials, or wastes, or otherwise regulated, under any Environmental Law;
hazardous waste, hazardous material, hazardous substance, petroleum product,
oil, toxic substance, pollutant, contaminant, or other material or substance
hazardous to human health or safety, as defined or regulated under any
Environmental Law.
"HCFA" means the Health Care Financing Administration.
"Indemnitee" has the meaning ascribed thereto in Section 11.01.
"Indemnitor" has the meaning ascribed thereto in Section 11.01.
"Independent Auditor" means an impartial certified public accounting
firm of national standing which has not provided accounting services to any
party hereto or its Affiliates at any time within the prior three (3) years and
which is reasonably acceptable to the Purchaser and the Sellers.
"Interim Balance Sheet Date" has the meaning ascribed thereto in
Section 4.23.
"Interim Financial Statements" means the financial statements of the
Sellers, compiled by SCW&Co, for the six months ended June 30, 1998, including
the statements of assets, liabilities and stockholder's equity as at June 30,
1998 and the statements of revenues, expenses and
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<PAGE>
retained earnings and the statement of cash flows and the notes and
supplementary information thereto, for the six months ended June 30, 1998,
prepared on an accrual basis in accordance with GAAP.
"IRS" means the U.S. Internal Revenue Service or any successor
agency.
"Law" means any statute, ordinance, code, rule, regulation or court
order enacted, adopted or promulgated by any Governmental Authority.
"Leased Premises" means any real property which the Sellers lease or
sublease.
"Leases" has the meaning ascribed thereto in Section 2.01(h).
"Letter of Intent" means the letter of intent, dated March 6, 1998,
by and among the Company, the Sellers and the Stockholders.
"Licenses" means all licenses, permits, consents, authorizations,
registrations and approvals of, with or from Governmental Authorities, including
all occupancy, fire, business and other permits from local officials required
for the conduct of the business by the Sellers, the Facilities and the Practice
as now being conducted.
"Lien" means any security agreement, financing statement (whether or
not filed), mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien, charge, restrictive
agreement, mortgage, deed of trust, indenture, pledge, option, limitation,
exception to or other title defect in or on any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale, lease, consignment, or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Losses" means any and all losses, claims, damages, liabilities (or
actions, suits or proceedings, including any inquiry or investigation with
respect thereto), costs (including the reasonable costs of preparation and
reasonable attorneys' fees) and expenses (including reasonable expenses of
investigation).
"Mainland Facility" means the diagnostic imaging Facility operated
by Mainland Imaging Center, P.C.
"Material Adverse Effect" means any event, circumstance or condition
that, individually or when aggregated with all other similar events,
circumstances or conditions could reasonably be expected to have, or has had, a
material adverse effect on: (i) the business, property, operations, condition
(financial or otherwise), results of operations or prospects of the Sellers, the
Facilities or the Practice; (ii) the Assets; (iii) the ability of the Sellers to
consummate the transactions
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<PAGE>
contemplated hereunder in the manner contemplated hereby; or (iv) the ability of
the Purchaser to perform and conduct the operations of the Facilities and the
Practice after the consummation of the transactions contemplated by this
Agreement substantially in the manner conducted prior to the consummation of
such transactions.
"Medical Waste" means (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" means the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the Medical Waste Tracking Act of 1988, 42 USCA
ss.ss.6992, et seq., (ii) the U.S. Public Vessel Medical Waste Anti- Dumping Act
of 1988, 33 USCA ss.ss.2501 et seq., (iii) the Marine Protection, Research, and
Sanctuaries Act of 1972, 33 USCA ss.ss.1401 et seq., (iv) the Occupational
Safety and Health Act, 29 USCA ss.ss.651 et seq., (v) the United States
Department of Health and Human Services, National Institute for Occupational
Safety and Health, Infectious Waste Disposal Guidelines, Publication No. 88-119,
and (vi) and any Laws insofar as they are applicable to assets or operations of
the Sellers, the Facilities and the Practice purport to regulate Medical Waste
or impose requirements relating to Medical Waste.
"Meeting" shall have the meaning ascribed thereto in Section 13.08
"Minority Stockholders" means all stockholders, other than the
Stockholders, of each Seller, all of whom are listed on Schedule 1.02.
"Non-Assignable Assets" has the meaning ascribed thereto in Section
3.05.
"Non-Competition Agreements" means the Non-Competition Agreements,
effective as of the Closing Date, between the Purchaser and each of the Sellers,
Mrs. Beran, Dr. Beran, Debbie Beran and Chaya Beran, as amended, modified or
supplemented from time to time in accordance with the terms thereof, together
with any exhibits, schedules or other attachments thereto, substantially in the
form of Exhibit 1 hereto.
"Notes" means the Sellers' notes in the form attached hereto as
Exhibit 2 in favor of the Purchaser in the aggregate amount of the Purchaser
Loan Amount and each referencing the Pledge and Security Agreements containing a
pledge of such Seller's Series D Stock as collateral security for the payment of
the Notes.
"Notice" has the meaning ascribed thereto in Section 11.03(a).
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"Patients" means all patients who are currently or have been
patients of such Seller at any time during the two (2) year period preceding the
date of this Agreement.
"Patient Files" means all materials or information of the Sellers
relating to the Patients.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning ascribed thereto in Section 4.07.
"Permitted Liens" has the meaning ascribed thereto in Section 2.04.
"Person" means any corporation, partnership, firm, joint venture,
individual, association, trust, unincorporated organization or other entity.
"Physician Employees" means any physicians who, at any time during
the two (2) year period preceding the date of this Agreement, have performed or
currently are performing services for such Seller.
"Plans" means all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans and all multi-employer plans
(as defined in Sections 3(3), (1) and (2), respectively, of ERISA), (including,
without limitation, benefit plans or arrangements that are not subject to ERISA,
such as employment agreements and any other agreements containing "golden
parachute" provisions and deferred compensation agreements), together with
copies of any trusts related thereto and a classification of employees covered
thereby.
"Pledge and Security Agreements" means the Pledge and Security
Agreements, effective as of the Closing Date, by each Seller in favor of the
Purchaser, as amended, modified or supplemented from time to time in accordance
with the terms thereof, together with any exhibits, schedules or other
attachments thereto, substantially in the form of Exhibit 2 hereto.
"Practice" has the meaning ascribed thereto in the Preamble to this
Agreement.
"Pre-Closing A/R Adjustment" has the meaning ascribed thereto in
Section 2.07(a).
"Preferred Stock Consideration" has the meaning ascribed thereto in
Section 2.05.
"Pre-Tax Profits" means the aggregate amount of the earnings before
income taxes of the Sellers for the fiscal year ended December 31, 1997, as
reflected in the 1997 Tax Basis Financial Statements.
"Proposed Allocation" has the meaning ascribed thereto in Section
2.10.
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"Purchase Price" has the meaning ascribed thereto in Section 2.05.
"Purchaser" means HealthCare Imaging Services, Inc. and any
subsidiary thereof to which it may assign its rights, without delegating its
obligations, hereunder.
"Purchaser Common Stock" means the common stock, par value $0.01 per
share, of the Purchaser.
"Purchaser Health Plan" has the meaning ascribed thereto in Section
6.07.
"Purchaser Loan Amount" means an aggregate of $2.5 million.
"Purchaser's Accountants" means Deloitte & Touche, LLP, certified
public accountants.
"Qualified Plans" has the meaning ascribed thereto in Section
4.10(b).
"Recoupment Claim" means any recoupment or overpayment, set-off,
penalty or fine pending, or to the knowledge of the Sellers or the Stockholders
threatened, by any third-party payor or Governmental Authority having
jurisdiction over the Sellers, the Facilities or the Practice for amounts
arising from or related to payments to the Sellers, the Facilities or the
Practice for services rendered at the Facilities prior to the Closing.
"Registration Rights Agreement" has the meaning ascribed thereto in
Section 3.02.
"Representative" has the meaning ascribed thereto in Section
6.06(b).
"Retraining Obligations" has the meaning ascribed thereto in Section
6.07.
"SCW&Co" means Seligman, Cupersmith, Wilensky & Company, LLP,
certified public accountants.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Seller" has the meaning ascribed thereto in the preamble to this
Agreement.
"Sellers' Accountants" means David Fischer & Company, P.A.,
certified public accountants.
"Selling Group" has the meaning ascribed thereto in Section 6.06(a).
"Series D Stock" has the meaning ascribed thereto in Section 2.05.
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"Subject Party" has the meaning ascribed thereto in 6.06(b).
"Tax" and "Taxes" means any and all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
Governmental Authority.
"Taxpayers" has the meaning ascribed thereto in Section 4.09(a).
"Tax Action" has the meaning ascribed thereto in Section 13.03.
"1997 Tax Basis Financial Statements" means the financial statements
of the Sellers, compiled by SCW&Co, for the fiscal year ended December 31, 1997,
including the statements of assets, liabilities and stockholder's equity as at
December 31, 1997 and the statements of revenues, expenses and retained earnings
and the statement of cash flows and the notes and supplementary information
thereto, for the fiscal year ended December 31, 1997, prepared on an income tax
basis.
"1996 Tax Basis Financial Statements" means the financial statements
of the Sellers, compiled by SCW&Co, for the fiscal year ended December 31, 1996,
including the statements of assets, liabilities and stockholder's equity as at
December 31, 1996 and the statements of revenues, expenses and retained earnings
and the statement of cash flows and the notes and supplementary information
thereto for the fiscal year ended December 31, 1996, prepared on an income tax
basis.
"Tax Return" means any report, return, form, declaration or other
document or information required to be supplied to any Governmental Authority in
connection with Taxes.
"Threshold Amount" has the meaning ascribed thereto in Section
11.02.
"Transaction Documents" means, collectively, this Agreement and any
and all agreements, exhibits, schedules, certificates, instruments and other
documents contemplated hereby or executed and delivered in connection herewith.
"12/31/97 A/R Amount" means $5,817,540
"Vista Upgrade" has the meaning ascribed thereto in Section 2.03.
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Section 1.02 Rules of Construction.
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Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in
the plural include the singular;
(e) provisions apply to successive events and transactions;
(f) the words "include" and "including" shall be deemed to
mean "include, without limitation," and "including,
without limitation";
(g) "herein," "hereof," "hereto," "hereunder" and other
words of similar import refer to this Agreement as a
whole and not to any particular article, section,
paragraph or clause where such terms may appear;
(h) references to sections or articles mean references to
such section or article in this Agreement, unless
stated otherwise; and
(i) the use of any gender shall be applicable to all
genders.
ARTICLE II
PURCHASE AND SALE OF ASSETS
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Section 2.01 Sale and Purchase of Assets. Except as set forth in
Section 2.02 hereof, upon the terms and subject to the conditions set forth
herein, at the Closing, the Sellers shall sell, convey, transfer, assign and
deliver to the Purchaser, and the Purchaser shall purchase, acquire and accept
from the Sellers, free and clear of all Liens, all of the Assets, including,
without limitation, the following:
(a) all accounts receivable of any kind of the Sellers with respect
to services provided at the Facilities, including but not limited, to accounts
receivable arising from services rendered prior to the Closing Date,
notwithstanding that invoices relating thereto have not yet been issued, and
those which are specified on Schedule 2.01(a);
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(b) all right, title and interest of the Sellers in and to all
contracts, agreements, arrangements, instruments, documents of any nature or
description that pertain to the Practice or the Facilities, including, but not
limited to, those which are specified on Schedule 2.01(b);
(c) all machinery, equipment, furniture, fixtures, office and
computer equipment, leasehold improvements, vehicles and other tangible personal
property of the Sellers, used or held for use in the Facilities or the Practice,
including, but not limited to, those which are specified on Schedule 2.01(c);
(d) all interests of the Sellers in regulatory licenses, approvals,
permits and applications held by the Sellers that pertain to the Practice or the
Facilities which are capable of being transferred, including, but not limited
to, those which are specified on Schedule 2.01(d);
(e) all Patient Files in any form (and all software related to any
such computer records) in the possession or control of the Sellers to the extent
legally transferable;
(f) all computer software, computer databases, computer programs,
application software, source codes and object codes owned by the Sellers and
used or held for use by the Facilities or the Practice, including, but not
limited to, those which are specified on Schedule 2.01(f);
(g) all patents, trademarks, trade secrets, inventions, processes,
procedures, research records, market surveys, copyrights, service marks, trade
names and know-how and other intellectual property, wherever located, of the
Sellers related to the Facilities or the Practice and all registrations and
applications for registration of any of the foregoing, including, but not
limited to, those which are specified on Schedule 2.01(g);
(h) all right, title and interest of the Sellers under the real
property leases, written or oral (collectively, the "Leases"), listed, and, with
respect to oral leases, the terms and conditions of which are set forth, on
Schedule 2.01(h);
(i) all inventories, supplies and similar tangible assets of the
Sellers related to the Facilities or the Practice, including, but not limited
to, those which are specified on Schedule 2.01(i);
(j) all right, title and interest of the Sellers in and to the
corporate names of the Sellers and all names under which the Sellers are
currently doing business, including, but not limited to, those which are
specified on Schedule 2.01(j) to the extent legally transferable;
(k) all goodwill of the Sellers generated by the Facilities or the
Practice;
(l) all books and records of the Sellers relating to the Facilities
or the Practice, including, without limitation, manuals, standard operating
procedures, correspondence, customer, vendor and mailing lists, production
records, employment records, customer relation information and all other
confidential or proprietary information pertaining to the Facilities or the
Practice;
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(m) all rights of the Sellers residuary to or arising out of or
under express or implied warranties from suppliers, manufacturers or vendors
with respect to the Assets; and
(n) all other assets and properties of any nature whatsoever held by
the Sellers, either directly or indirectly, and used in, allocated to, or
required for the conduct of, the Facilities or the Practice, including all data,
files, indices, analyses and similar information, all stationery, invoices and
other forms and all other records of any kind.
Section 2.02 Excluded Assets. Notwithstanding anything to the contrary
in this Agreement, the Sellers shall retain and shall not sell, transfer, convey
or assign to the Purchaser, and the Purchaser shall not purchase or acquire, any
of the Sellers' right, title and interest in and to the following (the "Excluded
Assets"):
(a) all cash of the Sellers;
(b) all tax refunds including, but not limited to, those specified
on Schedule 2.02(b);
(c) all insurance policies and claims against officers and directors
including, but not limited to, those specified on Schedule 2.02(c);
(d) all prepaid assets specified on Schedule 2.02(d);
(e) all security deposits specified on Schedule 2.02(e);
(f) all deposits with Picker International, Inc. specified on
Schedule 2.02(f);
(g) all contracts specified on Schedule 2.02(g); and
(h) all non-transferable regulatory licenses, approvals, permits and
applications held by any Seller that pertain to the Practice or the Facilities
and specified on Schedule 2.02(h).
Section 2.03 Liabilities Transferred.
(a) Notwithstanding anything to the contrary in this Agreement, the
Purchaser shall not assume any liabilities of the Sellers, the Stockholders or
the Minority Stockholders, whether accrued, absolute or contingent, recorded or
unrecorded or otherwise, other than the following ("Assumed Liabilities"):
(i) the Purchaser will assume the performance of all obligations
that accrue after the Closing Date with respect to (x) the agreements specified
in Schedule 2.03(a)(i), provided, however, that the Stockholders and/or the
Sellers, as the case may be, shall remain liable for, and shall fully perform,
all liabilities of or with respect to the Practice and Facilities that accrue
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on or prior to the Closing, and (y) Recoupment Claims which arose from actual
services performed at the Facilities and were in the ordinary course of business
consistent with past practice, other than those for which payment has been
received by the Sellers, the Facilities or the Practice, as applicable, prior to
the Closing.
(b) The Sellers shall be responsible for all obligations and
liabilities of the Sellers, other than the Assumed Liabilities, included but not
limited to the following (the "Excluded Liabilities"):
(i) liabilities or obligations of any of the Sellers for
indebtedness to any of their stockholders or other equity owners or to any
Person affiliated or associated therewith;
(ii) except as otherwise specifically provided herein,
liabilities or obligations with respect to this Agreement or any of the
transactions contemplated hereunder including, without limitation, legal and
accounting fees;
(iii) liabilities or obligations which may arise by reason of or
with respect to the dissolution of any of the Sellers;
(iv) subject to Section 6.07, liabilities or obligations for any
severance or post-termination benefits or other payments or awards (including,
without limitation, disability payments and workers compensation awards) owed to
or incurred on behalf of any employee of the Sellers and/or the Facilities or
Practice terminated prior to or at the Closing, including, without limitation,
any obligations under COBRA;
(v) liabilities or obligations incurred by any Seller or
Stockholder which violate or breach any representation, warranty, covenant or
agreement of the Sellers or the Stockholders included herein or made in
connection herewith;
(vi) the obligations of the Sellers and/or Stockholders with
respect to the purchase orders for the equipment specified on Schedule
2.03(b)(vi), and the Purchaser will have no liability with respect to such
equipment or any termination of such purchase orders;
(vii) all accounts payable, accrued expenses, and Taxes of, and
pertaining to, the Facilities and the Practice, including but not limited to,
the foregoing and the payment of employee salaries, benefits, vacation, sick
pay, and severance and termination payments that accrue on or prior to the
Closing;
(viii) the obligations of the Sellers and/or Stockholders, if
any, with respect to the upgrade of the Picker 1.OT Vista MR System located at
the Bloomfield Facility as specified on Schedule 2.03(b)(viii) (the "Vista
Upgrade"); and
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(ix) all liabilities or obligations that are not Assumed
Liabilities (including, without limitation, Recoupment Claims for which payment
has been received by the Sellers, the Facilities or the Practice, as applicable,
prior to the Closing (which claims and any and all Losses related thereto shall
be payable by the Sellers in cash or in shares of Series D Stock, as the Sellers
may determine) and any amount payable in respect of the termination of any
insurance policy covering the Assets as of the Closing).
Section 2.04 Transfer of Assets. The transfer of the Assets as herein
contemplated shall be made by the Sellers, free and clear of all Liens of any
kind or nature except Liens specified on Schedule 2.04 that relate to the
Assumed Liabilities (collectively, "Permitted Liens") and shall be effected by
such bills of sale, endorsements, assignments, drafts, checks, deeds and other
instruments of transfer, conveyance and assignment as shall be necessary or
appropriate to transfer, convey and assign the Assets to the Purchaser on the
Closing Date as contemplated by this Agreement and as shall be reasonably
requested by the Purchaser. The Sellers shall, at any time and from time to time
after the Closing Date at the Purchaser's sole cost and expense, execute and
deliver such other instruments of transfer and conveyance and do all such
further acts and things as may be reasonably requested by the Purchaser to
transfer, convey, assign, and deliver to the Purchaser or to aid and assist the
Purchaser in collecting and reducing to possession any and all of the Assets, or
to vest in the Purchaser good, valid and legal and beneficial title to the
Assets which had been owned by the Sellers prior to the Closing.
Section 2.05 Purchase Price and Adjustments. The purchase price for the
Assets (the "Purchase Price") shall be $11,500,000 in cash (the "Cash
Consideration") and 1,000 shares (subject to adjustment as set forth in Section
2.07) of the Purchaser's Series D Cumulative Accelerating Redeemable Preferred
Stock (the "Series D Stock") having an aggregate liquidation preference of
$10,500,000 (the "Preferred Stock Consideration"). The Certificate of
Designations, Preferences and Rights of the Series D Stock is attached hereto as
Exhibit 3. Any adjustments to the Purchase Price shall be payable in shares of
Series D stock valued at its liquidation preference.
Section 2.06 Closing Date Statements. As promptly as practicable after
the Closing Date (but in no event later than thirty (30) days after the Closing
Date), the Sellers will deliver to the Purchaser (i) unaudited financial
statements of the Sellers prepared by SCW&Co, on an accrual basis, in a manner
consistent with the 1997 Financial Statements, for the period commencing July 1,
1998 and ending on the last day of the month immediately preceding the month in
which the Closing occurs (the "Closing Period"), including statements of
revenues, expenses and retained earnings, statements of assets, liabilities and
stockholders' equity and statement of cash flows, as well as the supplementary
information and notes thereto (the foregoing financial statements are referred
to as the "Closing Period Financial Statements") and (ii) a statement, with
requisite supporting schedules and notes (the "Closing Date A/R Amount
Certificate"), of the aggregate amount of the net collectible accounts
receivable of the Sellers as at the Closing Date, calculated on an accrual basis
in accordance with GAAP and in a manner consistent with the calculation of the
12/31/97 A/R Amount (the "Closing Date A/R Amount"). The Purchaser and its
representatives shall have the right to review the Closing Period Financial
Statements and the Sellers' calculation
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of the Closing Date A/R Amount. Within thirty (30) days after the delivery of
the Closing Period Financial Statements and the Sellers' calculation of the
Closing Date A/R Amount, the Purchaser may notify the Sellers of any objections
or changes thereto, specifying in reasonable detail any such objections or
changes. If the Purchaser does not notify the Sellers of any objections or
changes to the Closing Period Financial Statements and the Sellers' calculation
of the Closing Date A/R Amount within such thirty (30) day period, or if the
Sellers and the Purchaser agree on the resolution of all objections or changes,
then such Closing Period Financial Statements and the Sellers' calculation of
the Closing Date A/R Amount, with such changes as are agreed upon, shall be
final and binding, and shall be referred to as the "Final Closing Period
Financial Statements" or the "Final Closing Date A/R Amount", respectively. If
the Sellers and the Purchaser shall fail to reach an agreement with respect to
all objections or changes, then all disputed objections or changes shall, not
later than ten (10) days after one of the parties affirmatively terminates
discussions in writing with respect to such objections or changes, be submitted
for resolution to an Independent Auditor. The Purchaser and the Sellers shall
use reasonable efforts to cause the Independent Auditor, within twenty (20) days
of its appointment, to use its best judgment in resolving the disputes submitted
to it. The Closing Period Financial Statements and the Sellers' calculation of
the Closing Date A/R Amount, as adjusted pursuant to the preceding sentence,
shall be final and binding and shall be referred to as the "Final Closing Period
Financial Statements" or the "Final Closing Date A/R Amount", respectively. In
the event that the Independent Auditor resolves all disputes presented to it in
the manner proposed by one of the parties, the fees and expenses of the
Independent Auditor relating to the resolution of such dispute shall be paid by
the other party. In all other events, the fees and expenses of the Independent
Auditor shall be shared in the same proportion that the Sellers' position, on
the one hand, and the Purchaser's position, on the other hand, initially
presented to the Independent Auditor bears to the final resolution as determined
by the Independent Auditor.
Section 2.07 Accounts Receivable Adjustment.
(a) To the extent, if any, that the Pre-Tax Profits and/or the
12/31/97 A/R Amount is less than $4.5 million and $7.0 million, respectively,
then the Preferred Stock Consideration payable at the Closing shall be adjusted
on the Closing Date on a $4.90 for $1.00 basis with respect to adjustments for
decreases in aggregate pre-tax profits and on a $1.00 for $1.00 basis with
respect to adjustments for decreases in aggregate net collectible accounts
receivable, without duplication (the "Pre-Closing A/R Adjustment").
(b) In the event that the Final Closing Date A/R Amount is less than
$7.0 million, then the Preferred Stock Consideration shall be reduced on a $1.00
for $1.00 basis for the amount of such shortfall, without duplication for the
Pre-Closing A/R Adjustment; however, if the Final Closing Date A/R Amount
exceeds the 12/31/97 A/R Amount the Preferred Stock Consideration shall be
increased by such excess amount but only up to the amount of the Pre-Closing A/R
Adjustment (the "Closing A/R Adjustment"). The net effect of the Pre-Closing A/R
Adjustment and the Closing A/R Adjustment shall be referred to herein as the
"Accounts Receivable Adjustment".
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Section 2.08 Payment of Purchase Price and Adjustments.
(a) The Purchase Price payable at Closing by the Purchaser to the
Sellers shall be (i) the Cash Consideration of $11,500,000, which sum shall be
paid by transfer of immediately available funds to an account or accounts
previously designated in writing by the Sellers or by certified check payable to
the order of the Sellers and (ii) certificates evidencing 871.023 shares of
Series D Stock (as adjusted in accordance with the provisions of Section 2.07).
Certificates evidencing 16.362 shares of Series D Stock (which shares shall have
an aggregate liquidation preference equal to the sum of (x) $125,000 and (y)
$46,800) shall be deposited with Swidler Berlin Shereff Friedman, LLP as escrow
agent pursuant to the terms of an escrow agreement in the form attached hereto
as Exhibit 4 (the "Escrow Agreement"), which certificates shall be duly endorsed
in blank or accompanied by stock powers duly endorsed in blank. Such shares
shall be held in escrow commencing on the Closing Date for purposes of funding
the Accounts Receivable Adjustment and for obtaining appropriate tax clearance
certificates from the State of New Jersey in accordance with the Escrow
Agreement. The shares shall be released by the escrow agent in accordance with
the terms set forth in the Escrow Agreement.
(b) Within four (4) days of the parties' receipt of the Final
Closing Date A/R Amount, the net amount owing to the Purchaser or the Sellers,
as the case may be, due to the Accounts Receivable Adjustment, shall be paid to
the Purchaser or the Sellers, as the case may be, by transfer from the Sellers
of shares of Series D Stock (valued at its liquidation preference) to the
Purchaser, or from the Purchaser of immediately available funds to an account
previously designated by the Sellers, as appropriate. The Stockholders shall be
jointly and severally liable for amounts payable by the Sellers hereunder.
Section 2.09 Work Papers. Each of the Purchaser and the Sellers agrees
to permit the other party and such other party's accounting firm and the
Independent Auditor, if any, to have reasonable access during normal business
hours to its books and records as they relate to the Sellers, the Facilities,
the Practice and the books and records of the Sellers, including, without
limitation, the work papers of its accountants, and to have reasonable access to
such party's representatives or its accountants, including in connection with
the preparation and review of the Financial Statements, the 12/31/97 A/R Amount
and the Final Closing Date A/R Amount.
Section 2.10 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets being sold hereunder in the manner required by
Treasury Regulations ss.1.1060-1T and as mutually agreed among the Purchaser and
the Sellers. The Purchaser will submit to the Sellers a proposed allocation (the
"Proposed Allocation") within thirty (30) days after the Final Closing Date A/R
Amount is determined. The Proposed Allocation shall allocate the Final Closing
Date A/R Amount to accounts receivable, no more than one-half of the sum of (i)
$5.5 million and (ii) the book value of property, plant and equipment at August
31, 1998 to property, plant and equipment, and the balance to goodwill. If the
Sellers do not notify the Purchaser within fifteen (15) days of receipt of the
Proposed Allocation of any disagreement with the Proposed Allocation, then the
Proposed Allocation shall become the final allocation (the "Allocation"). If the
Sellers notify the Purchaser
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within such fifteen (15) day period (the "Allocation Notice") of its
disagreement with the Proposed Allocation, then the Sellers and the Purchaser
shall in good faith attempt to resolve their disagreement. If such disagreement
is not resolved within fifteen (15) days from the delivery of the Allocation
Notice then such disagreement shall be resolved by an Independent Auditor. In
the event the allocation is determined after delivery of the Allocation Notice,
either by discussions among the Sellers and the Purchaser or by an Independent
Auditor, then such allocation shall become the Allocation. The Purchaser and the
Sellers agree that, except as otherwise required by law, (i) the Allocation
shall be binding on the Purchaser and the Sellers for all federal, state and
local tax purposes, (ii) the Purchaser and the Sellers shall each execute a
writing memorializing the Allocation and (iii) the Purchaser and the Sellers
shall file with their respective federal income tax returns consistent IRS Forms
8594-Asset Acquisition Statements Under Section 1060, including any required
amendment thereto which shall reflect the allocations set forth in the
Allocation. The parties acknowledge that the allocation of the Purchase Price
provided for in the Allocation will be reasonable. In the event that the
Independent Auditor resolves all disputes presented to it in the manner proposed
by one of the parties, the fees and expenses of the Independent Auditor relating
to the resolution of such dispute shall be paid by the other party. In all other
events, the fees and expenses of the Independent Auditor shall be shared in the
same proportion that the Sellers' position, on the one hand, and the Purchaser's
position, on the other hand, initially presented to the Independent Auditor,
bears to the final resolution as determined by the Independent Auditor.
Section 2.11 Clearance Certificates. To the extent required by law to
relieve Purchaser of any secondary liability for unpaid sales or similar Taxes
of the Sellers attributable to periods prior to the Closing Date, each of the
Sellers shall, prior to the Closing Date, take all necessary action in order to
obtain clearance certificates or similar documents from any applicable state Tax
authority as soon as practicable after the Closing.
Section 2.12 Transfer Taxes. All municipal, county, state and federal
sales and transfer taxes incurred, if any, in connection with the transactions
contemplated by this Agreement shall be the responsibility of, and paid promptly
by, the Purchaser. Each party, as appropriate, shall in a timely manner sign and
swear to any return, certificate, questionnaire or affidavit as to any matter
within its knowledge required in connection with the payment of any such tax.
ARTICLE III
THE CLOSING
-----------
Section 3.01 Closing Date. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Blank Rome
Comisky & McCauley LLP, One Logan Square, Philadelphia, PA 19103 on October 1,
1998, or such other location, date and time as to which the parties may mutually
agree (such date and time of the Closing is referred to herein as the "Closing
Date").
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Section 3.02 Deliveries by the Purchaser at the Closing. At the
Closing, the Purchaser shall deliver to the Sellers the following:
(i) the Cash Consideration;
(ii) stock certificates, containing appropriate restrictive
legends regarding transferability restrictions related to
applicable securities laws and this Agreement, evidencing
871.023 shares of the Series D Stock;
(iii) resolutions duly adopted by the Board of Directors of the
Purchaser authorizing the transactions which are the
subject of this Agreement and recommending to the
Purchaser's stockholders ratification and approval of the
issuance of the Series D Stock (which recommendation may
be withdrawn prior to such stockholder vote because of
fiduciary responsibilities arising from facts or
circumstances and/or any consequences thereof, whether
related to the transactions contemplated by this Agreement
or otherwise, which were not known by the Board of
Directors of the Purchaser at the time such Board
resolutions were adopted), certified by the Secretary of
the Purchaser;
(iv) a certificate of an authorized executive officer of the
Purchaser certifying to the fulfillment of conditions set
forth in Sections 5.01 and 5.02;
(v) the Escrow Agreement duly executed by the Purchaser
(together with the stock certificates, containing
appropriate restrictive legends regarding transferability
restrictions related to applicable securities laws and
this Agreement, evidencing 16.362 shares of Series D
Stock, and executed stock powers, as required by Section
2.08);
(vi) the opinion of counsel to the Purchaser in the form of
Exhibit 5;
(vii) the Assignment and Assumption Agreement in the form
attached hereto as Exhibit 6, duly executed by the
Purchaser, transferring to the Purchaser all interests of
the Sellers with respect to the Leases and Contracts;
(viii) duly executed leases with respect to certain of the
Facilities with such parties as listed on Schedule 3.02 in
the form attached hereto as Exhibit 7;
(ix) the Purchaser Loan Amount;
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(x) the registration rights agreement among the Purchaser and
the Sellers, substantially in the form attached hereto as
Exhibit 8 (the "Registration Rights Agreement"), duly
executed by the Purchaser;
(xi) copies of the Consents referred to in Section 5.03;
(xii) the voting agreement among the Sellers, the Stockholders,
Elliott H. Vernon and another stockholder of the Purchaser
who beneficially owns at least 1.0 million shares of the
Purchaser's common stock, substantially in the form
attached hereto as Exhibit 9, duly executed by Mr. Vernon
and such other stockholder of the Purchaser; and
(xiii) such other instruments and certificates, evidencing the
transactions contemplated hereby, as may be reasonably
requested by the Sellers.
Section 3.03 Deliveries by the Sellers at the Closing. At the Closing,
the Sellers shall deliver to the Purchaser the following:
(i) executed and acknowledged (if appropriate) assignments,
bills of sale and/or certificates of title, dated the
Closing Date, transferring to the Purchaser all of the
Assets free and clear of all Liens, other than Permitted
Liens, each reasonably satisfactory to the Purchaser in
form and substance;
(ii) the Escrow Agreement duly executed by each of the Sellers;
(iii) recent good standing certificates and certified articles
of incorporation or other organizational documents of the
Sellers and their subsidiaries;
(iv) an opinion of counsel to the Sellers in the form of
Exhibit 10;
(v) certificates of an authorized executive officer of each of
the Sellers certifying to the fulfillment of the
conditions set forth in Sections 4.01 and 4.02;
(vi) a copy of the resolutions of (i) the Board of Directors of
each Seller (or of such Seller's general partner, as the
case may be, or other governing board) and (ii) the
stockholders (or other owners, as the case may be) of each
Seller, certified by their respective chief executive
officer, authorizing the execution, delivery and
performance of this Agreement and the other Transaction
Documents;
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(vii) copies of the Consents referred to in Section 4.03;
(viii) if applicable, payoff letters, UCC-3 termination
statements and other documentation relating to the release
of all Liens;
(ix) a duly executed Assignment and Assumption Agreement in the
form attached hereto as Exhibit 6, transferring to the
Purchaser all interests of the Sellers with respect to the
Leases and Contracts, and related estoppel and consent of
the landlord;
(x) originals of all books and records relating to the
Accounts Receivable;
(xi) the FIRPTA Certificate in the form of Exhibit 11; and
(xii) the Notes and related Pledge and Security Agreements duly
executed by the Sellers;
(xiii) the Registration Rights Agreement duly executed by the
Sellers;
(xiv) the Non-Competition Agreements duly executed by the
Sellers, and each of Mrs. Beran, Dr. Beran, Debbie Beran
and Chaya Beran;
(xv) duly executed leases with respect to certain of the
Facilities with such parties as listed on Schedule 3.02 in
the form attached hereto as Exhibit 7;
(xvi) duly executed amendments to each Seller's Articles of
Incorporation (or other applicable organizational
document) changing such Seller's corporate (or
partnership, as applicable) name in accordance with
Section 13.09; and
(xvii) such other instruments and certificates as may be
reasonably requested by the Purchaser.
Section 3.04 Power of Attorney. Effective upon the Closing Date, the
Sellers hereby irrevocably constitute and appoint the Purchaser, its successors
and assigns, the true and lawful attorney of Sellers with full power of
substitution, in the name of the Purchaser, or the name of the Sellers, on
behalf of and for the benefit of the Purchaser, to collect all accounts
receivable and other items being transferred, conveyed and assigned to the
Purchaser as provided herein, to endorse, without recourse, checks, notes and
other instruments in the name of the Sellers which have been transferred to the
Purchaser, to institute and prosecute, in the name of the Sellers or otherwise,
all proceedings which the Purchaser may deem proper in order to collect, assert
or enforce any claim,
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right or title of any kind in or to the Assets, to defend and compromise any and
all actions, suits or proceedings in respect of any of the Assets subject to the
Sellers' indemnification obligations under this Agreement, and to do all such
acts and things in relation thereto as the Purchaser may deem reasonably
advisable. The Sellers agree that the foregoing powers are coupled with an
interest and shall be irrevocable by the Sellers directly or indirectly by the
dissolution of any Seller or in any manner or for any reason. The Sellers
further agree that the Purchaser shall retain for its own account any amounts
collected pursuant to the foregoing powers, and the Sellers shall promptly
transfer and deliver to the Purchaser any cash or other property received by any
of the Sellers after the Closing Date in respect of any accounts receivable or
otherwise relating to the Assets.
Section 3.05 Non-Assignable Assets. Anything contained in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement or an attempted agreement to transfer, sublease or assign any
contract, license, lease, commitment, sales order, purchaser order or other
agreement, or any claim or right of any benefit arising thereunder or resulting
therefrom if any such attempted transfer, sublease or assignment thereof,
without the consent of any other party thereto, would constitute a breach
thereof or in any way affect the rights of the Purchaser thereunder (the
"Non-Assignable Assets"). Each Seller and Stockholder shall, if requested by the
Purchaser after the Closing Date, use its reasonable efforts to obtain any such
consent. If any such consent is not obtained, or if any attempted assignment
thereof would be ineffective or would affect the rights of any of the Sellers
thereunder such that the Purchaser would not in fact receive all such rights, on
and after the Closing Date, each such Non-Assignable Asset shall be held by the
Sellers in trust for the Purchaser, and the Sellers shall perform such agreement
for the account of the Purchaser or otherwise cooperate with the Purchaser in
any arrangement necessary or desirable to provide for the Purchaser the benefits
under any such agreement, including, without limitation, enforcement for the
benefit of the Purchaser of any and all rights of any of the Sellers against the
other party thereto arising out of the breach, termination or cancellation of
such agreement by such other party or otherwise. The Sellers will take or cause
to be taken such action in the Sellers' names or otherwise as the Purchaser may
reasonably request, at the Purchaser's sole cost and expense, so as to provide
the Purchaser with the benefits of the Non-Assignable Assets and to effect
collection of money or other consideration to become due and payable under the
Non-Assignable Assets and the Sellers shall promptly pay over to the Purchaser
all money or other consideration received by any of them or their Affiliates in
respect of Non-Assignable Assets. As and from the Closing Date, the Sellers
authorize the Purchaser, to the extent permitted by applicable law and the terms
of the Non- Assignable Assets, at the Purchaser's sole cost and expense, to
perform all of the obligations and receive all of the benefits under the
Non-Assignable Assets and appoint the Purchaser their attorney-in-fact to act in
their names and on their behalf with respect thereto. Notwithstanding the
foregoing, this Agreement shall not constitute an agreement by the Sellers to
assign or delegate, or by the Purchaser to assume and agree to pay, perform or
otherwise discharge, any Non-Assignable Asset if an attempted assignment,
delegation or assumption thereof without the consent of a third Person would
constitute a breach thereof unless and until such consent is obtained. The
foregoing shall not limit, waive or otherwise affect the Purchaser's right to
not close the transactions contemplated by this Agreement to the extent the
receipt of any consent to the transfer, sublease or assignment of any
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contract, license, lease, commitment, sales order, purchaser order or other
agreement is a condition to the obligation of the Purchaser to close hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
AND THE STOCKHOLDERS
--------------------
As of the date hereof and as of the Closing Date, the Stockholders,
jointly and severally, and each Seller, severally and not jointly, represent and
warrant to the Purchaser as follows:
Section 4.01 Organization and Qualification. Such Seller (i) is a
corporation or a limited partnership duly organized, validly existing and in
good standing as a business corporation or a limited partnership, as the case
may be, under the laws of the State of New Jersey; (ii) has all requisite power
and authority under the corporate and limited partnership laws of the State of
New Jersey to own, lease and operate its properties and to carry on its business
as currently being conducted; and (iii) is not required to be qualified or
licensed to do business in any foreign jurisdiction, except where the failure to
be so organized, existing and in good standing or to be so qualified or licensed
would not have a Material Adverse Effect.
Section 4.02 Authority.
(a) On or prior to the Closing, such Seller will have the requisite
power and authority to execute and deliver the Transaction Documents, as
applicable, and to consummate the transactions contemplated hereby and thereby.
On or prior to the Closing, the execution, delivery and performance of the
Transaction Documents, and the consummation of the transactions contemplated
hereby and thereby, will have been duly authorized by all necessary corporate
and partnership, as applicable, action on the part of such Seller, and no other
proceedings on the part of such Seller will be necessary to authorize the
Transaction Documents or to consummate the transactions contemplated hereby or
thereby. On or prior to the Closing, the Transaction Documents will have been
duly executed and delivered by such Seller and, assuming the Transaction
Documents constitute valid and legally binding obligations of the Purchaser,
will constitute valid and legally binding obligations of such Seller,
enforceable against such Seller in accordance with their terms, subject, as to
enforceability, to general equitable principles, and bankruptcy, reorganization,
receivership and other laws affecting creditors rights generally.
(b) The Stockholders have the requisite legal capacity and
competence to execute and deliver the Transaction Documents, as applicable, and
to consummate the transactions contemplated hereby and thereby. The Transaction
Documents, when executed by the Stockholders, will have been duly executed and
delivered by the Stockholders and, assuming the Transaction Documents constitute
valid and legally binding obligations of the Purchaser, will constitute valid
and legally binding obligations of the Stockholders, enforceable against the
Stockholders in accordance with their terms, subject, as to enforceability, to
general equitable principles, and bankruptcy, reorganization, receivership and
other laws affecting creditors rights generally.
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Section 4.03 Consents and Approvals; No Violations. None of the
execution, delivery or performance of this Agreement or the Transaction
Documents by such Seller or the Stockholders, the consummation by such parties
of the transactions contemplated hereby or thereby or compliance by such parties
with any of the provisions hereof or thereof will (i) conflict with or result in
any breach of any provision of the charter, by-laws or any other organizational
documents of such Seller, (ii) require on the part of such Seller or the
Stockholders, prior to the Closing, any filing with or Consent of a Governmental
Authority or other Person, including with respect to the Hart-Scott- Rodino
Antitrust Improvements Act of 1976, as amended, other than as described on
Schedule 4.03 hereto, (iii) result in a violation or breach of, or constitute a
default or give rise to any right of termination, amendment, cancellation or
acceleration (with or without the giving or receipt of notice or passage of time
or both) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, License (except to the extent that those Licenses
specified on Schedule 4.03 hereto relating to the Bloomfield Facility and the
Echelon Facility shall be terminated as a result of the consummation of the
transactions contemplated by this Agreement), contract, agreement or other
instrument or obligation to which such Seller is a party or by which its
properties or assets or its Practice or Facilities may be bound or subject,
other than as described on Schedule 4.03 hereto, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to such Sellers
or any of its properties or assets. Any Consent to the execution, delivery or
performance of this Agreement or the Transaction Documents by such Seller or the
Stockholders, the consummation by such parties of the transactions contemplated
hereby or thereby (including, but not limited to, the assignment of any contract
to the Purchaser) or compliance by such parties with any of the provisions
hereof which is not obtained and delivered to the Purchaser in accordance with
Section 7.01 and Section 8.09 relates to a contract which, individually or
together with all other contracts for which Consents are not being obtained, is
not material to the Practice and the Facilities.
Section 4.04 Capitalization. The authorized and outstanding Capital
Stock of such Seller as of the date hereof is as set forth on Schedule 4.04
hereto. All of the outstanding shares of the Capital Stock of such Seller are
validly issued, fully paid and non-assessable, free and clear of any Liens on or
with respect to any outstanding shares of Capital Stock of such Seller.
Section 4.05 Subsidiaries. Such Seller does not own, of record or
beneficially, or control, directly or indirectly, any Capital Stock of any
corporation, association or business entity, and such Seller is not, directly or
indirectly, a participant in any joint venture, partnership or other entity.
Section 4.06 Articles of Incorporation and By-laws. Such Seller has
heretofore delivered to the Purchaser true and complete copies of its Articles
of Incorporation and By-laws (or other applicable organizational documents) as
in effect on the date hereof.
Section 4.07 Compliance With Laws; Licenses.
(a) To the knowledge of the Stockholders and such Seller, the
conduct of the operations of such Seller (including the conduct of the Physician
Employees at such Seller's Facilities), and its Practice and Facilities has not
violated and, as presently conducted does not
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violate, any Laws, including, but not limited to, the Clinical Laboratories
Improvements Act of 1988 ("CLIA"), or any other promulgations, interpretative
advice or guidance of any court or Governmental Authority, including, but not
limited to, the Occupational Safety and Health Administration, the Department of
Transportation, the HCFA and the FDA or any industry standards, nor has such
Seller or the Stockholders received any notice, nor are they aware, of any such
violation which remains outstanding, except for any such violation which,
individually or in the aggregate, would not have a Material Adverse Effect and
except for any such violation which is discovered during the course of a
reinspection of a Facility after the date hereof by any Governmental Authority
with jurisdiction to conduct such reinspection.
(b) Except as set forth on Schedule 4.07, such Seller holds all
permits, authority, consents, licenses, certificates of need, exemptions,
accreditation and the like, including use or occupancy permits, necessary to
enable it to (i) conduct its Practice as heretofore conducted and (ii) obtain
reimbursement under Medicare and Medicaid and under all contracts, programs and
other arrangements with third-party payors, insurers or fiscal intermediaries
(collectively, the "Permits"). Schedule 4.07 contains a complete and correct
list of such Seller's Permits, showing their dates of expiration where
applicable. Except as set forth on Schedule 4.07, such Seller's Permits are
valid and in full force and effect; no material violations (individually or in
the aggregate) exist in respect thereof; and there are no pending or, to such
Seller's knowledge, threatened investigations or proceedings with respect to
such Seller's Permits.
Section 4.08 Litigation; Investigations. Schedule 4.08 sets forth a
complete and accurate list of all suits, claims, proceedings, investigations or
reviews which are pending or, to the knowledge of such Seller, threatened
against, likely of assertion against or affecting such Seller, or its Facilities
or Practice or any properties or assets used by such Seller or at its Facilities
in conducting the operations of its Practice. Except as disclosed in Schedule
4.08, (i) no investigation or review by any Governmental Authority or other
regulatory body (including trade associations) with respect to either such
Seller, or its Facilities or Practice is pending or, to the knowledge of such
Seller, threatened, nor has any Governmental Authority or other regulatory body
(including trade associations) indicated to such Seller an intention to conduct
the same, and (ii) such Seller is not aware of any action, suit or proceeding
pending or threatened against or affecting such Seller, or its Facilities or
Practice, at law or in equity, or before any Governmental Authority or other
regulatory body (including trade associations). There are no suits, claims,
proceedings, investigations or reviews, including, without limitation, those set
forth on Schedule 4.08, which are pending or, to the knowledge of such Seller,
threatened against, likely of assertion against or affecting such Seller or its
Facilities or Practice or any properties or assets used by such Seller or at its
Facilities in conducting the operations of its Practice which may have a
Material Adverse Effect.
Section 4.09 Taxes.
(a) Such Seller has filed all Tax Returns that were required to be
filed. All such Tax Returns were when filed, and continue to be, correct and
complete in all respects. All Taxes owed by and of such Sellers (whether or not
shown on any Tax Return) have been timely paid except
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as disclosed on Schedule 4.09. Such Seller currently is not the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where such Seller did not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Liens with respect to Taxes on any of the assets or property of such Seller.
(b) Such Seller has withheld or collected and paid all Taxes
required to have been withheld or collected and paid in connection with amounts
paid or owing to any employee, independent contractor, consultant, creditor,
stockholder, other third party, or otherwise.
(c) There is no dispute or claim concerning any Tax Liability of
such Seller either (A) claimed or raised by any Governmental Authority in
writing or (B) as to which such Seller or the directors and officers (and
employees responsible for Tax matters) of such Seller has knowledge. There are
no proceedings with respect to Taxes pending.
(d) Schedule 4.09 sets forth an accurate, correct and complete list
of all federal, state, local, and foreign Tax Returns filed with respect to such
Seller or its subsidiaries for taxable periods ended on or after December 31,
1991, indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. Such Seller has delivered to
the Purchaser correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by such Seller and its subsidiaries since January 1, 1992. To the knowledge
of such Seller and the directors and officers (and employees responsible for Tax
matters) of such Seller, no other audit or investigation with respect to Taxes
has been threatened.
(e) Such Seller has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(f) Such Seller is not a foreign person within the meaning of
Section 1445 of the Code.
(g) Such Seller is not a party to any agreement, whether written or
unwritten, providing for the payment of Tax liabilities, payment for Tax losses,
entitlements to refunds or similar Tax matters.
(h) Such Seller (A) has never been a member of an affiliated group
(within the meaning of Section 1504 of the Code, or any similar group as defined
for state, local or foreign tax purposes) filing a consolidated federal (or
combined or unitary state, local or foreign) income Tax Return nor (B) has such
Seller ever had any liability for the taxes of any Person (other than its own
Taxes) under Reg. ss. 1.1502-6 (or any similar provision of state, local or
foreign Law), as a transferee or successor, by contract, or otherwise.
(i) For purposes of this Section 4.09, references to such Seller
shall also refer to any predecessor companies of such Seller.
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Section 4.10 Employee Benefit Plans; ERISA.
(a) Attached hereto as Schedule 4.10 are complete and accurate
copies of all Plans which are currently maintained and/or sponsored by such
Seller, or to which such Seller currently contributes, has an obligation to
contribute in the future or which have been terminated within the past three
years.
(b) Except for the Plans, such Seller does not maintain or sponsor,
nor is a contributing employer to, a pension, profit-sharing, deferred
compensation, stock option, employee stock purchase or other employee benefit
plan or employee welfare benefit plan subject to ERISA. All Plans are in
material compliance with all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable Laws, and, in all
material respects, have been administered, operated and managed in accordance
with the governing documents. No circumstances exist pursuant to which such
Seller has or could have any direct or indirect material liability whatsoever
(including being subject to any statutory Lien to secure payment of any such
liability), to the PBGC under Title IV of ERISA or to the IRS for any excise tax
or penalty with respect to any plan now or hereafter maintained or contributed
to by such Seller or any member of a "controlled group" (as defined in Section
4001(a)(14) of ERISA) that includes such Seller; and neither such Sellers nor
any member of a "controlled group" (as defined above) that includes such Seller
currently has (or at the Closing Date will have) any obligation whatsoever to
contribute to any "multi-employer pension plan" (as defined in ERISA Section
4001(a)(14)), nor has any withdrawal liability whatsoever (whether or not yet
assessed) arising under or capable of assertion under Title IV of ERISA
(including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205
thereof) been incurred by any Plan. Further:
(i) with respect to Plans which qualified as "group health
plans" under Section 4980B of the Code and Section 607(1) of
ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), such Seller has
complied (and on the Closing Date will have complied) in all
material respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed
thereunder as and when applicable to such plans, and such
Seller has not incurred (and will not incur) any direct or
indirect material liability and are not (and will not be)
subject to any material loss, assessment, excise tax
penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect to any direct
or indirect failure by such Seller, at any time prior to the
Closing Date to comply with any such federal or state
benefit continuation requirement, which is capable of being
assessed or is asserted before or after the Closing Date
directly or indirectly against such Seller with respect to
such group health plans;
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(ii) except as disclosed on Schedule 4.10 hereto, none of the
Sellers is currently or have been within the past five years
a member of a "controlled group" as defined in ERISA Section
4001(a)(14) or Code Section 414(b), (c), (m) or (o);
(iii) there is no pending litigation, arbitration or disputed
claim, settlement or adjudication proceeding, and, to such
Seller's knowledge, there is no threatened litigation,
arbitration or disputed claim, settlement or adjudication
proceeding, or investigation with respect to any Plan, or
with respect to any fiduciary, administrator or sponsor
thereof (in their capacities as such), or any party in
interest thereof which, individually or in the aggregate,
would have a Material Adverse Effect; and
(iv) the total pension, medical and other benefit expense for all
Plans are accurately reflected in the Financial Statements
of such Seller and no material funding changes or
irregularities are reflected thereon which would cause such
financial statements to be not representative of prior
periods; and
If reasonably requested by the Purchaser, such Seller will terminate any Plan
identified on Schedule 4.10 as a "Pension or Profit Sharing Plan to be
Terminated" immediately prior to the Closing.
Section 4.11 Labor Relations. Such Seller (i) has performed all
material obligations with respect to its employees, independent sales
representatives, consultants, agents, officers and directors; (ii) has paid or
properly accrued for in its Financial Statements all wages, salaries,
commissions, bonuses, severance pay, vacation pay, sick pay, holiday pay,
benefits and other compensation, to the extent applicable, for all services
performed by such persons and all amounts required to be paid or reimbursed to
such persons; (iii) is in compliance with all Laws respecting employment and
employment practices, terms and conditions of employment and wages and hours
where the failure to so comply would, individually or in the aggregate, have a
Material Adverse Effect; (iv) has no pending or, to the Seller's knowledge,
threatened charge, complaint, allegation, application or other process against
such Seller before the National Labor Relations Board or any other Governmental
Authority; (v) has no labor strike, dispute, slowdown or work stoppage or other
job action pending or, to the Seller's knowledge, threatened against or
otherwise affecting or involving such Seller; and (vi) has no employees covered
by any collective bargaining agreements and, to the knowledge of such Seller, no
effort is being made by any union to organize any employees of such Seller.
Section 4.12 Insurance Policies. Schedule 4.12 contains a complete and
accurate list of all insurance policies currently providing coverage and that
for the past three (3) years have been providing coverage in favor of such
Seller with respect to its Practice or Facilities specifying the insurer and
type of insurance under each policy. Each current policy is in full force and
effect and
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all premiums are currently paid and no notice of cancellation or termination has
been received with respect to any such policy. To such Seller's knowledge, such
policies have been sufficient for compliance with all material requirements of
Law. Such Seller has not been refused any insurance with respect to its Practice
or Facilities, nor has its coverage been limited by any insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance during the last three (3) years. Such Seller has insured by reputable
insurers the assets used by such Seller in the operation of its Facility that
are of an insurable character against risks of liability, casualty and fire in
adequate amounts and consistent with prudent industry practice and all
contractual requirements, and maintains such insurance against hazards, risks
and liability to persons and property to the extent and in the manner deemed
prudent by such Seller and such insurance has been effective, in full force and
effect, without interruption since the date such Seller, as the case may be,
commenced business. Except as set forth on Schedule 4.12, such Seller does not
have any outstanding claims, settlements or premiums owed with respect to any
insurance policy, and such Seller, to its knowledge, has given all notices or
have presented all potential or actual claims under any insurance policy in due
and timely fashion. Since January 1, 1995, such Seller has not filed a written
application for any professional liability insurance coverage which has been
denied by an insurance agency or carrier, and, except as specified on Schedule
4.12, such Seller has been continuously insured for professional liability
claims for at least the past seven (7) years. The insurance specified on
Schedule 4.12 has been effective, in full force and effect, without interruption
since the date specified on Schedule 4.12 as the initial date of coverage.
Section 4.13 Financial Statements and Books and Records. Such Seller
has previously delivered to the Purchaser a copy of its Financial Statements.
The 1997 Financial Statements and the 1996 Financial Statements of such Seller
have been audited by the Sellers' Accountants, and the 1997 Tax Basis Financial
Statements, the 1996 Tax Basis Financial Statements and the Interim Financial
Statements have been compiled by SCW&Co, and each of such Financial Statements
are true and accurate in all material respects and present fairly in all
material respects the financial position and related results of operations and
cash flows of such Seller, respectively, as of the times and for the periods
referred to therein, on an accrual basis or on an income tax basis, as the case
may be, and, in the case of the 1997 Financial Statements, 1996 Financial
Statements and the Interim Financial Statements, in accordance with GAAP
(subject, in the case of unaudited financial statements, to normal, recurring
audit adjustments and the absence of footnotes). Such Seller will, as
contemplated by Section 2.06 hereof, deliver to the Purchaser a copy of the
Closing Period Financial Statements. The Closing Period Financial Statements of
such Seller will not be audited but, when delivered pursuant hereto, will have
been prepared by SCW&Co on an accrual basis, in a manner consistent with the
1997 Financial Statements of such Seller and will be true and accurate in all
material respects and will present fairly in all material aspects the financial
position and related results of operations and cash flows of such Seller,
respectively, as of the times and for the periods referred to therein. All of
the financial books and records (other than those set forth on Schedule 4.13) of
such Seller have been made available to the Purchaser and such books and
records, on the whole, completely and fairly record in all material respects the
financial affairs of such Seller which should normally be recorded in financial
books and records. As of the dates of the statements of assets, liabilities and
stockholder's equity included in such Seller's 1997 Financial Statements,
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Interim Financial Statements and Closing Period Financial Statements, such
Seller has not, nor will have, any liabilities or obligations of any kind or
nature, fixed or contingent, material or immaterial, or otherwise, which are not
fully reflected or reserved against in such statements of assets, liabilities
and stockholder's equity or which were not incurred in the ordinary course of
business consistent with past practices and this Agreement.
Section 4.14 No Material Adverse Change. Since June 30, 1998, except as
set forth on Schedule 4.14, there has been no material adverse change in the
business, operations, condition (financial or otherwise), prospects (as a going
concern), liabilities or assets of such Seller or its Practice or Facilities and
such Seller does not know of any change that is threatened or pending or any
facts or circumstances which could give rise to or cause such a change (other
than general conditions affecting the industry as a whole), nor has there been
any damage, destruction or loss, whether or not covered by insurance, which
could have a Material Adverse Effect.
Section 4.15 Absence of Liabilities. Except as described on Schedule
4.15, such Seller does not have any debt, liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, whether due or to
become due and whether or not the amount thereof is readily ascertainable, that
are not accurately reflected as a liability in the 1997 Financial Statements of
such Seller, except for liabilities incurred by such Seller subsequent to
December 31, 1997 and in the ordinary course of business consistent with past
practices which are not (x) otherwise prohibited by, in violation of, or which
will result in a breach of the representations, warranties or covenants of such
Seller contained in this Agreement and (y) material, either individually or in
the aggregate.
Section 4.16 Absence of Specified Changes. Except as disclosed on
Schedule 4.16, since December 31, 1997 (or, in the case of clause (a) below,
since June 30, 1998), there has not been with respect to such Seller any:
(a) action, omission or other facts or circumstances (other than
general conditions affecting the industry as a whole) which would result in a
material adverse change, whether direct or indirect, in the business,
operations, condition (financial or otherwise), prospects (as a going concern),
liabilities or assets of such Seller in the aggregate, whether or not insured;
(b) material transaction not in the ordinary course of business,
including without limitation, any sale of a material portion of the assets of
such Seller or any merger of such Seller and any other entity;
(c) unfulfilled commitment as of the date of this Agreement
requiring expenditures by such Seller exceeding $50,000 (excluding commitments
expressly described elsewhere in this Agreement or the schedules hereto);
(d) material damage, destruction or loss, whether or not insured;
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(e) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on December 31, 1997 or
destruction, damage to, or loss of any asset of such Seller (whether or not
covered by insurance) that could have a Material Adverse Effect;
(f) change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) revaluation of any assets or material write down of the value of
any assets;
(h) any direct or indirect redemption, purchase or other acquisition
of any shares of the Capital Stock of such Seller;
(i) issuance or sale of any shares of any Capital Stock of such
Seller;
(j) amendment to its Articles of Incorporation, By-laws or other
organizational documents;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, except in the ordinary
course of business, consistent with past practice;
(l) disposition of or lapse of any patent, trademark, trade name,
service mark or copyright or any application for the foregoing, or disposition
of any technology, software or know-how, or any license, permit or authorization
to use any of the foregoing;
(m) mortgage, pledge or other encumbrance, including Liens, of any
tangible or intangible asset;
(n) discharge or satisfaction of any Lien or payment or cancellation
of any liability other than payment of current liabilities in the ordinary
course of business, consistent with past practice;
(o) cancellation of any debt or waiver or release of any material
contract, right or claim, except for cancellations, waivers and releases in the
ordinary course of business, consistent with past practice, which do not exceed
$50,000 in the aggregate (other than in respect of those Excluded Assets
described on Schedule 2.02(f));
(p) indebtedness incurred for borrowed money or any commitment to
borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
by such Seller, other than customary transactions in the ordinary course of
business not in excess of $50,000 in the aggregate;
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(q) amendment, termination or revocation of (or notice of intent to
do so), or a failure to perform obligations or the occurrence of any default (or
other event which, with or without the giving or receipt of notice or the
passage of time or both, would result in a notice of cancellation, acceleration
or termination) under, any contract or agreement to which any of the Sellers is,
or as of December 31, 1997 was, a party or of any license, permit or franchise
required for the continued operation of any business conducted by such Seller on
December 31, 1997 which would have a Material Adverse Effect (other than in
respect of those Excluded Assets described on Schedule 2.02(f));
(r) increase or commitment to the increase of the salary or other
compensation payable or to become payable to any of its officers, directors or
employees, agents or independent contractors, or the payment of any bonus to the
foregoing persons except in the ordinary course of business, consistent with
past practice and applicable policies and procedures of such Seller; or
(s) agreement or understanding to take any of the actions described
above in this Section 4.16.
Section 4.17 Corporate Names. Schedule 4.17 sets forth a complete and
accurate list of names used by such Seller in addition to its respective
corporate or partnership name(s), as applicable.
Section 4.18 Real Property; Leases. Except as set forth on Schedule
4.18, such Seller does not own, lease, or sublease any real property. Such
Seller has heretofore delivered to the Purchaser either (a) a complete and
accurate copy of each such written lease and sublease or (b) an abstract of each
such oral lease or sublease certified by such Seller. Unless otherwise noted on
Schedule 4.18, such Seller is the sole lessee or sublessee under each of the
leases and subleases listed on Schedule 4.18 and, to the knowledge of such
Seller, each such lease and sublease is valid and in full force and effect and
enforceable in accordance with its terms and has not been further supplemented,
amended or modified. Unless otherwise noted on Schedule 4.18, there exists no
event of default or, to the knowledge of such Seller, event, occurrence,
condition or act, including without limitation, the consummation of the
transactions contemplated hereunder, which constitutes or would constitute (with
or without the giving or receipt of notice or the passage of time or both) a
default in any respect, or give rise to a right of acceleration, cancellation or
termination, under any of the leases or subleases on Schedule 4.18. Such Seller
has not received any notice of any event of default or event, occurrence,
condition or act, including without limitation, the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereunder,
which constitutes or would constitute (with or without the giving or receipt of
notice or the passage of time or both) a default in any respect, or give rise to
a right of acceleration, cancellation or termination, under any of the leases or
subleases on Schedule 4.18. Such Seller has complied with all commitments and
obligations on its part to be performed or observed under any lease or sublease
set forth on Schedule 4.18 and, to the knowledge of such Seller, all other
parties to such lease or sublease have complied with all commitments and
obligations on their part to be performed or observed under such lease or
sublease, except for any such non-compliance which is discovered during the
course of a
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reinspection of a Facility after the date hereof by any Governmental Authority
with jurisdiction to conduct such reinspection or otherwise. Unless otherwise
noted on Schedule 4.18, such Seller has been in peaceable possession of the
Leased Premises since the commencement of the original term of each respective
lease or sublease listed on Schedule 4.18. To the knowledge of such Seller, its
respective Leased Premises are structurally sound with no material defects and
are in good operating condition and repair and are adequate to meet all present
and reasonably anticipated future requirements of the operations of the Practice
of such Seller, as currently conducted; and, to the knowledge of such Seller,
none of its respective Leased Premises is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not material in
nature or cost. Except as set forth on Schedule 4.18, such Seller is not aware
that any real property covered by any leasehold interests listed on Schedule
4.18, the buildings, fixtures and improvements on such, and the present use
thereof, do not comply in all material respects with all restrictive covenants,
deeds and other restrictions and all Laws with regard to the operation of the
Facilities by the Sellers, including provisions relating to permissible
nonconforming uses; and such Seller is not aware of any such premises which are
presently affected or threatened by any condemnation or eminent domain
proceeding or any proceeding by a mortgagee.
Section 4.19 Equipment and Personal Property. Schedule 4.19 sets forth
a complete and accurate description of all equipment and personal property owned
by such Seller as well as all capital leases and operating leases pursuant to
which such Seller leases property. Except as described in Schedule 4.19, all
equipment and tangible personal property used by such Seller is either owned,
free and clear of all Liens or are (i) used under capital leases and reflected
as such in the 1997 Financial Statements or Schedule 4.19 hereto, as the case
may be, or (ii) used under operating leases. To the knowledge of such Seller,
all such leases are valid and in full force and effect and enforceable in
accordance with their terms and have not been supplemented, amended or modified.
Such Seller has not received any notice of, and there exists no event of default
by such Seller, or event, occurrence, condition or act, including, without
limitation, the execution and delivery of this Agreement and the consummation of
the transactions contemplated herein, which constitutes or would constitute
(with or without the giving or receipt of notice or the passage of time or both)
a default in any respect, or give rise to a right of acceleration, cancellation
or termination, under any such lease. All of the equipment and tangible personal
property owned or leased by such Seller, on the whole, is in good operating
condition and repair (taking into account the age of such equipment), subject to
normal wear and tear, none of such assets is in need of maintenance or repairs
except for ordinary, routine maintenance and such assets are suitable for and
operating according to their intended use.
Section 4.20 Intellectual Property. Schedule 4.20 contains a complete
and accurate schedule of all trade names, trademarks, service marks, patents and
copyrights (including any registrations or pending applications for registration
of any of the foregoing), trade secrets, inventions, processes, formulae,
technology, technical data, information and know-how, and all licenses or other
rights relating to any of the foregoing that are attributable to the conduct of,
used in, or related to, the operations of such Seller or its Facilities or
Practice (collectively, the "Intangible Property"). Except as set forth on
Schedule 4.20, (i) such Seller has the sole and exclusive good,
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valid and transferable title with respect to the Intangible Property, (ii) no
royalties or other consideration is required in connection with such Seller's
use and enjoyment of the Intangible Property and (iii) no claim has been
asserted by any person against such Seller with respect to the ownership or use
of any of the Intangible Property by such Seller nor has such Seller asserted
any similar claim against any person, and, to the knowledge of such Seller,
there exists no valid basis for any such claim.
Section 4.21 Software. Schedule 4.21 contains a complete and accurate
list of all computer software, databases and programs utilized by such Seller in
the conduct of the operations of the Sellers. Except as set forth on Schedule
4.21 all such computer software, databases and programs are owned by, or
licensed to such Seller, without any restrictions thereon except as provided in
the applicable license agreements.
Section 4.22 Contracts.
(a) Schedule 4.22 sets forth a complete and accurate list of all
material contracts, agreements, arrangements and other instruments involving
expenditures or other payments in excess of $2,500 to which such Seller is a
party or by which such Seller or any of its Assets are bound (hereinafter
referred to collectively as the "Contracts"). Each of the Contracts is in full
force and effect and enforceable against such Seller in accordance with its
terms. Except as set forth on Schedule 4.22, such Seller has not received notice
of cancellation of or intent to cancel, or notice to make a material
modification or intent to make a material modification in, any of the Contracts.
There exists no event of default or event, occurrence, condition or act on the
part of such Seller or, to the knowledge of such Seller, on the part of the
other party to such Contracts, which constitutes or would constitute (with or
without the giving or receipt of notice or the passage of time or both) a
default in any respect, or give rise to a right of acceleration, cancellation or
termination under any such Contract which would have a Material Adverse Effect.
Except as set forth on Schedule 4.22, no consent of any other party to any of
the Contracts is required in connection with the execution, delivery and
performance of this Agreement by the Sellers.
(b) Such Seller is not a party to or bound by any agreement which
limits its freedom to compete in any line of business or with any person.
(c) As of the Closing, employees of such Sellers who continue their
employment with the Purchaser shall not be restricted by the provisions of any
employment agreement or non-competition agreement between any such employee and
such Seller or Stockholders, to the extent that such agreement would restrict
such employees from engaging in any business conducted by the Purchaser.
Section 4.23 Inventory. Schedule 4.23 sets forth a complete and
accurate list of the inventory of such Seller as of June 30, 1998 (the "Interim
Balance Sheet Date") valued in excess of $50,000. All inventory of such Seller,
taken as a whole, consists of a quality and quantity usable in the ordinary
course of business as currently labeled and classified in the inventory records,
except
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for items of obsolete materials and materials of below-standard quality, all of
which have been written off or down to fair market value.
Section 4.24 Directors, Officers and Employees. Schedule 4.24 sets
forth a complete and accurate list of the names, titles, ages, years of service
and compensation of all directors, officers and employees of such Seller.
Section 4.25 Title, Condition and Sufficiency of Assets; Conduct of
Practice. Such Seller has good, valid and legal and beneficial title to all of
its Assets, free and clear of Liens, except for such Liens specifically set
forth on Schedule 4.25. At the Closing, the Seller will convey to the Purchaser
legal and beneficial title to its Assets, free and clear of any Lien of any
nature whatsoever, other than Permitted Liens. The Assets of such Seller, taken
as a whole, are in good working order and condition (taking into account the age
of any such Asset), subject to normal wear and tear and normal maintenance, and
have no defects which would materially interfere with the operation of its
Facilities or Practice as presently conducted or to be conducted after the
Closing Date. The Practice is conducted solely through the Sellers, and the
Assets constitute all of the assets and properties necessary to conduct the
business of the Practice and the Facilities subsequent to the Closing
substantially in the manner conducted prior to the Closing (taking into account
the exclusion of the Excluded Assets and except to the extent that the
Purchaser, with respect to the operation of the Mainland Facility or the
reinspection of any Facility, (a) needs to obtain any license or permit
necessary to conduct the business of the Practice and the Facilities subsequent
to the Closing or (b) needs to modify any Asset in order to obtain any such
license or permit).
Section 4.26 Transactions with Affiliates. Except as set forth on
Schedule 4.26, no officer, director, employee or stockholder of such Seller nor
any affiliate thereof (a) has borrowed money from, or loaned money to, any
Seller, (b) is a party to any contract or other arrangement, written or oral,
with any Seller, (c) has asserted or threatened to assert any claim against any
Seller or (d) is engaged in any transaction with any Seller.
Section 4.27 Absence of Certain Practices. To the knowledge of such
Seller and except as set forth on Schedule 4.27 hereto, none of such Seller or
its Practice nor any director, officer, agent, employee or other Person acting
on behalf of such Seller or its Practice, directly or indirectly, has given,
made or agreed to give or make any commission, payment, gratuity, gift,
political contribution or similar benefit to any customer, supplier, or employee
or official of any Governmental Authority or any other Person who is or may be
in a position to help or hinder such Seller or its Practice, or assist such
Seller or its Practice in connection with any proposed transaction. To the
knowledge of such Seller, none of such Seller or its Practice, nor any director,
officer, agent, employee, or other Person acting on behalf of such Seller or its
Practice has (a) used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to, or on behalf of, employees of any Governmental Authority
or others or (b) accepted or received any unlawful contributions, payments,
gifts or expenditures.
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Section 4.28 Accounts Payable. All accounts payable and accrued
expenses reflected in such Seller's 1997 Financial Statements and Interim
Financial Statements and which, when such Seller's Closing Period Financial
Statements are delivered pursuant hereto, will be reflected in such Seller's
Closing Period Financial Statements, arose from bona fide transactions in the
ordinary course of business.
Section 4.29 Accounts Receivable. Each of the accounts receivable of
such Seller (a) arose from bona fide sales in the ordinary course of business,
(b) was entered into under circumstances and by methods usual and customary in
its businesses in the applicable state and the collection practices used with
respect thereto have been and are in all respects legal and proper, and (c) was
entered into, and credit granted pursuant thereto, consistent with the
historical credit policies and practices of such Seller. Such Seller knows of no
right of recourse, defense, deduction, counterclaim, off-set or set-off on the
part of the obligor with respect to such accounts receivable other than as set
forth on Schedule 4.29 hereto. The books of such Seller correctly record the
provision of all services at its Facility and amounts initially billed therefor,
and each of the security instruments securing any account receivable, if any,
constitutes a valid lien in favor of such Seller upon the property which it
describes, and is enforceable by such Seller.
Section 4.30 Records. All books and records relating to the operations
of such Seller and its Facilities and Practice since inception, including but
not limited to, recruiting records, Patient Files and other records required by
Governmental Entities or otherwise, are true, accurate and complete in all
material respects. The invoices and checkbooks are kept at the offices of SCW&Co
or at the home of Mrs. Beran; the Patient Files are kept at the offices where
the related services were performed; and the billing cards are kept at (a) the
offices where the related services were performed, (b) 600 Somerdale Road,
Voorhees, NJ or (c) 108 Somerdale Road, Voorhees, NJ.
Section 4.31 Fraud and Abuse/Referrals. To the knowledge of such Seller
and except as set forth on Schedule 4.27 hereto, such Seller, its Practice and
its officers, directors, employees, stockholders and providers, have not engaged
in any activities in connection with the Practice which are prohibited under
federal Medicare/Medicaid statutes, 42 U.S.C. Section 1320a-7a and 7b, and
Section 1395nn, or the regulations promulgated pursuant to such statutes or New
Jersey state or local healthcare or insurance Laws or regulations, including,
without limitation, the New Jersey Administrative Code 13:36-6.17 or New Jersey
Revenue Statute Section 45.9-22.4 et seq, or which are prohibited by rules of
professional conduct or which otherwise could constitute fraud, including, but
not limited to, the following: (a) making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (c) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; and (d) soliciting, paying or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay such remuneration (i) in return
for referring an individual to any Seller for the furnishing or arranging for
the furnishing of any item or service for
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which payment may be made in whole or in part by Medicare or Medicaid, or (ii)
in return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid.
Section 4.32 Third-Party Payors. All contracts with third-party payors
were entered into by such Seller in the ordinary course of business. Schedule
4.32 sets forth an accurate and complete list of all third-party payors which
have agreements with such Seller, and such Seller has provided to the Purchaser
accurate and complete copies of all such contracts. Except as set forth on
Schedule 4.32, such Seller is in compliance in all material respects with each
third-party payor's contract, and have properly charged and billed in accordance
with the terms of those contracts, including, where applicable, billing and
collection of all deductibles and co-payments. None of such contracts are
assignable by the Sellers without the prior consent of the applicable
third-party payor.
Section 4.33 Compliance with Medicare and Medicaid Programs. Such
Seller has timely and accurately filed all requisite claims and other reports
required to be filed in connection with all state and federal Medicare and
Medicaid programs in which such Seller participates due on or before the Closing
Date. There are no claims pending or, to such Seller's knowledge, threatened or
scheduled before any Governmental Authority, including without limitation, any
intermediary, carrier, the HCFA or any other state or federal agency with
respect to any Medicare or Medicaid claim filed by such Seller on or before the
Closing Date. Except for routinely scheduled reviews pursuant to the Medicare
and Medicaid Contracts to which such Seller is a party, no valid review or
program integrity review related to such Seller has been conducted by any
Governmental Authority or otherwise in connection with the Medicare or Medicaid
programs and no such review is scheduled, or to such Seller's knowledge, pending
or threatened against or affecting such Seller or its business or assets, or the
consummation of the transactions contemplated hereby.
Section 4.34 Rate Limitations and Rates. Each Facility currently
operated by such Seller charges rates and accordingly bills for services which
are legal.
Section 4.35 Participation in Audits. Such Seller has not been informed
of any Recoupment Claims arising in connection with audits or reviews conducted
by Medicaid, Medicare or private insurance companies other than in the ordinary
course of business consistent with past practice. To the knowledge of such
Seller, there is no basis for any Recoupment Claims based upon cost reports,
claims or bills submitted or to be submitted in connection with services
rendered by such Seller.
Section 4.36 Reimbursement Documentation. The Sellers have filed when
due any and all costs reports and other documentation and reports, if any,
required to be filed with third-party payors and Governmental Authorities in
compliance with applicable contractual provisions and Laws.
Section 4.37 Environmental Laws. Such Sellers and all properties owned
or operated by such Seller have complied in all material respects during the
time such Seller has operated its
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Facilities and Practice and currently comply in all material respects with all
Environmental Laws and such Seller has not received any communication (whether
from a Governmental Authority, private party, employee or otherwise) that
alleges that such Seller or its Practice or Facilities is not in such
compliance, and such Seller is not aware of any circumstances that may prevent
or interfere with such compliance in the future or otherwise give rise to any
liability or other loss under such Environmental Laws. Such Seller has all
Licenses required under Environmental Laws in connection with the operation of
such Seller's Practice and Facilities including any permits or licenses relating
to disposals or emissions. Such Seller has not been named or, to the knowledge
of such Seller, threatened to be named a "potentially responsible party" within
the meaning of CERCLA or any similar Law.
Section 4.38 Patients. All Patient Files relating to such Seller's
Patients are complete and accurate in all material respects and have been
maintained substantially in accordance with all requirements of Governmental
Authorities and other bodies having jurisdiction over such Seller. Such Seller
has no materials or information relating to its Patients other than its Patient
Files.
Section 4.39 Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of Medical
Waste, such Seller has complied in all material respects with all Medical Waste
Laws.
Section 4.40 Bulk Sales. The bulk sales laws set forth in the Uniform
Commercial Code of the jurisdiction in which such Seller conducts business are
not applicable to the transactions contemplated hereby.
Section 4.41 Liabilities and Indebtedness. All accounts payable,
accrued expenses, payroll and federal, state and local taxes (including real
estate taxes) of and pertaining to such Seller and its Facilities and Practice
shall remain the responsibility of such Seller through the Closing Date. Such
Seller is current with all of, and is not otherwise in default under any term
of, its obligations and liabilities consistent with past practice.
Section 4.42 Investment Intent. Such Seller represents that (i) by
reason of its business and financial experience, and the business and financial
experience of those Persons, if any, retained by it to advise it with respect to
its acquisition of the Preferred Stock Consideration pursuant hereto, such
Seller, together with such advisers, have such knowledge, sophistication and
experience in business and financial matters as to be capable of evaluating the
merits and risk of the prospective acquisition and can bear the economic risk of
such investment, and that it is purchasing the Preferred Stock Consideration for
its own account and not with a view to the distribution thereof or with any
present intention of distributing or selling any of such stock except in
compliance with the Securities Act and applicable state securities laws, (ii) it
understands and agrees that the Purchaser's offer and sale of the Preferred
Stock Consideration have not been registered under the Securities Act and the
Preferred Stock Consideration may be resold only if registered pursuant to the
provisions thereunder and applicable state securities laws or if an exemption
from registration is available, and (iii) it has received all the information it
has requested from the Purchaser and has had the opportunity to ask
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questions of the Purchaser and, relying on the completeness and accuracy of such
information, such Seller believes such information is sufficient to make an
informed decision with respect to its acquisition of the Preferred Stock
Consideration.
Section 4.43 Disclosure. No representation, warranty or statement made
by such Seller in (i) this Agreement, (ii) the schedules and exhibits attached
hereto or (iii) any other Transaction Document contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact required to be stated herein or therein or necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser represents and warrants to the Sellers as follows:
Section 5.01 Organization and Qualification. The Purchaser (i) is a
corporation duly organized, validly existing and in good standing as a business
corporation under the laws of the state of Delaware, (ii) has all corporate
power and authority to own, lease and operate its properties and to carry on its
business as currently being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not have a material adverse effect on it. The Purchaser is qualified and
licensed to do business in the State of New Jersey.
Section 5.02 Authority.
(a) On or prior to the Closing, the Purchaser will have the
requisite corporate power and authority to execute and deliver the Transaction
Documents and all other instruments or agreements to be executed in connection
herewith or therewith, and to consummate the transactions contemplated hereby
and thereby. On or prior to the Closing, the execution, delivery and performance
of the Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, will have been duly authorized by all necessary
corporate action on the part of the Purchaser and no other corporate proceedings
on the part of the Purchaser will be necessary to authorize the Transaction
Documents or to consummate the transactions contemplated hereby or thereby. On
or prior to the Closing, the Transaction Documents to which it is a party will
have been duly executed and delivered by the Purchaser and, assuming the
Transaction Documents constitute valid and binding obligations of each of the
Sellers, will constitute valid and binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms
subject, as to enforceability, to general equitable principles, and bankruptcy,
reorganization, receivership and other laws affecting creditors rights
generally.
(b) The Preferred Stock Consideration that is being offered and sold
to the Sellers at the Closing will have the voting powers, dividend rights,
liquidation rights, designations,
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preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof, as set forth in the
Certificate of Designations, Preferences and Rights attached hereto as Exhibit
3, which will be filed with the Secretary of State of the State of Delaware
prior to the Closing. Subject to the terms of the Escrow Agreement, when paid
for by, and issued to, the Sellers in accordance with the terms hereof, the
Preferred Stock Consideration will be duly authorized, validly issued, fully
paid and non-assessable and will not have been issued in violation of any
preemptive right of stockholders or rights of first refusal; and the Sellers
will have good title to such preferred stock, free and clear of all Liens (other
than any created by any Seller or Stockholder or applicable federal or state
securities Laws). On or prior to the Closing, the shares of Purchaser Common
Stock (the "Conversion Shares") issuable upon conversion of the Series D Stock
will have been reserved for issuance therefor by the Purchaser and, when
converted by, and issued to, the Sellers in accordance with the terms of the
Series D Stock (subject to the stockholder approval contemplated by Section
13.08), the Conversion Shares will be duly authorized, validly issued, fully
paid and non-assessable and will not have been issued in violation of any
preemptive right of stockholders or rights of first refusal; and the Sellers
will have good title to such stock, free and clear of all Liens (other than any
created by any Seller or Stockholder or other holder thereof or applicable
federal or state securities Laws).
Section 5.03 Consents and Approvals; No Violations. Neither the
execution, delivery or performance of the Transaction Documents by the
Purchaser, nor the consummation by the Purchaser of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Preferred Stock Consideration), nor the compliance by the Purchaser with any
of the provisions hereof or thereof will (i) conflict with or result in any
breach of any provision of the charter or by-laws of the Purchaser, (ii) require
any filing with, or Consent of, any Governmental Authority or other Person other
than as set forth on Schedule 5.03, (iii) result in a violation or breach of, or
constitute (with or without the receipt or giving of notice or the passage of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, License, contract, agreement, or
other instrument or obligation to which the Purchaser is a party or by which any
of its properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Purchaser or
any of its properties or assets. Assuming the accuracy of the Sellers'
representations and warranties contained herein, the Preferred Stock
Consideration, when issued in accordance with the terms and provisions of this
Agreement, will be issued in compliance with applicable federal and state
securities laws.
ARTICLE VI
CERTAIN COVENANTS
-----------------
Section 6.01 Access to Information. From the date hereof until the
Closing Date, the Purchaser and its directors, officers, employees, agents,
attorneys, accountants and other representatives shall have full access, upon
reasonable notice and during normal business hours, to the employees and
financial, legal and other representatives of the Sellers with knowledge of the
Sellers' business and operations, such persons to be instructed by the Sellers
to make full and candid
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disclosure of all information reasonably requested, and to the books, records
and properties relating to the Sellers' business and operations (including
obtaining copies thereof upon reasonable notice). From the date hereof until the
Closing Date, the Sellers shall provide the Purchaser with (a) written reports
each week during such period by the close of business on Wednesday of each week
detailing, with respect to the preceding week, the number of procedures
performed at the Facilities and (b) such other financial and operating data as
the Purchaser may reasonably request. The Purchaser will use its best efforts
not to disrupt the Sellers' operations or impinge unnecessarily upon the time of
the Sellers' employees. Notwithstanding anything to the contrary set forth in
this Section 6.01, neither the Purchaser nor its directors, officers, employees,
agents, attorneys, accountants and other representatives shall contact any
employees or referral sources of the Sellers without the prior written consent
of Mrs. Beran unless or until all of the conditions to Closing, other than the
provisions of Section 8.04 herein, have been satisfied, and thereafter the
Purchaser shall be permitted to contact the Sellers' employees and referral
sources after providing Mrs. Beran prior notice of the intended contact and so
long as the Purchaser has committed in writing to consummate the Closing within
ten (10) days of its first contact with any such employees or referral sources.
Moreover, Mrs. Beran or her designee shall be given the option to attend any
meeting with, or participate in any contact of, such employees or referral
sources.
Section 6.02 Conduct of Business in Normal Course. Each Seller,
severally and not jointly, covenants and agrees, except as otherwise expressly
contemplated by this Agreement or as specifically consented to in writing by the
Purchaser (which consent shall not be unreasonably withheld) and set forth on
Schedule 6.02 hereto, from and after the date of this Agreement and until the
Closing Date, to use its respective reasonable efforts consistent with good
business judgment to maintain its respective present business organizations
intact, keep available the services of its respective present employees,
preserve its respective present relationships with Persons having business
dealings with it and generally operate its respective business in the ordinary
and regular course consistent with its prior practices, maintain its respective
books and records in accordance with good business practice, on a basis
consistent with prior practice, and maintain all certificates, licenses and
permits necessary for the conduct of its respective business as currently
conducted. Each Seller, severally and not jointly, covenants and agrees that,
except as otherwise expressly contemplated by this Agreement or as specifically
consented to in writing by the Purchaser (which consent shall not be
unreasonably withheld), from and after the date of this Agreement and until the
Closing Date, such Seller shall not undertake or permit the following to occur
with respect to such Seller, any:
(a) action or omission which would result in a material adverse
change, whether direct or indirect, in the business, operations, condition
(financial or otherwise), prospects (as a going concern), liabilities or assets,
whether or not insured;
(b) transaction not in the ordinary course of business, including
without limitation, any sale of all or substantially all of the assets (or any
merger with any other entity);
(c) material damage, destruction or loss, whether or not insured;
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(d) unfulfilled commitment as of the date of this Agreement
requiring expenditures exceeding $75,000 in the aggregate (excluding commitments
expressly described elsewhere in this Agreement or the schedules hereto);
(e) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on December 31, 1997, or
any destruction, damage to, or loss of any asset (whether or not covered by
insurance) that materially and adversely affects the business, operations,
condition (financial or otherwise), prospects, liabilities or assets;
(f) material change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) material revaluation of any assets or material write-down of the
value of any inventory;
(h) any direct or indirect redemption, purchase or other acquisition
of any shares of Capital Stock (other than distributions consistent with prior
practice);
(i) issuance or sale, or agreement to issue or sell, any Capital
Stock except for shares issued upon exercise of options and warrants currently
outstanding;
(j) amendment to its Certificate of Incorporation, By-laws or other
organizational documents;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, except in the ordinary
course of business;
(l) disposition or lapse of any patent, trademark, trade name,
service mark or copyright or any application for the foregoing, or disposition
of any technology, software or know-how, or any license, permit or authorization
to use any of the foregoing;
(m) mortgage, pledge or other encumbrance, including Liens and
security interests, of any tangible or intangible asset;
(n) discharge or satisfaction of any Lien or payment or cancellation
of any liability other than payment of current liabilities in the ordinary
course of business;
(o) entering into any agreement, whether written or oral, or
transaction (i) to waive, relinquish, terminate or forebear (other than as
contemplated by Section 2.03(b)(vi) hereof) the enforcement of any right not in
the ordinary course of business or involving consideration in excess of $75,000
(other than inventory acquisitions and dispositions in the ordinary course of
business) or (ii) for the sale or acquisition or lease of any material assets;
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(p) indebtedness incurred for borrowed money or any commitment to
borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
other than customary transactions in the ordinary course of business not in
excess of $75,000 in the aggregate;
(q) amendment, termination or revocation of (or notice of intent to
do so), or a failure in any material respect to perform obligations or the
occurrence of any default under, any material contract or agreement to which it
is, or as of December 31, 1997 was, a party or of any material license, permit
or franchise required for the continued operation of any business conducted by
it on December 31, 1997;
(r) increase or commitment to the increase of the salary or other
compensation payable or to become payable to any officer, director or employee,
agent or independent contractors (other than members of the Beran family), the
payment of any bonus to the foregoing persons or entering into any employment,
consulting or other service agreements except in the ordinary course of business
and consistent with past practice and applicable policies and procedures; or
(s) enter into any material agreement (e.g., relating to capitated
payment and discounted fee-for-service arrangements) with any physician,
insurance company, managed care organizations or other healthcare organization,
other than agreements (for terms not in excess of one year), on customary terms
and conditions with past practice.
Notwithstanding the foregoing, nothing herein shall preclude any
Seller's distribution of monies in respect of its Capital Stock, repayment of
that certain indebtedness listed on Schedule 6.08, payment of professional
reading and other fees in the ordinary course of business consistent with past
practice, and settlement or other termination of those certain purchase orders
set forth on Schedule 2.03(b)(vi).
Section 6.03 No Solicitation.
(a) From the date hereof to the Closing Date, each Seller
agrees that neither it nor any of its directors, officers, employees,
representatives or agents or any Stockholder will, and each Seller will use all
reasonable efforts to cause the non-management employees of such Seller who
become aware of the matters contemplated by this Agreement not to, directly or
indirectly, solicit or initiate any discussions or negotiations with,
participate in any negotiations with, provide any information to or otherwise
cooperate in any other way with, or facilitate or encourage any effort or
attempt by, any Person, other than the Purchaser and its directors, officers,
employees, representatives and agents, concerning any merger, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving such Seller. Each Seller will promptly advise the Purchaser of any
proposal or inquiry made to it or any of its directors, officers, employees,
representatives, agents or stockholders with respect to any of the foregoing
transactions.
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(b) From the date hereof to the Closing Date, the Estate agrees that
neither it nor any of its or the Sellers' respective directors, officers,
employees, representatives or agents or any Stockholder (as applicable) will,
and the Estate will use all reasonable efforts to cause the non-management
employees of the Sellers who become aware of the matters contemplated by this
Agreement not to, directly or indirectly, solicit or initiate any discussions or
negotiations with, participate in any negotiations with, provide any information
to or otherwise cooperate in any other way with, or facilitate or encourage any
effort or attempt by, any Person, other than the Purchaser and its directors,
officers, employees, representatives and agents, concerning any merger, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving any Seller. The Estate will promptly advise the Purchaser of any
proposal or inquiry made to it or any of such directors, officers, employees,
representatives, agents or stockholders with respect to any of the foregoing
transactions.
Section 6.04 Notification of Certain Matters. Each party hereto agrees
to give prompt notice to the other of (i) the occurrence, or failure to occur,
of any event which occurrence or failure to occur would be likely to cause any
of its representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of or the failure to deliver
any notice pursuant to this Section 6.04 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 6.05 Supplements to Schedules. Prior to the Closing Date, each
Seller will supplement or amend the schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in such
schedules. Subject to the last sentence of Article X which shall be controlling,
no supplement or amendment of the schedules made pursuant to this Section 6.05
shall be deemed to cure any breach of any representation or warranty made in
this Agreement unless the Purchaser specifically agrees thereto in writing.
Section 6.06 Confidentiality.
(a) Except as otherwise provided in this Section 6.06, the
Purchaser, on the one hand, and the Stockholders and the Sellers (the "Selling
Group"), on the other hand, shall not disclose any Confidential Information.
Prior to the Closing Date, the Purchaser and the Selling Group shall use the
Confidential Information solely in connection with its analysis and review of
the transactions contemplated by this Agreement; provided that upon and
subsequent to the Closing Date all Confidential Information provided to the
Purchaser by the Selling Group shall become the property of the Purchaser, and
the Purchaser shall have no further obligations pursuant to this Section 6.06.
Subsequent to the Closing Date, the obligations of the Selling Group under this
Section 6.06 shall continue in effect and all confidential information
previously provided by the Selling Group to the Purchaser will constitute
Confidential Information which the Selling Group shall keep confidential in
accordance with the terms of this Section 6.06.
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(b) The Purchaser and the Selling Group may disclose Confidential
Information to any of their respective directors, officers, employees, agents,
financing sources, and advisors (each a "Representative" and collectively, the
"Representatives") who need to know such Confidential Information, for the
purpose of assisting such party in connection with the transactions contemplated
by this Agreement. The Purchaser and the Selling Group (the "Disclosing Party")
may disclose Confidential Information if required by legal process or by
operation of applicable Law (including in respect of the Selling Group's Tax
Returns); provided, however, that the Disclosing Party shall first promptly
advise and consult with the other party (the "Subject Party") and its counsel
concerning the information the Disclosing Party proposes to disclose, except in
respect of proceedings between the Disclosing Party and the Subject Party. The
Subject Party shall have the right to seek an appropriate protective order or
other remedy concerning the Confidential Information that the Disclosing Party
proposes to disclose, and the Disclosing Party shall cooperate with the Subject
Party to obtain such protective order. In the event that such protective order
or other remedy is not obtained by the Subject Party, the Disclosing Party shall
disclose only that portion of the Confidential Information which, in the written
opinion of the Disclosing Party's counsel, the Disclosing Party is legally
required to disclose, and the Disclosing Party shall use its best efforts to
obtain assurances that confidential treatment will be accorded to such
information. Notwithstanding anything contained herein to the contrary, nothing
herein shall preclude the disclosure of Confidential Information by a Disclosing
Party as part of its defense in any legal proceeding instituted against the
Disclosing Party, including any indemnification claim under Article XI; provided
that the Disclosing Party shall disclose only that portion of the Confidential
Information which, in the written opinion of the Disclosing Party's counsel, is
necessary for the defense of the Disclosing Party in such proceeding and the
Disclosing Party shall use its best efforts to obtain assurances that
confidential treatment will be accorded to such information.
(c) In the event that the transactions contemplated hereby are not
consummated, all Confidential Information whether or not then in each parties'
possession, and any copies thereof, or notes or extracts therefrom shall be
returned to the other party, without retaining any copies thereof, and each
party shall destroy, as soon as practicable, all copies of any analyses,
studies, compilations or other documents prepared by it or any of its
Representatives to the extent that they contain, reflect or are generated from
any Confidential Information.
(d) Each party acknowledges and agrees that any breach by it of the
provisions of this Section 6.06 will cause the other party irreparable injury
and damage, for which it cannot be adequately compensated in damages. Each
party, therefore, expressly agrees that the other party shall be entitled to
seek injunctive relief and/or other equitable relief to prevent any anticipatory
breach or continuing breach of the provisions of this Section 6.06, or any part
thereof, and to secure their enforcement. Nothing herein shall be construed as a
waiver by a party of any right it may now have or hereafter acquire to monetary
damages by reason of any injury to its property, business or reputation or
otherwise arising out of any wrongful act or omission of a party under the
provisions of this Section 6.06.
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(e) In the event the transactions contemplated hereby are not
consummated, the Purchaser agrees that it will not, directly or indirectly, for
a period of eighteen (18) months from the date of this Agreement (x) solicit for
employment or employ or engage any of the present employees of the Sellers;
provided, however, that Purchaser shall not be prohibited from employing any
such person (other than marketing employees and the Facilities' radiologists)
who contacts the Purchaser on his or her own initiative and without any direct
or indirect solicitation by the Purchaser or (y) solicit for the provision of
diagnostic imaging services or accept such business from any of the physicians
who refer a material number of diagnostic imaging procedures to any of the
Facilities and whose identity as a Seller's referral source becomes known by the
Purchaser as a result of its evaluation of the Facilities; provided that the
Purchaser shall not be prohibited from soliciting any persons who were
specifically solicited by the Purchaser prior to the date of the Letter of
Intent or who are solicited as part of a general solicitation not targeted to
physicians not currently solicited by the Purchaser. For purposes of this
Section 6.06(f), a material number of diagnostic imaging procedure referrals
shall mean forty (40) or more of such referrals in a twelve (12) month period.
Section 6.07 Facilities Employees.
(a) At or prior to the Closing, the Sellers shall terminate the
employment of, and the Purchaser will offer employment to, all Facilities
Employees (other than members of the Beran family), which employment by the
Purchaser shall be on substantially the same terms and conditions upon which
they were employed immediately prior to the Closing. The Sellers will indemnify
the Purchaser for up to $50,000, pursuant to Article XI herein, that the
Purchaser may incur in connection with certain employee retraining,
rationalization or reduction measures ("Retraining Obligations").
(b) The Sellers shall be solely responsible for the payment of any
accrued but unpaid vacation pay as of the Closing Date for all such terminated
employees. The parties agree that those certain Facilities Employees listed on
Schedule 6.07 hereto shall be entitled to such unpaid vacation after the Closing
as set forth on Schedule 6.07.
(c) Each Facilities Employee employed by the Purchaser after the
Closing shall continue to participate, through the end of the month in which the
Closing occurs, in the Sellers' group health insurance plans on the same terms
and subject to the same conditions as such employee participated prior to the
Closing without giving effect to such employee's termination, and the Purchaser
agrees to promptly reimburse the Sellers for any amounts paid by the Sellers for
such coverage on behalf of each such employee during such period in accordance
with the terms and provisions of the Sellers' plans.
(d) The indemnification limitations set forth in Section 11.02 shall
not apply in the event the Purchaser shall seek any indemnification in respect
of the foregoing agreements.
Section 6.08 Obligations and Indebtedness. At or prior to the Closing,
all obligations secured by, or which encumber, any of the assets of, or utilized
by, the Facilities, including but not
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limited to, indebtedness to CoreStates Bank, N.A. and Commerce Bank, as well as
indebtedness owed to members of the Beran family, the amount of which
indebtedness is set forth on Schedule 6.08 hereto, will be repaid and all
security interests and other encumbrances with respect to such indebtedness will
be terminated and appropriate UCC-3 Financing Statement Terminations will have
been filed in all jurisdictions in which any UCC-1 Financing Statements were on
file in connection with such indebtedness so repaid.
Section 6.09 Purchase Orders. At or prior to the Closing, the
obligations of the Sellers with respect to the purchase orders for the equipment
specified on Schedule 2.03(b)(vi) shall be terminated without any continuing
obligation of the Purchaser or the Facilities, and the Purchaser will have no
liability with respect to such equipment or the termination of the purchase
orders with respect thereto.
Section 6.10 Mainland Facility. The Purchaser shall be solely
responsible for all costs and expenses, if any, related to any renovation of the
Mainland Facility which may be necessary or desirable in order for the Purchaser
to obtain a license from the State of New Jersey or any subdivision thereof to
operate the Mainland Facility.
Section 6.11 Recoupment Claims. As more fully set forth in Section
2.03, notwithstanding the transactions contemplated herein, the Sellers shall
retain all obligations and liabilities in respect of Recoupment Claims for which
payment has been received by the Sellers, the Facilities or the Practice, as
applicable, prior to the Closing, and such claims and any and all Losses related
thereto shall be payable by the Sellers in cash in immediately available funds
or in shares of Series D Stock, as the Sellers may determine.
ARTICLE VII
CONDITIONS TO EACH PARTY'S OBLIGATIONS
--------------------------------------
The respective obligations of each party hereunder are subject to the
satisfaction, at or before the Closing Date, of the conditions set forth below.
Section 7.01 Governmental Authorizations; Consents. The Sellers and the
Purchaser shall have obtained all Consents which are required for the
consummation of the transactions contemplated under this Agreement and for the
Purchaser to be able to continue to operate the Practice and the Facilities
immediately after consummation of this Agreement, in accordance with all Laws
(taking into account, and subject to, the contemplated operation of the Mainland
Facility in the manner consented to by the State of New Jersey), other than such
Consents in respect of the assignment of such contracts which are not material,
either individually or in the aggregate, to the Practice and the Facilities.
Section 7.02 Absence of Litigation. There shall not have been issued
and be in effect any order of any court or tribunal of competent jurisdiction
which (i) prohibits or makes illegal the
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purchase by the Purchaser of the Assets, (ii) would require the divestiture by
the Purchaser of all or a material portion of the Assets, the Facilities, the
Practice or any other assets of the Purchaser as a result of the transactions
contemplated hereby, or (iii) would impose limitations on the ability of the
Purchaser to effectively exercise full rights of ownership of the Assets, or of
a material portion of the Facilities and the Practice as a result of the
transactions contemplated hereby.
Section 7.03 No Injunction. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby which the Purchaser deems unacceptable in its sole
discretion.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
---------------------------------------------------
The obligation of the Purchaser to purchase the Assets is subject to
the satisfaction, at or prior to the Closing, of the conditions set forth below.
The benefit of these conditions are for the Purchaser only and may be waived in
writing by the Purchaser at any time in its sole discretion.
Section 8.01 Accuracy of Representations and Warranties. The
representations and warranties of the Sellers shall be true and correct in all
material respects as of the date when made and as of Closing Date as though made
at that time, and the Purchaser shall have received certificates attesting
thereto from each Seller signed by a duly authorized officer of each Seller.
Section 8.02 Performance by the Sellers. The Sellers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, including, without
limitation, the deliveries required under Section 3.03, and the Purchaser shall
have received certificates attesting thereto from each Seller, signed by a duly
authorized officer of each Seller.
Section 8.03 Non-Competition Agreement. The Purchaser shall have
entered into the Non- Competition Agreements with the Sellers and each of Mrs.
Beran, Dr. Beran, Debbie Beran and Chaya Beran on or prior to the Closing,
effective as of the Closing Date.
Section 8.04 Casualty Losses; Material Change. Since December 31, 1997,
none of the Sellers, the Practice, the Facilities or the Assets shall have
suffered (a) any material casualty loss, (b) any material business interruption,
(c) any material labor difficulty or customer boycott or (d) any material
adverse change in its business, operations, prospects or condition (financial or
otherwise).
Section 8.05 Assets. The Assets shall be free and clear of all Liens of
any nature whatsoever.
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Section 8.06 Financial Statements. The Sellers shall have delivered the
1997 Financial Statements, the 1996 Financial Statements, the 1997 Tax Basis
Financial Statements and the 1996 Tax Basis Financial Statements. The 1997 Tax
Basis Financial Statements and the 1996 Tax Basis Financial Statements shall
reflect that the Sellers had aggregate revenues of at least $10.0 million for
fiscal 1997 and fiscal 1996, respectively, and an aggregate pre-tax profit of at
least $4.5 million and $4.4 million for fiscal 1997 and fiscal 1996,
respectively, in each case, after excluding all compensation paid to members of
the Beran Family, other than Dr. Irving Beran and Mrs. Beran.
Section 8.07 Compliance with Laws. None of the Sellers, the Facilities
or the Practice being in violation of any Law, which such violation may have a
Material Adverse Effect.
Section 8.08 Leases. The Purchaser shall have received from the Sellers
a duly executed Assignment and Assumption Agreement in the form attached hereto
as Exhibit 6, transferring to the Purchaser all interests of the Sellers with
respect to the Leases and Contracts, and related estoppel and consent of the
landlord. The Purchaser shall have received the leases referenced on Schedule
3.02, duly executed by the appropriate landlord, in the form attached hereto as
Exhibit 7.
Section 8.09 Consents and Approvals. The receipt of the Consents
required to transfer the Assets and the Assumed Liabilities, and for the
Purchaser to operate the business conducted at the Facilities subsequent to the
Closing in substantially the same manner conducted prior to the Closing (other
than such governmental consent required for the continued operation of the
Mainland Facility referenced on Schedule 6.02 hereto and other than such
Consents in respect of the assignment of such contracts which are not material,
either individually or in the aggregate, to the Practice and the Facilities).
Section 8.10 Stockholder Approval. The approval of the stockholders or
limited and general partners, as the case may be, of the Sellers as required by
Law, contract or otherwise.
Section 8.11 Opinion of Counsel. The Purchaser shall have received from
counsel to the Sellers and the Stockholders, an opinion of counsel, dated as of
the Closing Date and addressed to the Purchaser substantially in the form of
Exhibit 10 attached hereto.
Section 8.12 FIRPTA Certificate. Each of the Sellers shall deliver to
the Purchaser a certificate (the "FIRPTA Certificate") on a form substantially
identical to the form attached hereto as Exhibit 11.
Section 8.13 Obligations and Indebtedness. All obligations which, prior
to the Closing, were secured by or which encumbered any of the assets of or
utilized by the Sellers, the Facilities and the Practice, including indebtedness
to CoreStates Bank, N.A. and Commerce Bank, as well as indebtedness owed to
members of the Beran Family, shall have been repaid and all security interests
and other encumbrances terminated.
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Section 8.14 Notes. The Purchaser shall have received the Notes and
related Pledge and Security Agreements, each duly executed by the appropriate
Seller.
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
------------------------------------------------
The obligation of the Sellers to sell the Assets is subject to the
satisfaction, at or prior to the Closing, of the conditions set out below. The
benefit of these conditions are for the Sellers only and may be waived by the
Sellers in writing at any time in its sole discretion.
Section 9.01 Accuracy of Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
respects as of the date when made and as of the Closing Date, as though made at
that time, and the Sellers shall have received a certificate attesting thereto
signed by a duly authorized officer of the Purchaser.
Section 9.02 Performance by Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, including, without
limitation, the deliveries required under Section 3.02, and the Sellers shall
have received a certificate from the Purchaser signed by a duly authorized
officer of the Purchaser to such effect.
Section 9.03 Opinion of Counsel. The Sellers shall have received from
counsel to the Purchaser, an opinion of counsel, dated as of the Closing Date
and addressed to the Sellers substantially in the form of Exhibit 5 attached
hereto.
Section 9.04 Registration Rights Agreement. The Sellers shall have
received the Registration Rights Agreement, duly executed by the Purchaser.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
AND INDEMNIFICATION OBLIGATIONS
-------------------------------
Except as otherwise specifically provided for herein, the
representations and warranties of the Purchaser and the Sellers included or
provided for herein, or in other instruments or agreements delivered or to be
delivered at or prior to Closing in connection herewith, including the
representations and warranties of all Persons made in the certificates to be
delivered to the Purchaser pursuant hereto, and the obligation of the Purchaser
and the Sellers and the Stockholders to indemnify on account of a breach or
violation of such representations and warranties shall survive for a period of
eighteen (18) months following the Closing Date; provided, however, that (a)
there shall be no limit on the survival of the indemnification obligations of
the Sellers for breaches of the representations or warranties made by the
Sellers as to the transfer of legal and valid title to the
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Assets and (b) the indemnification obligations of the Sellers for breaches of
the representations or warranties made by the Sellers with respect to Taxes or
Tax matters or with respect to environmental matters shall survive until the
expiration of the applicable statute of limitations. Similarly, the obligation
of the Sellers and the Stockholders to indemnify the Purchaser with respect to
all Excluded Liabilities (other than those liabilities or obligations resulting
from a breach of any representation or warranty of the Sellers or the
Stockholders included herein or made in connection herewith for which the
indemnification obligations of the Sellers and the Stockholders are limited as
set forth in the preceding sentence) shall survive until such liability or claim
is fully paid and discharged. Notwithstanding anything herein to the contrary,
if, prior to the expiration of any indemnification period, the Purchaser, or the
Sellers, as the case may be, shall have been notified of a claim for indemnity
hereunder and such claim shall not have been finally resolved before the
expiration of such period, any representation or warranty that is the basis for
such claim shall continue to survive and shall remain a basis for indemnity as
to such claim until such claim is finally resolved. The respective
representations and warranties of the Sellers and the Purchaser contained herein
or in any other documents covered in the first sentence of this Article shall
not be deemed waived or otherwise affected by any investigation made by any
party hereto or any amendment or supplement to the schedules or exhibits hereto
occurring after the signing of this Agreement. Notwithstanding the foregoing, if
the investigating party had actual knowledge of any breach of any representation
and warranty of the other party and failed to notify the other party thereof
prior to the Closing, the investigating party shall not be entitled to any
indemnification from the other party for such breach.
ARTICLE XI
INDEMNIFICATION
---------------
Section 11.01 General Indemnity.
(a) Subject to the limitations and other provisions of Article X
(which pertain only to clause (i) below) and this Article XI, Mrs. Beran and Dr.
Beran, jointly and severally, agree to indemnify and hold harmless the
Purchaser, its respective Affiliates, and the successors and assigns of all of
them, including Persons providing financing to the Purchaser in their capacity
as successors or assigns of the Purchaser, from, against and in respect of any
and all Losses resulting from, incurred in connection with or arising out of (i)
any breach, or alleged breach claimed by a third party, of any representation or
warranty of any Sellers or Stockholder contained herein or made in the
Transaction Documents and any actual or threatened action or proceeding in
connection with any breach or alleged breach claimed by a third party, (ii) any
breach, or alleged breach claimed by a third party, or other failure to perform
or threatened failure to perform, of any covenant or agreement of any Seller or
Stockholder contained herein or in any of the Transaction Documents and any
actual, or threatened action or proceeding by a third party, in connection with
any such breach, failure of performance or threatened breach or failure of
performance, (iii) the Excluded Liabilities, (iv) any liability for Taxes (1) of
the Sellers or the Stockholders and (2) of any person other than a Seller or a
Stockholder for which the Sellers or the Stockholders has liability as a
transferee or successor, by contract or otherwise, and (v) the Retraining
Obligations. Dr. Beran's indemnification
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obligations hereunder and all other obligations to the Purchaser hereunder
arising due to his execution of this Agreement shall cease upon his transfer to
the Estate of his portion of the Purchase Price in payment of certain
indebtedness owing to the Estate, and the Purchaser, upon such occurrence, shall
be deemed to have released, remised and forever discharged Dr. Beran from any
liability under this Agreement arising due to his execution hereof, including,
without limitation, any and all Losses of any kind or nature, whether known or
unknown, in law or equity, that specifically pertain or relate to any obligation
arising due to his execution of this Agreement.
(b) Each Seller, severally and not jointly, agrees to indemnify and
hold harmless the Purchaser, its respective Affiliates, and the successors and
assigns of all of them, including Persons providing financing to the Purchaser
in their capacity as successors or assigns of the Purchaser, from, against and
in respect of any and all Losses resulting from, incurred in connection with or
arising out of (i) any breach, or alleged breach claimed by a third party, of
any representation or warranty of such Seller contained herein or made in the
Transaction Documents and any actual, or threatened action or proceeding by a
third party, in connection with any breach or alleged breach by a third party,
(ii) any breach, or alleged breach claimed by a third party, or other failure to
perform or threatened failure to perform, of any covenant or agreement of such
Seller contained herein or in any of the Transaction Documents and any actual or
threatened action or proceeding in connection with any such breach, failure of
performance or threatened breach or failure of performance, (iii) the Excluded
Liabilities, (iv) any liability for Taxes (1) of such Seller and (2) of any
person other than such Seller for which such Seller has liability as a
transferee or successor, by contract or otherwise, and (v) the Retraining
Obligations.
(c) The Purchaser shall indemnify and hold harmless the Stockholders
and the Sellers and their respective successors and assigns from, against and in
respect of any and all Losses resulting from, incurred in connection with or
arising out of (i) any breach, or alleged breach claimed by a third party, of
any representation, warranty, covenant or agreement of the Purchaser and any
actual or threatened action or proceeding in connection therewith and (ii) the
operation of the Facilities after the Closing including, without limitation, in
respect of the Assumed Liabilities.
The party or parties being indemnified are referred to herein
as the "Indemnitee" and the indemnifying party is referred to herein as the
"Indemnitor".
Section 11.02 Limitation on Indemnification Liabilities.
(a) No claim for indemnification under Section 11.01(a) or (b) may
be brought or maintained by the Purchaser unless and until the aggregate dollar
amount of all Losses sought by the Purchaser to be indemnified against under
such aforesaid Sections equals or exceeds $375,000 (the "Threshold Amount"), in
which event the Stockholders and the Sellers shall be responsible for and shall
hold the Purchaser harmless from, any and all such Losses in excess of the
Threshold Amount; provided, further, however, that the maximum liability that
the Stockholders and the Sellers may have with respect to claims for
indemnification under Section 11.01(a) and (b), as the case may be, will be $2.5
million, other than with respect to matters involving (i) fraud, willful
misconduct
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or bad faith, (ii) Taxes, (iii) accounts payable, (iv) the Sellers' liabilities
or obligations (x) to any of its stockholders, partners or other equity owners
or any of their affiliates, or (y) which may arise by reason of or with respect
to (A) any Seller's dissolution, liquidation or distribution of assets to its
stockholders, partners or other equity owners, (B) any Seller's bank
indebtedness (including, without limitation, to CoreStates Bank, N.A. and
Commerce Bank) or (C) the Vista Upgrade, (v) any Recoupment Claims for which
payment has been received by the Sellers, the Facilities or the Practice, as
applicable, prior to the Closing (which claims and any and all Losses related
thereto shall be payable by the Sellers in cash or in shares of Series D Stock,
as the Sellers may determine ), or (vi) the Retraining Obligations.
(b) Any Losses payable by any Seller or Stockholder to the Purchaser
pursuant to Section 11.01 (including in respect of Recoupment Claims for which
payment has been received by the Sellers, the Facilities or the Practice, as
applicable, prior to the Closing) may be payable, in the sole discretion of the
payor, in cash in immediately available funds, or in shares of Series D Stock
valued at its liquidation preference.
Section 11.03 Indemnification Procedure.
(a) Any party who receives notice of a potential claim that may, in
the judgment of such party, result in a Loss shall use all reasonable efforts to
provide the parties hereto notice thereof, provided that failure or delay or
alleged delay in providing such notice shall not adversely affect such party's
right to indemnification hereunder except to the extent that the Indemnitor
demonstrates that the defense of such action has been prejudiced by the
Indemnitee's failure to give such notice. In the event that any party shall
incur or suffer any Losses in respect of which indemnification may be sought by
such party hereunder, the Indemnitee shall assert a claim for indemnification by
written notice ("Notice") to the Indemnitor stating the nature and basis of such
claim. In the case of Losses arising by reason of any third party claim, the
Notice shall be given within thirty (30) days of the filing or other written
assertion of any such claim against the Indemnitee, but the failure of the
Indemnitee to give the Notice within such time period shall not relieve the
Indemnitor of any liability that the Indemnitor may have to the Indemnitee
except to the extent that the Indemnitor demonstrates that the defense of such
action has been materially prejudiced by the Indemnitee's delay in giving such
notice and then only to the extent of such prejudice.
(b) In the case of third party claims for which indemnification is
sought, the Indemnitor shall have the option (i) to conduct any proceedings or
negotiations in connection therewith, (ii) to take all other steps to settle or
defend any such claim (provided that the Indemnitor shall not settle any such
claim without the consent of the Indemnitee which consent shall not be
unreasonably withheld) and (iii) to employ counsel to contest any such claim or
liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within twenty (20) days of receipt of the Notice, notify the Indemnitee
of its intention to assume the defense of such claim. If (i) the Indemnitor
shall decline to assume the
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defense of any such claim, (ii) the Indemnitor shall fail to notify the
Indemnitee within twenty (20) days after receipt of the Notice of the
Indemnitor's election to defend such claim; (iii) the Indemnitee shall have
reasonably concluded that there may be defenses available to it which are
different from or in addition to those available to the Indemnitor and any of
such defenses are, or in the reasonable opinion of the Indemnitee may be,
unavailable or materially adversely affected if the Indemnitor directs the
defense of such action on behalf of the Indemnitee; or (iv) a conflict exists
between the Indemnitor and the Indemnitee which the Indemnitee has reasonably
concluded would prejudice the Indemnitor's defense of such action, then in each
such case the Indemnitor shall not have the right to direct the defense of such
action on behalf of the Indemnitee and the Indemnitee shall defend against such
claim and may settle such claim without the consent of the Indemnitor, and
Indemnitor may not challenge the reasonableness of any such settlement. Subject
to the limitations and other provisions of Article X and this Article XI, the
expenses of all proceedings, contests or lawsuits in respect of such claims
shall be borne and paid by the Indemnitor and the Indemnitor shall pay the
Indemnitee, in immediately available funds (or, if the Indemnitor is a Seller or
Stockholder, in shares of Series D Stock valued at its liquidation preference),
as such Losses are incurred. Regardless of which party shall assume the defense
of the claim, the parties agree to cooperate fully with one another in
connection therewith. In the event that any Losses incurred by the Indemnitee do
not involve payment by the Indemnitee of a third party claim, then, subject to
the limitations and other provisions of Article X and this Article XI, the
Indemnitor shall within ten (10) days after agreement on the amount of Losses or
the occurrence of a final non-appealable determination of such amount payable to
the Indemnitee the amount of such Losses. Anything in this Article XI to the
contrary notwithstanding, the Indemnitor shall not, without the Indemnitee's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
Indemnitee, which restricts the Indemnitee's ability to conduct its business and
as a result would have a material adverse effect on the Indemnitee, or which
does not include, as an unconditional term thereof, the giving by the claimant
or plaintiff to the Indemnitee, a release from all liability in respect of such
claim. In the event that (x) the Indemnitor and a third party agree to the
settlement of a claim which solely involves a payment by the Indemnitor, (y) the
Indemnitee does not consent to such settlement and (z) thereafter the final
non-appealable determination of the amount payable to such third party is in
excess of the proposed settlement amount, then the Indemnitee shall be liable
for the payment to such third party of any such excess.
(c) The remedies for claims for indemnification under this Article
XI shall be the sole and exclusive remedy for the recovery of monetary damages
for such claims by the Purchaser against the Sellers and the Stockholders (but
shall in no event preclude the commencement of any action or other proceeding to
assert or enforce any indemnification obligations under this Article XI in
accordance with the terms hereof or the assertion of any equitable right or the
seeking of any equitable relief and further shall in no event restrict any claim
involving fraud, willful misconduct or bad faith).
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ARTICLE XII
TERMINATION
-----------
Section 12.01 Right to Terminate. Notwithstanding anything to the
contrary set forth in this Agreement, this Agreement may be terminated and the
transactions contemplated herein abandoned at any time prior to the Closing:
(i) by mutual consent of the Purchaser, on the one hand, and the
Sellers, on the other;
(ii) by the Purchaser or the Seller if the Closing shall not have
occurred by October 15, 1998, provided, however, that the
right to terminate this Agreement under this Section 12.01
shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Closing to occur on or
before such date;
(iii) by the Purchaser or the Sellers if a court of competent
jurisdiction shall have issued an order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become
final and nonappealable;
(iv) by the Sellers if the Purchaser (x) breaches its
representations and warranties in any material respect, or
(y) fails to comply in any material respect with any of its
covenants or agreements contained herein; or
(v) by the Purchaser if the Sellers (x) breach their
representations and warranties in any material respect, or
(y) fail to comply in any material respect with any of its
covenants or agreements contained herein.
Section 12.02 Obligations to Cease. Subject to the next succeeding
sentence, in the event that this Agreement shall be terminated pursuant to
Section 12.01 hereof, all obligations of the parties hereto under this Agreement
shall terminate and there shall be no liability of any party hereto to any other
party except for (i) the obligations with respect to confidentiality contained
in Section 6.06 hereof and (ii) the obligations with respect to costs contained
in Section 14.02 hereof, provided, however, that in the event of a termination
of this Agreement by reason of either clause (iv) or (v) of Section 12.01
hereof, the non-terminating party(ies) shall reimburse the terminating
party(ies) for its (their) reasonable out-of-pocket expenses (which shall
include legal and accounting fees, etc.), incurred relative to this Agreement
and the transactions contemplated herein.
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ARTICLE XIII
OBLIGATIONS AFTER THE CLOSING
-----------------------------
Section 13.01 Tax Returns; Tax Periods Ending on or Before the Closing
Date. Each Seller shall prepare or cause to be prepared and file or cause to be
filed (at its expense) its Tax Returns with respect to the Business, Facilities
and Assets for all periods ending on or prior to the Closing Date which are to
be filed after the Closing Date. Such Tax Returns shall be prepared in a manner
consistent with the Tax Returns (including amended Tax Returns) of the
respective Seller filed on or prior to the Closing Date for prior fiscal
periods. Each Seller shall pay, or cause to be paid, all Taxes shown as due (or
required to be shown as due) on such Tax Returns.
Section 13.02 Employees and Employee Benefits. The Sellers shall be
solely responsible for the satisfaction of all claims for benefits brought by or
in respect of any person who was an employee of the Sellers or who performed
services at the Facilities prior to the Closing under any Plan or any
government-mandated benefits (worker's compensation and unemployment
compensation) or otherwise, which claims are based on occurrences prior to the
Closing, or as a result of the transactions contemplated herein, regardless of
when notices of such claims were filed. Except as expressly provided herein, the
Sellers shall have no responsibility to provide benefits or government-mandated
benefits to Facilities Employees employed by the Purchaser and/or the Facilities
after the Closing for claims arising out of events that occurred after the
Closing; however, the Sellers shall remain liable for any claims arising out of
events that occurred prior to and at the Closing.
Section 13.03 Tax Audits. Each party shall have the right, at its own
expense, to control any audit or determination by any Governmental Authority,
initiate any claim for refund or amended return, and contest, resolve and defend
against any assessment, notice of deficiency, or other adjustment or proposed
adjustment of Taxes for any taxable period for which that party is charged with
responsibility for filing a Tax Return under this Agreement (collectively, "Tax
Actions"); provided, however, that the Sellers, on the one hand, and the
Purchaser, on the other, shall not have the right to agree to any assessment,
deficiency, settlement, or other adjustment or proposed adjustment of Taxes that
would adversely affect the interests of the other without such other party's
written consent, which consent shall not be unreasonably withheld, and,
provided, further, that the Purchaser shall have the right, at the expense of
the Sellers, to assume Tax Actions in the event the Sellers shall fail to take
Tax Actions reasonably available to them. The Sellers shall notify the
Purchaser, and the Purchaser shall notify the Sellers, as the case may be, if
any taxing authority shall, upon audit or otherwise, propose in writing an
adjustment to tax items which could give rise to a claim against or by the
Purchaser.
Section 13.04 Further Assurances and Cooperation. Subject to the terms
and conditions hereof, the Sellers agree that after the Closing they each will
execute and deliver such documents to the Purchaser as the Purchaser may
reasonably request in order to consummate the transactions contemplated hereby,
at the Purchaser's sole cost and expense. Each of the parties hereto shall
provide the other parties with such assistance and information as may reasonably
be requested by
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<PAGE>
any of them in connection with the transactions contemplated by this Agreement
(including in connection with any claim arising under this Agreement), at the
sole cost and expense of the requesting party.
Section 13.05 Access. The Purchaser hereby agrees that, after the
Closing, the Sellers and the Stockholders (or their respective representatives)
shall have reasonable access to any business records included in the Assets
which may be necessary for the Sellers' or the Stockholders' tax purposes or
other legitimate business purposes (including, without limitation, in connection
with malpractice and other lawsuits) upon reasonable prior notice at reasonable
times during regular business hours. Such access shall include an opportunity to
make photocopies of such records (at the requesting party's expense). The
Sellers and the Stockholders shall maintain the confidentiality of the contents
of such records, and such information may only be used by any such party for
such legitimate business purposes and may not be disclosed other than to any
such party's Representatives who need to know such information solely for
legitimate business purposes of the Sellers and the Stockholders. Such
confidential information shall otherwise be accorded the protections set forth
in Section 6.06.
Section 13.06 Consent of the Sellers' Accountants. After the Closing,
the Sellers agree to use their reasonable efforts to obtain the consent of the
Sellers' Accountants with respect to the inclusion of the 1996 Financial
Statements and the 1997 Financial Statements within any periodic report,
registration statement, proxy or information statement or other similar report
or statement filed by the Company with any Governmental Authority, including,
without limitation, the Securities and Exchange Commission.
Section 13.07 Closing Period Financial Statements. As promptly as
practicable after the Closing Date (but in no event later than thirty (30) days
after the Closing Date), the Sellers will deliver to the Purchaser (i) the
Closing Period Financial Statements and (ii) the Closing Date A/R Amount
Certificate.
Section 13.08 Stockholders' Meeting.
(a) As soon as practicable after the Closing, (i) the Purchaser will
take all action necessary in accordance with applicable law and its charter and
by-laws to convene a meeting of its stockholders for the purpose of approving
and ratifying the issuance of the Series D Stock (the "Meeting"); (ii) the
Purchaser will use all commercially reasonable efforts to obtain approval and
ratification of such issuance, and (iii) the Purchaser will use all commercially
reasonable efforts to hold the Meeting as soon as practicable after the Closing
Date and to file the preliminary proxy statement for the Meeting with the
Securities and Exchange Commission no later than November 1, 1998.
(b) In connection with the foregoing, each Seller and Stockholder
will supply to the Purchaser (and be responsible for) such information related
to such Person as is required to be included in the proxy statement for the
Meeting. If at any time prior to the Meeting, any event with
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<PAGE>
respect to any such Person or with respect to other information supplied by any
such Person for inclusion in such proxy statement shall occur which is required
to be described in an amendment of, or a supplement to, such proxy statement,
such Person will provide written notice thereof to the Purchaser and such event
will be so described, and such amendment or supplement will be promptly filed
with the Securities and Exchange Commission and, as required by applicable law,
disseminated to the Purchaser's stockholders. Each Seller and Stockholder
further represents and warrants that all information provided by such Person for
inclusion in such proxy statement will be true, complete and correct and shall
not contain any untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not false or misleading in light of the circumstances under which they
were made.
(c) Each Seller and Stockholder agrees (and shall cause any
permitted transferee of the Series D stock, as a condition to such transfer, to
agree) to vote all of its voting securities of the Purchaser in favor of all
proposals presented to the Purchasers' stockholders at the Meeting as more fully
described on Schedule 13.08.
Section 13.09 Change of Name. As soon as practicable after the Closing
(but in any event within ten days), the Sellers shall (and the Stockholders
shall cause the Sellers to) change their corporate (or partnership, as
applicable) names thereafter to new names bearing no resemblance to their
present names and which will not interfere in any jurisdiction with the use by
the Purchaser (either alone or in conjunction with other words) of all or any
part of such names. From and after the Closing, the Sellers shall (and the
Stockholders shall cause the Sellers to) cease and desist from using their
present names (or words resembling or likely to be confused with their present
names) in the conduct of business, or otherwise, and shall execute or obtain
such consents and documents as the Purchaser may reasonably require in order to
enable the Purchaser to use such names as it may desire. Notwithstanding the
foregoing, the Sellers may use the name "Beran" (alone and not in conjunction
with any other portion of any Seller's current name) in connection with their
dissolution and/or liquidation and in no event in a commercial manner.
Section 13.10 Transfer Restrictions on Series D Stock. The Sellers
agree not to sell, transfer, pledge, assign or otherwise dispose of the Series D
Stock, the Common Stock issuable upon conversion thereof or any interest therein
prior to March 1, 1999 without the prior written consent of the Purchaser.
Section 13.11 Recoupment Claims. Notwithstanding the provisions of
Section 11.03, the Purchaser agrees that, at its sole cost and expense, the
Purchaser shall take all action it may deem necessary, desirable and appropriate
to defend and settle any Recoupment Claim, other than those for which payment
has been received by the Sellers, the Facilities or the Practice, as applicable,
prior to the Closing. The Purchaser further agrees to promptly respond to any
reasonable inquiries made by any Seller or Stockholder as to the status of any
such Recoupment Claim.
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<PAGE>
ARTICLE XIV
MISCELLANEOUS
-------------
Section 14.01 Publicity. Each Seller and the Purchaser agrees not to
issue any announcement, press release, public statement or other information to
the press or any third party with respect to the Agreement or the transactions
contemplated hereby without obtaining the prior written approval of the other
parties hereto (which approval shall not be unreasonably withheld or delayed);
provided, however, that nothing contained herein shall prevent any party hereto,
at any time, from furnishing any required information to any Governmental
Authority or from issuing any announcement, press release, public statement or
other information to the press or any third party with respect to the Agreement
or the transaction contemplated hereby (after consulting with the other parties
hereto at least one (1) day prior to furnishing such information or issuing such
announcement, press release or public statement) if required by Law.
Section 14.02 Costs. Except as expressly provided herein, the
Purchaser, the Sellers and the Stockholders shall pay their own costs and
expenses, including any accounting fees, legal fees, brokerage fees, commissions
or finder's fees incurred by such party, in connection with the negotiation and
preparation of this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 14.03 Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
Section 14.04 Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service, if personally served or sent by
telecopy; on the business day after notice is delivered to a courier or mailed
by express mail, if sent by courier delivery service or express mail for next
day delivery; and on the third day after mailing, if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
If to the Sellers or the Stockholders, to:
Phyllis Beran
1751 Rolling Lane
Cherry Hill, New Jersey 08003
Fax: (609) 795-0139
with a copy to:
Steven Dubow, Esq.
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103-6698
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<PAGE>
Fax: (215) 569-5628
If to the Purchaser, to:
Elliott H. Vernon, Esq.
c/o Healthcare Imaging Services, Inc.
200 Schulz Drive
Red Bank, New Jersey 07701
Fax: (732) 224-9362
with a copy to:
Scott M. Zimmerman, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 758-9526
Section 14.05 Assignment and Successors. Prior to the Closing, none of
the parties hereto may assign any rights or delegate any duties hereunder
without the prior written consent of the other parties hereto. At or after the
Closing, the Purchaser may assign its rights under this Agreement to its lenders
as security for its obligations. Notwithstanding the foregoing, at any time
prior to, at or after the Closing, the Purchaser may assign its rights, but may
not delegate its duties, hereunder to any subsidiary or affiliate thereof.
Section 14.06 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
Section 14.07 Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the Laws of the State of New
Jersey as applied to contracts made and to be performed entirely in the State of
New Jersey without regard to principles of conflicts of Law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New Jersey or any federal court
sitting in the State of New Jersey for purposes of any suit, action or other
proceeding arising out of this Agreement (and agrees not to commence any action,
suit or proceedings relating hereto except in such courts). Each of the parties
hereto agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New Jersey or any federal court sitting in the State of New Jersey and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
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<PAGE>
Section 14.08 Entire Agreement. This Agreement, including the exhibits
and schedules hereto, sets forth the entire understanding and agreement and
supersedes any and all other understandings, negotiations or agreements between
the Sellers and/or the Stockholders and the Purchaser relating to the
transactions contemplated herein.
Section 14.09 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
Section 14.10 Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
Section 14.11 No Prejudice. This Agreement has been jointly prepared by
the parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
Section 14.12 Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any Person
other than the parties hereto any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby.
Section 14.13 Amendment and Modification. This Agreement may be amended
or modified only by written agreement executed by all of the parties hereto.
Section 14.14 Waiver. At any time prior to the Closing, the Purchaser,
on the one hand, or the Sellers and the Stockholders, on the other, may (i)
extend the time for the performance of any of the obligations or other acts of
the other, (ii) waive any inaccuracies in the representations and warranties of
the other contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions of the other
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party granting such waiver but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
future failure.
Section 14.15 Knowledge. References herein to a Seller's knowledge
shall include the knowledge of such Seller and every director, officer,
Stockholder and general partner, as the case may be, of such Seller.
Section 14.16 Consents. Except as set forth on Schedule 14.16, no
notice to, filing with, or Consent of, any Person is necessary for the
consummation by the Purchaser of the transactions contemplated by this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
------------------------------------
Name: Elliott H. Vernon
Title:
THE ESTATE OF IRVING N. BERAN
By: /s/ Phyllis Beran
------------------------------------
Name: Phyllis Beran
Title:
/s/ Phyllis Beran
---------------------------------------
Mrs. Phyllis Beran
/s/ Sam Beran, M.D.
---------------------------------------
Sam Beran, M.D.
ECHELON MRI, P.C.
By: /s/ Sam Beran, M.D.
---------------------------------------
Name: Sam Beran, M.D.
Title:
MAINLAND IMAGING CENTER, P.C.
By: /s/ Sam Beran, M.D.
---------------------------------------
Name: Sam Beran, M.D.
Title:
NORTH JERSEY IMAGING MANAGEMENT
ASSOCIATES, L.P.
By: /s/ Sam Beran, M.D.
---------------------------------------
Name: Sam Beran, M.D.
Title:
BLOOMFIELD IMAGING ASSOCIATES, P.A.
By: /s/ Sam Beran, M.D.
---------------------------------------
Name: Sam Beran, M.D.
Title:
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<PAGE>
IRVING N. BERAN M.D, P.A.
By: /s/ Sam Beran, M.D.
---------------------------------------
Name: Sam Beran, M.D.
Title:
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<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES D CUMULATIVE ACCELERATING REDEEMABLE
PREFERRED STOCK OF HEALTHCARE IMAGING SERVICES, INC.
HEALTHCARE IMAGING SERVICES, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") and pursuant to the provisions of ss.151 of the
Delaware General Corporation Law, the Board, pursuant to a unanimous written
consent dated September 15, 1998, adopted the following resolution providing
for the designations, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions of the
Series D Cumulative Accelerating Redeemable Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two
classes of shares known as common stock, $0.01 par value per share
(the "Common Stock"), and preferred stock, $0.10 par value per share
(the "Preferred Stock"); and
WHEREAS, the Board is authorized by the Certificate of
Incorporation to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to
time the number of shares to be included in such series and to fix the
designations, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it
advisable to, and hereby does, designate a Series D Cumulative
Accelerating Redeemable Preferred Stock and fixes and determines the
preferences, rights, qualifications, limitations and restrictions
relating to the Series D Cumulative Accelerating Redeemable Preferred
Stock as follows:
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series D Cumulative Accelerating Redeemable Preferred Stock"
(referred to herein as the "Series D Stock").
<PAGE>
2. Authorized Number. The number of shares constituting the Series D
Stock shall be one thousand (1,000).
3. Ranking. The Series D Stock shall rank, as to dividends and upon
Liquidation Payments (as defined in Section 5(a) hereof), senior and prior to
the Common Stock and to all other classes or series of stock issued by the
Corporation. (All equity securities of the Corporation to which the Series D
Stock ranks prior, whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise, including the Common Stock, are
collectively referred to herein as "Junior Securities.") The Corporation shall
not have or create any class of stock ranking on parity with, or senior to, the
Series D Stock, without the affirmative vote of the holders of a majority of
the shares of Series D Stock, voting separately as a class.
4. Dividends.
(a) Dividend Accrual and Payment. From and after the date of
issuance of the Series D Stock (the "Original Issue Date" ), dividends shall
accrue on the shares of Series D Stock at the initial annual rate (subject to
reset in accordance with Section 4(d)) of 8.0% per share (expressed as a
percentage of the $10,500 per share liquidation preference (the "Dividend
Rate")). The holders of shares of Series D Stock shall be entitled to receive
such dividends when and as declared by the Board, in cash, out of assets
legally available for such purpose, quarterly in arrears on the tenth (10th)
day of April, July, October and January of each year (each of such dates being
a "Dividend Payment Date"), commencing January 10, 1999. Such dividends shall
be paid to the holders of record at the close of business on the date specified
by the Board at the time such dividend is declared, provided, however, that
such date shall not be more than sixty (60) nor less than ten (10) days prior
to the applicable Dividend Payment Date. Dividends on the Series D Stock shall
be cumulative so that if, for any dividend accrual period, cash dividends at
the rate hereinabove specified are not declared and paid or set aside for
payment, the amount of accrued but unpaid dividends shall accumulate with
interest at the then applicable Dividend Rate and shall be added to the
dividends payable for subsequent dividend accrual periods and upon any
redemption or conversion of shares of Series D Stock. If the Original Issue
Date is on a date which does not coincide with a Dividend Payment Date, then
the initial dividend accrual period applicable to such shares shall be the
period from the Original Issue Date to January which next occurs after the
Original Issue Date. If the date fixed for payment of a final liquidating
distribution on any shares of Series D Stock, or the date on which any shares
of Series D Stock are redeemed or converted into Common Stock, does not
coincide with a Dividend Payment Date, then subject to the provisions hereof
relating to such payment, redemption or conversion, the final dividend accrual
period applicable to such shares shall be the period from whichever of April,
July, October or January most recently precedes the date of such payment,
conversion or redemption through the effective date of such payment, conversion
or redemption. The rate at which dividends are paid shall be adjusted for any
combinations or divisions or similar recapitalizations affecting the shares of
Series D Stock. So long as any shares of Series D Stock are outstanding, (i)
the amount of all dividends paid with respect to the shares of Series D Stock
pursuant to this Section 4(a) shall be paid pro rata to the holders entitled
thereto and (ii) holders of shares of Series D Stock shall be entitled to
receive the
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<PAGE>
dividends provided for in this Section 4(a) in preference to and in priority
over any dividends upon any Junior Securities. In addition to the dividends
provided for in this Section 4(a), holders of Series D Stock shall be entitled
to participate in extraordinary dividends in accordance with the provisions of
Section 7(f) hereof.
(b) Dividend Limitation on Junior Securities. So long as any
shares of Series D Stock are outstanding, the Corporation shall not declare,
pay or set apart for payment, any dividend on any Junior Securities or make any
payment on account of, or set apart for payment, money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any Junior
Securities or any warrants, rights, calls or options exercisable or
exchangeable for or convertible into any Junior Securities, or make any
distribution in respect thereof, either directly or indirectly, and whether in
cash, obligations or shares of the Corporation or other property (other than
distributions or dividends in Junior Securities to the holder of Junior
Securities), unless prior to, or concurrently with, such declaration, payment,
setting apart for payment, purchase, redemption or distribution, as the case
may be, all accrued and unpaid dividends on the shares of Series D Stock not
paid on the dates provided for in Section 4(a) hereof shall have been paid in
full in cash.
(c) Dividends on Fractional Shares. Each fractional share of
Series D Stock outstanding shall be entitled to a ratably proportionate amount
of all dividends accruing with respect to each outstanding share of Series D
Stock pursuant to Section 4(a) hereof, and all such dividends with respect to
such outstanding fractional shares shall be fully cumulative and shall accrue
(whether or not declared), and shall be payable in the same manner and at such
times as provided for in Section 4(a) hereof with respect to dividends on each
outstanding share of Series D Stock.
(d) Dividend Rate Adjustment. The Dividend Rate shall
increase by an additional 2% per year on each three-month anniversary of the
Original Issue Date, but in no event will the Dividend Rate exceed 15% per
annum.
(e) Participation in Dividends on Common Stock. If the Board
declares a dividend or other distribution (other than upon any liquidation,
dissolution or winding up of the Corporation) on the Common Stock in cash,
property or securities (excluding Common Stock) of the Corporation (or
subscriptions or other rights to purchase or acquire securities (excluding
Common Stock) of the Corporation), the Board shall simultaneously declare a
dividend or distribution at the same rate and in the same form on the Series D
Stock, so that all outstanding shares of Series D Stock shall participate
ratably with the Common Stock in such dividend or distribution on the basis of
the number of shares of Common Stock into which the Series D is convertible as
of the date a record is taken of the holders of shares of Common Stock for the
purpose of receiving such dividend or other distribution.
5. Liquidation.
(a) Liquidation Procedure. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of shares of Series D Stock shall be
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<PAGE>
entitled, before any distribution or payment is made upon any Junior
Securities, to be paid an amount equal to (i) $10,500 per share of Series D
Stock, representing the liquidation preference per share of the Series D Stock
(as adjusted for any combinations, divisions or similar recapitalizations
affecting the shares of Series D Stock) (the "Series D Issue Price"), plus (ii)
all accrued and unpaid dividends on the Series D Stock to such date (together
with the Series D Issue Price, the "Liquidation Payments"). If upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of shares of Series
D Stock shall be insufficient to permit payment in full to the holders of
shares of Series D Stock of the Liquidation Payments, then the entire assets of
the Corporation shall be distributed ratably among such holders in proportion
to the full respective distributive amounts to which they are entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after the
holders of shares of Series D Stock shall have been paid in full the
Liquidation Payments, the remaining assets of the Corporation may be
distributed ratably per share in order of preference to the holders of Junior
Securities in accordance with their terms.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, not less than thirty (30) days prior to the payment date
stated therein, to each holder of record of shares of Series D Stock at his
post office addresses as shown by the records of the Corporation.
(d) Fractional Shares. The Liquidation Payments with respect
to each outstanding fractional share of Series D Stock shall be equal to a
ratably proportionate amount of the Liquidation Payments with respect to each
outstanding share of Series D Stock.
6. Conversion.
The holders of shares of Series D Stock shall have the
following conversion rights:
(a) Conversion. Subject to the limitations set forth below,
the Series D Stock shall be convertible at any time after March 1, 1999 (the
"Convertibility Date"), unless previously redeemed, at the option of the holder
of record thereof, into the number of fully paid and nonassessable shares of
Common Stock equal to the quotient obtained by dividing (i) the aggregate
liquidation preference of the shares of Series D Stock being converted by (ii)
the Conversion Price (as defined in Section 6(b) below) then in effect upon
surrender to the Corporation or its transfer agent of the certificate or
certificates representing the Series D Stock to be converted, as provided
below, or if the holder notifies the Corporation or its transfer agent that
such certificate or certificates have been lost, stolen or destroyed, upon the
execution and delivery of an agreement satisfactory to the Corporation to
indemnify the Corporation from any losses incurred by it in connection
therewith; provided, however, that the Series D Stock may only be converted if
and to the extent the aggregate
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<PAGE>
amount of all Series D Stock converted in any manner does not exceed 19.9% of
the shares of Common Stock outstanding as of the Original Issue Date (the
"Conversion Restriction"). The conversion rights herein provided shall be
apportioned ratably among the holders of the Series D Stock in proportion to
the number of shares of Series D Stock owned by such holders. The Conversion
Restriction shall be of no further force or effect at such time as the
Corporation has obtained stockholder approval or ratification of the issuance
of the Series D Stock.
(b) Conversion Price; Converted Shares. The initial
conversion price of the Series D Stock shall be equal to the average of the
Market Prices (as defined below) for the Common Stock for the twenty (20)
consecutive trading days immediately preceding the Convertibility Date (the
"Initial Conversion Price") (the Initial Conversion Prices, as it may be
adjusted pursuant to the terms of this Section 6(b) and Section 7, is referred
to as the "Conversion Price"). The Conversion Price also shall be subject to
adjustment as provided in Section 7 below. If any fractional interest in a
share of Common Stock would be deliverable upon conversion of Series D Stock,
the Corporation shall pay in lieu of such fractional share an amount in cash
equal to the Conversion Price of such fractional share (computed to the nearest
one hundredth of a share) in effect at the close of business on the date of
conversion. Any shares of Series D Stock which have been converted shall be
cancelled and all dividends on converted shares shall cease to accrue and the
certificates representing shares of Series D Stock so converted shall represent
the right to receive (i) such number of shares of Common Stock into which such
shares of Series D Stock are convertible, plus (ii) cash payable for any
fractional share, plus (iii) all accrued but unpaid dividends relating to such
shares, together with interest thereon, through the date of conversion. Upon
the conversion of shares of Series D Stock as provided in this Section 6, the
Corporation shall promptly pay all then accrued but unpaid dividends to the
holder of the shares of Series D Stock being converted. The Board shall at all
times, so long as any shares of Series D Stock remain outstanding, reserve a
sufficient number of authorized but unissued shares of Common Stock to be
issued in satisfaction of the conversion rights and privileges aforesaid.
As used herein, "Market Price" means, with respect to
shares of Common Stock, (a) if the shares are listed or admitted for trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the last reported sales price as reported on such
exchange or Market; (b) if the shares are not listed or admitted for trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the average of the last reported closing bid and asked
quotation for the shares as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or a similar service if NASDAQ is
not reporting such information; (c) if the shares are not listed or admitted
for trading on any national securities exchange or included in The Nasdaq
National Market or Nasdaq SmallCap Market or quoted by NASDAQ or a similar
service, the average of the last reported bid and asked quotation for the
shares as quoted by a market maker in the shares (or if there is more than one
market maker, the bid and asked quotation shall be obtained from two market
makers and the average of the lowest bid and highest asked quotation). In the
absence of any available public quotations for the Common Stock, the Board
shall determine in good faith the fair
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value of the Common Stock, which determination shall be set forth in a
certificate of the Secretary of the Corporation.
(c) Mechanics of Conversion. In the case of a conversion,
before any holder of Series D Stock shall be entitled to convert the same into
shares of Common Stock, it shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or its transfer agent
for the Series D Stock, and shall give written notice to the Corporation of the
election to convert the same and shall state therein the name or names in which
the certificate of certificates for shares of Common Stock are to be issued.
The Corporation shall, as soon as practicable thereafter and in any case within
five (5) business days of the Corporation's receipt of the notice of
conversion, issue and deliver at such office to such holder of Series D Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the remaining
shares of Series D Stock in any case in which fewer than all of the shares of
Series D Stock represented by a certificate are converted.
(d) Issue Taxes. The Corporation shall pay all issue taxes,
if any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies that the
shares of Common Stock to be issued on conversion are to be issued in a name or
names other than the name or names in which such surrendered shares stand, then
the Corporation shall not be required to pay any transfer or other taxes
incurred by reason of the issuance of such shares of Common Stock to the name
of another, and if the appropriate transfer taxes shall not have been paid to
the Corporation or the transfer agent for the Series D Stock at the time of
surrender of the shares involved, the shares of Common Stock issued upon
conversion thereof may be registered in the name or names in which the
surrendered shares were registered, despite the instructions to the contrary.
(e) Valid Issuance. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
7. Adjustment of Conversion Price. The number and kind of securities
issuable upon the conversion of the Series D Stock and the Conversion Price
shall be subject to adjustment from time to time in accordance with the
following provisions:
(a) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a change in par
value, or from par value to no par value, or from no par value to par value or
a transaction described in Section 7(b) or 7(c) below, each share of Series D
Stock shall, after such reorganization, share exchange or reclassification, be
convertible at the option of the holder into the kind and number of shares of
stock and/or other securities, cash or other property which the holder of such
share of Series D Stock would have been entitled to
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receive if the holder had held the Common Stock issuable upon conversion of
such share of Series D Stock immediately prior to such reorganization, share
exchange or reclassification.
(b) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party, each share of Series D Stock
shall, after such merger or consolidation, be convertible at the option of the
holder into the kind and number of shares of stock and/or other securities,
cash or other property which the holder of such share of Series D Stock would
have been entitled to receive if the holder had held the Common Stock issuable
upon conversion of such share of Series D Stock immediately prior to such
consolidation or merger.
(c) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the Conversion Price shall be
proportionately reduced as of the effective date of such subdivision, or as of
the date a record is taken of the holders of shares of Common Stock for the
purpose of so subdividing, whichever is earlier. In case outstanding shares of
Common Stock shall be combined, the Conversion Price shall be proportionately
increased as of the effective date of such combination, or as of the date a
record is taken of the holders of shares of Common Stock for the purpose of so
combining, whichever is earlier.
(d) Stock Dividends. In case shares of Common Stock are
issued as a dividend or other distribution on the Common Stock (or such
dividend is declared), the Conversion Price shall be adjusted, as of the date a
record is taken of the holders of shares of Common Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken,
as at the earliest of the date of such declaration, payment or other
distribution), to that price determined by multiplying the Conversion Price in
effect immediately prior to such declaration, payment or other distribution by
a fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the declaration or payment of such
dividend or other distribution, and (ii) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after the
declaration or payment of such dividend or other distribution. In the event
that the Corporation shall declare or pay any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Corporation shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
(e) Issuance of Shares of Common Stock below Market Price. If
the Corporation shall, at any time or from time to time after the
Convertibility Date, issue any Common Stock (which term, for purposes of this
subsection (e), shall be deemed to include all other securities exchangeable or
exercisable for, or convertible into, Common Stock, or options to purchase or
other rights to subscribe for such exchangeable or convertible securities), in
each case other than Excluded Stock (as defined below), for no consideration or
for a consideration per share less than the Market Price for such Common Stock
for the date immediately prior to such issue (a "Dilutive Issuance"), then in
such event, the Conversion Price in effect immediately prior to each such
Dilutive Issuance shall be reduced, concurrently with each such issue, to a
price equal to the quotient obtained by dividing (i) an amount equal to (x) the
total number of shares of Common Stock outstanding
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immediately prior to such Dilutive Issuance multiplied by the Market Price for
the date immediately prior to such Dilutive Issuance plus (y) the aggregate
consideration received or deemed to be received by the Corporation upon such
issuance by (ii) the total number of shares of Common Stock outstanding
immediately after such Dilutive Issuance.
For the purposes of any adjustment of the Conversion
Price pursuant to this subsection (e), the following provisions shall be
applicable:
(A) In case of the issuance of Common Stock for
consideration in whole or in part for cash, the
consideration shall be deemed to be the amount of cash
paid therefor, plus the value of any property other than
cash received by the Corporation as determined in
accordance with clause (B) below.
(B) In case of the issuance of Common Stock for
consideration in whole or in part in property or
consideration other than cash, the value of such property
or consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by the
Board, irrespective of any accounting treatment.
(C) In case of the issuance of (x) options to purchase or
rights to subscribe for Common Stock, (y) securities
convertible into or exchangeable for Common Stock or (z)
options to purchase or rights to subscribe for such
convertible or exchangeable securities: (1) the aggregate
maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and
for a consideration equal to the consideration
(determined in the manner provided in clauses (A) and (B)
above), if any, received by the Corporation upon the
issuance of such options or rights plus the purchase
price provided in such options or rights for the shares
of Common Stock covered thereby; (2) the aggregate
maximum number of shares of Common Stock deliverable upon
conversion of, or in exchange for, any such convertible
or exchangeable securities or upon the exercise of
options to purchase, or rights to subscribe for, such
convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or
such options or rights were issued and for a
consideration equal to the consideration received by the
Corporation for any such securities and related options
or rights, plus the additional consideration, if any, to
be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any
related options or rights (determined in the manner
provided in clauses (A) and (B) above); and (3) on the
expiration of any right or option or on the termination
of any right to convert or exchange any convertible or
exchangeable securities, the Conversion Price
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then in effect shall thereupon be readjusted to the
Conversion Price as would have been in effect had the
adjustment made upon the granting or issuance of such
rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or
sale of only the number of shares of Common Stock
actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such
convertible or exchangeable securities.
As used herein, "Excluded Shares" shall mean (i) shares
of Common Stock issued upon conversion of, or distributions with respect to,
any Series D Stock or any other shares of Preferred Stock outstanding as of
October 2, 1998; (ii) shares of Common Stock issued in transactions described
in Section 7(a), (b) or (c), and (iii) shares of Common Stock issued under the
following employee benefit plans of the Corporation: the Corporation's 1997
Omnibus Incentive Plan, 1997 Employee Stock Purchase Plan, 1991 Stock Option
Plan, as previously amended, and 1996 Stock Option Plan for Non-Employee
Directors (the "Plans").
(f) Extraordinary Dividends. In case the Corporation shall
fix a record date for the making of a dividend or distribution to all holders
of Common Stock of capital stock (other than Common Stock), evidences of
indebtedness, assets, or rights, options or warrants to subscribe for, or other
securities convertible into or exercisable or exchangeable for, capital stock
(excluding any cash dividends), then in each such case the Conversion Price
shall be adjusted so that after such record date the Conversion Price shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such record date by a fraction of
which the numerator shall be the Market Price per share of Common Stock on such
record date less the fair market value (as determined in good faith by the
Board) of the portion of the capital stock, evidences of indebtedness, assets
or rights, options or warrants so distributed with respect to each share of
Common Stock and the denominator of which shall be the Market Price per share
of Common Stock on such record date. Such adjustment shall be made whenever any
such extraordinary dividend is made, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such extraordinary dividend.
(g) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments in
Conversion Price as provided in this Section 7:
(i) Minimum Adjustment. No adjustment of the
Conversion Price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the Conversion Price then in effect, but any such amount
shall be carried forward and an adjustment in respect thereof
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
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(ii) Certain Adjustments. The Conversion Price shall
not be adjusted upward except in the event of a combination
of the outstanding shares of Common Stock into a smaller
number of shares of Common Stock.
(h) Notices of Adjustments. Whenever the Conversion Price is
adjusted as herein provided, an officer of the Corporation shall compute the
adjusted Conversion Price in accordance with the foregoing provisions and shall
prepare a written certificate setting forth such adjusted Conversion Price and
showing in detail the facts upon which such adjustment is based, and such
written instrument shall promptly be delivered to the recordholders of shares
of Series D Stock.
8. Redemption.
(a) Redemption by the Corporation. The Series D Stock may be
redeemed, at the option of the Corporation, in whole, but not in part (unless
otherwise consented to by the holders of a majority of the shares of Series D
Stock then outstanding), at a price per share equal to one hundred percent
(100%) of the Series D Stock Issue Price plus all accrued and unpaid dividends
to the date of redemption (the date the Corporation redeems the Series D Stock,
whether at the option of the Corporation pursuant to this Section 8(a) or at
the option of any holder of Series D Stock pursuant to Section 8(b) below, is
referred to herein as the "Redemption Date").
(b) Redemption Upon the Occurrence of an Event of Default.
Upon the occurrence of any Series D Stock Event of Default (as defined in
Section 8(e) below), any holder of shares of Series D Stock shall have the
right to require (by written notice delivered to the Corporation (the "Holders'
Redemption Demand") within sixty (60) days after such holder or holders'
receipt of the Series D Stock Event of Default Notice (as defined in Section
8(e) below)) the Corporation to redeem no later than thirty (30) days after the
Corporation's receipt of the Holders' Redemption Demand all or any portion of
the Series D Stock owned by such holder or holders at a price per share equal
to one hundred percent (100%) of the Series D Stock Issue Price, plus all
accrued and unpaid dividends on the shares of Series D Stock to be so redeemed
to the Redemption Date. The Corporation shall give written notice of such
election to the other holders of shares of Series D Stock, which notice shall
(i) state the Redemption Date, which date should be not later than thirty (30)
days after the Corporation's receipt of the Holders' Redemption Demand, and
(ii) be given at least ten (10) days prior to such Redemption Date. Upon the
giving of such notice, each holder of shares of Series D Stock may demand
redemption of all or any portion of such holder's Series D Stock by mailing
written notice thereof to the Corporation at least five (5) days prior to the
Redemption Date. The Corporation will redeem all shares of Series D Stock as to
which rights under this subsection have been exercised within thirty (30) days
after receipt of the Holders' Redemption Demand.
(c) Option to Convert in Lieu of Redemption. Notwithstanding
anything to the contrary contained herein, after the Convertibility Date any
holder of shares of Series D Stock that does not want the Corporation to redeem
the shares of Series D Stock called by the Corporation for redemption shall
have the prior right to convert all or any portion of its shares of Series D
Stock into
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Common Stock at the then-applicable Conversion Price provided such conversion
right is exercised no later than ten (10) days after notice of redemption is
given to the Holders.
(d) Redemption Procedure. On or prior to the Redemption Date,
the Corporation shall deposit the Series D Stock Issue Price plus an amount
equal to all accrued and unpaid dividends on all outstanding shares of Series D
Stock to be so redeemed to the Redemption Date (the "Redemption Price") with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the holders of shares of Series
D Stock, with irrevocable instructions and authority to the bank or trust
corporation to pay the Redemption Price for such shares to their respective
holders on or after the Redemption Date upon receipt of the certificate or
certificates of the shares of Series D Stock to be redeemed. If the Corporation
makes such deposit in full, from and after the Redemption Date, all rights of
the holders of shares of Series D Stock as holders of shares of Series D Stock
(except the right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease as to those shares of Series D Stock
being redeemed, and such shares shall not thereafter be transferred on the
books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the Corporation does not make such deposit in full, all rights
of the holders of shares of Series D Stock being redeemed as holders of shares
of Series D Stock shall not cease as to any share until payment in full of the
Redemption Price for such share being redeemed and until such time such share
shall remain outstanding and shall be entitled to all the rights and
preferences provided herein. If on the Redemption Date the funds of the
Corporation legally available for redemption of shares of Series D Stock are
insufficient to redeem the total number of shares of Series D Stock to be
redeemed on such date, then the Corporation will use those funds which are
legally available therefor to redeem the maximum possible number of shares of
Series D Stock ratably among the holders of such shares to be redeemed based
upon their holdings of Series D Stock. Payments shall first be applied against
accrued and unpaid dividends and thereafter against the remainder of the
Redemption Price. The shares of Series D Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series D Stock, such funds will
immediately be used to redeem the balance of the shares of Series D Stock to be
redeemed. No dividends or other distributions shall be declared or paid on, nor
shall the Corporation redeem, purchase or acquire any Junior Securities unless
the Redemption Price of all shares to be redeemed shall have been paid in full.
Notwithstanding anything to the contrary contained herein, the Corporation
shall have the right to pay up to $2.0 million of the aggregate Redemption
Price by delivery of a subordinated promissory note(s) of the Corporation, in
the aggregate original principal amount of $2.0 million, and containing such
other terms and conditions as are mutually agreed by the Corporation and the
holders of a majority of the Series D Preferred Stock to be redeemed.
(e) Events of Default. A "Series D Stock Event of Default"
occurs if:
(i) the Corporation has breached any material
representation, warranty, covenant, obligation or agreement
set forth in this Certificate, the Asset Purchase Agreement
dated September 16, 1998 or any other agreement executed in
connection
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therewith and such breach continues for a period of ten (10)
business days after notice thereof to the Corporation; or
(ii) the Corporation fails to pay any dividend on
the Series D Stock in the amounts contemplated by Section 4
hereof on any Dividend Payment Date, and such failure
continues for a period of fifteen (15) days after the
applicable Dividend Payment Date; or
(iii) the Corporation defaults in making any
redemption payment that it is obligated to make hereunder;
whether or not such payment is legally permissible or
conflicts with any other agreement to which the Corporation
or any of its subsidiaries is a party or by which any of its
or their respective assets are bound; or
(iv) any judgments, orders or decrees for the
payment of money in excess of $375,000, either individually
or in an aggregate amount, shall be entered against the
Corporation or any of its subsidiaries or any of their
respective properties and shall not be discharged and there
shall have been a period of sixty (60) days during which a
stay of enforcement of such judgment or order, by reason of
pending appeal or otherwise, shall not be in effect; or
(v) the Corporation has breached any representation,
warranty, covenant, obligation or agreement set forth in any
material agreement to which it is a party or by which its
assets are bound and such breach continues for a period of
fifteen (15) days and results in a current payment liability
of the Corporation in excess of $375,000 which is not
discharged or stayed within such fifteen (15) day period; or
(vi) the Corporation or any of its subsidiaries
which would be a "significant subsidiary" pursuant to Article
1-02 of Regulation S-X ("Material Subsidiary") pursuant to or
within the meaning of any law under Title 11 of the U.S. Code
or any similar Federal, state or foreign law for the relief
of debtors ("Bankruptcy Law"):
(A) commences a voluntary case or
proceeding with respect to itself,
(B) consents to the entry of an order for
relief against it in an involuntary case or
proceeding,
(C) consents to the appointment of a
receiver, trustee, assignee, liquidator,
sequestrator or similar official under any
Bankruptcy Law ("Custodian") of it or for all or any
material part of its property,
(D) makes a general assignment for the
benefit of its creditors,
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(E) consents to or acquiesces in the
institution of bankruptcy or insolvency proceedings
against it,
(F) shall generally not pay its debts when
such debts become due or shall admit in writing its
inability to pay its debts generally, or
(G) takes any corporate action in
furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing; or
(vii) a court of competent jurisdiction enters a
decree, judgment or order under any Bankruptcy Law that:
(A) is for relief against the Corporation
or any Material Subsidiary of the Corporation in an
involuntary case or proceeding,
(B) appoints a Custodian of the Corporation
or of any Material Subsidiary of the Corporation for
all or substantially all of its properties, or
(C) orders the winding up or liquidation of
the Corporation or of any Material Subsidiary of the
Corporation, and in each case the order or decree
remains unstayed and in effect for sixty (60) days.
If a Series D Stock Event of Default occurs and is
continuing, in addition to any other notices required pursuant to this
Certificate, the Corporation must, within ten (10) days after the occurrence of
such Series D Stock Event of Default, give to the holders of shares of Series D
Stock notice of such Series D Stock Event of Default, including a reasonably
detailed description of the events causing such Series D Stock Event of
Default, and the actions proposed to be taken by the Corporation in response
thereto (a "Series D Stock Event of Default Notice").
9. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of shares of Common Stock of rights
to subscribe for or purchase any shares of capital stock of any class or any
other rights; or (c) of any reorganization, share exchange or reclassification
of the capital stock of the Corporation (other than a subdivision or
combination of outstanding shares of Common Stock), or of any consolidation or
merger to which the Corporation is party or of the sale, lease or exchange of
all or substantially all of the property of the Corporation; or (d) of the
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation; then the Corporation shall cause to be mailed to the recordholders
of shares of Series D Stock at least twenty (20) days prior to the applicable
record date or effective date hereinafter specified, a notice stating (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of
which the holders of record of shares of Common Stock to be entitled to such
dividend, distribution or rights are to be determined or (ii) the date on which
such
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reorganization, share exchange, reclassification, consolidation, merger, sale,
lease, exchange, dissolution, liquidation or winding up is expected to become
effective or be consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
reorganization, share exchange, reclassification, consolidation, merger, sale,
lease, exchange, dissolution, liquidation or winding up.
10. Voting Rights.
(a) General. In addition to the rights otherwise expressly
provided herein or as provided by any applicable law, subject to the
limitations set forth herein, the holders of shares of Series D Stock shall be
entitled to vote, together with the holders of shares of Common Stock and any
other class or series of stock then entitled to vote, as one (1) class on all
matters submitted to a vote of stockholders of the Corporation, in the same
manner and with the same effect as the holders of shares of Common Stock. In
such vote, and in any vote or action of the holders of shares of the Series D
Stock voting together as a separate class, each share of issued and outstanding
Series D Stock shall entitle the holder thereof to one (1) vote per share of
Common Stock (including fractional shares) which would be obtained upon
conversion of all outstanding shares of Series D Stock held by such holder,
rounded up to the nearest one-tenth of a share; provided, however, that in any
such vote, the aggregate voting power of all of the Series D Stock shall not
exceed 19.9% of the shares of Common Stock outstanding as of the Original Issue
Date (the "Voting Restriction"). The voting rights herein provided shall be
apportioned ratably among the holders of the Series D Stock in proportion to
the number of shares of Series D Stock owned by such holders. The Voting
Restriction shall be of no further force or effect at such time as the
Corporation has obtained stockholder approval or ratification of the issuance
of the Series D Stock.
(b) Appointment of Board of Director Observer. On the
Original Issue Date, the holders of a majority of the shares of Series D Stock
shall have the right to designate one (1) non-voting Board observer, who will
be given notice of, and permitted to attend, all meetings of the Board and its
committees for so long as any shares of Series D Stock are outstanding.
(c) Election of Board of Directors. Upon the occurrence of
any Series D Stock Event of Default or if the Corporation shall have failed to
redeem in full the Series D Stock prior to the Convertibility Date, then any
holder of record of Series D Stock shall be entitled to cause the Corporation
to call a special meeting of the Corporation's stockholders for the purpose of
electing directors. Such meeting shall be held at the earliest practicable date
upon the notice required for annual meetings of stockholders. If such meeting
shall not be called within twenty (20) days after the written request thereof
of any holder of record of Series D Stock, then the holders of record of ten
percent (10%) of the shares of Series D Stock then outstanding may designate in
writing a holder of Series D Stock to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders. Any holder of Series D
Stock which would be entitled to vote at such meeting shall have access to the
stock books of the Corporation for the purpose of causing a meeting of
stockholders to be called
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pursuant to the provisions of this Section 10(c). Notwithstanding the
provisions of this Section 10(c), however, no such special meeting shall be
called during a period within sixty (60) days immediately preceding the date
fixed for the next annual meeting of stockholders.
11. Shares to be Retired. All shares of the Series D Stock redeemed,
converted, exchanged or purchased by the Corporation shall be restored to the
status of authorized but unissued shares of Preferred Stock and may thereafter
be redesignated and reissued.
12. Public Documents. For so long as the Corporation has any
securities registered under the Securities Exchange Act of 1934, upon the
filing with the Securities and Exchange Commission of any financial statements,
proxy or information statements, notices, reports or registration statements
(other than any registration statements relating to employee benefit or
dividend reinvestment plans), or the issuance of any press release or other
public announcement (each a "Public Document"), the Corporation shall, within
ten (10) business days, provide to each holder of Series D Stock a copy of such
Public Document.
13. Covenants in Certain Circumstances. For so long as any shares of
Series D Stock are outstanding, the Corporation will not, and it will cause its
subsidiaries not to, without the affirmative vote, or the written consent
pursuant to Section 228 of the Delaware General Corporation Law, of the holders
of a majority of the outstanding shares of Series D Stock:
(a) incur any indebtedness ("Indebtedness") for borrowed
money which would be reflected as a liability of the
Corporation on a balance sheet of the Corporation prepared in
conformity with U.S. generally accepted accounting principles
and practices, other than in the ordinary course of business
consistent with past practice and other than in respect of
those certain acquisitions (the "PPM Acquisitions")
contemplated by any letters of intent entered into prior to
the Original Issue Date by the Corporation and such target
companies or any acquisitions in replacement or substitution
therefor on substantially the same terms and conditions,
including, without limitation, any Indebtedness relating to
the financing of the PPM Acquisitions;
(b) effect any material change in the nature of the business
conducted or proposed to be conducted by the Corporation or
any of its subsidiaries as of the Original Issue Date;
(c) effect, or agree to effect, any material acquisition or
disposition in excess of $800,000, other than in respect of
the PPM Acquisitions;
(d) amend, waive or repeal any provisions of, or add any
provision to, (i) this Certificate or (ii) any provision of
the Corporation's Certificate of Incorporation or any other
certificate of designation filed with the Secretary of State
of Delaware by
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the Corporation (other than with respect to the PPM
Acquisitions and the transactions contemplated thereby);
(e) increase the authorized number of shares of Series D
Stock or reclassify the shares of Series D Stock;
(f) amend, waive or repeal any material provisions of, or add
any material provision to, the Corporation's By-laws (other
than in connection with the PPM Acquisitions);
(g) dissolve or liquidate the Corporation;
(h) replace, renew, refinance, extend, prepay, redeem,
defense or otherwise retire any material Indebtedness, other
than in the ordinary course of business consistent with past
practice or other than in respect of the PPM Acquisitions;
(i) increase, decrease or otherwise amend the size, or
requirements for election or appointment to or service on,
the Board (other than in respect of the PPM Acquisitions);
(j) merge or consolidate (or otherwise reorganize) the
Corporation;
(k) grant or issue any capital stock, or securities
convertible into, or exercisable or exchangeable for, any
capital stock of the Corporation (other than under the
Corporation's employee benefits plans, including the Plans);
(l) declare or pay any dividend or other distribution with
respect to the capital stock of the Corporation (other than
with respect to the Series D Stock);
(m) repurchase, redeem or otherwise retire any shares of
capital stock of the Company (other than Series D Stock or
other than in connection with the cashless exercise of awards
under the Plans);
(n) make any capital expenditure or commitment in excess of
$800,000, other than in the ordinary course of business
consistent with past practice or other than in respect of the
PPM Acquisitions; or
(o) enter into any material transaction with an affiliate (as
defined under the rules and regulations promulgated under the
Securities Act of 1933) of the Corporation, other than in
respect of transactions entered into prior to the Original
Issue Date or consistent with past practice.
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IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 2nd day of October, 1998.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
----------------------------------
Elliott H. Vernon
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
/s/ Scott P. McGrory
- --------------------------------
Scott P. McGrory
Assistant Secretary
-17-
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated August 18, 1998 on the Financial Statements
of Irving N. Beran M.D., P.A. and Affiliates for the years ended December 31,
1997 and 1996, included in this Form 8-K, into the Company's previously filed
Registration Statements No. 33-42091, No. 33-72876, and No. 33-86214 on Form
S-3 and Registration Statements No. 33-86872 and No. 333-8699 on Form S-8.
/s/David Fischer & Company, P.A.
--------------------------------
DAVID FISCHER & COMPANY, P.A.
Morristown, New Jersey
October 15, 1998
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HEALTHCARE IMAGING SERVICES, INC. ANNOUNCES THE
ACQUISITION OF FIVE (5) NEW JERSEY DIAGNOSTIC IMAGING FACILITIES
AS OF OCTOBER 1, 1998
Middletown, New Jersey -- October 8, 1998 -- HealthCare Imaging
Services, Inc. (NASDAQ:HISS) today announced that it had completed the
acquisition of the assets of Echelon MRI, Mainland Imaging Center, North Jersey
Imaging Management Associates, Bloomfield Imaging Associates, and Irving N.
Beran, MD, PA as of October 1, 1998. These related companies owned and operated
5 multi-modality diagnostic imaging centers located in Voorhees (2 centers),
Bloomfield, Northfield and Williamstown, New Jersey. The aggregate purchase
price is approximately $21 million, subject to post closing adjustments,
payable in a combination of cash and convertible, redeemable preferred stock.
The Company will seek stockholder approval for the issuance of the convertible,
redeemable preferred stock.
Elliott H. Vernon, Esq., Chairman and Chief Executive Officer of the
Company, stated that "the acquisition of these 5 strategically located
diagnostic imaging centers almost doubles the Company's revenues and more than
doubles the Company's pre-tax profits. Together with the Company's 6 existing
centers, the acquisition of these 5 centers provides the Company with the
critical mass necessary to implement its business plan in the area of
diagnostic imaging and expand its strategic direction into the area of
physician practice management in the New Jersey, New York and Philadelphia
regions."
The Company expects the acquired operations to generate, on an
annualized basis, $11 million in revenues and $4.5 million in pre-tax profits,
based upon the financial results of the acquired entities for the six months
ended June 30, 1998. Pro-forma for the acquisitions, the Company anticipates
that it will generate on an annualized basis, $24 million in revenues and $6.2
million in pre-tax profits before taking into account anticipated financing
costs and $4.1 million in pre-tax profits after financing costs. In conjunction
with the acquisition of these centers, the Company is also acquiring
approximately $6 million in receivables.
HealthCare Imaging Services, Inc. is a healthcare management and
services company, currently specializing in diagnostic imaging, that provides
state-of-the-art healthcare equipment, facilities and services to physicians,
hospitals and other healthcare providers. The Company now operates a total of
11 imaging facilities with 2 located in New York City and Brooklyn, New York,
respectively, 7 located in New Jersey and 1 located in Philadelphia,
Pennsylvania. As previously announced, the Company is expanding its strategic
direction into the area of physician practice management and is currently in
various stages of discussions and negotiations with several multi-specialty
physician practices and other healthcare providers.
This communication contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 that
are based on the current beliefs of the Company and its management. When used
in this document, the words "anticipate," "believe," "continue," "estimate,"
"expect," "intend," "may," "should," and similar expressions are intended
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to identify forward-looking statements. Such statements reflect the current
view of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions, including, but not limited to, the risk
that the Company may not be able to implement its growth strategy in the
intended manner including the integration of acquisitions, risks associated
with currently competitive pressures affecting participants in the health care
market and risks affecting the Company's industry, such as increased regulatory
compliance, changes in payor reimbursement levels and technological changes. In
addition, the Company's business, operations and financial condition are
subject to the risks, uncertainties and assumptions which are described in the
Company's reports and statements filed from time to time with the Securities
and Exchange Commission. Should one or more of those risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein.
