SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
HEALTHCARE INTEGRATED SERVICES, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value transaction:
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5. Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or
the Form or Schedule and the date of its filing.
1. Amount previously paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE>
HEALTHCARE INTEGRATED SERVICES, INC.
Shrewsbury Executive Center II
1040 Broad Street
Shrewsbury, New Jersey 07702
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
HealthCare Integrated Services, Inc.:
The Annual Meeting of Stockholders (the "Meeting") of HealthCare
Integrated Services, Inc. (the "Company") will be held on Friday, December 29,
2000 at the offices of the Company, Shrewsbury Executive Center II, 1040 Broad
Street, Shrewsbury, New Jersey 07702, at 10:00 a.m., local time, to consider and
act upon the following matters:
1. The election of four directors of the Company to hold office until
the next annual meeting of stockholders and until the election and
qualification of their respective successors.
2. Such other business as may properly come before the Meeting or any
adjournment(s) or postponement(s) thereof.
The Board of Directors of the Company has fixed the close of business on
Tuesday, December 5, 2000, as the record date for determination of stockholders
entitled to notice of, and to vote at, the Meeting and any adjournment(s) or
postponement(s) thereof. Accordingly, only holders of record of shares of the
Company's voting securities at the close of business on such date will be
entitled to notice of, and to vote at, the Meeting and any adjournment(s) or
postponement(s) thereof.
By Order of the Board of Directors,
ELLIOTT H. VERNON
Chairman of the Board and Chief Executive
Officer
December 7, 2000
Shrewsbury, New Jersey
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED
PROXY IN THE RETURN STAMPED ENVELOPE PROVIDED.
YOUR PROMPT RETURN OF A COMPLETED PROXY WILL HELP THE COMPANY AVOID
THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO
ASSURE A QUORUM AT THE MEETING.
<PAGE>
PROXY STATEMENT
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HEALTHCARE INTEGRATED SERVICES, INC.
Shrewsbury Executive Center II
1040 Broad Street
Shrewsbury, New Jersey 07702
----------
ANNUAL MEETING OF STOCKHOLDERS
To be Held on December 29, 2000
General Information
This Proxy Statement is being furnished to the holders of record as of the
close of business on Tuesday, December 5, 2000 (the "Record Date"), of shares of
common stock, par value $0.01 per share (the "Common Stock"), of HealthCare
Integrated Services, Inc., a Delaware corporation (the "Company"), and shares of
Series D Cumulative Accelerating Redeemable Preferred Stock, par value $0.10 per
share (the "Series D Stock"), of the Company in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board") for use at the
Annual Meeting of Stockholders to be held on Friday, December 29, 2000 and at
any adjournment(s) or postponement(s) thereof (the "Meeting"), pursuant to the
accompanying Notice of Meeting of Stockholders (the "Notice"). A form of proxy
for use at the Meeting is also enclosed. This Proxy Statement and the
accompanying Notice and form of proxy are first being mailed to stockholders on
or about December 7, 2000.
A stockholder may revoke the authority granted by his execution of a proxy
at any time before the effective exercise of such proxy by delivering a duly
executed proxy bearing a later date or by filing a written revocation thereof
with the Assistant Secretary of the Company at its executive offices located at
Shrewsbury Executive Center II, 1040 Broad Street, Shrewsbury, New Jersey 07702.
Presence at the Meeting does not of itself revoke the proxy unless the
stockholder so attending shall, in writing, so notify the Secretary of the
Meeting at any time prior to the voting of the proxy. All shares of Common Stock
and Series D Stock represented by executed and unrevoked proxies will be voted
in accordance with the specifications therein. Proxies submitted without
specification will be voted for the election of the four nominees for director
named herein (the "Director Nominees"). Management is not aware at the date
hereon of any other matter to be presented at the Meeting, but if any other
matter is properly presented, the persons named in the proxy will vote thereon
according to their judgment.
All costs and expenses of the Meeting and this solicitation, including the
cost of preparing and mailing this Proxy Statement, will be borne by the
Company. The Company has engaged the firm of Corporate Investor Communications,
Inc. as proxy solicitors. The fee to such firm for solicitation services is
estimated to be approximately $3,500 plus reimbursement of out-of-pocket
expenses. In addition to solicitation by use of mails, directors, officers and
regular employees of the Company (who will not be specifically compensated for
such services) may solicit proxies personally or by telephone or other means of
communication. Although there is no formal agreement to do so, the Company also
will reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding proxy materials to their
principals.
<PAGE>
Unless otherwise noted, as used herein, the terms "fiscal 1995," "fiscal
1996," "fiscal 1997," "fiscal 1998," "fiscal 1999," and "fiscal 2000," refer to
the Company's fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999
and the Company's fiscal year ending December 31, 2000, respectively.
Unless otherwise indicated, all share information has been adjusted to
reflect the 1:10 reverse stock split effected on January 20, 2000 in respect of
the Common Stock.
Voting Securities
Only holders of record on the books of the Company at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Meeting. On the Record Date, there were outstanding 1,135,699 shares of Common
Stock and 633.647 shares of Series D Stock. Generally, the holders of the Common
Stock and Series D Stock vote together as a single class on all matters
submitted to a vote of stockholders, with each share of Common Stock outstanding
being entitled to one vote and each share of Series D Stock outstanding being
entitled to 331 votes. At the Meeting, the election of the Director Nominees
will require a plurality of the votes represented and entitled to vote on the
matter at the Meeting in favor of such persons. See "Security Ownership of
Certain Beneficial Owners and Management -- Series D Stock Ownership" for a
discussion of the issuance of the Series D Stock. Holders of Common Stock and
Series D Stock are not entitled to cumulate their votes on any matter to be
considered at the Meeting. The presence at the Meeting, in person or by proxy,
of the holders of a majority of the total number of votes entitled to be cast on
the matter at the Meeting will constitute a quorum for the transaction of
business by such holders. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions and broker non-votes will have no effect on the outcome
of the election of directors.
Security Ownership of Certain Beneficial Owners and Management
Common Stock Ownership
The table below sets forth the beneficial ownership of the outstanding
shares of Common Stock as of the Record Date of (i) each person known by the
Company to beneficially own 5% or more of the outstanding shares of Common
Stock, (ii) each of the Company's directors and Director Nominees, (iii) each of
the Company's executive officers named in the Summary Compensation Table, and
(iv) all of the Company's directors and executive officers as a group. An
asterisk indicates beneficial ownership of less than 1% of the outstanding
shares of Common Stock.
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<PAGE>
<TABLE>
<CAPTION>
As of December 5, 2000
----------------------
Number of
Shares(1) Percent of Class
------ ----------------
<S> <C> <C>
Beran Entities (2) 209,447 15.57%
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
Elliott H. Vernon (3) 163,050 13.41%
c/o HealthCare Integrated Services, Inc.
Shrewsbury Executive Center II
1040 Broad Street
Shrewsbury, New Jersey 07702
Elliot Loewenstern (4) 75,000 6.19%
6700 North Andrews Avenue
Suite 401
Fort Lauderdale, Florida 33309
Ulises C. Sabato, M.D. 81,237 7.12%
106 Grand Avenue
Englewood, New Jersey 07631
Michael W. Licamele -- --
Manmohan A. Patel, M.D.(5) 32,400 2.85%
Michael S. Weiss (5) 4,400 *%
Robert D. Baca (6) 21,666 1.88%
Scott P. McGrory 600 *%
Mark R. Vernon 15,850 1.38%
All directors and 237,966 18.96%
executive officers
as a group (6 persons) (7)
</TABLE>
----------
(1) In no case was voting and investment power shared with others, other than
as expressly set forth herein. The information set forth in this table
regarding a person's/entity's beneficial ownership has been derived from
information provided by such person/entity (including, in some instances,
from information set forth in a Schedule 13D filed with the Securities and
Exchange Commission (the "SEC").
(2) Such shares represent beneficial ownership of shares of Common Stock
issuable upon conversion of all outstanding shares of Series D Stock held
by the liquidating trusts of the Beran Entities. See "- Series D Stock
Ownership" for additional information regarding these shares as well as a
listing of each entity's individual holdings. Samuel J. Beran, M.D. and
his mother, Phyllis Beran, are the co-trustees of the liquidating trusts
and may be deemed to be the beneficial owners of the shares owned by the
trusts. The address of Dr. Beran is 15 Pondview Close, Chappaqua, New York
10514 and the address of Mrs. Beran is 10 Grove Street, Cherry Hill, NJ
08002.
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<PAGE>
(3) Includes beneficial ownership of an aggregate of 80,000 shares of Common
Stock issuable upon the exercise of certain currently exercisable stock
options. Does not include an aggregate of 45,000 shares of Common Stock
issuable upon the exercise of certain stock options which are not
exercisable within 60 days of the Record Date. See "Executive Compensation
-- Employment Contracts and Termination of Employment and Change in
Control Arrangements."
(4) Includes beneficial ownership of an aggregate of (i) 12,500 shares of
Common Stock issuable upon the exercise of certain currently exercisable
stock options owned by the Stephanie Loewenstern Irrevocable Trust, (ii)
12,500 shares of Common Stock issuable upon the exercise of certain
currently exercisable stock options held by the Brett Loewenstern
Irrevocable Trust, (iii) 12,500 shares of Common Stock issuable upon the
exercise of certain currently exercisable stock options held by the
Victoria Loewenstern Irrevocable Trust, and (iv) 37,500 shares of Common
Stock issuable upon the exercise of certain currently exercisable stock
options owned by Akiva Merchant Group, Inc. Mr. Loewenstern is the trustee
of each of the aforementioned trusts and the sole stockholder and
President of Akiva Merchant Group, Inc.
(5) Such shares include shares of Common Stock issuable upon exercise of
certain currently exercisable stock options granted pursuant to the
Company's 1996 Stock Option Plan for Non-Employee Directors (the
"Directors Plan")
(6) Includes an aggregate of 16,666 shares of Common Stock issuable upon the
exercise of certain currently exercisable stock options. Does not include
an aggregate of 33,334 shares of Common Stock issuable upon the exercise
of stock options which are not exercisable within 60 days of the Record
Date. See "Executive Compensation -- Employment Contracts and Termination
of Employment and Change in Control Arrangements."
(7) Includes an aggregate of 119,816 shares of Common Stock issuable upon the
exercise of stock options exercisable within 60 days of the Record Date.
See footnotes (3), (5) and (6) above. Does not include an aggregate of
84,284 shares of Common Stock issuable upon the exercise of stock options
which are not exercisable within 60 days of the Record Date. See footnotes
(3) and (6) above.
Series D Stock Ownership
The table below sets forth the beneficial ownership of the outstanding
shares of Series D Stock (and the beneficial ownership of Common Stock issuable
upon conversion of the Series D Stock) as of the Record Date. None of the
Company's directors, Director Nominees or executive officers own any shares of
Series D Stock. An asterisk indicates beneficial ownership of less than 1% of
the shares.
An aggregate of 887.385 shares of Series D Stock (the "Beran Issuance")
having an aggregate liquidation preference of $9,317,542.50 (i.e., $10,500 per
share liquidation preference) were issued by the Company in October 1998 in
connection with the acquisition (the "Beran Acquisition") by a wholly-owned
subsidiary of the Company of the assets of Echelon MRI, P.C., Mainland Imaging
Center, P.C., North Jersey Imaging Management Associates, L.P., Bloomfield
Imaging Associates, P.A., and Irving N. Beran, M.D., P.A. (collectively, the
"Beran Entities"). These related companies owned and operated five
multi-modality diagnostic imaging centers located in Voorhees (two centers),
Bloomfield, Northfield and Williamstown, New Jersey. The companies that received
these shares are in the process of being dissolved and liquidating their assets,
and the shares of Series D Stock are held by their respective liquidating
trusts. As of the Record Date, there were an aggregate of 633.647 shares of
Series D Stock outstanding having an aggregate liquidation preference of
$6,653,301.50 (i.e., $10,500 per share liquidation preference) as a result of an
adjustment in the purchase price of these assets.
The holders of the Series D Stock are entitled to convert the Series D
Stock into an aggregate of approximately 634,120 shares of Common Stock;
provided that until the Company obtains stockholder
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<PAGE>
approval (which approval has not yet been obtained) of the Beran Issuance, the
holders of the Series D Stock only will be able to convert such shares into
Common Stock representing in the aggregate 19.9% of the outstanding Common Stock
as of the date of issuance of the Series D Stock (i.e., approximately 209,477
shares). The holders of the Series D Stock are 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 (other than the ratification
and approval of the Beran Issuance); provided that until the Company obtains
stockholder approval (which approval has not yet been obtained) of the Beran
Issuance, the aggregate voting rights of the holders of the Series D Stock shall
not exceed 19.9% of the outstanding Common Stock as of the date of issuance of
the Series D Stock (i.e., approximately 209,477 shares). In addition, certain
matters also require the affirmative vote of the holders of the Series D Stock
voting separately as a class in addition to the affirmative vote of the holders
of the Common Stock and Series D Stock voting together as a single class. Due to
timing constraints, stockholder approval of the Beran Issuance was not solicited
prior to the consummation of the Beran Acquisition and such issuance of
preferred stock in October 1998. The Company is currently negotiating the
exchange of the outstanding Series D Stock into subordinated promissory notes of
the Company in the aggregate principal amount equal to the aggregate liquidation
preference of the outstanding Series D Stock plus accrued and unpaid dividends.
Upon certain events (as described more fully in the Certificate of
Designations, Preferences and Rights of the Series D Stock), including the
Company's failure to redeem the Series D Stock prior to March 1, 1999, the
holders of the Series D Stock have the right to cause the Company to call a
special meeting of stockholders for the purpose of electing directors. Upon
stockholder ratification and approval of the Beran Issuance, assuming the
holders of the Series D Stock were to act collectively, such holders would be in
a position to influence the election of the Company's directors and other
matters requiring stockholder approval. Dr. Samuel J. Beran and his mother,
Phyllis Beran, are the co-trustees of each of the holders of the Series D Stock
and as such share voting and dispositive power with respect to the shares owned
by these holders. The information set forth in the following table regarding a
person's/entity's beneficial ownership has been derived from a Schedule 13D
filed by such person/entity with the SEC.
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<PAGE>
<TABLE>
<CAPTION>
As of December 5, 2000
----------------------
Number of
Shares of
Number of Shares Percent of Common Percent of
of Series D Stock Class Stock(1) Class(1)
----------------- ----- ------ -----
<S> <C> <C> <C> <C>
Beran/Bloomfield IV 44.355 7% 14,663.38 1.09%
Shareholders Trust (2)
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
Beran/Echelon I 329.496 52% 108,927.87 8.1%
Shareholders Trust (3)
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
Beran/INB V 19.01 3% 6,284.48 *%
Shareholders Trust (4)
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
Beran/Mainland II 69.701 11% 23,042.28 1.71%
Shareholders Trust (5)
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
Beran/Management III 171.085 27% 56,558.84 4.2%
Shareholders Trust
Associates, L.P. (6)
c/o Phyllis Beran
10 Grove Street
Cherry Hill, NJ 08002
</TABLE>
----------
(1) Does not take into account stockholder ratification and approval of the
Beran Issuance which will increase the number of shares of Common Stock
issuable upon conversion of the Series D Stock and the voting rights
thereof. Percent of Class calculated based upon 1,135,699 shares of Common
Stock outstanding as of the Record Date and approximately 209,477 shares
of Common Stock issuable upon conversion of all outstanding shares of
Series D Stock (assuming no stockholder approval of the Beran Issuance).
(2) Includes 1.145 shares of Series D Stock held in escrow in respect of
certain post-closing adjustments in connection with the Beran Acquisition.
The holder has the right to vote such shares. Samuel J. Beran, M.D. and
Phyllis Beran, the co-trustees of the holder, may be deemed to be the
beneficial owners of the shares owned by the holder.
(3) Includes 8.508 shares of Series D Stock held in escrow in respect of
certain post-closing adjustments in connection with the Beran Acquisition.
The holder has the right to vote such shares. Samuel J. Beran, M.D. and
Phyllis Beran, the co-trustees of the holder, may be deemed to be the
beneficial owners of the shares owned by the holder.
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<PAGE>
(4) Includes 0.491 shares of Series D Stock held in escrow in respect of
certain post-closing adjustments in connection with the Beran Acquisition.
The holder has the right to vote such shares. Samuel J. Beran, M.D. and
Phyllis Beran, the co-trustees of the holder, may be deemed to be the
beneficial owners of the shares owned by the holder.
(5) Includes 1.8 shares of Series D Stock held in escrow in respect of certain
post-closing adjustments in connection with the Beran Acquisition. The
holder has the right to vote such shares. Samuel J. Beran, M.D. and
Phyllis Beran, the co-trustees of the holder, may be deemed to be the
beneficial owners of the shares owned by the holder.
(6) Includes 4.418 shares of Series D Stock held in escrow in respect of
certain post-closing adjustments in connection with the Beran Acquisition.
The holder has the right to vote such shares. Samuel J. Beran, M.D. and
Phyllis Beran, the co-trustees of the holder, may be deemed to be the
beneficial owners of the shares owned by the holder.
-7-
<PAGE>
PROPOSAL - ELECTION OF DIRECTORS
The By-laws of the Company provide that the number of directors shall be
fixed from time to time by the Board. The Board has fixed the number of
directors at four, and four directors will be elected at the Meeting, each
director to hold office until the next annual meeting of stockholders and until
his successor is elected and is qualified. The Company intends to hold the next
annual meeting of stockholders in 2001. All of the four nominees are presently
directors of the Company, except for Dr. Michael W. Licamele.
Unless otherwise directed, all proxies (unless revoked or suspended) will
be voted for the Director Nominees. If any Director Nominee shall be unavailable
for election or upon election should be unable to serve, the proxies will be
voted for the election of such other person as shall be determined by the
persons named in the proxy in accordance with their judgment. The Company is not
aware of any reason why any Director Nominee should become unavailable for
election, or, if elected, should be unable to serve as a director.
The names of the Director Nominees, and certain information about them,
are set forth below.
Has Been a Director
Name Age of the Company From
---- --- -------------------
Michael W. Licamele 60 --
Manmohan A. Patel 51 December 1998 - Present
Michael S. Weiss 34 July 1998 - Present
Elliott H. Vernon 58 July 1991 - Present
Michael W. Licamele, Ph.D. has been the Chief Executive Officer since 1968
of Computer X Pharmacy, Inc., a mail order pharmacy specializing in compounded
drugs which is headquartered in Connecticut. He has also served as the Chief
Executive Officer of BronchoDose, LLC, a mail order pharmacy, since its
formation in 1988; of Compound RX, LLC, a mail order pharmacy, since its
formation in 1985; and of Chemcher, Ltd, a distributor of fine chemicals, since
its formation in 1993. Dr. Licamele has been a registered pharmacist in the
State of Connecticut since 1961. Dr. Licamele received a Ph.D. in Chemistry from
the University of Connecticut in 1968, a Doctorate in Pharmacy from the
University of Maryland in 1967 and a B.S. in Chemistry from the University of
Connecticut in 1961.
Manmohan A. Patel, M.D. has been Vice Chairman of the Company since
December 1998. Since August 1995, Dr. Patel has been the Chairman of Jersey
Integrated HealthPractice, Inc. a privately-held management services
organization ("JIHP") which provides management services to Pavonia Medical
Associates, P.A. ("PMA"). Dr. Patel was one of the founders of PMA, which is one
of the largest independent multi-specialty medical groups in New Jersey, and has
been its President since July 1971. Dr. Patel is a practicing internist
specializing in pulmonary diseases and critical care and has received board
certifications in the following five specialties: internal medicine, pulmonary
diseases, critical care, emergency medicine and geriatric medicine. In 1973, Dr.
Patel received his M.D. from Mahatma Gandhi Medical College in India. He was an
intern at the M.M. Medical College in India, at West Middlesex Hospital in
Britain, at Loyola University, at the Stitch Medical School in Chicago, Illinois
and at the Catholic Medical Center of Brooklyn and Queens in New York and had
fellowships with Bellevue Hospital and New York University Medical Center. Dr.
Patel is a member of the Board of Trustees of the Meadowlands Hospital Medical
Center in Secaucus, New Jersey, and a member of the Board of Trustees of Liberty
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<PAGE>
HealthCare System, Inc. which is a New Jersey-based teaching hospital system
that is affiliated with Mt. Sinai Health System in New York.
Michael S. Weiss, Esq. has been the Chairman and Chief Executive Officer
of CancerEducation.com, Inc., an Internet-based health information company,
since April 1999. Prior thereto, from November 1993 until April 1999, he was a
Senior Managing Director of Paramount Capital, Inc., a private investment
banking firm ("Paramount"), and held various other positions with Paramount and
certain of its affiliates. Mr. Weiss is also the Vice Chairman of Genta
Incorporated, a publicly-traded biotechnology company, and Chairman of
Heavenlydoor.com, Inc. (f/k/a Procept, Inc.) ("Heavenlydoor"), a publicly-traded
holding company engaged in providing business-to-business and
business-to-consumer funeral-related products and services over the Internet. In
addition, Mr. Weiss is also a member of the Board of Directors of AVAX
Technologies, Inc., a publicly-traded biotechnology company, and is a member of
the Board of Directors of several privately-held biotechnology companies. Prior
to joining Paramount, Mr. Weiss was an attorney with the law firm of Cravath,
Swaine & Moore. Mr. Weiss received his J.D. from Columbia University School of
Law and his B.S. in Finance from the State University of New York at Albany.
Elliott H. Vernon, Esq. has been the Chairman of the Board and Chief
Executive Officer of the Company since the Company's inception in July 1991. He
also was the President of the Company from July 1991 until August 1999. For over
ten years, Mr. Vernon has also been the managing partner of MR General
Associates, a New Jersey general partnership ("MR Associates") which is the
general partner of DMR Associates, L.P., a Delaware limited partnership, which
was the landlord of the Company's Brooklyn MRI facility until September 1998.
From December 1995 until it merged with Procept in March 1999, Mr. Vernon was a
director of Pacific Pharmaceuticals, Inc., a publicly-traded company engaged in
the development and commercialization of medical products with a primary focus
on cancer treatment. Mr. Vernon was a director of Procept, a publicly-traded
biotechnology company, from December 1997 until it merged with Heavenlydoor in
January 2000 and is now a director of Heavenlydoor. Mr. Vernon is also one of
the founders of Transworld Nursing, Inc. and was, until April 1997, a director
of Transworld Home HealthCare, Inc., a publicly-held regional supplier of a
broad range of alternate site healthcare services and products including
respiratory therapy, drug infusion therapy, nursing and para-professional
services, home medical equipment, radiation and oncology therapy and a
nationwide specialized mail order pharmacy. Mr. Vernon is also a principal of
HealthCare Financial Corp., LLC, a healthcare financial consulting company
engaged primarily in FDA matters. From January 1990 to December 1994, Mr. Vernon
was a director and the Executive Vice President and General Counsel of the Wall
Street firm of Aegis Holdings Corporation which offered financial services
through its investment management subsidiary and its capital markets consulting
subsidiary on an international basis. Prior to entering the healthcare field on
a full-time basis, Mr. Vernon was in private practice as a trial attorney
specializing in federal white collar criminal and federal regulatory matters.
Prior to founding his own law firm in 1973, Mr. Vernon was commissioned as a
Regular Army infantry officer in the United States Army (1964). He is a former
paratrooper and Vietnam War veteran with service in the 82nd Airborne Division
and 173rd Airborne Brigade. Upon his return from Vietnam in 1970, Mr. Vernon
served as Chief Prosecutor and Director of Legal Services at the United States
Army Communications and Electronics Command until 1973.
Vote Required
Directors are elected by a plurality of the votes cast at the Meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF THE DIRECTOR NOMINEES.
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<PAGE>
INFORMATION RELATING TO THE BOARD AND ITS COMMITTEES
Meetings of the Board; Committees
During fiscal 1999, the Board held three meetings and acted pursuant to
unanimous written consent on five occasions. During fiscal 1999, no incumbent
director attended less than 75% of the aggregate number of meetings of the Board
and committees of the Board on which he served for such year. The Board
currently has four standing committees: the Audit Committee, the Stock Option
Committee, the Compensation Committee and the Executive Committee.
Audit Committee
The current member of the Audit Committee is Michael S. Weiss. Shawn
Friedkin was a member of the Audit Committee until his resignation in May 2000.
The Audit Committee held two meetings during fiscal 1999. The general function
of the Audit Committee is to assist the Board in fulfilling its oversight
responsibilities by (i) monitoring the integrity of the Company's financial
reporting process and systems of internal control regarding finance, accounting
and legal compliance; (ii) monitoring the independence and performance of the
Company's independent auditors and internal auditing department; and (iii)
providing an avenue of communication between the independent auditors,
management, the internal auditing department and the Board.
Stock Option Committee
The current member of the Stock Option Committee is Michael S. Weiss.
Shawn Friedkin was a member of the Stock Option Committee until his resignation
in May 2000. The Stock Option Committee did not meet during fiscal 1999;
however, it acted pursuant to unanimous written consent on six occasions during
fiscal 1999. The Stock Option Committee considers and recommends actions of the
Board relating to matters affecting the Company's stock option plans and is
authorized to make grants under the Company's 1991 Stock Option Plan (the "1991
Plan"), 1997 Omnibus Incentive Plan (the "Omnibus Plan"), 1997 Employee Stock
Purchase Plan (the "Stock Purchase Plan") and otherwise.
Compensation Committee
The current member of the Compensation Committee is Michael S. Weiss.
Joseph Raymond was a member of the Compensation Committee until his resignation
in September 2000. The Compensation Committee did not meet during fiscal 1999;
however, it acted pursuant to unanimous written consent on two occasions during
fiscal 1999. The general functions of the Compensation Committee include
approval (or recommendations to the Board) of the compensation arrangements for
senior management, directors and other key employees; review of benefit plans in
which officers and directors are eligible to participate; and periodic review of
the equity compensation plans of the Company and the grants under such plans.
Executive Committee
The current members of the Executive Committee are Elliott H. Vernon and
Manmohan A. Patel. Joseph Raymond was a member of the Executive Committee until
his resignation in September 2000. The Executive Committee held two meetings
during fiscal 1999. The Executive Committee is empowered to exercise all powers
of the Board in the management and affairs of the Company with certain
exceptions. In practice, it meets only infrequently to take formal action on
specific matters when it would be impractical to call a meeting of the Board.
-10-
<PAGE>
Compensation of Directors
The Company does not presently pay non-employee directors any cash fees in
connection with their services as such; however, the Company reimburses them for
all costs and expenses incident to their participation in meetings of the Board
and its committees. In addition, non-employee directors (other than members of
the Stock Option Committee) are entitled to participate in the Directors Plan
and the Omnibus Plan. Pursuant to the Directors Plan, stock options exercisable
to purchase an aggregate of 2,500 shares of Common Stock automatically are
granted to newly-elected or appointed non-employee directors of the Company. In
addition, as approved by the stockholders at the 1998 annual meeting of
stockholders, the Directors Plan further provides that non-employee directors
are entitled to receive stock options to purchase 500 shares of Common Stock
(the "Fee Options") for a Plan Year (as defined in the plan) in the event no
annual cash director's fees are paid by the Company for such Plan Year and may
also elect to receive the Fee Options in lieu of any cash director's fee
otherwise payable by the Company to such director for such Plan Year. The
Company has determined that no cash director's fees will be paid for the 2000
Plan Year, and, therefore, Fee Options have been issued to each of the current
non-employee directors.
The purchase price of the shares of Common Stock subject to stock options
issued under the Directors Plan is equal to the fair market value of such shares
on the date of the grant, as determined in accordance with the plan. Stock
options awarded under the Directors Plan vest in increments of 40% after the
sixth month, 80% after the eighteenth month and 100% after the thirtieth month
anniversary of the date of grant. Upon termination of a non-employee director's
service on the Board, any stock options vested as of the date of termination may
be exercised until the first anniversary of such date (unless such options
expire earlier in accordance with their terms); provided that if such
termination is a result of such director's removal from the Board other than due
to his death or disability, all stock options will terminate immediately.
No remuneration is paid to executive officers of the Company for services
rendered in their capacities as directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of the outstanding shares of Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company (collectively, "Section
16 reports") on a timely basis. Directors, executive officers and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16 reports. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and certain
written representations that no other reports were required, during fiscal 1999,
all Section 16(a) filing requirements applicable to its directors, executive
officers and greater than 10% beneficial owners were complied with on a timely
basis, except that (i) each of Robert D. Baca and Mark R. Vernon did not timely
file a Form 3 with respect to his becoming an executive officer of the Company,
(ii) each of Samuel Beran, Phyllis Beran, Beran/Management III Partners Trust
and Beran/Echelon I Shareholders Trust did not timely file a Form 3 with respect
to his/her/its becoming a 10% stockholder of the Company, and (iii) Joseph J.
Raymond, a former director of the Company, did not timely file a Form 4 with
respect to nine transactions.
-11-
<PAGE>
INFORMATION RELATING TO EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers
The names of the current executive officers of the Company, and certain
information about them, are set forth below.
Name Age Position
---- --- --------
Elliott H. Vernon (1) 58 Chairman of the Board and Chief
Executive Officer
Robert D. Baca 44 President and Chief Operating Officer
Alfred Beltrani (2) 46 Vice President, Controller
Mark R. Vernon (1) 53 Senior Vice President
----------
(1) Elliott H. Vernon and Mark R. Vernon are brothers.
(2) Mr. Beltrani replaced Scott P. McGrory as Vice President, Controller as of
July 17, 2000. Mr. McGrory had resigned as Vice President, Controller as
of May 15, 2000.
See above for information regarding Mr. Elliott H. Vernon.
Robert D. Baca, C.P.A. became the President and Chief Operating Officer of
HIS PPM Co., a Delaware corporation and wholly-owned subsidiary of the Company
formed to engage in the physician practice management business ("HIS PPM"), in
April 1998, and in August 1999 he was elevated to the position of the President
and Chief Operating Officer of the Company. From May 1997 to March 1998, Mr.
Baca was the Senior Vice President of Corporate Development for Medical
Resources, Inc. ("Medical Resources"), a publicly-held diagnostic imaging
company. Mr. Baca was a founder of Capstone Management, Inc. ("Capstone"), a
diagnostic imaging company which was acquired by Medical Resources in May 1997,
and was, from June 1993 to May 1997, the Chief Executive Officer and Chief
Financial Officer of Capstone. Mr. Baca received a M.S. in Taxation from
Villanova Law School in 1985 and received a B.S. in Accounting from the
University of Delaware in 1978. Mr. Baca is a certified public accountant.
Alfred Beltrani, C.P.A. became the Vice President, Controller of the
Company in July 2000. He brings with him over 23 years experience in accounting.
Mr. Beltrani is the Principal Financial and Accounting Officer and as such, is
responsible for overseeing all financial reporting aspects of the Company. Prior
to joining the Company, Alfred Beltrani had been the Chief Financial Officer of
VTA Management Services, Inc., a division of Integrated Health Services, Inc., a
nationwide healthcare corporation, since 1994. From 1987 to 1993, Mr. Beltrani
was the Controller of Hongson, Inc., an importing and distribution company. From
1983 to 1986, Mr. Beltrani was the Corporate Controller of a publicly-traded
national retail chain, Syms Corp., and was responsible for all financial and SEC
reporting. Prior to 1983, Mr. Beltrani was the Manager of a public accounting
firm. Mr. Beltrani is a licensed certified public accountant and is a graduate
of Brooklyn College.
Mark R. Vernon has been Senior Vice President of the Company since April
1999 and has been the President of Atlantic Imaging Group, LLC, the Company's
joint venture with HealthMark Alliance, Inc., since its formation in April 1999.
From April 1997 until April 1999, he was employed as an officer of the
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<PAGE>
Company in charge of field operations. Since September 1994, he has also served
as the Chairman of the Board, President and Chief Executive Officer of Omni
Medical Imaging, Inc., which company subleased the Company's mobile MRI units
from September 1994 until July 1996. See "Certain Relationships and Related
Transactions." From January 1991 until August 1994, he was the Vice President of
Field Operations of the Company. From February 1981 until November 1989, he was
the President of National Labor Service, Inc. and from November 1975 until
January 1981, he was the President of Country Wide Personnel, Inc., which are
employment support companies that supplies employees to Fortune 500 and other
corporations. From 1966 until 1971, Mr. Vernon was a Staff Sergeant in the
United States Army and served in Vietnam from 1966 until 1967.
Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or
paid to, the Chief Executive Officer and each other executive officer of the
Company and its subsidiaries (whose total annual salary and bonus exceed
$100,000) for services rendered in all capacities to the Company and its
subsidiaries during fiscal 1999, 1998 and 1997 (the "named executive officers"):
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
------
Other
Annual Restricted Securities All
Name and Compensation Stock Underlying Other
Principal Position Year Salary ($) Bonus ($) ($)(1) Award(s) ($) Options (#) Compensation
------------------ ---- ---------- --------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ELLIOTT H. VERNON........ 1999 $281,541 $325,000 $33,951(2) -- 25,000 --
(Chairman of the
Board and Chief 1998 $244,272 $328,829 $19,249(2) -- -- --
Executive Officer)
1997 $100,415 -- $29,359(2) -- 50,000 $88,076(3)
ROBERT D. BACA .......... 1999 $227,202 $ 25,000 -- -- 15,000 --
(President and Chief
Operating Officer) 1998 $165,808(4) $ 32,588 -- -- 35,000 --
MARK R. VERNON........... 1999 $105,750 -- -- -- -- --
(Senior Vice President)
SCOTT P. MCGRORY(5)...... 1999 $ 97,407 $ 5,000 -- -- -- --
(former Vice President,
Controller)
</TABLE>
-13-
<PAGE>
----------
(1) Unless noted, the value of prerequisites and other personal benefits,
securities and other property paid to or accrued for the named executive
officers did not exceed $50,000 for each such officer, or 10% of such
officer's total reported salary and bonus, and thus are not included in
the table.
(2) Represent payments for personal life and disability insurance and medical
payments made by the Company on behalf of Mr. Vernon pursuant to Mr.
Vernon's employment agreement.
(3) Represents a non-interest bearing advance made to Mr. Vernon during fiscal
1997. See "Certain Relationships and Related Transactions."
(4) Represents compensation beginning on April 13, 1998, the commencement date
of Mr. Baca's employment with HIS PPM. He became the President and Chief
Operating Officer of the Company in August 1999.
(5) Mr. McGrory resigned as Vice President, Controller as of May 15, 2000.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Elliott H. Vernon. Effective in November 1997, the Company entered into a
three-year employment agreement with Mr. Vernon (which was extended to five
years in August 1999). Pursuant to such employment agreement, Mr. Vernon agreed
to continue to serve as the Chairman of the Board, President and Chief Executive
Officer of the Company at an annual base of $250,000, subject to annual
increases equal to the greater of (a) 10% or (b) the same percentage as the
increase during the immediately preceding calendar year in the United Sates
Department of Labor, Bureau of Labor Statistics, Consumer Price Index for All
Urban Consumers (1962-1984=100) (the "CPI") or (c) such greater amount as may be
determined by the Board. Mr. Vernon's current base salary is $332,750. The
employment agreement provides that, upon the consummation by the Company of the
proposed acquisition of JIHP, Mr. Vernon will receive (i) a cash bonus of
$250,000 and (ii) stock options to purchase 25,000 shares of Common Stock at an
exercise price equal to the average of the fair market value (as defined in the
Omnibus Plan) of the Common Stock for the ten consecutive trading days
immediately preceding the closing date of such acquisition (which stock options
will vest in 25% increments over four years from the date of grant). (In August
1999, these stock options were issued to Mr. Vernon at an exercise price of
$10.60 per share, subject to consummation of the JIHP acquisition on or prior to
December 31, 2000). On each anniversary of the commencement date of the
employment agreement, the term is extended for an additional one year. The
employment agreement also provides that if Mr. Vernon resigns for "Good Reason"
(as defined in the employment agreement), Mr. Vernon will be entitled to receive
a payment of 2.99 times his highest annual salary and bonus pursuant to the
employment agreement. In the event Mr. Vernon's employment is terminated for
"Disability" (as defined in the employment agreement), Mr. Vernon will continue
to be paid his base salary for a period of six months after such date (which
amount will be reduced by any disability payments received by him). Mr. Vernon's
employment agreement also provides that in the event his employment is
terminated for "Cause" or because of his death, Mr. Vernon or his designated
beneficiaries, as the case may be, shall only be entitled to be paid his base
salary through the month in which such termination occurred.
Mr. Vernon's employment agreement also provides for annual profit sharing
with other executive level employees of a bonus pool consisting of 15% of the
Company's consolidated income before taxes. Mr. Vernon is entitled to not less
than 50% of such bonus pool, and the Board or a duly constituted committee
thereof may allocate additional amounts of the bonus pool to Mr. Vernon. It is
expected that the entitlement of the other officers of the Company to the
remainder of such bonus pool (if any) will be made by Mr. Vernon in his capacity
as the Chairman of the Board and Chief Executive Officer of the Company, subject
to the contractual rights of other persons entitled to participate in such bonus
pool, and to the concurrence
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<PAGE>
of the Board or a duly constituted committee thereof. In addition, the
employment agreement provides for certain insurance and automobile benefits for
Mr. Vernon and his participation in the Company's other benefit plans. The
employment agreement provides that Mr. Vernon will be entitled to reimbursement
of up to $10,000 per annum for medical expenses not covered by insurance for
himself and his immediate family. In connection with the Board's approval in
November 1997 of the material terms of this employment agreement, Mr. Vernon was
granted stock options to purchase 47,120 shares of Common Stock under the 1991
Plan and 2,880 shares of Common Stock under the Omnibus Plan at an exercise
price of $10.625 per share. Such options vest in 20% increments on each
anniversary of the grant date.
In August 1999, Mr. Vernon resigned as President of the Company and Mr.
Baca became the President and Chief Operating Officer of the Company.
Robert D. Baca. As of April 13, 1998, HIS PPM entered into a three year
employment agreement with Robert D. Baca, pursuant to which Mr. Baca agreed to
serve as its President and Chief Operating Officer at an annual base salary of
$225,000 (subject to annual increases by the same percentage as the increase
during the immediately preceding calendar year in the CPI or such greater amount
as may be determined by the Board). Mr. Baca's current base salary is $228,627.
The employment agreement is subject to successive one year renewal periods and
provides for Mr. Baca's participation in the employee benefit programs and plans
of HIS PPM as well as a monthly automobile allowance. As incentive compensation,
in connection with the execution of the employment agreement, Mr. Baca received
(i) a stock option under the Omnibus Plan to purchase 20,000 shares of Common
Stock at an exercise price of $13.125 per share (which option vested 50% on the
date of grant and the remaining 10,000 shares will vest in increments of
one-third upon the Common Stock attaining, during the Term (as defined in the
employment agreement), an average Fair Market Value (as defined in the Omnibus
Plan) for a period of 20 consecutive trading days, and a Fair Market Value on
the last day of such 20 day period, of $50.00, $80.00 and $120.00 per share,
respectively; provided, however, that in any event the remaining 10,000 shares
shall vest in increments of one-third on each subsequent anniversary of the
grant date of the option, and the option will become fully vested immediately
upon a Change in Control (as defined in the Omnibus Plan)) and (ii) a stock
option, not issued under the Omnibus Plan (since at the time of grant there were
not enough shares available for issuance under the Omnibus Plan to allow for
such issuance thereunder) but which shall, nonetheless, be subject to the terms
and conditions of the Omnibus Plan, to purchase 15,000 shares of Common Stock at
an exercise price of $75.00 per share (with respect to 5,000 of the shares
subject to the options), $100.00 per share (with respect to 5,000 of the shares
subject to the option) and $125.00 per share (with respect to 5,000 of the
shares subject to the option) (which option will vest upon the attainment of any
two of the three following objectives: (a) the Company achieving gross revenues
of $100.0 million in any fiscal year during the Term, (b) the Company achieving
net income of $12.0 million in any fiscal year during the Term or (3) the Common
Stock attaining, during the Term, an average Fair Market Value (as defined in
the option) for a period of 20 consecutive trading days, and a Fair Market Value
on the last day of such 20 day period, of $200.00 per share; provided, however,
that in any event the option will vest on the third anniversary of the grant
date of the option, and the option will become fully vested immediately upon a
Change in Control of HIS PPM (as defined in the option)).
The employment agreement provides that if Mr. Baca resigns for "Good
Reason" (as defined in the employment agreement) or if HIS PPM terminates his
employment other than as provided in the employment agreement, Mr. Baca will be
entitled to receive his full base salary through the date of termination, as
well as all accrued incentive compensation through the date of termination, plus
an amount (payable over a period of months equal to the lesser of the number of
months remaining in the Term and 18) equal to the product of (a) the sum of (i)
the base salary in effect as of the date of termination and (ii) the average of
the bonus compensation paid or payable to Mr. Baca with respect to the three
years preceding the year in which the date of termination occurs (or such lesser
period as he may have been employed) and (b) the lesser of (i) the
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<PAGE>
number of months remaining in the Term divided by 12 and (ii) one and one-half
(the "Severance Amount"). In the event that, within one year after the
occurrence of a Change of Control (as defined in the employment agreement), HIS
PPM terminates Mr. Baca's employment other than as provided in the employment
agreement or Mr. Baca resigns for "Good Reason," Mr. Baca will be entitled to
receive his full base salary through the date of termination, as well as all
accrued incentive compensation through the date of termination, plus the present
value (as defined in the employment agreement) of the Severance Amount on or
before the tenth day following the date of termination.
The employment agreement further provides that in the event HIS PPM
terminates Mr. Baca's employment because of his death, Mr. Baca (or his
designated beneficiary, estate or other legal representative, as applicable,
(the "Estate")) will be entitled to be paid his base salary through the month in
which such termination occurred, as well as all unpaid and accrued incentive
compensation through the date of termination, and the Estate shall be entitled
to continue to participate (to the extent permissible under the terms and
provisions of such programs and plans) in HIS PPM's benefit programs and plans
until the end of the Term on the same terms and conditions as Mr. Baca
participated immediately prior to the date of termination. If Mr. Baca's
employment is terminated for Disability (as defined in the employment
agreement), Mr. Baca will continue to be paid his base salary for a period of
six months after such date (which amount will be reduced by any disability
benefits received by him from disability policies paid for by HIS PPM).
Upon termination of Mr. Baca's employment for Cause (as defined in the
employment agreement) or in the event Mr. Baca's employment is terminated
because of a court order restricting his employment by HIS PPM, Mr. Baca only
will be entitled to be paid his base salary through the date the Notice of
Termination (as defined in the employment agreement) is given, as well as all
accrued and unpaid incentive compensation through the date the Notice of
Termination is given.
In August 1999, Mr. Vernon resigned as President of the Company and Mr.
Baca became the President and Chief Operating Officer of the Company. In
connection with such elevation, Mr. Baca was granted an option to purchase
15,000 shares of Common Stock at an exercise price of $13.125 per share (subject
to consummation of the JIHP acquisition on or prior to December 31, 2000).
Option Grants in Fiscal 1999
The following table sets forth each grant of stock options made by the
Company during fiscal 1999 to each of the named executive officers:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual Rates
Number of Exercise of Stock Price Appreciation for
Securities % of Total Options or Base Option Term(1)
Underlying Granted to Price -----------
Options Employee in ($/Share) Expiration
Name Granted($) Fiscal Year Range Date Range 5%($) 10%($)
---- ---------- ----------- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Elliott H. Vernon 25,000(2) 61.8% 10.60 Aug. 2009 $123,814 $313,768
Robert D. Baca 15,000(2) 37.1% 13.125 Aug. 2009 $166,657 $422,342
</TABLE>
----------
(1) The potential realizable values represent future opportunity and have not
been reduced to present value in 1999 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by
the SEC for illustration purposes, and these rates are not intended to be
a forecast of the Common Stock price and are not necessarily indicative of
the values that may be realized by the named executive officer.
-16-
<PAGE>
(2) These options were granted under the Omnibus Plan and vest in increments
of 20% on each anniversary of the grant date; provided, however, that in
no event shall the option become exercisable until the consummation of the
JIHP acquisition and such option shall expire unexercised if the
acquisition does not occur on or prior to December 31, 2000.
Aggregated Option Exercises in Fiscal 1999 and 1999 Fiscal Year End Option
Values
The following table summarizes for each of the named executive officers
the total number of unexercised stock options held at December 31, 1999 and the
aggregate dollar value of in-the-money, unexercised options held at December 31,
1999. No options were exercised by such persons during fiscal 1999. The value of
unexercised, in-the-money options at fiscal year-end is the difference between
its exercise or base price and the fair market value (i.e., the closing sale
price on such date) of the underlying Common Stock on December 31, 1999 (the
last trading day in fiscal 1999), which was $10.3125 per share. These values,
unlike the amounts set forth in the column headed "Value Realized," have not
been, and may never be, realized. The stock options have not been, and may never
be, exercised; and actual gains, if any, on exercise will depend on the value of
the Common Stock on the date of exercise. There can be no assurance that these
values will be realized.
The Company does not have any stock appreciation rights ("SARs")
outstanding.
<TABLE>
<CAPTION>
Securities Underlying
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year End at Fiscal Year End
--------------------- --------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Elliott H. Vernon -0- N/A 75,000/50,000 $140,625/$0
Robert D. Baca -0- N/A 13,333/36,667 $0/$0
Mark R. Vernon -0- N/A 11,500/8,500 $ 9,844/$8,906
Scott P. McGrory(1) -0- N/A 3,810/1,250 $6,328/$3,516
</TABLE>
----------
(1) Mr. McGrory resigned as Vice President, Controller as of May 15, 2000.
-17-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1999 and at September 30, 2000, Elliott H. Vernon (the
Company's Chairman of the Board and Chief Executive Officer) (the "CEO") owed
the Company $264,125 in connection with certain non-interest bearing advances
under the Company's bonus plan. In accordance with this bonus plan and Mr.
Vernon's employment agreement with the Company, Mr. Vernon is entitled to
monthly bonus payments based upon an estimate of his full years' bonus
entitlement, subject to adjustment. These advances represent such payments which
were determined not to have been earned by Mr. Vernon under the terms of the
bonus plan and are repayable to the Company.
The Company entered into an arrangement, effective September 1, 1994 until
July 1996, pursuant to which it operated solely as a sublessor of its four
mobile MRI units rather than as an operator of such equipment. Mark R. Vernon,
the brother of the CEO and an officer of the Company since April 1997, is the
President and a significant stockholder of such sublessee of the Company's
mobile MRI equipment. The other stockholders of the sublessee include certain
former customers of the Company. The sublease provided for monthly payments to
the Company, which commenced September 1, 1994, in the amount of $50,000 per
month for the first three months and $115,000 per month for the next 45 months.
These monthly payments included maintenance and insurance of approximately
$44,000 per month paid directly by the Company. The total monthly sublease
payments due to the Company were collateralized by the accounts receivable due
to the sublessee by the sublessee's mobile MRI customers. Effective May 1, 1995,
the sublease agreement was amended to provide for monthly payments to the
Company in the amount of $76,373 per month for the next 40 months excluding
maintenance of $38,627 per month originally paid directly by the Company since
the sublessee entered into a maintenance agreement with an unrelated third party
and began paying the equipment maintenance directly for the subleased mobile MRI
units. At December 31, 1994, the sublessee was current with its monthly payment
obligations. However, for fiscal 1995, the Company was entitled to receive from
the sublessee approximately $1,047,000 in rental income, of which it received
approximately $685,000, resulting in past due amounts of approximately $362,000.
The Company, due to the sublessee's failure to remain current with its 1995
monthly payment obligations, notified the sublessee that it was in default of
the sublease agreement. As a result, after assessing the sublease business
arrangement, the Company sold one of its mobile MRI units for $625,000 in
December 1995, which in turn reduced the sublessee's monthly payment obligation
to the Company from $76,373 to $52,582 for the remaining 33 months of the
sublease. As a result of the sale of the mobile MRI unit, the Company incurred a
loss of approximately $31,000 representing the difference between the remaining
sublease income attributable to such mobile MRI unit and the sale proceeds
received. In February 1996, the Company terminated the master agreement with the
sublessee and repossessed the remaining three mobile MRI units from the
sublessee as a result of the failure of the sublessee and its customers to
satisfy their obligations thereunder to the Company. At such time, the sublessee
owed the Company approximately $456,000. In an attempt to satisfy the past due
amounts owed to the Company, the sublessee and its customers provided the
Company with cash (aggregating approximately $75,000) and additional patient
receivable claims (aggregating approximately $504,000) to partially offset the
amounts they owed to the Company. The additional patient receivable claims were
to supplement the amounts previously submitted to the Company to satisfy prior
past due indebtedness from the sublessee and its customers. The Company soon
after returned the three mobile MRI units to the sublessee. Effective July 27,
1996, the Company again repossessed the three mobile MRI units due to the
sublessee's continuing failure to meet its obligations to the Company. At such
time, the sublessee owed the Company approximately $532,000. In August 1996, the
Company entered into a lease purchase agreement with respect to the sale of one
of the Company's mobile MRI units. The lease purchase agreement provided for a
$20,000 down payment upon execution of the agreement, 11 monthly installments of
$5,000 each which commenced October 1, 1996 and a final payment of $35,000 due
in September 1997. Such amounts have been paid. The Company has entered into an
agreement with certain other creditors of the sublessee in respect of the
collection of the sublessee's receivables. As of December 31, 1999 and September
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<PAGE>
30, 2000, the amount of the sublessee's past due indebtedness was approximately
$196,000 (which amount has been fully reserved by the Company in its financial
statements).
During fiscal 1999, Dr. George Braff, a director of the Company from
December 1995 until April 1997, the Company's Medical Director since October
1997 and the supervising radiologist at three of the Company's MRI facilities,
was the majority shareholder and officer of three of the Medical Lessees: M.R.
Radiology Imaging of Lower Manhattan, P.C. ("MRILM"), Monmouth Diagnostic
Imaging, P.A. ("MDI") and Kings Medical Diagnostic Imaging, P.C. ("KMDI"). For
fiscal 1999, MRILM, MDI and KMDI paid the Company approximately $886,193,
$5,828,972 and $1,337,318, respectively, in fees for services previously
rendered. In addition, revenues generated to the Company by MRILM, MDI and KMDI
accounted for 4%, 20%, and 3%, respectively, of the Company's total revenues in
fiscal 1999. For fiscal 1999, MRILM, MDI and KMDI paid Dr. Braff approximately
$85,528, $222,000 and $98,855, respectively, in fees for professional services
rendered by him on their behalf. Such entities have continued to be Medical
Lessees of the Company in fiscal 2000.
In May 1999, the Company entered into a consulting agreement with Ulises
C. Sabato, M.D., a former significant stockholder of the Company, for a one year
term. (The Company had previously entered into one-year consulting agreements
with Dr. Sabato during fiscal 1996, 1997 and 1998.) Pursuant to such agreement,
Dr. Sabato had agreed to provide such consultation and advice as the Company may
reasonably request, including advice in respect of new developments in the
diagnostic imaging market and the Company's relationships with current and
potential referral sources, and assistance in the development of Company
newsletters and the preparation and arrangement of seminars, luncheons and other
training and education vehicles for current and potential referral sources, and
assistance to the Company in the expansion of its physician management and
consulting operations. Pursuant to such agreement, Dr. Sabato was entitled to an
annual consulting fee of $48,000. During fiscal 1999, Dr. Sabato was paid an
aggregate of $28,000 in consulting fees under the consulting agreement and the
agreement was thereafter terminated without any additional payments.
In February 1998, the Company entered into a consulting agreement with Dr.
Manmohan A. Patel, a director of the Company since December 1998, for a one year
term commencing February 27, 1998. Such agreement was extended until (and
expired as of) December 31, 1999. Pursuant to such agreement, Dr. Patel agreed
to provide such consultation and advice as the Company may reasonably request,
including advice in respect of the Company's development of its physician
management operations. Such agreement was to terminate upon the earlier to occur
of (i) the execution of an employment agreement between the Company and Dr.
Patel on terms and conditions satisfactory to the parties thereto (the "Patel
Employment Agreement"), or (ii) the expiration or termination of such agreement
pursuant to the terms thereof. Pursuant to such agreement, and in contemplation
of the services to be rendered pursuant to the Patel Employment Agreement, the
Company granted Dr. Patel stock options exercisable to purchase an aggregate of
30,000 shares of Common Stock under the terms and conditions of the Omnibus
Plan. Such stock options were exercisable at $17.1875 per share, and were to
vest in increments of 25% (i.e., 7,500 shares) upon the Common Stock attaining,
for a period of 20 consecutive trading days, a fair market value (as defined in
the Omnibus Plan) of $25.00, $50.00, $75.00 and $100.00, respectively.
Notwithstanding the foregoing, such stock options were to become fully vested
upon the earlier to occur of (x) the fifth anniversary of the grant date of the
stock options and (y) a "Change in Control" as defined in the Omnibus Plan:
provided, however, that in no event would any shares be purchasable under such
stock options unless and until Dr. Patel became a full-time employee of the
Company. (In August 1999, these options were amended to provide for automatic
vesting in 20% increments on each anniversary of the grant date.) These options
were terminated as of December 31, 1999 upon the termination of the consulting
agreement.
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In January 1998, the Company and Pavonia Medical Associates, P.A. ("PMA")
and its physician stockholders (including Dr. Patel, a director of the Company
who owns an aggregate of 11,500 shares of PMA's common stock, representing
approximately 19.74% of such outstanding common stock) signed a non- binding
letter of intent with respect to the Company's acquisition of all of the capital
stock held by PMA of Jersey Integrated HealthPractice, Inc. ("JIHP"), a
management services organization formed and owned by PMA and Liberty HealthCare
Systems, Inc. The terms of this acquisition were a result of arm's-length
negotiations among the parties. In July 2000, the Company entered into a merger
agreement with PMA which provides for the acquisition by the Company of PMA's
approximately 72% equity interest in JIHP in exchange for the issuance to PMA of
preferred stock of the Company which will automatically convert into 1.0 million
shares of Common Stock upon the approval of such issuance by the Company's
stockholders. In connection with such merger, PMA entered into a 26-year
administrative services agreement with the Company (subject to earlier
termination under certain specified conditions), pursuant to which PMA will pay
the Company a management fee of $1.0 million per annum payable in equal monthly
installments plus an additional management fee of 10% of PMA's annual revenues
over $20.0 million. Among other things, the consummation of the acquisition of
JIHP is subject to execution of definitive acquisition documents with Liberty
HealthCare System, Inc., the owner of the remaining equity interest in JIHP.
In December 1997, the Company agreed to guarantee a loan of $1.0 million
from DVI Financial Services Inc. ("DFS") to JIHP (the "JIHP Loan"). This loan
was funded by DFS to JIHP on January 8, 1998 and the loan bears interest at 12%
per annum and is repayable over 48 months at $26,330 per month. At December 31,
1999, approximately $579,241 of the loan was outstanding. At September 30, 2000,
approximately $387,243 of the loan was outstanding. PMA and physician
stockholders of PMA have acknowledged that such extension of credit is for their
benefit and have agreed that to the extent that the Company is or becomes liable
in respect of any indebtedness or other liability or obligation of either PMA or
JIHP, and the acquisition by the Company of 100% of the outstanding capital
stock of JIHP is not consummated, then PMA and each physician stockholder of PMA
agree to indemnify and hold the Company harmless from and against any and all
such liabilities and obligations.
In October 1999, the Company (through its clinical research division)
entered into an exclusive five- year agreement with PMA to arrange and
coordinate clinical research trials on its behalf. To date, the Company has
arranged 20 clinical research trials on behalf of PMA. As of September 30, 2000,
the Company had received an aggregate of approximately $24,000 in fees from such
trials and PMA had received an aggregate of approximately $92,500 in fees from
such trials.
Effective June 2000, the Company entered into a lease agreement (the
"Lease Agreement") with Stratus Services Group, Inc., an employment leasing
company that provides a wide range of staffing and outsourcing services
corporation ("Stratus"). The terms of the Lease Agreement were the result of
arm's-length negotiations among the parties which the Company believes resulted
in a fair and reasonable compromise. Effective June 19, 2000, all Company
employees (totaling approximately 150 employees), except for certain officers
and radiologists, became employees of Stratus and then were leased back to the
Company. Stratus is a public company traded on Nasdaq under the symbol "SERV"
and the CEO of Stratus is Joseph J. Raymond, who was a director of the Company
from December 1995 until September 2000. As of September 30, 2000, the Company
had paid Stratus $1,340,133 under the Lease Agreement (which represents the
leased employees' compensation plus a leasing and administrative fee to Stratus
related to taxes and insurance and for payroll, human resources and accounting
services) and had an outstanding balance owed to Stratus in the amount of
$167,847. The term of the Lease Agreement is for one year and automatically
renews on an annual basis with a right to terminate with 30 days written notice.
On August 23, 2000, the Company agreed to sell Huntington Street Company
and Venturetek L.P. (the "Purchasers") an aggregate of 226,004 shares of Common
Stock for an aggregate purchase price
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of $500,000. Pursuant to the Company's agreement with the Purchasers, the
Company has agreed to file a registration statement within 30 days after the
closing (which date is subject to extension under certain specified conditions)
permitting the Purchasers to offer and sell these shares, and has further agreed
to issue additional shares of Common Stock to the Purchasers (or, under certain
specified conditions, to deliver cash or a Company promissory note) if the
market price of the Common Stock, at the earlier of the 120th day following the
closing or the effective date of the above-referenced registration statement, is
less than $2.88 (in order to provide the Purchasers with 130% return on their
investment). The issuance of these shares has been delayed pending the receipt
of certain consents.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for fiscal 1999 included in the
Company's Annual Report on Form 10-K for fiscal 1999 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
therein. The engagement of Deloitte & Touche LLP is not being presented for
approval of the stockholders at the Meeting. Representatives of Deloitte &
Touche LLP are expected to be present at the Meeting and to be available to
respond to appropriate questions and will be given the opportunity to make a
statement if they so desire.
STOCKHOLDER PROPOSALS
Stockholder proposals for presentation at the Company's next annual
meeting of stockholders to be held in 2001 must be received by the Company at
its principal executive offices for inclusion in its proxy statement and form of
proxy relating to that meeting no later than August 9, 2001. Such proposals must
also meet the other requirements of the rules of the SEC relating to
stockholders' proposals. A proxy will confer discretionary authority to
management of the Company to vote on any matter other than matters for which the
Company received notice by a stockholder prior to October 23, 2001.
OTHER MATTERS
It is not expected that any other matters will be brought before the
Meeting. However, if any other matters are presented, it is the intention of the
persons named in the proxy to vote the proxy in accordance with their judgment.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Company's Annual Report on Form 10-K for fiscal 1999 and the Company's
Form 10-Q for the quarterly period ended September 30, 2000 are being furnished
simultaneously herewith, however, they are not to be considered a part of this
Proxy Statement.
The Company will also furnish to any stockholder a copy of any exhibit to
this Form 10-K or 10-Q as listed thereon, upon request and upon payment of the
Company's reasonable expenses of furnishing such exhibit. Requests should be
directed to HealthCare Integrated Services, Inc., Shrewsbury Executive Center
II, 1040 Broad Street, Shrewsbury, New Jersey 07702, Attention: Assistant
Secretary.
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN AND SEND IN THEIR PROXIES
WITHOUT DELAY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE APPRECIATED.
By Order of The Board of Directors,
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ELLIOTT H. VERNON
Chairman of the Board and Chief Executive
Officer
December 7, 2000
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