SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarter ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from____________________to_____________________
Commission File No. 1-13392
US DIAGNOSTIC INC.
(Exact name of registrant specified in its charter)
DELAWARE 11-3164389
- -------------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
777 S. Flagler Drive
Suite 1201 East
West Palm Beach, Florida 33401
(Address of Principal Executive Offices)
(561) 832-0006
(Issuer's Telephone Number, Including Area Code)
(Not Applicable)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No______
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
OUTSTANDING AT
CLASS AUGUST 12, 1997
---------- -----------------
Common Stock, $ .01 par value 22,600,031 shares
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US DIAGNOSTIC INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996................................................3
Condensed Consolidated Statements of Operations for the Three and Six Months
ended June 30, 1997 and 1996.........................................5
Condensed Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1997 and 1996.........................................6
Condensed Consolidated Statement of Stockholders' Equity for the Six Months
ended June 30, 1997..................................................7
Notes to Condensed Consolidated Financial
Statements....................................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................14 - 18
PART II. Other Information...................................................19 - 20
Item 6. Exhibits and Reports on Form 8-K.....................................21 - 24
Signatures...................................................................25
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US DIAGNOSTIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1997 1996
-------- ------------
ASSETS:
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $7,426,071 $18,640,729
Accounts Receivable, Net of Allowance for Bad Debts of
$7,667,271 and $9,670,150, respectively 53,082,346 38,265,792
Other Receivables, Net of Allowance for Bad Debts of $923,000 in 1996 8,011,022 10,298,799
Investment in Marketable Equity Securities, ($6,425,291 at cost) -- 7,280,000
Prepaid Expenses and Other Current Assets 11,100,442 5,319,800
---------- ----------
TOTAL CURRENT ASSETS 79,619,881 79,805,120
---------- ----------
Property and Equipment, Net of Accumulated Depreciation and Amortization
of $19,356,254 and $11,824,836, respectively 93,261,375 79,945,956
Intangible Assets, Net of Accumulated Amortization of $10,110,445 and
$4,875,131, respectively 177,661,316 163,674,805
Other Assets 6,069,863 5,397,906
Investment in Unconsolidated Subsidiaries 8,784,607 10,199,596
--------- ------------
TOTAL ASSETS $365,397,042 $339,023,383
============ ============
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $32,392,219 $21,054,303
Short-Term Borrowings 25,000,000 750,000
Current Portion of Long-Term Debt 23,821,629 27,335,986
Obligations Under Capital Leases - Current Portion 10,293,902 10,291,327
Other Current Liabilities 5,085,575 5,607,734
Purchase Price Due on Companies Acquired 1,862,516 8,337,831
-------------- ------------
TOTAL CURRENT LIABILITIES 98,455,841 73,377,181
Subordinated Convertible Debentures 56,126,120 56,006,652
Long-Term Debt - Net of Current Portion 54,050,036 42,358,837
Obligations Under Capital Leases - Net of Current Portion 15,322,449 18,704,608
Deferred Income Taxes 6,694,235 6,684,378
Other Liabilities 286,610 229,837
-------------- ------------
TOTAL LIABILITIES 230,935,291 197,361,493
-------------- ------------
MINORITY INTEREST 8,199,157 8,149,805
-------------- ------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 6, 7 AND 9)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value;
5,000,000 Shares Authorized, None Issued -- --
Common Stock $.01 Par Value; 50,000,000 Shares
Authorized, and 22,600,031 Shares and 23,749,217 Shares
Issued and Outstanding, respectively 226,000 237,492
Additional Paid-in Capital 142,456,586 141,941,301
Unrealized Gain on Marketable Equity Securities, Net of Tax -- 525,646
Deferred Stock Based Compensation (2,714,984) (5,357,184)
Accumulated Deficit (13,705,008) (3,835,170)
-------------- ------------
TOTAL STOCKHOLDERS' EQUITY 126,262,594 133,512,085
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 365,397,042 $339,023,383
============== ============
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES $ 57,483,493 $15,615,382 $109,968,430 $28,183,491
------------ ----------- ------------ -----------
OPERATING EXPENSES:
General and Administrative Expense 41,801,923 8,526,924 76,650,886 15,420,996
Depreciation and Amortization Expense 7,488,928 1,972,127 14,263,079 3,836,670
Bad Debt Expense 2,166,647 614,440 3,679,912 1,108,974
Stock Based Compensation 299,239 254,702 738,499 567,432
Compensation to Terminated Consultant -- 751,861 -- 773,736
Professional Fees 3,732,534 441,448 4,659,825 838,309
Asset Impairment Losses 3,725,202 -- 3,725,202 --
Settlement With Former Executive Officer 2,808,576 -- 2,808,576 --
Loss on Settlement of Lawsuits 4,875,000 -- 4,875,000 --
------------ ----------- ------------ -----------
Total Operating Expenses 66,898,049 12,561,502 111,400,979 22,546,117
------------ ----------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS (9,414,556) 3,053,880 (1,432,549) 5,637,374
------------ ----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest Expense (4,646,720) (1,961,047) (8,519,488) (2,654,036)
Interest and Other Income 935,924 506,367 1,854,218 544,934
Gain on Marketable Equity Securities -- -- 406,340 --
------------ ----------- ------------ -----------
Total Other Expense (3,710,796) (1,454,680) (6,258,930) (2,109,102)
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST (13,125,352) 1,599,200 (7,691,479) 3,528,272
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 1,054,875 360,439 2,178,359 544,608
INCOME TAX (PROVISION) BENEFIT 2,276,627 (807,386) -- (1,520,727)
------------ ----------- ------------ -----------
NET INCOME (LOSS) $(11,903,600) $ 431,375 $ (9,869,838) $ 1,462,937
============ =========== ============ ===========
NET INCOME (LOSS) PER COMMON SHARE
Primary $(.55) $ .06 $(.46) $ .17
=== === === ===
Fully Diluted $(.55) $ .06 $(.46) $ .15
=== === === ===
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
Primary 21,606,037 17,559,284 21,604,638 16,397,659
============ ========== =========== ==========
Fully Diluted 21,606,037 18,917,512 21,604,638 17,820,342
============ =========== =========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES ............................................................ $ 4,349,238 $ 1,833,529
------------ ------------
INVESTING ACTIVITIES:
Purchase of Property and Equipment ......................................................... (8,121,080) (2,741,740)
Acquisitions (Net of Cash Acquired) ........................................................ (21,826,861) (13,164,606)
Sale of Marketable Securities .............................................................. 7,160,694 --
Decrease on Purchase Price Due on Companies Acquired ....................................... (6,475,315) --
Distributions to Minority Interests ........................................................ (2,053,042) --
Investment in Unconsolidated Subsidiaries .................................................. (2,730,191) --
Proceeds from Dispositions ................................................................. 1,887,261 --
------------ ------------
NET CASH - INVESTING ACTIVITIES ............................................................ (32,158,534) (15,906,346)
------------ ------------
FINANCING ACTIVITIES:
Proceeds From Subordinated Convertible Debentures .......................................... -- 54,492,532
Repayments on Debt and Capital Lease Obligations ........................................... (15,219,280) (4,470,413)
Proceeds from Borrowings ................................................................... 31,750,000 2,246,356
Common Stock Issued and Exercise of Warrants and Options .................................. 63,918 15,963,091
------------ ------------
NET CASH - FINANCING ACTIVITIES ............................................................ 16,594,638 68,231,566
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................................... (11,214,658) 54,158,749
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD ............................................ 18,640,729 4,373,876
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD .................................................. $ 7,426,071 $ 58,532,625
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................................... $ 7,996,148 $ 1,419,305
Income Taxes ............................................................................... $ 3,135,684 $ --
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The fair market value of Common Stock and options issued in connection with
acquisitions was $7,901,141 in 1996.
The fair market value of Common Stock issued in connection with the settlement
of a claim totaled $125,000 in 1996.
The fair market value of Common Stock issued in connection with the cancellation
of a consulting agreement totaled $581,250 in 1996.
The fair market value of detachable warrants issued in connection with the
Convertible Debentures was $1,672,550 in 1996.
See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
COMMON STOCK
NUMBER ADDITIONAL DEFERRED TOTAL
OF PAID-IN UNREALIZED STOCK BASED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL GAIN COMPENSATION DEFICIT EQUITY
--------- ------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 23,749,217 $237,492 $141,941,301 $ 525,646 $(5,357,184) $ (3,835,170) $133,512,085
Cancellation of Escrow (1,163,853) (11,639) 11,639 -- -- -- --
Shares
Sale of Marketable Equity -- -- -- (525,646) -- -- (525,646)
Securities
Stock Options Exercised 14,667 147 63,771 -- -- -- 63,918
Restricted Stock Issued -- -- 439,875 -- (439,875) -- --
Deferred Stock Based
Compensation
Component of Settlement with
Former Executive Officer -- -- -- -- 2,343,576 -- 2,343,576
Amortization of Deferred
Compensation -- -- -- -- 738,499 -- 738,499
Net Loss -- -- -- -- -- (9,869,838) (9,869,838)
---------- -------- ------------ ---------- ----------- ------------ ------------
BALANCE - JUNE 30, 1997 22,600,031 $226,000 $142,456,586 $ -- $(2,714,984) $(13,705,008) $126,262,594
========== ======== ============ ========== =========== ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statement
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US DIAGNOSTIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
[1] INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements as of June 30,
1997, include the accounts of US Diagnostic Inc. and its subsidiaries (the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). All
significant intercompany accounts and transactions have been eliminated. Certain
information related to the Company's organization, significant accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements reflect,
in the opinion of management, all material adjustments necessary to fairly state
the financial position and the results of operations for the periods presented
and the disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year.
The accompanying condensed consolidated statements of operations for the three
and six months ended June 30,1996, and the condensed consolidated statement of
cash flow for the six months ended June 30,1996, have been restated from those
originally filed with the SEC on Form 10-QSB. The restated financial statements
for the quarter ended June 30, 1996, were filed with the SEC on Form 10-QSB/A on
May 21,1997. The restatement was necessary as a result of accounting adjustments
reflected in the Company's audited financial statements included in the
Company's Annual Report on Form 10-KSB as of and for the year ended December 31,
1996, filed with the SEC on April 11, 1997. These accounting adjustments
primarily relate to the Company's accounting for acquisitions, issuance of
equity securities and stock options and provisions for state and federal income
taxes. Weighted average shares outstanding have been restated to reflect
issuances and adjustments to equity securities and convertible debt.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
In January 1997, six separate lawsuits were filed against the Company and
certain officers, directors and other parties related to the Company. Two were
subsequently dismissed. The lawsuits allege violations of the federal securities
laws. The lawsuits allege that as a direct result of the wrongful conduct,
plaintiffs and other members of the class suffered damages in connection with
the purchase of the Company's securities during the respective class periods.
The lawsuits seek certification of the actions as class actions, an unspecified
amount for compensatory damages in favor of plaintiffs and other members of the
class for all damages sustained as a result of the defendants alleged wrongdoing
and to award plaintiffs and the class reasonable costs and expenses incurred as
a result of the lawsuits and such other relief as the court deems just and
proper. The Company and individually named officer and director defendants have
entered into a Memorandum of Understanding (the "Memorandum") dated July 31,
1997, with plaintiffs' counsel. The Memorandum includes a denial of any
wrongdoing or liability by both the Company and individually named defendants.
In accordance with the terms of the Memorandum, the parties agreed to settle all
pending class action claims against the Company for $5,875,000. The settlement
is subject to a court approval process expected to take several months. The
Memorandum requires plaintiffs' counsel to file amended complaints expanding the
settled claims to include any claims based upon alleged misstatement of the
Company's financial condition in the Company's 1996 Forms 10-QSB (which were
subsequently restated) and its 1995 Form 10-KSB. The Memorandum provides that
the Company will pay $587,500 ten days after the date the Memorandum is
executed; an additional $1,468,750 ten days after Court approval of the proposed
notice advising the Class of the settlement; and the remaining $3,818,750 no
later than twenty-five days before a final hearing for approval of the
settlement. The first payment was made by the Company as required on August 11,
1997. The payments, when made, are to be deposited into an interest bearing
account to be held in escrow by plaintiffs' counsel, pending court approval. The
Company has reached an agreement in principal with its insurance company whereby
the insurance company will contribute $1,000,000 in full satisfaction of its
director and officer liability insurance policy obligations. In addition, the
Company is currently in negotiations with other third parties seeking
contribution. There can be no assurance that the Company will be successful in
these negotiations. The Company has recorded a provision for settlement of
lawsuits in the amount of $4,875,000 in the accompanying condensed consolidated
statements of operations for the three and six months ended June 30,
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1997. The $4,875,000 provision represents the $5,875,000 settlement, net of the
$1,000,000 contribution from the insurance company. See Note 7 - Litigation - in
this Form 10-Q.
The condensed consolidated financial statements included herein should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB filed with the
SEC for the year ended December 31, 1996.
On May 13, 1997, the NASDAQ informed the Company that, following its review of
the Company's Form 10-KSB for the year ended December 31, 1996, the NASDAQ staff
had determined that the Company did not satisfy the NASDAQ's net tangible asset
test for continued listing on the NASDAQ National Market System. As the Company
stated in its Form 10-KSB for the year ended December 31, 1996, the Company's
non-compliance with this listing requirement is a result of accounting
conventions associated with the Company's business combinations in 1996. On July
3, 1997, a NASDAQ Listing Qualifications Panel, following a hearing held on June
26, 1997, determined to grant the Company a waiver of the net tangible assets
requirement, because it found that the Company's failure to satisfy the net
tangible assets test was a reflection of the Company's business strategy and not
an indication of financial weakness. Therefore, the Company's securities remain
listed on the NASDAQ National Market System. NASDAQ will continue to monitor the
Company's progress and NASDAQ reserves the right, in the event there is a
material change in the Company's operational or financial structure or
character, to re-examine the appropriateness of the waiver of the net tangible
assets requirement.
[2] INTANGIBLE ASSETS
Intangible assets relate primarily to acquisitions including investments in
unconsolidated subsidiaries accounted for under the equity method. Goodwill
consists of the cost of purchased businesses in excess of the fair value of net
tangible assets acquired. During the quarter ended June 30, 1997, the Company
adjusted the allocation of the purchase price of certain businesses previously
acquired as additional information with respect to the fair value of net assets
acquired became available. The result was a net increase in Goodwill of
approximately $3,874,000. Goodwill is amortized on a straight-line basis for a
period of twenty years. The Company believes that a twenty year amortization
policy for goodwill is reasonable based upon current and expected operating
results of the businesses acquired. On an ongoing basis, the Company measures
realizability of goodwill by the ability of the acquired business to generate
current and expected future operating income in excess of annual amortization.
If such realizability is in doubt, an adjustment is made to reduce the carrying
value of the goodwill. Customer lists and covenants not to compete are amortized
on a straight-line basis for a period of fifteen years and three to five years,
respectively.
[3] EARNINGS PER SHARE
Earnings per common share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares, excluding escrow shares
subject to contingencies, and, if dilutive, common stock equivalents
outstanding. All stock options and warrants, if dilutive, have been included as
common stock equivalents in the computation of earnings (loss) per common share
on a fully diluted basis.
[4] INCOME TAXES
The Company has recorded deferred income tax assets relating to the pre-tax loss
for the six months ended June 30,1997, offset by a valuation allowance in the
same amount. The Company recorded a tax benefit in the three months ended June
30, 1997 to the extent income taxes have been previously provided in the three
months ended March 31, 1997.
In 1996, income taxes have been provided for based upon the Company's estimated
annual effective income tax rate. The effective income tax rate differs from the
statutory income tax rate primarily due to amortization of certain intangible
assets which is not deductible for Federal income tax purposes.
[5] DEBT
In February 1997, the Company entered into a financing agreement with DVI
Financial Services, Inc. ("DVI"). The credit facility has up to $50 million in
borrowing ability subject to the Company's satisfaction of certain conditions
such as the availability of unencumbered assets to collateralize future
advances. The first $25 million is a revolving credit loan secured by accounts
receivable. The second $25 million will be utilized to finance acquisitions and
for other purposes. Advance of funds on the second $25 million line will be
based upon a review by DVI of the entity acquired and/or a review of the assets
securing the
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loan. The Company borrowed $25 million under the revolving credit loan in
February 1997. The revolving credit loan is payable on February 26, 1998, and
bears interest, payable monthly, at prime plus two percent (10.5% at June 30,
1997). In March 1997, the Company borrowed $5.25 million, collateralized by
equipment, under the second $25 million line. The $5.25 million advance is
repayable in sixty monthly installments of $112,848 through March 2002. In June
1997, the Company borrowed an additional $1.5 million, collateralized by
equipment, under the second $25 million line. The $1.5 million advance is
repayable in sixty monthly installments of $32,250 through May 2002. An
additional $5.5 million was advanced to the Company under the second $25 million
line in July 1997. The $5.5 million is collateralized by equipment and is
payable in sixty monthly installments of $118,250 through June 2002. The credit
facility also requires, among other things, that the Company maintain $5,000,000
in cash at all reporting periods.
In April and May 1996, the Company completed a $57.5 million offering of 9%
Subordinated Convertible Debentures due 2003 (the "Debentures"). The investment
banking firm which acted as the agent in connection with the offering was issued
five-year warrants to acquire 319,445 shares of the Company's Common Stock at
$9.00 per share. The estimated fair value of the warrants is $1,672,550. This
amount is being amortized to interest expense over the term of the related
Debentures.
The holders of the Debentures are entitled to convert 100% of the principal
amount into Common Stock of the Company at a conversion price of $9.00 per
share. The conversion price is subject to adjustment under certain circumstances
as described in the Debenture Indenture ("Indenture"). The Company may not
redeem the Debentures, in whole or in part at any time prior to March 31, 1999.
Thereafter, the Debentures are redeemable at certain redemption prices as set
forth in the Indenture. In the event of a "change of control" as defined in the
Indenture, the Company is required to offer to repurchase each holder's
Debenture at a purchase price equal to 100% of the principal amount, plus
accrued interest.
Pursuant to the Indenture, the Company is required to maintain consolidated net
worth of at least $18 million. In the event that the Company's consolidated net
worth at the end of two consecutive fiscal quarters is below $18 million, the
Company is required to offer to repurchase 12.5% of the aggregate principal
amount of Debentures originally issued (or lesser amount outstanding at the time
of the deficiency). Under certain covenants of the Indenture, the Company is
limited in the amount of debt, as defined, it may incur. The Company and its
subsidiaries may generally incur debt, as defined, if the ratio of Debt to
Operating Cash Flow, of the Company and its subsidiaries after giving pro forma
effect to such debt is 6.5 to 1 or less.
The Indenture also prohibits the Company from paying any dividends on Common
Stock. In addition, the Indenture requires that the Company and its subsidiaries
engage solely in the acquisition, operation and management of multi-modality
diagnostic imaging centers and other medical service facilities.
[6] STOCKHOLDERS' EQUITY
The Company has granted contractual rights to certain persons to whom the
Company has issued securities to register such securities under the Securities
Act of 1933, and state securities registration statutes, and in some instances
the Company has agreed to repurchase its Common Stock issued to these persons or
to pay specified liquidated damages to these persons if such registration is not
effected in a timely manner. The Company's noncompliance in 1996, with certain
of the reporting requirements of the Securities Exchange Act of 1934, has made
it impracticable for the Company to file registration statements under the
Securities Act of 1933. As such, the Company has not registered certain
securities in accordance with provisions of various registration rights
agreements. Management of the Company believes that the failure to register such
securities will not result in a material liability to the Company due to
regulations contained in Federal securities laws that exempt certain sales of
unregistered securities from such registration requirements. There can be no
assurance, however, that if such persons assert their rights to have their
securities repurchased or to liquidated damages or make claims against the
Company for damages for breach of the agreements to register their securities,
and if the Company is not able to negotiate modifications to such agreements,
that the Company's financial condition would not be materially adversely
affected.
The Company's financial condition may also be materially adversely affected to
the extent that persons to whom the Company had issued securities successfully
assert claims against the Company based upon the recent events relating to the
Company described in Note 7.
In March 1997, the Company granted options to acquire 100,000 shares of the
Company's common stock to its Chairman of the Board and options to acquire
35,000 shares of the Company's common stock to each of two directors. The three
Directors comprise the Special Committee appointed by the Company's Board of
Directors to review the Company's prior relationship
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with Coyote Consulting and Keith Greenberg (See Note 7). The options vested upon
(i) successful completion by the Special Committee of the Board of Directors of
its work and final report and recommendation to the Board of Directors of its
findings and (ii) the continued involvement of the Special Committee members
until the final resolution of compliance issues with both the SEC and NASDAQ.
The exercise price of the options is equal to the market value of the Company's
common stock at the date of grant.
The Company granted options to purchase 200,000 shares of the Company's common
stock to its Chief Executive Officer and options to purchase 30,000 shares of
the Company's common stock to its former Chief Financial Officer. The exercise
price of the options is equal to the market value of the Company's common stock
at April 23, 1997, the date of grant. The Company also granted options to
purchase 50,000 shares of the Company's common stock to its new Chief Financial
Officer. The exercise price is equal to the market value of the Company's common
stock at date of employment, June 18, 1997. All these options vest in equal
annual amounts over a three year period commencing one year from date of grant.
[7] LITIGATION
Compensation to Terminated Consultant is comprised of cash compensation paid to
and value of equity securities granted to Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Keith Greenberg, on behalf of Coyote
Consulting, provided various consulting services to the Company. In January
1997, six separate lawsuits were filed against the Company and certain officers,
directors and other parties related to the Company. The lawsuits alleged that
disclosure was not made by the Company and named officers and directors about
the role played by Mr. Greenberg in the affairs of the Company and about Mr.
Greenberg's criminal and regulatory background. The Company and individually
named officer and director defendants entered into a Memorandum of Understanding
(the "Memorandum") dated July 31, 1997, with plaintiffs' counsel. The Memorandum
includes a denial of any wrongdoing or liability by both the Company and
individually named defendants. In accordance with the terms of the Memorandum,
the parties agreed to settle all pending class action claims against the Company
for $5,875,000. The settlement is subject to a court approval process expected
to take several months. The Memorandum requires plaintiffs' counsel to file
amended complaints expanding the settled claims to include any claims based upon
alleged misstatement of the Company's financial condition in the Company's 1996
Forms 10-QSB (which were subsequently restated) and its 1995 Form 10-KSB. The
Memorandum provides that the Company will pay $587,500 ten days after the date
the Memorandum is executed; an additional $1,468,750 ten days after Court
approval of the proposed notice advising the Class of the settlement; and the
remaining $3,818,750 no later than twenty-five days before a final hearing for
approval of the settlement. The first payment was made by the Company as
required on August 11, 1997. The payments, when made, are to be deposited into
an interest bearing account to be held in escrow by plaintiffs' counsel, pending
court approval. The Company has reached an agreement, in principal with its
insurance company whereby the insurance company will contribute $1,000,000 in
full satisfaction of its director and officer liability insurance policy
obligations. In addition, the Company is currently in negotiations with other
third parties seeking contributions. There can be no assurance that the Company
will be successful in these negotiations. The Company has recorded a provision
for settlement of lawsuits in the amount of $4,875,000 in the accompanying
condensed consolidated statement of operations for the three and six months
ended June 30, 1997. The $4,875,000 provision represents the $5,875,000
settlement, net of the $1,000,000 contribution from the insurance company.
In September, 1992, MDI and its affiliate Greater Springfield MRI Limited
Partnership ("Springfield") (through its general partner, Western Massachusetts
Magnetic Resonance Services, Inc. a subsidiary of MDI ("WMMRS")), filed suits
against Raytel Corporation, Inc. and certain other parties (collectively, the
"Raytel Defendants") seeking a declaration, damages and equitable relief against
the Raytel Defendants. Plaintiffs alleged that, among other things, the Raytel
Defendants violated their fiduciary and/or contractual obligations in attempting
(i) to interfere with plaintiffs' plans to provide imaging services on the
campus of Mercy Hospital in Springfield, Massachusetts and (ii) to coerce
plaintiffs into granting an affiliate of one of the Raytel Defendants a greater
interest in the profits of a now-dissolved joint venture in which MDI and one of
the Raytel Defendants directly or indirectly held an interest. The Raytel
Defendants have filed counterclaims against the Company seeking up to $8 million
in damages and injunctive relief. The Company acquired MDI (of which Springfield
and WMMRS are direct or indirect subsidiaries) in February 1997. As part of this
acquisition the seller, Advanced NMR Systems, Inc. ("ANMR"), agreed to indemnify
the Company and MDI for losses incurred in connection with the foregoing
litigation. To secure this indemnity obligation, ANMR escrowed $1 million and
1,250,000 shares in Advanced Mammography Systems, a publicly-traded company. The
Company believes that there are meritorious defenses to the claims of the Raytel
Defendants and intends to prosecute and defend this matter vigorously.
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The Company could be subject to legal actions arising out of the performance of
its diagnostic imaging services. Damages assessed in connection with, and the
cost of defending, any such actions could be substantial. The Company maintains
liability insurance which it believes is adequate for its present operations.
There can be no assurance that the Company will be able to continue or increase
such coverage or to do so at an acceptable cost, or that the Company will have
other resources sufficient to satisfy any liability or litigation expense that
may result from any uninsured or underinsured claims. The Company also requires
all of its affiliated physicians to maintain malpractice and other liability
coverage.
The Company is also a party to, and has been threatened with, a number of other
legal proceedings. While it is not feasible to predict or determine the outcome
of these matters, the Company does not anticipate that an adverse outcome in any
of these matters would have a material adverse effect on the Company. See Part
II, Item I - Legal Proceedings - for further information with respect to
litigation.
[8] ACQUISITIONS
In February 1997, the Company acquired Medical Diagnostic Inc. ("MDI") for
approximately $22 million in cash resulting in goodwill of approximately $18.3
million.
The following summarizes the unaudited pro forma effect of the acquisition of
MDI accounted for under the purchase method as if it had been acquired as of
January 1, 1996. This presentation is prepared in accordance with Accounting
Principles Board ("APB") Opinion No. 16 and does not reflect estimates for
potential operating efficiencies and other cost savings.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Revenue as Reported $109,968,430 $28,183,491
Effect of Acquisitions 3,315,950 11,283,213
------------ -----------
Pro Forma Revenue $113,284,380 $39,466,704
============ ===========
Net Income (Loss) as Reported $(9,869,838) $1,462,937
Effect of Acquisitions (395,205) 176,379
------------ ----------
Pro Forma Net Income (Loss) $(10,265,043) $1,639,316
============ ==========
Earnings (Loss) Per Share
Primary:
Historical $(.46) $.17
Effect of Acquisitions (.02) .01
---- ---
Pro Forma Earnings (Loss) Per Share $(.48) $.18
==== ===
Fully Diluted:
Historical $(.46) $.15
Effect of Acquisitions (.02) .01
---- ---
Pro Forma Earnings (Loss) Per Share $(.48) $.16
===== ===
</TABLE>
[9] TERMINATION OF EMPLOYMENT AGREEMENTS
On February 3, 1997, Jeffrey Goffman, at the time the Company's Chairman and
Chief Executive Officer, was voluntarily placed on administrative leave by the
Company's Board of Directors. During this administrative leave, he was relieved
of all corporate duties and did not participate in any meetings of the Company's
Board of Directors. On March 25, 1997, Mr. Goffman declared his election to
treat himself as having been terminated without cause by the Company under his
employment contract, thus, invoking constructive termination provisions of his
employment agreement. This action followed the recommendation of a Special
Committee of the Board of Directors reviewing the Company's former relationship
with Coyote Consulting and Financial Services, LLC and Keith Greenberg. For
further information, see Note 7 - Litigation.
On April 24, 1997, the Company and Mr. Goffman entered into a Letter of Intent
(the "Letter") with respect to the resolution of
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<PAGE>
certain disputes between Mr. Goffman and the Company in connection with his
employment with the Company. Pursuant to the terms of the Letter, Mr. Goffman
resigned as an officer, director and employee of the Company effective as of
March 31, 1997, and received $165,000 upon execution of the Letter. On July 11,
1997, the Company and Mr. Goffman entered into a Settlement Agreement and
General Release (the "Settlement Agreement"), pursuant to which, among other
things, the Company paid Mr. Goffman an additional $33,334 within two days of
the execution of the Settlement Agreement and the Company agreed to pay Mr.
Goffman an additional $266,666 in sixteen equal monthly consecutive installments
of $16,666 beginning in August, 1997. Mr. Goffman also agreed to transfer or
vote, as required by the Company, all proxies or other agreements by which he
exercises the right to vote or exercise legal control over the Company's stock
in which others have a beneficial interest. All previously vested restricted
stock and stock options granted to Mr. Goffman will be retained by him. All
unvested restricted stock as of March 31, 1997, (220,000 shares) will (i) become
vested (i.e., the applicable risk of forfeiture restrictions will lapse) in
accordance with the schedule originally established at the time of award of such
restricted stock (notwithstanding Mr. Goffman's resignation) or, if earlier,
upon the sale of the Company or a change of control (as defined), and (ii) be
placed in an escrow account held by a mutually agreeable escrow agent. In
addition, unvested options for 100,000 shares of Company Common Stock which are
exercisable at $5.125 per share will be placed in the escrow account.
Notwithstanding Mr. Goffman's resignation, these options shall vest in
accordance with the schedule originally established at the time such options
were awarded to Mr. Goffman or, if earlier, upon the sale of the Company or a
change of control (as defined) on or before March 31, 1999. All other options
which were unvested as of March 31, 1997 (specifically the 100,000 options
granted on June 1, 1996 exercisable at $7.125 and the 250,000 options granted on
October 9, 1996 exercisable at $12.125) will vest only upon the sale of the
Company or a change in control (as defined) on or before March 31,1999. No
option, whether currently vested or unvested, would be exercisable beyond its
original expiration date (exclusive of provisions for earlier termination
relating to termination of employment) or prior to the date when any exercise
price relating to the Company's Common Stock previously established for the
exercise of such option has been met. Because an incentive stock option may not
be exercised more than three months following termination of employment as a
matter of tax law, options exercised after such period would be treated as
non-statutory stock options. Any stock purchased as a result of the exercise of
an option held in the escrow account will remain in the escrow account until
released from escrow pursuant to its terms.
As part of the Settlement Agreement, the Company and Mr. Goffman have exchanged
mutual special releases, releasing certain claims and retaining the ability to
bring certain possible claims against each other. The escrow account will be
available according to its terms to satisfy in whole, or in part, any claims
excepted from the mutual special release, including claims by the Company to
require Mr. Goffman to contribute to the cost of the class action settlement.
The $165,000 paid to Mr. Goffman upon execution of the Letter, the $33,334 paid
within two days of the execution of the Settlement Agreement, the $266,666 to be
paid over sixteen months and unamortized deferred compensation relating to Mr.
Goffman in the amount of $2,343,576 are included in Settlement with Former
Executive Officer in the accompanying condensed consolidated statements of
operations for the three and six months ended June 30, 1997.
Michael D. Karsch, the Company's former Senior Vice President, General Counsel
and Secretary of the Company, and the Company were parties to a five-year
employment agreement dated June 1, 1996. On February 3, 1997, Mr. Karsch was
placed on administrative leave by the Company's Board of Directors. During this
administrative leave, he was relieved of all corporate duties and was not
permitted to participate in any meetings of the Company's Board of Directors. On
March 25, 1997, Mr. Karsch declared his election to treat himself as having been
terminated without cause by the Company under his employment contract, thus,
invoking constructive termination provisions of his employment agreement. The
Company has treated this election as a resignation. At this point, the Company
has not agreed to any severance arrangements with Mr. Karsch. The Company is
currently exploring, through counsel, the possibility of resolving any claims
with respect to Mr. Karsch's employment contract. This action followed the
recommendation of a Special Committee of the Board of Directors reviewing the
Company's former relationship with Coyote Consulting and Keith Greenberg (See
Note 7 - Litigation). At June 30, 1997, the Company has deferred compensation
totaling $541,709 relating to Mr. Karsch which is included in Deferred Stock
Based Compensation in the accompanying condensed consolidated balance sheet. For
further information regarding Mr. Karsch's employment agreement, see Item 10 -
Executive Compensation - "Employment Agreements" in the Company's 1996 Annual
Report on Form 10-KSB/A.
[10] RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement 128 "Earnings Per Share" ("FAS 128"). FAS 128 is effective for interim
and annual periods ending after December 15, 1997. Earlier application is not
permitted.
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<PAGE>
FAS 128 superseded APB Opinion 15, "Earnings Per Share". Assuming the Company
adopted FAS 128 as of January 1, 1997, the pro forma "basic" and "diluted"
earnings per share information would have been $(.46) and $(.46), respectively
for the six months ended June 30, 1997 and $(.55) and $(.55), respectively for
the three months ended June 30, 1997.
In addition, the FASB, in March 1997, issued FASB 129, "Disclosure of
Information About Capital Structure" ("FAS 129"). FAS 129 is effective for
interim and annual periods ending after December 15, 1997. The Company believes
FAS 129 will have little, if any, effect on the information already disclosed in
the Company's financial statements.
[11] ASSET IMPAIRMENT LOSSES
As a result of losses incurred by Diversified Therapy Corporation ("DTC"), an
unconsolidated investment in a start-up company accounted for using the equity
method of accounting, the Company recorded a loss of $3,537,184 in the quarter
ended June 30, 1997, representing the Company's entire recorded investment in
DTC. Other impairment losses relating to the recorded value of certain assets
totaled $188,018 for the quarter ended June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive, regulatory, growth strategies, available financing,
and other factors discussed elsewhere in this report and the documents filed by
the Company with the SEC. Many of these factors are beyond the Company's
control. Actual results could differ materially from the forward-looking
statements. In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this report will, in fact,
occur.
OVERVIEW
In connection with the six lawsuits filed against the Company in January, 1997,
as described in Item 1 of Part II, the Company's Board of Directors appointed a
special committee of outside non-employee directors to review the Company's
prior relationship with Coyote Consulting & Financial Services LLC and Keith
Greenberg. The special committee completed its investigation and recommended,
and the Company's Board of Directors approved, certain procedures, including
background investigations of management and consulting candidates, strengthening
disclosure reviews, and the election of two additional independent directors.
Having completed its investigation, the special committee reported its finding
to the Board of Directors.
The Company's operating performance is substantially dependent upon its ability
to integrate the operations of acquired facilities into the Company's
infrastructure and reduce operating expenses of acquired entities, its ability
to deliver equivalent service to clients immediately after an acquisition
without significant interruption or inconvenience and various other risks
associated with the acquisition of businesses, including expenses associated
with the integration of the acquired businesses. The Company will be required to
hire additional management and implement new systems. If the Company is unable
to manage growth effectively, the Company's operating results could be
materially adversely affected.
Approximately 96% of all the Company's revenues are derived from third party
payors. For the year ended December 31, 1996, the Company derived approximately
81% of its revenues from non-government payors and approximately 15% from
government sponsored healthcare programs (principally Medicare and Medicaid).
The Company's revenues and profitability may be materially adversely affected by
the current trend in the healthcare industry toward cost containment as
government and private third party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. Continuing budgetary constraints at both the federal and state level
and the rapidly escalating costs of healthcare and reimbursement programs have
led, and may continue to lead, to significant reductions in government and other
third party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capitated or other financial risk-shifting payment
systems by third party payors with service providers. In addition, rates paid by
private third party payors, including those that provide Medicare supplemental
insurance, are generally higher than Medicare payment rates. Changes in the mix
of the Company's patients among the non-government payors and government
sponsored healthcare programs, and among different types of non-government payor
sources, could have a material adverse effect on the Company.
14
<PAGE>
Further reductions in payments to physicians or other changes in reimbursement
for healthcare services could have a material adverse effect on the Company,
unless the Company is otherwise able to offset such payment reductions through
cost reductions, increased volume, introduction of new procedures or otherwise.
The Company reports revenue at the estimated net realizable amounts from
patients, third-party payors and others for services rendered including
estimated contractual adjustments under reimbursement agreements with
third-party payors. These adjustments are accrued on an estimated basis in the
period the related services are rendered and are adjusted in future periods as
final settlements are determined.
The accompanying condensed consolidated statements of operations for the three
and six months ended June 30,1996 and the condensed consolidated statement of
cash flow for the six months ended June 30,1996 have been restated from those
originally filed with the SEC on Form 10-QSB. The restated financial statements
for the quarter ended June 30, 1996, were filed with the SEC on Form 10-QSB/A on
May 21,1997. The restatement was necessary as a result of accounting adjustments
reflected in the Company's audited financial statements included in the
Company's Annual Report on Form 10-KSB as of and for the year ended December 31,
1996, filed with the SEC on April 11, 1997. These accounting adjustments
primarily relate to the Company's accounting for acquisitions, issuance of
equity securities and stock options and provisions for state and federal income
taxes. Weighted average shares outstanding have been restated to reflect
issuances and adjustments to equity securities and convertible debt.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 1996
Revenue for the three months ended June 30, 1997 increased from $15,615,382 in
1996, to $57,483,493 in 1997. This increase of $41,868,111 is primarily the
result of acquisitions. Revenues from businesses owned by the Company for the
entire three month periods ended June 30, 1997 and June 30, 1996 increased by
$130,253 or 1.2%. The Company incurred a loss of $11,903,600 for the three
months ended June 30, 1997 compared to net income of $431,375 for the three
months ended June 30, 1996. The loss for the three months ended June 30, 1997
includes a Loss on Settlement of Lawsuits of $4,875,000, Settlement with a
Former Executive Officer of $2,808,576 and Asset Impairment Losses totaling
$3,725,202 (See Notes 7, 9 and 11 to Condensed Consolidated Financial Statements
included in this Form 10-Q).
General and Administrative expense was $41,801,923 for the three months ended
June 30, 1997 compared to $ 8,526,924 for the three months ended June 30, 1996.
This increase of $33,274,999 is primarily due to an increase in corporate
overhead as the Company consolidated or commenced consolidation of most
administrative functions at its headquarters and increases in other general
expenses due to acquisitions, litigation and regulatory issues. General and
Administrative expenses were 72.7% of revenue in 1997 compared to 54.6 % of
revenue in 1996. Depreciation and Amortization increased by $5,516,801 from
$1,972,127 in 1996 to $7,488,928 in 1997. The increase in depreciation and
amortization is the result of the increase in intangible assets and property and
equipment primarily as a result of acquisitions.
Professional Fees increased by $3,291,086 from $441,448 in 1996 to $3,732,534 in
1997 primarily due to legal and accounting fees associated with litigation,
regulatory matters and integration of accounting systems.
Stock Based Compensation increased by $44,537 from $254,702 in the three months
ended June 30, 1996 to $299,239 in the three months ended June 30, 1997 due to
stock options and restricted stock granted in the latter half of 1996 which are
being amortized over their vesting period.
Results of operations for the three months ended June 30, 1996 includes
Compensation to Terminated Consultant of $751,861.
Interest Expense increased $2,685,673 from $1,961,047 in the three months ended
June 30, 1996 to $4,646,720 in the three months ended June 30, 1997. The
increase is primarily attributable to debt incurred to finance acquisitions and
the purchase of property and equipment.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1996
Revenue for the six months ended June 30, 1997 increased from $28,183,491 in
1996 to $109,968,430 in 1997. This increase of $81,784,939 is primarily the
result of acquisitions. Revenues from businesses owned by the Company for the
entire six month periods ended June 30, 1997 and June 30, 1996 increased by
$1,366,888 or 6.7%. The Company incurred a loss of $9,869,838 for
15
<PAGE>
the six months ended June 30, 1997 compared to net income of $1,462,937 for the
six months ended June 30, 1996. The loss for the six months ended June 30, 1997
includes a Loss on Settlement of Lawsuits of $4,875,000, Settlement with a
Former Executive Officer of $2,808,576 and Asset Impairment Losses totaling
$3,725,202 (See Notes 7, 9 and 11 to Condensed Consolidated Financial Statements
included in this Form 10-Q).
General and Administrative expense was $76,650,886 for the six months ended June
30, 1997 compared to $15,420,996 for the six months ended June 30, 1996. This
increase of $61,229,890 is primarily due to an increase in corporate overhead as
the Company consolidated or commenced consolidation of most administrative
functions at its headquarters and increases in other general expenses due to
acquisitions, litigation and regulatory issues. General and Administrative
expenses were 69.7% of revenue in 1997 compared to 54.7% in 1996. Depreciation
and Amortization increased by $10,426,409 from $3,836,670 in 1996 to $14,263,079
in 1997. The increase in depreciation and amortization is the result of the
increase in intangible assets and property and equipment primarily as a result
of acquisitions.
Professional Fees increased by $3,821,516 from $838,309 in 1996 to $4,659,825 in
1997 primarily due to legal and accounting fees associated with litigation,
regulatory matters and integration of accounting systems.
Stock Based Compensation increased by $171,067 from $567,432 in the six months
ended June 30, 1996 to $738,499 in the six months ended June 30, 1997 due to
stock options and restricted stock granted in the latter half of 1996 which are
being amortized over their vesting period.
Results of operations for the six months ended June 30, 1997 includes a $406,340
realized gain on the sale of marketable equity securities.
Results of operations for the six months ended June 30, 1996 includes
Compensation to Terminated Consultant of $773,736.
Interest Expense increased $5,865,452 from $2,654,036 in the six months ended
June 30, 1996 to $8,519,488 in the six months ended June 30, 1997 . The increase
is primarily attributable to debt incurred to finance acquisitions and the
purchase of property and equipment.
LIQUIDITY
At June 30, 1997, the Company had Cash and Cash Equivalents of $7,426,071 and a
working capital deficit of $18,835,960. The Company generated $4,349,238 from
operations during the six months ended June 30, 1997. The Company's working
capital deficit at June 30, 1997 is primarily the result of losses incurred
during the six months ended June 30, 1997 and the financing of the MDI
acquisition with short-term borrowings. The Company has $59,115,531 of debt and
other obligations under capital leases which mature over the next twelve months.
The Company used $32,158,534 for investing activities during the six months
ended June 30, 1997. Such uses included $8,121,080 to purchase property and
equipment and $21,826,861 to acquire MDI. The Company also paid distributions to
minority interests totaling $2,053,042 and made additional investments of
$2,730,191 in unconsolidated subsidiaries. The Company also paid $6,475,315 on
purchase price due on companies previously acquired. The Company sold assets and
marketable securities which generated $9,047,955 during the six months ended
June 30, 1997.
Financing activities generated $16,594,638 during the six months ended June 30,
1997. This included proceeds from borrowings totaling $31,750,000, repayments on
debt and capital lease obligations totaling $15,219,280 and exercise of options
of $63,918.
Cash and Cash Equivalents decreased by $11,214,658 from December 31, 1996 to
June 30, 1997.
The ability of the Company to raise additional funds through a public equity or
debt offering is impeded by the Company's failure to timely file a Form 8-K with
the Securities and Exchange Commission ("SEC") in November 1996 (it was
subsequently filed in July, 1997), which prevents the Company from using the
SEC's short-form registration statement (or maintaining the effectiveness of a
short-form registration statement) under the Securities Act of 1933 until the
Company has been in compliance with its periodic reporting obligations under the
Securities Act of 1934 for at least twelve months, as well as meeting the other
requirements for the use of such short-form. The failure to file the Form 8-K
also resulted in the Company's noncompliance with
16
<PAGE>
certain contractual registration obligations under agreements with holders of
unregistered securities of the Company which, absent such failure, would have
been satisfied by registering (or continuing the registration of) the restricted
securities on a short-form registration statement. Because of the existence of
the pending litigation and claims against the Company described in Notes 1, 7
and 9 of the Condensed Consolidated Financial Statements and in Part II (Other
Information), Item I (Legal Proceedings) of this Report, and other material
events concerning the Company that may occur from time to time, it is not
practical at this time to use another form for the registration of securities of
the Company, either for the issuance and sale of securities by the Company
itself or for resale by the holders of unregistered securities, since such other
form would not permit the Company to incorporate by reference its existing and
future filings with the SEC under the Securities Act of 1934 into the
registration statement and would therefore likely require frequent and costly
updating and amending and suspension of the utilization of such registration
statement until each amendment is declared effective by the SEC.
As a result of the Company's above-described non-compliance, the Company in
certain cases is required to repurchase its Common Stock from, or pay specified
liquidated damages to, persons holding such rights. Management believes that the
most significant of such rights is in connection with a settlement agreement
entered into as of December 24, 1996, pursuant to which the Company issued
68,400 shares of its Common Stock and granted the holders thereof the right to
require the Company to repurchase such shares for an aggregate consideration of
approximately $637,000 if the registration thereof with the SEC was not effected
prior to April 15, 1997. The holder of 40,000 of such shares has exercised its
repurchase right to receive $382,000, which has not been paid to date.
Management believes that the Company's potential exposure for such
non-compliance is mitigated in part because the ability of certain of the
shareholders to sell their securities under Rule 144 promulgated under the
Securities Act of 1933, because of (i) such shareholders' obligations to
mitigate their damages, (ii) increase in the price of the Company's Common Stock
during July and early August, 1997, and (iii) certain "lock-up" provisions which
restricted certain of such shareholders from selling Common Stock earlier in
1997. There can be no assurance, however, that the Company's liquidity will not
be materially adversely affected if such persons successfully assert their
rights to have their securities repurchased or to liquidated damages or make
claims against the Company for damages for breach of agreements to register
their securities, and if the Company is not able to negotiate modifications to
such agreements.
Additionally, the payment terms of the Memorandum the Company entered into in
connection with the settlement of shareholder class action claims and any other
class action lawsuits that may be filed against the Company could have a
material adverse effect on the Company's working capital. Under the terms of the
Memorandum, in August 1997, the Company paid $587,000; and the Company is
required to pay an additional $1,468,750 within 10 days of court approval of the
notice advising the class of the settlement and the remaining $3,818,758 no
later than 25 days before the final hearing for approval of the settlement. The
Company has reached an agreement in principal with its insurance company whereby
the insurance company will contribute $1 million in full satisfaction of its
directors and officers liability insurance policy obligations. In addition, the
Company is currently in negotiations with other third parties seeking
contribution. There can be no assurance that the Company will be successful in
these negotiations. Furthermore, the Company has incurred and expects to
continue to incur additional legal expenses in connection with the foregoing.
(See Note 7 - Litigation - to this Form 10-Q).
In February 1997, the Company entered into a financing agreement with DVI. The
credit facility has up to $50 million of borrowing availability. The first $25
million, which the Company fully borrowed in the quarter ended March 31, 1997,
is a revolving credit loan secured by accounts receivable, which has a term of
one year. The second $25 million is for acquisition and equipment financing. In
March 1997, the Company borrowed $5.25 million collateralized by equipment under
the second $25 million line. The $5.25 million advance and interest thereon is
payable in sixty monthly installments of $112,848 through March 2002. In June
1997, the Company borrowed an additional $1.5 million, collateralized by
equipment, under the second $25 million line. The $1.5 million advance and
interest thereon is payable in sixty monthly installments of $32,250 through May
2002. An additional $5.5 million was advanced to the Company under the second
$25 million line in July 1997, and the proceeds of the advance is not reflected
in the financial statements as of June 30, 1997. The $5.5 million advance and
interest thereon is collateralized by equipment and is payable in sixty monthly
installments of $118,250 through June 2002. As a result of these advances, the
Company has up to $12.75 million remaining under the second $25 million
facility, subject to meeting the lender's borrowing standards.
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<PAGE>
Further advances of funds on the second $25 million line, if any, are subject to
a satisfactory review by DVI of the entity being acquired and/or of the assets
securing the loan including the availability of unencumbered assets which meet
the requirements of DVI and to other conditions customary for a facility of this
nature. The Company's ability to obtain further advances is also subject to the
Company's continued satisfaction and compliance with the financial and other
covenants contained in the financing agreement. The Company's ability to satisfy
these conditions and covenants is dependent to a great extent upon its operating
results in future periods which are subject to many of the risks discussed in
the Company's Form 10-KSB for the year ended December 31, 1996. DVI may
terminate its commitment in the event of a material adverse change in the
Company's financial condition. Also, if the Company does not comply with the
covenants and other provisions of the credit facility, DVI has the right, among
other things, to require immediate repayment and to cease making any additional
advances. This credit facility also requires, among other things, that the
Company maintain $5,000,000 in cash at all reporting periods. There can be no
assurance that the Company will be able to borrow additional funds under this
credit facility.
In light of the Company's recent losses, there can be no assurance that the
operations of the Company will generate sufficient cash flow or that the Company
will be able to borrow sufficient funds or obtain sufficient capital for the
Company to meet its future cash needs. Those cash needs include, but are not
limited to, interest and principal payments on debt obligations, payments due on
operating and capital lease obligations, and payments that may be required as a
result of litigation and regulatory matters. If DVI requires repayment under the
credit facility or to the extent that Company is unable to borrow sufficient
additional funds from DVI on terms which are acceptable to it, the Company would
be compelled to seek alternative sources of financing to satisfy its
obligations. Finding an alternative source of financing may involve a
significant amount of time, and no assurance can be given that the terms of
alternative financing would be available, if at all, on the same or similar
terms of the existing credit facility or on terms which are satisfactory to the
Company. If the Company were unable to obtain satisfactory alternative
financing, the Company may be required to sell assets in order to meet its
obligations. If the Company disposes of assets, there can be no assurance that
the Company will not realize additional losses on such dispositions.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1997, six separate lawsuits were filed against the Company and
certain officers, directors and other parties related to the Company. Two were
subsequently dismissed. The lawsuits allege violations of the federal securities
laws. The lawsuits allege that as a direct result of the wrongful conduct,
plaintiffs and other members of the class suffered damages in connection with
the purchase of the Company's securities during the respective class periods.
The lawsuits seek certification of the actions as class actions, an unspecified
amount for compensatory damages in favor of plaintiffs and other members of the
class for all damages sustained as a result of the defendants alleged wrongdoing
and to award plaintiffs and the class reasonable costs and expenses incurred as
a result of the lawsuits and such other relief as the court deems just and
proper. The Company and individually named officer and director defendants have
entered into a Memorandum of Understanding (the "Memorandum") dated July 31,
1997, with plaintiffs' counsel. The Memorandum includes a denial of any
wrongdoing or liability by both the Company and individually named defendants.
In accordance with the terms of the Memorandum, the parties agreed to settle all
pending class action claims against the Company for $5,875,000. The settlement
is subject to a court approval process expected to take several months. The
Memorandum requires plaintiffs' counsel to file amended complaints expanding the
settled claims to include any claims based upon alleged misstatement of the
Company's financial condition in the Company's 1996 Forms 10-QSB (which were
subsequently restated) and its 1995 Form 10-KSB. The Memorandum provides that
the Company will pay $587,500 ten days after the date the Memorandum is
executed; an additional $1,468,750 ten days after Court approval of the proposed
notice advising the Class of the settlement; and the remaining $3,818,750 no
later than twenty-five days before a final hearing for approval of the
settlement. The first payment was made by the Company as required on August 11,
1997. The payments, when made, are to be deposited into an interest bearing
account to be held in escrow by plaintiffs' counsel, pending court approval. The
Company has reached an agreement in principal with its insurance company whereby
the insurance company will contribute $1,000,000 in full satisfaction of its
director and officer liability insurance policy obligations. In addition, the
Company is currently in negotiations with other third parties seeking
contribution. There can be no assurance that the Company will be successful in
these negotiations.
In September, 1992, MDI and its affiliate Greater Springfield MRI Limited
Partnership ("Springfield") (through its general partner, Western Massachusetts
Magnetic Resonance Services, Inc. a subsidiary of MDI ("WMMRS")), filed suits
against Raytel Corporation, Inc. and certain other parties (collectively, the
"Raytel Defendants") seeking a declaration, damages and equitable relief against
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the Raytel Defendants. Plaintiffs alleged that, among other things, the Raytel
Defendants violated their fiduciary and/or contractual obligations in attempting
(i) to interfere with plaintiffs' plans to provide imaging services on the
campus of Mercy Hospital in Springfield, Massachusetts and (ii) to coerce
plaintiffs into granting an affiliate of one of the Raytel Defendants a greater
interest in the profits of a now-dissolved joint venture in which MDI and one of
the Raytel Defendants directly or indirectly held an interest. The Raytel
Defendants have filed counterclaims against the Company seeking up to $8 million
in damages and injunctive relief. The Company acquired MDI (of which Springfield
and WMMRS are direct or indirect subsidiaries) in February 1997. As part of this
acquisition the seller, Advanced NMR Systems, Inc. ("ANMR"), agreed to indemnify
the Company and MDI for losses incurred in connection with the foregoing
litigation. To secure this indemnity obligation, ANMR escrowed $1 million and
1,250,000 shares in Advanced Mammography Systems, a publicly-traded company. The
Company believes that there are meritorious defenses to the claims of the Raytel
Defendants and intends to prosecute and defend this matter vigorously.
The Company is currently involved in litigation related to its acquisition of
stock in Integrated Health Concepts, Inc. in August 1996. Mohammed Athari, a
minority shareholder of IHC, contends that IHC is required to pay (and that the
Company has guaranteed) approximately $3.8 million of payables to Athari
controlled entities which were not scheduled at closing or reflected as
idebtedness of IHC. Another minority shareholder of IHC, Don Ballard, contends
that he is entitled to certain employment related benefits valued at more than
$250,000. The Company disputes and is vigorously contesting both claims.
Reference is made to Item 3 - Legal Proceedings - in the Company's 1996 Annual
Report on Form 10-KSB and to Note 17 "Litigation" of the Company's audited
financial statements filed with the SEC on Form 10-KSB for the year ended
December 31, 1996 for further information with respect to the foregoing
litigation.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
2.1 - Agreement and Plan of Merger, dated as of August 1,1996, among the
Company, MICA Acquiring Corporation, a California corporation and
Medical Imaging Centers of America., a California Corporation.(11)
3.1 - Certificate of Incorporation of the Registrant.(1)
3.2 - Bylaws of the Registrant.(2)
4.1 - Form of Unit Purchase Option.(1)
4.2 - Form of Warrant Agreement.(1)
4.3 - Escrow Agreement.(1)
4.4 - Indenture - 9% Subordinated Convertible Debentures.(14)
4.5 - Registration Rights Agreement.(14)
10.1 - 1993 Stock Option Plan.(1)
10.2 - Asset Purchase Agreement among the Company, Columbus Diagnostic
Center Inc. and Physicians Diagnostic Associates of Columbus, L.P.(1)
10.3 - Employment Agreement with Robert Burke, M.D.(1)
10.4 - Equipment Lease with Ventura Partners.(1)
10.5 - Lease between the Company and United Properties Co.(1)
10.6 - Asset Purchase Agreement dated as of December 31, 1994 among the
Company, Santa Fe Imaging Center, Ltd. and Santa Fe Imaging Center
Inc., a subsidiary of the Company.(2)
10.7 - Equipment Lease dated as of December 31, 1994 between Santa Fe
Imaging Center, Ltd. and Santa Fe Imaging Center
Inc., a subsidiary of the Company.(2)
10.8 - Property Lease dated as of December 31, 1994 among Santa Fe Imaging
Center, Ltd. and Santa Fe Imaging Center Inc., a subsidiary of the
Company and the Company.(2)
10.9 - Asset Purchase Agreement dated as of February 27, 1995 among the
Company, Open Air MRI, Inc., Community Radiology of Virginia, Inc. and
CROV Acquisition Corp., a subsidiary of the Company.(3)
10.10 - Radiology Agreement dated as of February 27, 1995 between Stephen
Raskin, M.D., P.C. and CROV Acquisition Corp., a subsidiary of the
Company.(3)
10.11 - Management Agreement dated as of February 27, 1995 among the Company,
Open Air MRI, Inc., Community Radiology of Virginia, Inc. and CROV
Acquisition Corp., a subsidiary of the Company.(3)
10.12 - Escrow Agreement dated as of February 27, 1995 among the Company,
Open Air MRI, Inc., Community Radiology of Virginia, Inc. and CROV
Acquisition Corp., a subsidiary of the Company.(3)
10.13 - Guaranty dated as of February 27, 1995 of the Company.(3)
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10.14 - Stock Purchase Agreement dated as of February 15, 1995 among the
Company, Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D.(4)
10.15 - Employment Agreement dated as of February 15, 1995 among the Company,
Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D.(4)
10.16 - 1995 Long Term Incentive Plan.(5)
10.17 - Consulting Agreement with Gordon Rausser.(5)
10.18 - Consulting Agreement with Coyote Consulting.(5)
10.19 - Consulting Agreement with Sawgrass Consulting.(5)
10.20 - Asset Purchase Agreement dated as of October 10, 1995 among the
Company, Central Alabama Medical Enterprises, Inc. and Advanced Medical
Imaging Center, Inc., a subsidiary of the Company.(6)
10.21 - Property Lease dated as of October 10, 1995 among the Company,
Central Alabama Medical Enterprises, Inc. and Advanced Medical Imaging
Center, Inc., a subsidiary of the Company.(6)
10.22 - Employment Agreement dated as of August 1, 1995 between the Company
and David Cohen.(6)
10.23 - Amendment to Employment Agreement of Jeffrey Goffman.(7)
10.24 - Amendment to Coyote Consulting Agreement.(7)
10.25 - Merger Agreement dated as of February 27, 1996 among the Company,
U.S. Imaging, Inc. and U.S.I. Acquisition Inc., a subsidiary of the
Company.(8)
10.26 - Escrow Agreement dated as of June 4, 1996 among the Company and the
Reese General Trust.(8)
10.27 - Asset Purchase Agreement dated as of June 28, 1996 among the Company,
Allegheny Open MRI/CT Group and USDL Pittsburgh Inc., a subsidiary of
the Company.(9)
10.28 - Registration and Sale Rights Agreement dated as of June 28, 1996
among the Company and the Allegheny Open MRI/CT Group.(9)
10.29 - Employment Agreement dated as of June 18, 1996 between the Company
and Joseph Paul.(9)
10.30 - Employment Agreement dated as of June 1, 1996 between the Company and
Michael Karsch.(9)
10.31 - Employment Agreement dated as of July 1, 1996 between the Company and
Andrew Shaw. (9)
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10.32 - Stock Purchase Agreement dated as of June 20, 1996 among the Company,
MediTek Health Corporation and HEICO Corporation.(10)
10.33 - Registration and Sale Rights Agreement dated as of June 20, 1996
between the Company and HEICO Corporation.(10)
10.34 - Termination Agreement dated January 29, 1997 among the Company,
Coyote Consulting & Financial Services LLC and Keith Greenberg.(12)
10.35 - Loan and Security Agreement and Secured Promissory Note among US
Diagnostic Inc. and DVI Credit Corporation dated as of February 25,
1997.(15)
10.36 - Subscription Agreement between Diversified Therapy Corp. and US
Diagnostic Inc.(15)
10.37- - Employment Agreement dated August 31, 1994 between US Diagnostic
Labs, Inc. and Jeffrey A. Goffman.(15)
10.38- - Amended and restated Employment Agreement dated August 9, 1996
between the Company and Todd R. Smith.(15)
10.39 - Employment Agreement dated June 30, 1995 between the Company and Amos
F. Almand, III.(15)
10.40 - Employment Agreement dated October 15, 1996 between the Company and
Len Platt.(15)
10.41 - Employment Agreement dated May 1, 1996 between the Company and Alan
M. Winakor.(15)
10.42 - Employment Agreement dated October 15, 1996 between the Company and
Arthur Quillo.(15)
10.43 - Consulting Agreement dated October 1, 1996 between the Company and
Robert Burke, M.D.(15)
10.44 - Memorandum of Understanding.(16)
10.45 - Settlement Agreement and General Release dated July 11,1997 between
the Company and Jeffrey Goffman.
10.46 - Escrow Agreement between the Company, Jeffrey Goffman and Roberto
Martinez.
10.47 - Promissory Note between the Company and Jeffrey Goffman.
10.48 - Voting Agreement between the Company and Jeffrey Goffman.
10.49 - Employment Agreement dated June 18, 1997 between the Company and
Wayne Moor.
11 - Earnings Per Share Calculation.
16.1 - Letter re change in certifying accountant from Mortenson and
Associates, P.C.(8)
21 - Subsidiaries.(15)
27 - Financial Data Schedule.
99.1 - Press release dated January 29, 1997.(12)
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99.2 - Complaints filed in the United States District Court of the Southern
District of Florida entitled Lynne M. Golden, Trustee, UAD 1/6/96;
Lynne M. Golden Trust; individually and on behalf of a class of all
persons similarly situated vs. U.S. Diagnostic Inc., Jeffrey A.
Goffman, Keith G. Greenberg, Joseph A. Paul, Robert D. Burke; Amos F.
Almand, III and Coyote Consulting & Financial Services LLC: Muriel
Edelstein vs. U.S. Diagnostic Inc., Jeffrey A. Goffman, Joseph A. Paul,
Dr. Robert D. Burke and Keith G. Greenberg: Steven Shapiro, Plaintiff;
vs. U.S. Diagnostic Inc., et al, Defendants: Sandra Neuman, Plaintiff
vs. U.S. Diagnostic Inc., et al., Defendants.(12)
99.3 - Permanent Injunction against Keith Greenberg.(12)
99.4 - Information and Guilty Plea by Keith Greenberg.(12)
99.5 - Press Release of U.S. Diagnostic Inc. dated February 3, 1997.(13)
99.6 - Press Release of U.S. Diagnostic Inc. dated July 31, 1997.(16)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (file no. 33-73414).
(2) Incorporated by reference to the Company's Report on Form 8-K dated
January 11, 1995.
(3) Incorporated by reference to the Company's Report on Form 8-K dated
February 27, 1995.
(4) Incorporated by reference to the Company's Report on Form 8-K dated
March 20,1994.
(5) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (file no. 33-93536).
(6) Incorporated by reference to the Company's Report on Form 8-K dated
October 30,1995.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,1995.
(8) Incorporated by reference to the Company's Report on Form 8-K dated
June 5, 1996.
(9) Incorporated by reference to the Company's Report on Form 8-K dated
June 28, 1996.
(10) Incorporated by reference to the Company's Report on Form 8-K dated
July 24, 1996.
(11) Incorporated by reference to the Company's Report on Form 10-QSB for
the three months ended June 30, 1996.
(12) Incorporated by reference to the Company's Report on Form 8-K dated
January 29, 1997.
(13) Incorporated by reference to the Company's Report on Form 8-K dated
February 3, 1997.
(14) Incorporated by reference to the Company's Registration Statement on
Form S-3 dated June 6, 1996.
(15) Incorporated by reference to the Company's Annual Report on Form
10-KSB/A for the year ended December 31, 1996.
(16) Incorporated by reference to the Company's Report on Form 8-K dated
July 31, 1997.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
US DIAGNOSTIC INC.
Dated: August 19, 1997 By: /S/ JOSEPH A. PAUL
---------------------
Joseph A. Paul
Chief Executive Officer,
Chief Operating Officer
and President
By: /S/ WAYNE MOOR
--------------------
Wayne Moor
Vice President and
Chief Financial Officer
25
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EXHIBIT INDEX
Exhibit
10.45 - Settlement Agreement and General Release dated July 11,1997 between
the Company and Jeffrey Goffman.
10.46 - Escrow Agreement between the Company, Jeffrey Goffman and Roberto
Martinez.
10.47 - Promissory Note between the Company and Jeffrey Goffman.
10.48 - Voting Agreement between the Company and Jeffrey Goffman.
10.49 - Employment Agreement dated June 18, 1997 between the Company and
Wayne Moor.
11 - Earnings Per Share Calculation.
27 - Financial Data Schedule.
EXHIBIT 10.45
SETTLEMENT AGREEMENT AND GENERAL RELEASE
Settlement Agreement and General Release (the "Agreement") entered into
this 11th day of July, 1997, between U.S. DIAGNOSTIC INC., a Delaware
corporation ("USD") and JEFFREY GOFFMAN, an individual ("GOFFMAN").
RECITALS
A. WHEREAS, GOFFMAN acted as a senior executive officer and director of
USD from the date of its initial public offering in October 1994 and was
employed by USD pursuant to a written agreement dated August 1994, which was
amended in writing as of October 1, l995 (hereafter referred to collectively as
the "Employment Agreement" and attached hereto as Exhibit A.)
B. WHEREAS, in or about January 1997, certain shareholders of USD filed
multiple complaints (the "Complaints") against USD in the United States District
Court for the Southern District of Florida alleging that GOFFMAN, USD and others
had violated certain securities laws by failing to make certain disclosures
regarding the background of Keith Greenberg, who acted through Coyote Consulting
as a consultant to USD.
C. WHEREAS, on or about February 3, l997 GOFFMAN voluntarily agreed to
go on administrative leave from USD while the matters alleged in the Complaints
were investigated by a Special Committee of USD's Board of Directors.
D. WHEREAS, on or about March 25, l997, GOFFMAN delivered to USD a
written notice declaring that a Special Termination (as defined in the
Employment Agreement) had occurred pursuant to Section 5(c) of the Employment
Agreement and requesting that benefits be paid to him pursuant to that Section.
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E. WHEREAS, USD has denied any liability to GOFFMAN pursuant to Section
5(c) or any other provision of the Employment Agreement.
F. WHEREAS, the parties desire to resolve all of their disputes and
differences, except as otherwise provided and specifically reserved in paragraph
4(a) of this Agreement.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the covenants, representations and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
and each of them, agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) "CLAIMS" refers to and includes all claims, demands,
rights, causes of action, rights of action, rights of subrogation, rights of
indemnity, rights to reimbursement, rights to payment, damages, liens and
remedies of every kind or nature whatsoever, whether at law, in equity, or
otherwise, which are owned or held by the parties to this Agreement, and whether
or not the same are known to the parties at the time of their execution of this
Agreement.
(b) "OBLIGATIONS" refers to and includes all obligations,
duties, liabilities, damages, expenses and debts of every kind and nature
whatsoever, owed by and to the parties to this Agreement, whether or not the
same are known to the parties at the time of their execution of this Agreement.
(c) "USD" refers to U.S. Diagnostic Inc., and its subsidiaries
and affiliates and their respective past and present officers, directors,
stockholders, employees, attorneys, successors, and assigns.
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(d) "GOFFMAN" refers to Jeffrey A. Goffman and his heirs,
representatives, successors and assigns.
(e) "SHAREHOLDER CLASS ACTIONS" refers to those actions
currently pending against USD in the United States District Court for the
Southern District of Florida identified as Case Nos. 97-8010, 97-8011, 97-8016,
97-8017, 97-8054 and 97-8068, as well as any amendments thereto and any
subsequently filed or asserted CLAIMS brought by or on behalf of USD
shareholders which relate to the same or similar facts or allegations, or to
USD's reports on its 1995 and 1996 Forms 10-K and the restatements of its 1996
quarterly reports on Forms 10-Q filed with the Securities and Exchange
Commission, and any related securities filings and/or proxy materials.
Incorporating the definitions set forth above, the parties
hereto agree as follows:
2. GENERAl
(a) It is understood that this Agreement does not
constitute an admission by any of the parties of any wrongdoing or the
existence or breach of any OBLIGATIONS whatsoever. Moreover, each of the parties
specifically denies having engaged in any wrongdoing and denies the existence of
any OBLIGATIONS or the validity of any CLAIMS asserted against it in the
Shareholder Class Actions or elsewhere.
(b) The parties are entering into this Agreement for
the purpose of fully and completely settling all differences between them
(except as specifically preserved) and in the interest of saving themselves the
costs and vexation of further legal proceedings.
(c) There are no intended third party beneficiaries
to this Agreement.
3. SETTLEMENT
3
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(a) EMPLOYMENT TERMINATION. The parties agree that
pursuant to GOFFMAN's written notice of Special Termination, dated March 25,
1997, and a Letter of Intent entered into between USD and GOFFMAN dated April
24, 1997 (the "Letter of Intent"), GOFFMAN's employment by USD was effectively
terminated on March 31, 1997, whereupon GOFFMAN resigned as a member of USD's
Board of Directors. GOFFMAN has no further rights to employment by USD or to act
as a director, agent or representative of USD in any respect.
(b) ONGOING COOPERATION
(i) GOFFMAN shall cooperate fully with counsel for
USD in the defense of the Shareholder Class Actions. Unless and until claims
pursuant to paragraphs 4(a)(i)(ii) or (iii) are brought by USD against GOFFMAN,
GOFFMAN shall, upon reasonable prior notice, make himself available during
normal business hours to the Company and/or its attorneys for meetings and
preparation. Nothing in this provision shall be deemed to require GOFFMAN to
waive any applicable privilege. Any out of pocket costs incurred by GOFFMAN in
providing such cooperation shall be borne by USD.
(ii) GOFFMAN shall also make himself available,
upon reasonable prior notice during normal business hours, to USD and/or its
counsel to provide historical information and answer other questions related to
USD's operations so as to facilitate the management transition of USD. Any out
of pocket costs incurred by GOFFMAN in making himself so available shall be
borne by USD.
(iiii) USD shall allow GOFFMAN access, on reasonable
notice and at reasonable times, to its non-privileged business records
generated prior to January 1997 for the
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purpose of allowing GOFFMAN to prepare his defense in the Shareholder Class
Actions. USD's obligation to provide such access shall terminate upon filing of
a claim by it against GOFFMAN pursuant to Sections 4(a)(i), (ii) or (iii)
hereof.
(c) CONFIRMATION REGARDING SECURITIES.
(i) USD and GOFFMAN acknowledge that during the
period of his employment with USD, GOFFMAN was awarded by action of the USD
Board of Directors the shares and options listed on Exhibit B hereto; and
(ii) GOFFMAN acknowledges and agrees that as set
forth in the Letter of Intent he agreed to transfer any proxies or other rights
to exercise voting power for any USD shares of which he is not the beneficial
owner and that he will, simultaneous with the execution of this Settlement
Agreement, reaffirm this transfer by executing a proxy letter in the form
annexed hereto as Exhibit C.
(d) PAYMENT OF CONSIDERATION. In full and complete
satisfaction of any CLAIMS or OBLIGATIONS under the Employment Agreement, as
well as any other CLAIMS related to compensation or benefits to which GOFFMAN
might be entitled in connection with his employment by USD, USD shall deliver to
GOFFMAN the following:
(i) Cash payment to GOFFMAN of $165,000, which sum
has already been paid and the receipt of which is hereby acknowledged by
GOFFMAN.
(ii) Cash payment of $33,333.44 payable to GOFFMAN
by wire transfer of immediately available funds to an account designated in
writing to USD by GOFFMAN within two (2) business days of the execution of this
Agreement.
(iii) A promissory note (the "Promissory Note") of
USD, in the form of
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Exhibit D hereto, payable to GOFFMAN in the aggregate principal amount of
$266,666.56, which amount shall be payable to GOFFMAN in sixteen (16) equal cash
payments of $16,666.66 each, due on the first day of each month commencing with
August 1, l997 and continuing for a period of sixteen (16) consecutive months.
The outstanding principal amount of the Promissory Note shall be due and payable
in full upon a sale or Change of Control ("Change of Control") of USD (as
defined in Section 15(b) of the USD Long Term Incentive Plan (the "1995 Plan").
(iv) An option agreement (the "Vested $5.125 Option
Agreement") by and between USD and GOFFMAN, dated as of the date hereof, in the
form of Exhibit E hereto, reflecting the grant to GOFFMAN on August 28, 1995 of
options exercisable to purchase 50,000 shares of Common Stock, at an exercise
price of $5.125 per share. It is expressly understood and acknowledged by USD
that these options are fully vested as of the date hereof, that such options
shall be retained by GOFFMAN and that no part of such options shall become part
of the Escrow. USD further acknowledges that GOFFMAN holds additional fully
vested options to purchase 50,000 shares of USD Common Stock at a purchase price
of $5.00 per share granted pursuant to an Option Agreement, annexed hereto as
Exhibit F, by and between USD and GOFFMAN, dated August 15, 1994 (the "1994
Option Agreement") that he shall also retain outside of the Escrow arrangement.
(v) An option agreement (the $7.125 Option
Agreement") by and between USD and GOFFMAN, dated as of the date hereof, in the
form of Exhibit G hereto, reflecting the grant to GOFFMAN of options exercisable
to purchase 100,000 shares of Common Stock at an exercise price of $7.125 per
share. The $7.125 Option Agreement shall reflect that these options will vest
only upon a sale or Change of Control of USD by March 31, 1999 and
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that in the event there has been no sale or Change of Control of USD by March
31, 1999 these options shall expire. Additionally, one-half of these options
(50,000 shares) shall be exercisable only after USD's common stock has traded at
a price of at least $15 per share.
(vi) An option agreement (the "$12.125 Option
Agreement") by and between USD and GOFFMAN, dated as of the date hereof, in the
form of Exhibit H hereto, reflecting the grant to GOFFMAN of options exercisable
to purchase 250,000 shares of Common Stock of USD at an exercise price of
$12.125. The $12.125 Option Agreement shall reflect that these options will vest
only upon a sale or Change of Control of USD on or before March 31, 1999 and
that in the event there has been no sale or Change of Control of USD by March
31, 1999, these options shall expire. Additionally, these options shall be
exercisable only after USD's Common Stock has traded at a price of at least
$16.00 per share. (The 1994 Option Agreement, the Unvested $5.125 Option
Agreement defined below, the Vested $5.125 Option Agreement, the $7.125 Option
Agreement and the $12.125 Option Agreement shall be collectively referred to as
the "Option Agreements".)
(vii) USD will provide GOFFMAN with notice of a sale
or Change of Control equivalent to the notice it provides to other non-inside,
unaffiliated shareholders of USD.
(e) ESTABLISHMENT OF ESCROW. Simultaneous with execution of
this Agreement, GOFFMAN and USD shall enter into an Escrow Agreement in the form
attached hereto as Exhibit I. Within two business days of the execution of this
Agreement, the Escrow shall be funded by the delivery of (i) an original Option
Agreement representing the right to acquire 100,000 shares at an exercise price
of $5.125 in the form attached hereto as Exhibit J (the "Unvested $5.125 Option
Agreement"); (ii) a letter confirming USD's commitment to deliver a
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certificate representing 25,000 shares of restricted USD stock granted to
GOFFMAN on August 1, 1995 which shall vest on August 1, 1997 and be delivered to
the Escrow Agent (or to GOFFMAN if the Escrow has already terminated) on August
1, 1997; (iii) a certificate for 65,000 shares of common stock representing 1/3
of the 195,000 shares of restricted stock granted to GOFFMAN on August 1, 1995,
which portion vested on May 1, 1997; and (iv) a letter confirming USD's
commitment to deliver certificates representing 65,000 shares which shall vest
on May 1, 1998, and 65,000 shares which shall vest on May 1, 1999, which
represent the presently unvested portion of the August 1, 1995 grant and the
certificates for which shall be delivered by USD to the Escrow Agent on their
vesting date (or to GOFFMAN if the Escrow has already terminated). In the event
that there is a sale of USD or a change of control of USD (as defined in Section
15(b) of the 1993 and 1995 stock plans, as applicable) the vesting and date for
delivery of such shares and options shall immediately accelerate. The assets
described in subparagraphs (i) through (iv) above and that are to be delivered
to the Escrow are hereinafter referred to as the "Escrowed Securities".
(f) To the extent that the 1993 Plan, the 1994 Option
Agreement and/or the 1995 Plan would require forfeiture of the securities
referred to in subparagraph (d) and (e) above by reason of the termination of
GOFFMAN'S employment, they are expressly superseded by this Agreement.
GOFFMAN hereby warrants and represents that he has
not transferred, assigned, pledged, encumbered or hypothecated any of the
Escrowed Securities.
(g) NONCOMPETE COVENANT.
In consideration of the various covenants,
representations and
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releases set forth in this Agreement, GOFFMAN hereby reaffirms and agrees,
except as provided below, to continue to be bound by the covenant not to compete
set forth in paragraph 6 of the Employment Agreement. USD hereby acknowledges
and agrees that, notwithstanding USD's ownership of an interest in certain
radiation therapy cancer centers, GOFFMAN shall not be prohibited from accepting
employment with a business engaging in radiation therapy as its primary line of
business, so long as such business does not own or operate facilities within 100
miles of any USD related facility that provides radiation therapy.
(h) ADVANCEMENT OF FEES. The Company reaffirms the
scope of its prior agreement to advance legal fees and expenses incurred by
GOFFMAN in connection with the SHAREHOLDER CLASS ACTIONS, and other matters in
which he may require and be legally entitled to legal representation in
connection with actions undertaken by him as an officer, employee or director of
US Diagnostic. This provision is intended to reaffirm, but not to expand in any
way, the scope of indemnification obligations as established by the Company's
Bylaws and Delaware law.
(i) REPRESENTATIONS AND WARRANTIES.
(i) USD hereby represents and warrants as
follows:
(a) It has the full power and
authority to execute, deliver and perform this Agreement, the Promissory Note,
the Escrow Agreement, the Option Agreements and the letters relating to
restricted shares referred to herein. It has duly authorized the execution,
delivery and performance of this Agreement, the Promissory Note, the Escrow
Agreement and the Option Agreements, has duly executed and delivered this
Agreement, the Promissory Note, the Escrow Agreement and the Option Agreements
and all such Agreements,
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when duly authorized, executed and delivered by GOFFMAN (if required) will
constitute legal, valid and binding obligations of USD, enforceable against it
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws now or hereafter in effect
relating to creditors' rights generally and by equitable principles of general
application (regardless or whether considered in a proceeding in equity or at
law) and the discretion of the court before which any such proceeding may be
brought;
(b) None of the execution and
delivery of this Agreement, the Promissory Note, the Escrow Agreement or the
Option Agreements, the consummation of the transactions required of it herein or
therein, nor the fulfillment of, or compliance with, the terms and conditions of
this Agreement, the Promissory Note, the Escrow Agreement or the Option
Agreements, will result in a breach of any of the terms, conditions or
provisions of its charter or by-laws or any material agreement or instrument to
which it is now a party or by which it is bound or constitute a material default
or result in an acceleration under any of the foregoing, or result in the
violation of any law, rule, regulation, order, judgment or decree to which it or
its property is subject;
(c) No consent, approval,
authorization or order of any court or governmental agency or body is required
for the execution, delivery and performance by it of, or compliance by it with,
this Agreement, the Promissory Note, the Escrow Agreement, or the Option
Agreements.
(d) There is no currently pending
litigation which would prevent USD from entering into or performing its
obligations under the terms of this Agreement.
(ii) GOFFMAN hereby represents and warrants
as follows:
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(a) He has the full power and
authority to consummate all transactions required of him by this Agreement, the
Promissory Note and the Escrow Agreement. He has duly executed and delivered
this Agreement and the Escrow Agreement, both of which, when duly authorized,
executed and delivered by USD, will constitute legal, valid and binding
obligations of GOFFMAN, enforceable against him in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws now or hereafter in effect relating to creditors'
rights generally and by equitable principles of general application (regardless
of whether considered in a proceeding in equity or at law) and the discretion of
the court before which any such proceeding may be brought;
(b) Neither the execution and
delivery of this Agreement or the Escrow Agreement, the consummation of the
transactions required of him herein or therein, nor the fulfillment of, or
compliance with, the terms and conditions of this Agreement or the Escrow
Agreement will conflict with, or result in, a breach of any of the terms,
conditions or provisions of any material agreement or instrument to which he is
now a party or by which he is bound or constitute a material default or result
in an acceleration under any of the foregoing, or result in the violation of any
law, rule, regulation, order, judgment or decree to which he or his property is
subject;
(c) No consent, approval,
authorization or order of any court or governmental agency or body is required
for the execution, delivery and performance by him of, or compliance by him
with, this Agreement or the Escrow Agreement.
(d) GOFFMAN was not awarded and did
not receive any stock or options in USD during the period of his employment with
the Company other than as
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specifically set forth on Exhibit B hereto, and has no claim to any additional
securities from USD.
(e) There is currently no pending
litigation which would prevent GOFFMAN from entering into or performing his
obligations under this Agreement.
4. RELEASES.
(a) GOFFMAN and USD agree to and do hereby fully,
finally and forever release, quitclaim and discharge each other from any and all
CLAIMS and/or OBLIGATIONS, known or unknown, at law or in equity, which they may
now or hereafter have or claim to have had against each other, regardless of
when arising up to the date of final execution of this Agreement, including, but
without limiting the generality of the foregoing, any and all matters arising
out of or in any manner whatsoever connected with GOFFMAN's employment and/or
contractual relationships with, and/or in his capacity as an officer or director
of, USD, except that the following CLAIMS are not released and are specifically
preserved by the parties.
(i) any CLAIMS asserted in or arising out
of the SHAREHOLDER CLASS ACTIONS, including any rights of contribution or
indemnity which GOFFMAN or USD may have against each other in connection with
such CLAIMS, regardless of whether asserted in the same or separate litigation;
(ii) any CLAIMS against GOFFMAN based upon
intentional fraud or other intentional misconduct, provided such CLAIMS are
brought by April 24, 1998; and
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(iii) any CLAIMS against GOFFMAN based upon
allegations that he either directly or indirectly, received improper financial
benefit from any transaction involving USD, provided such CLAIMS are brought by
April 24, 1998, and provided further that no salary, bonus or options paid to
GOFFMAN by USD and approved by USD's Board of Directors or other benefits
provided to GOFFMAN in accordance with GOFFMAN's employment contract with USD
shall constitute an "improper financial benefit;" and
(iv) any CLAIMS asserted or arising out of
a breach, or threatened breach, of any of the terms or conditions of this
Agreement, the Escrow Agreement, the Promissory Note or the Option Agreements
referred to herein.
(b) Without limiting the generality of the foregoing,
the parties acknowledge and agree that among those CLAIMS and OBLIGATIONS
released are those arising under the laws of the United States and the laws of
any State of the United States (including but not limited to the laws of
Florida, Delaware and New York).
(c) The parties acknowledge and agree that the
Releases contained herein are general in nature (with specific exclusions) and
the parties expressly waive and assume the risk of any and all CLAIMS which
exist as of the date of this Agreement but which they do not know or suspect to
exist as of the date of this Agreement, whether through ignorance, oversight,
error, negligence, or otherwise, and which, if known, would materially affect
their decision to enter into this Agreement. The parties agree that the release
set forth in this Agreement is a full and final release applying to all unknown
and unsuspected CLAIMS (with only the exceptions stated herein) but that it
shall not apply to release CLAIMS based solely on events occurring after the
date of execution of this Agreement, or CLAIMS based upon a breach
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of the terms of this Agreement.
5. SUCCESSORS AND ASSIGNS. All agreements, acknowledgments,
declarations, representations, understandings, promises, warranties,
authorizations and instructions made, and all understandings expressed by the
parties hereto, and each of them, in this Agreement and all benefits accruing
under this Agreement apply to and bind their respective makers as well as their
heirs, officers, directors, employees, attorneys, affiliates, subsidiaries,
predecessors, successors and assigns.
6. MODIFICATIONS. This Agreement may not be modified except
by a writing signed by GOFFMAN and USD or their duly authorized representatives.
7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which when
taken together shall constitute one and the same instrument.
8. COMPETENCY OF PARTIES. The parties, and each of them
acknowledge, warrant, represent and agree that in executing and delivering this
Agreement, they do so freely, knowingly and voluntarily, that they have
discussed its terms and implications with their legal counsel, that they are
fully aware of the contents and effect thereof, and that such execution and
delivery is not the result of any fraud, duress, mistake or undue influence
whatsoever.
9. VOLUNTARY EXECUTION OF AGREEMENT. The parties, and each of
them, have freely and voluntarily executed this Agreement and are not acting
under coercion, duress, menace, economic compulsion, or because of any purported
disparity in bargaining power; rather, GOFFMAN and USD are freely and
voluntarily signing this Agreement for each's own benefit.
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10. REPRESENTATION BY COUNSEL. GOFFMAN and USD acknowledge
that they have been represented in the negotiations for, and in the preparation
of, this Agreement by counsel of their own choosing; that they have read this
Agreement or have had it read to them by their counsel; and that they are fully
aware of and understand its contents and legal effect. Accordingly, this
Agreement shall not be construed against any party, and the usual rule of
construction that an agreement is construed against the party which drafted it
shall not apply.
11. AUTHORITY. The person executing this Agreement on behalf
of USD hereby warrants that he has such authority and that the terms of this
Agreement were approved by the USD Board of Directors at a regularly conducted
meeting.
12. MISTAKE IN FACTS OR LAW. The parties acknowledge and
understand that both the facts and the law pertaining to and giving rise to this
Agreement may hereafter turn out to be different than they now believe. The
parties expressly assume the risk of any such difference in facts or law and
agree that this Agreement shall continue in full force and effect
notwithstanding any such difference.
13. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, if delivered personally or by telecopy,
or five days after being mailed, if mailed by registered or certified mail
(postage prepaid, return receipt requested), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to GOFFMAN:
Jeffrey Goffman
1116 Highland Beach Drive
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Highland Beach, FL 33487
Telephone: (561) 266-0050
Telecopy: (561) 243-1144
with a copy to:
Andrew J. Levander, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 758-9500
Telecopy: (212) 758-9526
(b) if to USD:
U.S. Diagnostic Inc.
777 South Flagler Drive
West Palm Beach, FL 33401
Telephone: (561) 832-3972
Telecopy: (561) 833-8391
Attention: President
14. ENTIRETY OF AGREEMENT. The parties hereto acknowledge and
agree that this instrument and any other instruments specifically referred to
herein constitute and contain the entire agreement and understanding concerning
the subject matter hereof and supersede and replace all prior negotiations and
proposed agreements, whether written or oral, including but not limited to the
Letter of Intent. The parties, and each of them, warrant that no other party or
any agent or attorney of any other party has made any promise, representation or
warranty whatsoever not contained herein to induce them to execute this
instrument and the other documents referred to herein. The parties, and each of
them, represent that they have not executed this instrument or the other
documents referred to herein in reliance on any promise, representation or
warranty not contained herein.
15. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective
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immediately upon the execution hereof by each of the parties below.
16. HEADINGS. The various headings in this Agreement are
inserted for convenience only and shall not be deemed a part of or in any manner
affect this Agreement or any provision hereof.
17. BREACH OF THE AGREEMENT. In the event of a breach of any
provision of this Agreement, the prevailing party shall be entitled to recover
all provable damages, consequential or otherwise, in addition to such other
remedies as may be available under this Agreement, at law or in equity.
18. SEVERABILITY. Should any part, term or provision of this
Agreement be declared or determined by a court or other tribunal of competent
jurisdiction to be illegal, invalid or unenforceable, that term or provision
shall be deemed stricken from this Agreement and all of the other parts, terms
and provisions of this Agreement shall remain in full force and effect to the
fullest extent permitted by law.
19. TAXES. The parties hereto agree that any federal, state or
local tax that may be owed or payable by each of them in connection with this
Agreement shall be the sole and exclusive responsibility of each such party.
Each party hereto also acknowledges that no opposing party to this Agreement,
nor counsel for any such opposing party, has provided it with any advice
concerning the tax consequences of this Agreement or any other legal or factual
issue whatsoever.
20. ABSENCE OF ENCUMBRANCES. Except as provided in the Escrow
Agreement, the parties hereto represent and warrant that no person, entity or
attorney has any lien rights in or relating to the matters covered by this
Agreement, the CLAIMS they are releasing pursuant to
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<PAGE>
this Agreement, or the consideration they are to receive pursuant to this
Agreement. Any party who breaches this warranty shall fully indemnify the other
party affected thereby including but not limited to reimbursement of the costs
of defending any CLAIMS brought by third parties. Any party damaged by such
breach is expressly granted the right to select its own counsel and control the
manner in which the defense of any such CLAIM is conducted.
21. ATTORNEYS' FEES. In the event of any dispute regarding
this Agreement or the assertion between the parties of any CLAIMS that are not
released pursuant to paragraph 4, the prevailing party shall be entitled to
recover its attorneys' fees, costs and all related expenses.
22. FLORIDA LAW.This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
BY AFFIXING HIS SIGNATURE BELOW, EACH OF THE PERSONS SIGNING
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE REPRESENTS THAT HE HAS READ AND
UNDERSTANDS THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE, THAT HE IS AUTHORIZED
TO SIGN THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE, AND THAT THE PARTY ON
BEHALF OF WHOM HE SIGNS THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE AGREES TO
BE BOUND BY ITS TERMS.
Date: July 11, 1997 /s/ JEFFREY A. GOFFMAN
_________________________
Jeffrey A. Goffman
U.S. DIAGNOSTIC INC.
Date: July 11, 1997 By: /s/ JOSEPH A. PAUL
_________________________
Joseph A. Paul, President
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EXHIBIT 10.46
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated July 11, 1997, is
entered into by and among Jeffrey Goffman ("Goffman"), an individual and
resident of the State of Florida, US Diagnostic Inc., a Delaware corporation
having its headquarters in West Palm Beach, Florida, ("USD"), and Roberto
Martinez (the "Escrow Agent"), an attorney licensed to practice law in the State
of Florida.
RECITALS
A. Goffman is a former officer and director of USD.
B. Goffman and USD are parties to that certain Settlement Agreement and
Mutual Release (the "Settlement Agreement") entered into of even date herewith
which provides for certain securities and cash to be delivered to Goffman and
for the establishment of this Escrow in connection with Goffman's resignation as
an officer, director, employee and proxy holder of USD. The purpose of the
Escrow is to hold certain securities and the proceeds thereof as security for
certain potential liabilities of Goffman to USD which have not been released in
the Settlement Agreement. Goffman disputes any and all such claims.
C. The Escrow Agent has agreed to serve as escrow agent and to hold
certain portions of the aforementioned securities in accordance with the terms
and conditions hereof.
AGREEMENT
In consideration of the recitals set forth above and of the mutual
covenants and agreements contained herein, and intending to be legally bound,
the parties hereto hereby covenant and agree as follows:
1. ESTABLISHMENT OF ESCROW FUND.
(a) Within two business days after full execution of this Agreement by
all parties hereto, the Escrow shall be funded by:
(i) USD's delivery to the Escrow Agent of an original
Option Agreement from USD currently held by Goffman representing the right to
acquire 100,000 shares at an exercise price of $5.125, a copy of which is
attached hereto as Exhibit A. It is expressly understood and agreed that this
grant is part of a larger grant of 150,000 options which 50,000 have already
vested and are being retained by Goffman pursuant to the Settlement Agreement.
The balance of 100,000 which are to be escrowed options shall vest and become
exercisable by Goffman 50,000 on August 25, 1997 and 50,000 on August 25, 1998.
(ii) USD's delivery to the Escrow Agent of the following
additional shares and options; (a) a letter confirming USD's commitment to
deliver a certificate representing
<PAGE>
25,000 shares of restricted USD stock granted to Goffman on August 1,1995 which
shall vest on August 1, 1997 and be delivered to the Escrow Agent (or to Goffman
if the Escrow has already terminated) on August 1, 1997; (b) a certificate for
65,000 shares of common stock representing 1/3 of the 195,000 shares of
restricted stock granted to Goffman on August 1, 1995, which portion vested on
May 1, 1997; and (c) a letter confirming USD's commitment to deliver
certificates representing 65,000 shares which shall vest on May 1, 1998, and
65,000 shares which shall vest on May 1, 1999, which represent the presently
unvested portion of the August 1, 1995 grant and the certificates for which
shall be delivered by USD to the Escrow Agent on their vesting date (or to
Goffman if the Escrow has already terminated). In the event that there is a sale
of USD or a change of control of USD (as defined in Section 15(b) of the 1993
and 1995 stock plans, as applicable) the vesting and date for delivery of such
shares and options shall immediately accelerate.
(b) The assets described in subparagraphs (i) and (ii) above and that
are to be delivered to the Escrow are hereinafter referred to as the "Escrowed
Securities".
(c) Until the termination of the escrow, as defined below, the Escrow
Agent shall hold the Escrowed Securities on behalf of Goffman and USD and shall
receive any distributions, dividends, replacements, substitutes, or proceeds
thereof including any shares issued by USD pursuant to an exercise of the
options or fulfillment of the restricted stock commitment. All such assets shall
be deposited with the Escrow Agent and shall be subject to this Agreement and
become part of the Escrow Fund.
(d) If during the period of the Escrow, Goffman elects to exercise any
of the options which are held in the Escrow Fund, he shall deliver to the Escrow
Agent written notice of such election, together with directions as to the number
of shares to be purchased by virtue of such exercise. This notice shall be
accompanied by Goffman's payment in the form of a check made payable to US
Diagnostic Inc. in the amount necessary to complete the exercise of options. The
Escrow Agent shall promptly transmit the payment to USD together with directions
to exercise the options and deliver the shares acquired to the Escrow Agent.
Upon receipt of such shares, the Escrow Agent shall release to Goffman a portion
of the shares which, based upon the closing price on the date immediately prior
to such exercise, had a value equal to the cash amount delivered by Goffman as
the exercise price.
2. ESCROW TO SECURE PAYMENT OF CERTAIN CLAIMS.
Goffman hereby acknowledges to USD that the Escrowed Securities, the
Escrow Fund and any and all assets which are required to be deposited into the
Escrow Fund pursuant to this Agreement and their proceeds, replacements and
substitutes shall secure any obligation Goffman may have now or hereafter to USD
based upon;
(a) Claims asserted in or arising out of the Shareholder Class Action
as defined in the Settlement Agreement, including any rights of contribution or
indemnity which USD may have against Goffman in connection with such claims,
regardless of whether asserted in the same or separate litigation;
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(b) Intentional fraud or other intentional misconduct by Goffman,
provided such claims are brought by USD on or before April 24, 1998.
(c) Allegations that Goffman either directly or indirectly, received
improper financial benefit from any transaction involving USD, provided such
claims are brought by USD on or before April 24, 1998, and provided further that
no salary, bonus or options paid to Goffman by USD and approved by USD's Board
of Directors or other benefits provided to Goffman in accordance with Goffman's
employment contract with USD shall constitute "improper financial benefit"; and
(d) Claims to require Goffman to reimburse any attorneys' fees or costs
of defense paid on his behalf by USD.
USD's right to draw down on the Escrow to satisfy a judgment or
settlement regarding the claims delineated in paragraph 2 above shall remain
until the termination of this escrow. Goffman shall not grant, and shall take
reasonable steps to oppose the imposition of, any lien, security interest in or
other claim upon the Escrowed Securities or Escrow Fund except for the lien in
favor of the Escrow Agent set forth herein. Goffman represents and warrants that
none of the Escrowed Securities, nor any of the rights they represent, have been
transferred, assigned, pledged, encumbered, or hypothecated and that he will not
encumber and part of the Escrow Fund at any time prior to the termination of
this escrow.
3. DISTRIBUTION OF THE ESCROW FUND; TERMINATION.
(a) The escrow shall continue in full force and effect until April 24,
1998 (or, if earlier, the final resolution of all claims delineated in paragraph
2 above), at which time the Escrow Fund shall be released to Goffman unless the
Escrow Agent has received written notice from USD on or before close of banking
business on that date certifying that (A) a claim of the type specified in
paragraph 2 of this Agreement has been made by USD against Goffman in a judicial
proceeding and (B) a copy of such written notice has been delivered by USD to
Goffman in accordance with the provisions of Section 7 hereof, in which event
the Escrow Agent shall continue to hold the Escrow Fund until a further notice
is delivered to the Escrow Agent in accordance with subsection 3(b) below.
(b) The Escrow Agent shall release to USD the Escrow Fund or portion
thereof as directed by USD upon receipt of written notice from USD, certifying
that USD has made a claim of the type specified in paragraph 2 of this Agreement
against Goffman and further certifying that written notice thereof has been
delivered to Goffman and that (x) a final, nonappealable judgment has been
entered by a court of competent jurisdiction in connection with such claim and
attaching to such notice a certified copy of the judgment, or (y) a settlement
of such claim has been reached and attaching to such notice a true and correct
copy of the settlement agreement executed by Goffman. The specific portion of
the Escrow Fund to be released to USD shall be determined as set forth in
subparagraph (c) below.
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(c) Together with the Notice set forth in subparagraph (b) above, USD
shall provide the Escrow Agent and Goffman with a computation of the fair market
value ("Fair Market Value") of any securities held in the Escrow Fund as of the
date of such Notice, and shall precisely identify the particular securities to
be released from escrow based upon such computation. "Fair Market Value" shall
be determined as of the date that the applicable judgment became final and
non-appealable or the date that the Settlement became final and enforceable, and
with respect to shares of Common Stock shall be determined as follows, (i) the
mean between the closing bid and asked prices for such shares on the
over-the-counter market as reported by the National Association of Securities
Dealers' automatic quotation system ("NASDAQ"); or (ii) if such shares are
traded on a national securities exchange or quoted on the NASDAQ National Market
System, by reference to the closing price; or (iii) if the Common Stock is not
so listed or admitted to unlisted trading privileges and bid and asked prices
are not reported, the Fair Market Value shall be determined in such reasonable
manner as may be agreed to by the parties. With respect to options in the
Escrow, Fair Market Value shall be calculated pursuant to the "Black Scholes"
formula. USD shall certify that such computations in reasonable detail have been
delivered to Goffman and, prior to any release from escrow, there shall elapse
five (5) business days without written objection from Goffman being received by
the Escrow Agent. If the Escrow Agent receives a written objection from Goffman,
then the Escrow Agent shall retain the Escrow Fund in escrow until receipt of a
written notice signed by Goffman and USD or a certified copy of a final,
nonappealable judgment entered by court of competent jurisdiction, in either
such event directing how the Escrow Fund or portion thereof shall be released.
If, however, 125% of the Fair Market Value of the securities to be released from
Escrow pursuant to USD's Notice is less than the total Fair Market Value of the
Escrow Fund, then the securities or other assets over and above 125% of the Fair
Market Value of the securities to be released pursuant to USD's Notice shall
immediately be released from the Escrow to GOFFMAN. Under any circumstances
where a portion of the Escrow Fund is to be distributed to Goffman and a portion
either distributed to USD or retained in escrow, USD shall be entitled to select
which assets are to be distributed to whom.
(d) Prior to Service of a notice as set forth in subparagraph (b)
above, Goffman shall be entitled to direct the Escrow Agent to invest any cash
or cash equivalents in the Escrow Account in any "Permitted Investment".
"Permitted Investments" means (i) obligations of the United States government
due within one year; (ii) certificates of deposit or Eurodollar deposits due
within one year with a commercial bank having capital funds of at least
$500,000,000 or more; (iii) commercial paper rated at least A-1 by Standard &
Poor's Corporation or at least P-1 by Moody's Investors Service, Inc.; (iv) debt
of any state or political subdivision that is rated among the two highest rating
categories obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc. and is due within one year; (v) repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition;
provided, however, that the terms of such agreements comply with the guidelines
set forth in the Federal Financial Agreements of Depository institutions with
Securities Dealers and Others, as adopted by the Comptroller of the Currency;
and (vi) Investments represented by Interest Rate Protection Obligations and
Currency Hedging Agreements. Subsequent to service
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of a notice as set forth in subsection (b) above, the Escrow Agent shall accept
such investment instructions only from USD.
4. ESCROW AGENT.
(a) The Escrow Agent shall hold the Escrow Fund in trust for the
parties and, prior to receipt of a Notice from USD conforming with paragraph
3(c), shall accept written instructions from Goffman regarding the exercise of
options which are held in the Escrow Fund. With regard to all matters other than
the exercise of such options or the notices set forth in paragraphs 3(b) and
3(d) above, instructions given to the Escrow Agent must be jointly executed by
Goffman and USD.
(b) The Escrow Agent shall not in any way be bound or affected by a
notice of modification or cancellation of this Agreement unless written notice
thereof is given to the Escrow Agent by Goffman and USD, nor shall the Escrow
Agent be bound by any modification of its obligations hereunder unless the same
shall be consented to by the Escrow Agent in writing. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other writing
delivered to it hereunder without being required to determine the validity,
authenticity or the correctness of any facts stated therein, the propriety or
validity of the service thereof, or the jurisdiction of any court issuing any
judgment.
(c) The Escrow Agent shall not be under any duty to give the property
held by it hereunder any greater care that it gives its own similar property.
(d) The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine, and it may assume that any person
purporting to give any notice or make any statement in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent shall not be liable for any mistake of fact or
error of judgment, or for any acts or omissions of any kind except as such act
or omission constitutes willful misconduct, bad faith, gross negligence or
fraud.
(f) The Escrow Agent shall not have any responsibility for the payment
of taxes. Goffman hereby represents that his Social Security Number is
###-##-####. For tax and withholding purposes all dividends, income and proceeds
of the Escrow Fund realized prior to a final distribution shall be allocable
exclusively to Goffman.
(g) This Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. Except as otherwise
expressly provided herein, the Escrow Agent shall not refer to, and shall not be
bound by, the provisions of any other agreement and no implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
(h) USD and Goffman, jointly and severally, agree to indemnify the
Escrow Agent and to hold the Escrow Agent harmless from and against any and all
claims, actions, suits, proceedings, investigations, demands, damages,
penalties, interest, expenses, fees or charges or
5
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any other liabilities of any character or nature, including attorneys' fees
(whether suit is instituted or not and, if instituted, whether at trial or
appellate level) (collectively, the "Liabilities"), whether raised by the
parties hereto or any third party, which the Escrow Agent may incur or with
which it may be threatened by reason of acting as Escrow Agent under this
Agreement, and the Escrow Agent shall have a lien on the Escrow Fund for such
indemnification which lien shall be prior to all other liens upon or claims
against such Escrow Fund; provided, however, that the Escrow Agent shall not be
entitled to indemnification for any Liabilities caused solely by its own gross
negligence, willful misconduct, bad faith or fraud.
(i) The Escrow Agent shall not be required to institute or defend any
action involving any matters referred to herein or which affect it or its
duties, unless or until requested to do so by any party to this Agreement and
then only upon receiving full indemnity, in character reasonably satisfactory to
the Escrow Agent, against any and all Liabilities in relation thereto.
(j) If the parties to this Agreement shall be in disagreement
concerning the interpretation of this Agreement, their rights and obligations
under this Agreement or the propriety of any action contemplated by the Escrow
Agent under this Agreement, the Escrow Agent may, but shall not be obligated to,
file an interpleader action to resolve such disagreement. The Escrow Agent shall
be indemnified for all costs and expenses, including reasonable attorneys' fees,
incurred in connection with such interpleader action in accordance with Section
4 (h) above.
(k) The Escrow Agent shall be entitled to be reimbursed for all costs
and expenses incurred by it in the performance of its duties under this
Agreement, including, without limitation, the customary hourly rates of any of
its representatives involved in performing its duties hereunder, and such costs,
expenses and fees shall be paid by USD and Goffman in equal proportions. The
Escrow Agent shall have a lien on the Escrow Fund for such reimbursement
obligations, which shall be the only permitted lien upon such Escrow Fund.
5. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign at any time
upon giving the parties hereto sixty (60) days written notice to that effect. In
such event the successor shall be a person, firm or corporation which shall be
mutually selected by Goffman and USD. It is understood and agreed that such
resignation shall not be effective until a successor is appointed and agrees to
act hereunder, and upon the effectiveness of such resignation, the Escrow Agent
shall be relieved of any liability or responsibility with respect to the Escrow
Fund arising thereafter; provided, however, in the event no successor is
appointed and acting hereunder within sixty (60) days of such notice, the Escrow
Agent may either petition a court of competent jurisdiction to name a successor
or deliver the Escrow Fund into a court of competent jurisdiction in the State
of Florida, and upon such deposit, the Escrow Agent shall be relieved of any
liability or responsibility with respect thereto arising thereafter.
6. TERMINATION. This Agreement and the escrow created by its terms
shall terminate upon the full distribution of the Escrow Fund or upon mutual
written agreement of the parties hereto (the "Termination Date"), and the Escrow
Agent shall thereafter be relieved of all further responsibilities hereunder.
6
<PAGE>
7. NOTICES. Any notice, direction, request, instruction, legal process
or other instrument to be given or served hereunder shall be in writing and
shall be delivered by certified mail, return receipt requested, or by hand or
courier service, and shall be deemed received upon actual receipt, provided that
the issuing party can furnish evidence of receipt by the addressee, to all
parties at the following addresses:
(i) If to Goffman: Jeffrey A. Goffman
1116 Highland Beach Drive
Highland Beach, FL 33487
With a copy to: Andrew J. Levander, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022-9998
(ii) If to USD: US Diagnostic Inc.
777 South Flagler Drive
West Palm Beach, FL 33401
Attention: President
(iii) If to Escrow Agent: Roberto Martinez, Esq.
200 South Biscayne Boulevard
Suite 4700
Miami, FL 33131
Any party may change his or its address by written notice to each of the other
parties.
8. MISCELLANEOUS.
(a) The parties hereto agree that this Agreement has been
executed and delivered in the State of Florida and shall be governed and
construed in accordance with the laws of such state without regard to the
conflicts of laws provisions thereof.
(b) USD and Goffman hereby irrevocably submit in any suit, action or
proceeding arising out of or relating to this Agreement or any transactions
contemplated hereby to the exclusive jurisdiction of the United State District
Court for the Southern District of Florida or if jurisdiction is not available
therein the jurisdiction of any court of the State of Florida, and waive any and
all objections to such jurisdiction or venue that they may have under the laws
of any state or county, including, without limitation, any argument that
jurisdiction, suits and/or venue are inconvenient or otherwise improper. Each
party further agrees that process may be served
7
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upon such party in any manner authorized under the laws of the United States or
Florida, and waives any objections that such party may otherwise have to such
process.
(c) The parties hereto agree to execute and deliver any and all
documents and to take such further action as shall be reasonably required to
effectuate the provisions of this Agreement.
(d) This Agreement and the Settlement Agreement contain the entire
understanding of the parties hereto with respect to the subject matter herein
contained and shall not be modified except by a writing signed by all the
parties hereto.
(e) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, estates, beneficiaries,
representatives, successors and assigns.
(f) This Agreement may be executed in one or more counterparts, all of
which when taken together shall comprise one instrument.
Date: 7/11, 1997 /s/ JEFFREY A. GOFFMAN
---------------------------
Jeffrey A. Goffman
US DIAGNOSTIC INC.
Date: July 11, 1997 By: /s/ JOSEPH A. PAUL
---------------------------
Joseph A. Paul, President
ESCROW AGENT
Date: July 16, 1997 /s/ ROBERTO MARTINEZ
---------------------------
Roberto Martinez
8
<PAGE>
EXHIBIT A
OPTIONEE: JEFFREY A. GOFFMAN
US DIAGNOSTIC INC.
NON-STATUTORY NON-QUALIFIED
STOCK OPTION AGREEMENT
(THE "UNVESTED $5.125 OPTION AGREEMENT")
OPTION AGREEMENT dated as of July 11, 1997, between US DIAGNOSTIC INC., a
Delaware corporation (the "Company"), and Jeffrey A. Goffman (the "Optionee"),
an individual, residing at 1116 Highland Beach Blvd., Highland Beach, FL 33487.
The Company has adopted the 1995 Long-Term Incentive Plan (the "Plan"), a
copy of which is attached hereto or has previously been provided to Optionee,
and desires to grant to the Optionee the Non-Statutory Non-Qualified Stock
Option provided for herein, all subject to the terms and conditions of the Plan
except as provided herein. Capitalized terms used herein and not defined have
the same meanings as set forth in the Plan.
IT IS AGREED as follows:
1. GRANT OF OPTION. The Company hereby confirms that it granted to the
Optionee on August 28, 1995 the right and option to purchase (subject to
adjustment pursuant to Section 15 of the Plan) an aggregate of one hundred
thousand (100,000) of its shares of Common Stock, $.01 par value, ("Common
Stock") at an option price per share equal to $5.125.
2. OPTION PERIOD. The option granted hereby shall expire on August 28,
2001, subject to earlier termination as provided in the Plan exclusive of
provisions for earlier termination relating to termination of employment.
<PAGE>
3. EXERCISE OF OPTION.
A. The Optionee may exercise the option hereby granted to the extent and
from and after the dates set forth below on a cumulative basis, or, if earlier,
upon a sale or Change of Control ("Change of Control") of the Company (as
defined in Section 15(b) of the USD Long Term Incentive Plan) on or before
March 31, 1999:
NUMBER OF SHARES INITIAL EXERCISE DATE
---------------- ---------------------
50,000 August 28, 1997
50,000 August 28, 1998
B. The Optionee may exercise the option (to the extent then exercisable)
by delivering to the Company a written notice duly signed by the Optionee
stating the number of shares that the Optionee has elected to purchase and
accompanied by (i) payment (by certified or cashiers check) of an amount equal
to the full purchase price for the shares to be purchased, or (ii) any other
method of payment provided for in the Plan to which the Committee of the
Company's Board of Directors administering the Plan may consent. "Fair Market
Value" of a share of Common Stock of the Company as of a specified date for the
purposes of the Plan shall mean the closing sale price of a share of the Common
Stock on the principal securities exchange or the Nasdaq National Market on
which such shares are traded on the date immediately preceding the date as of
which Fair Market Value is being determined, or on the next preceding date on
which such shares are traded if no shares were traded on such immediately
preceding day, or if the shares are not traded on a securities exchange or the
Nasdaq National Market, Fair Market Value shall be deemed to be average of the
high bid and low asked prices of the shares on the over-the-counter market on
the date immediately preceding the date as of which Fair Market Value is being
determined on or the next preceding date on which such
2
<PAGE>
high bid and low asked prices were recorded. If the shares are not publicly
traded, Fair Market Value of a share of Common Stock (including, in the case of
any repurchase of shares, any distributions with respect thereto which would be
repurchased with the shares) shall be determined in good faith by the Board of
Directors. In no case shall Fair Market Value be determined with regard to
restrictions other than restrictions, which by their terms, will never lapse.
Within twenty days after receipt by the Company of such notice and payment, the
Company shall issue the shares in the name of the Optionee and deliver the
certificate therefor to the Optionee shall have none of the rights of a
shareholder in respect of such shares until they are issued.
4. NON-TRANSFERABILITY OF OPTION. This option shall not be transferable
other than by will or by the laws of descent and distribution, and may be
exercised during the Optionee's lifetime only by the Optionee.
5. INCORPORATION OF PLAN. The option granted hereby is subject to, and
governed by, all the terms and conditions of the Plan, which are hereby
incorporated by reference. In the case of any conflict between the terms of
this agreement and the Plan, the provisions of this Agreement shall control.
6. PURCHASE FOR INVESTMENT. As a condition to the exercise in whole or in
part of the option hereby granted, each written notice of election shall include
a representation by the Optionee that the shares are being purchased for
investment and not for distribution or resale.
7. NOTICES. Any notice to be given by the Optionee hereunder shall be sent
to the Company at its principal executive offices, and any notice from the
Company to the Optionee shall be sent to the Optionee at Optionee's address set
forth above; all such notices shall be in
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writing and shall be delivered in person or by registered or certified mail.
Either party may change the address to which notices are to be sent by notice
in writing given to the other in accordance with the terms hereof.
8. GOVERNING LAW. The parties hereto hereby acknowledge and agree that the
option granted in the State of Florida and any shares issued upon exercise of
the option will be issued in the State of Florida. This Agreement, as well as
the grant of such option and issuance of such shares, is and shall be governed
by and construed in accordance with the laws of the State of Florida applicable
to the agreements made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
US DIAGNOSTIC INC.
By:
------------------------
Joseph A. Paul, President
------------------------
Jeffrey A. Goffman, Optionee
4
EXHIBIT 10.47
PROMISSORY NOTE
266,666.56 West Palm Beach, Florida
July 11, 1997
FOR VALUE RECEIVED, U.S. DIAGNOSTIC INC. ("USD" or the "Maker"), a
Delaware corporation, with an address at 777 South Flagler Drive, West Palm
Beach, Florida 33401, hereby promises to pay to the order of JEFFREY A. GOFFMAN
("Goffman" or "Payee"), with an address at 1116 Highland Beach Drive, Highland
Beach, Florida 33487, the principal sum of Two Hundred Sixty-Six Thousand Six
Hundred Sixty-Six Dollars and Fifty-Six Cents ($266,666.56), payable in sixteen
(16) equal cash payments of $16,666.66 each, due on the first day of each month
commencing with August 1, 1997 and continuing for a period of sixteen (16)
consecutive months. The outstanding principal amount of this Note shall be due
and payable in full thirty (30) days after a sale or Change of Control of USD
(as defined in Section 15(b) of the USD 1995 Long Term Incentive Plan).
All payments or prepayments of principal due pursuant to this Note
shall be made in immediately available funds by wire transfer to an account or
accounts designated in writing by Payee or by check made payable to the order of
Payee at the address of Payee noted above or at such other place in the United
States of America as Payee shall have designated to Maker. In the event USD
fails to make a payment within (10) days after the date on which such payment
becomes due, USD shall pay Goffman interest on the delinquent payment at the per
annum rate of ten percent (10%) (computed on the basis of a 360 day year and
actual days elapsed) for the period of the delinquency.
The obligations of Maker under this Note are subject to and conditioned
upon Payee's compliance with the terms and conditions set forth in the
Settlement Agreement, dated as of the date hereof, between USD and Goffman.
If the due date of any payment under this Note would otherwise fall on
a day which is not a Business Day, such date will be extended to the immediately
succeeding Business Day. The term "Business Day" shall mean any day on which
commercial banks in the State of Florida are not authorized or required to
close.
If one or more of the following events (an "Event of Default") shall
occur and be continuing:
(a) Maker shall default in the payment when due of any principal
payable by Maker under this Note and such default shall continue for a period of
twenty-five (25) days after such payment shall become due; or
(b) Maker shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a
<PAGE>
voluntary case under the Bankruptcy Code (as now or hereafter in effect),
(iv) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce to, any petition filed against it in an involuntary case
under the Bankruptcy Code; or
(c) Become the subject of an action or proceeding, in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution
or winding-up of Maker or of its assets, or the composition or adjustment of its
debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of Maker, or of all or any substantial part of its assets, under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 days; or an
order for relief against it or any or its assets shall be entered in an
involuntary case under the Bankruptcy Code and become final and non-appealable;
THEREUPON: This Note and all amounts payable by Maker under this Note
shall become due and payable, ten days after written notice to Maker of the
occurrence of an Event of default and Payee's decision to accelerate. Payee may
take such action as is permitted to enforce its rights hereunder and Maker shall
pay all of the expenses of the Payee incurred for the collection of this Note
and for the enforcement of its rights to obtain payment of this Note, including
reasonable attorneys' fees and legal expenses. No delay on the part of Payee in
the exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by Payee of any right or remedy shall preclude other
or further exercise thereof or the exercise of any other right or remedy.
This Note may be assigned by Payee without the prior written consent of
Maker, and any holder of this Note shall have all the rights of Payee provided
herein, subject to any rights of offset or defenses which Maker would have
against Payee if this Note were held and enforced by Payee.
This Note shall be governed by, and construed in accordance with, the
laws of the State of Florida applicable to contracts made and to be performed
entirely in the State of Florida.
Maker hereby irrevocably submits to the jurisdiction of the state
courts of the State of Florida and the jurisdiction of the United States
District Court for the Southern District of Florida, for the purpose of any
suit, action or other proceeding arising out of or based upon this Note.
U.S. DIAGNOSTIC INC.
By:/s/ JOSEPH A. PAUL
-----------------------------
Joseph A. Paul, President
EXHIBIT 10.48
VOTING AGREEMENT
AGREEMENT dated as of July 11, 1997, by and between US
Diagnostic Inc., a Delaware corporation ("USD") whose principal executive office
is located at 777 South Flagler Drive, Suite 1201, West Palm Beach, Florida, and
JEFFREY A. GOFFMAN, an individual who resides at 1116 Highland Beach Drive,
Highland Beach, Florida ("Goffman").
RECITALS
A. USD has acquired certain corporate or partnership entities,
or the assets and businesses of such entities, and in connection with the
issuance of Common Stock, $.01 par value ("USD Common Stock"), as part of the
consideration for such acquisitions, obtained from the former owners of the
acquired entities proxies to vote the shares of USD Common Stock held by such
former owners which name Goffman as the holder of such proxies (collectively,
the "Proxies").
B. The parties hereto recognize that the grants of the Proxies
were intended to be for the exclusive benefit of USD, acting through its
Board of Directors, and not for the benefit of Goffman personally.
C. USD and Goffman are parties to a Settlement Agreement of
even date herewith pursuant to which, among other things, Goffman agreed to
surrender all proxies or other agreements by which he exercises the right to
vote or exercise legal control over USD stock in which others have a beneficial
interest.
D. The parties hereto acknowledge that it is their mutual
intent that Goffman continue to hold the Proxies and to vote the USD Common
Stock covered by the Proxies (the "Proxy Shares") in accordance with the
direction of the Board of Directors of USD.
AGREEMENT
1. From and after the date of this Agreement, Goffman will
vote the Proxies and the Proxy Shares strictly in accordance with written
instructions of the Board of Directors of USD or its designee as to the manner
in which the Proxies and Proxy Shares are to be voted given to Goffman at least
five (5) business days prior to the date (i) of the shareholders meeting at
which USD Common stock is to be voted or (ii) as of which shareholders of USD
are to vote the Proxy Shares by written consent of shareholders without a
meeting, in each such case on all matters to be voted upon by USD shareholders
of USD for which a proxy statement is mailed to shareholders of USD, Goffman
agrees (i) to execute and deliver the form of proxy accompanying such proxy
statement, (ii) to vote the Proxy Shares in accordance with the recommendations
of the Board of Directors of USD contained in such proxy statement, or if no
such
<PAGE>
recommendation is contained therein, then in accordance with written
instructions from the Board of Directors of USD or its designee, (iii) to return
such executed proxy within five (5) business days after he receives such proxy
statement, and (iv) that each such proxy so voted by Goffman shall be
irrevocable and shall not be revoked by him without the prior written consent of
USD in each instance.
2. Goffman makes no representations or warranties as to the
validity, irrevocability or enforceability of the Proxies and shall not be
liable to USD if any of the Proxies is subsequently held to be invalid,
revocable or unenforceable to any extent.
3. With respect to any such proxy which is assignable without
the consent of the grantor of the proxy, Goffman shall immediately upon request
from USD execute any documents reasonably necessary to accomplish such
assignment to a designee of USD's Board. With respect to any proxy which is not
assignable without the grantor's consent, Goffman agrees to use his best efforts
to obtain the grantor's consent to such assignment or to obtain from the grantor
a new proxy in favor of a designee of USD's Board of Directors. USD shall act
promptly to obtain assignments, consents, new proxies or other agreements which
may be necessary to relieve Goffman of further responsibilities under this
Agreement, to the extent that it determines it may do so without jeopardizing
the validity of the Proxies.
4. This Agreement shall take effect upon its execution by both
parties hereto and shall remain in effect so long as Goffman owns or has the
rights to vote the Proxy Shares but may be terminated at any time by USD, either
in whole or as to certain Proxy Shares, by written notice from USD to Goffman.
5. In the event that a court of competent jurisdiction shall
invalidate any portion of this Agreement or of the Proxies, or shall restrain or
enjoin Goffman's voting of the Proxy Shares covered thereby, Goffman shall have
no obligation hereunder to vote such Proxy or Proxy Shares in accordance with
this Agreement, but such restraint or injunction shall not affect the validity
of, or Goffman's obligations under, the remaining provisions of this Agreement
or with respect to the Proxies or Proxy Shares not covered thereby.
6. All notices which may or which are required to be given
under this Agreement, shall be in writing and either hand delivered or sent by
prepaid certified mail, return receipt requested, to the party to which it is
directed at the address for such party first above written or at such other
address as such party shall specify from time to time by written notice to the
other party hereto.
7. This Agreement shall inure to the benefit of, and shall be
enforceable by, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
2
<PAGE>
8. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida without reference to its choice
of laws principles, except to the extent that the corporate law of the State of
Delaware shall apply to the validity, revocability and enforceability of the
Proxies and the manner in which the Proxy Shares may be voted.
9. Goffman shall not be compelled to vote the Proxies if,
based upon advice of counsel, he determines that to do so would be in violation
of law or in breach of any legal obligation he has to the beneficial owner of
the securities. USD shall indemnify Goffman from any liability he may incur by
virtue of voting the Proxies at USD's discretion.
10. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Any facsimile copy of a
manually executed original shall be deemed a manually executed original.
11. In the event of any litigation with regard to this
Agreement, the prevailing party shall be entitled to receive from the
non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
12. The parties hereto acknowledge that USD's remedies at law
in the event of a breach of this Agreement by Goffman will be inadequate and,
therefore, Goffman agrees that USD shall be entitled to equitable relief
including, without limitation, injunctive relief, specific performance or other
equitable remedies in addition to all other remedies available to USD at law or
in equity.
13. This Agreement shall be subject to the exclusive
jurisdiction of the courts of the State of Florida located in Dade, Broward or
Palm Beach Counties, Florida or the United States District Court for the
Southern District of Florida in any legal action or proceeding commenced by any
party hereto. Subject to the foregoing, the parties to this Agreement agree that
any breach of any term or condition of this Agreement shall be deemed to be a
breach occurring in the State of Florida by virtue of a failure to perform an
act required to be performed in the State of Florida and irrevocably and
expressly agree to submit to the jurisdiction of the courts of the State of
Florida for the purpose of resolving any disputes among the parties relating to
this Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any judgment entered by any
court in respect hereof brought in Dade, Broward or Palm Beach Counties,
Florida, and further irrevocably waive any claim that any suit, action or
proceeding brought in any such County has been brought in an inconvenient forum.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
Goffman and a duly authorized agent or officer of USD as of the date first above
written.
US DIAGNOSTIC INC.
By: /s/ JOSEPH A. PAUL
--------------------------
President
/s/ JEFFREY A. GOFFMAN
--------------------------
JEFFREY A. GOFFMAN
EXHIBIT 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
18th day of June 1997 between US Diagnostic Inc. (the "Company") and Wayne Moor
(the "Executive").
WHEREAS, the Company desires to ensure the availability to the Company
of the Executive's services, and the Executive is willing to enter into such
employment and render such services, all upon and subject to the terms and
conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. TERM OF EMPLOYMENT.
(a) TERM. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment with the Company, for a period of three
years commencing on June 18, 1997 and ending June 17, 2000 (the "Term").
(b) CONTINUING EFFECT. Notwithstanding any termination of this
Agreement at the end of the Term or otherwise, the provisions of Sections 6 and
7 shall remain in full force and effect and the provisions of Sections 6(a),
6(c) and 7 shall be binding upon the legal representatives, successors and
assigns of the Executive, except as otherwise provided in this Agreement.
2. DUTIES.
(a) GENERAL DUTIES. The Executive's initial title shall be Vice
President and Chief Financial Officer of the Company and he shall have such
duties and responsibilities as may be established by the Board of Directors or
Chief Executive Officer of the Company. The Executive will use his best efforts
to perform his duties and discharge his responsibilities pursuant to this
Agreement competently, carefully and faithfully.
(b) DEVOTION OF TIME. The Executive will devote substantially full time
during normal business hours (exclusive of periods of sickness and disability
and of such normal holiday and vacation periods as have been established by the
Company) to the affairs of the Company. It is expressly understood that the
Executive will not enter the employ of or serve as a consultant to, or in any
way perform any services with or without compensation to, any other persons,
businesses or organizations without the prior consent of the Board of Directors
of the Company; provided, that the Executive shall be permitted to devote a
limited amount of his time, without compensation, to charitable or similar
organizations.
(c) MEDICAL OPPORTUNITIES. Executive agrees to present to the Company
all potential opportunities for acquisitions, joint ventures and similar
transactions in the medical or healthcare field. Executive may pursue such
opportunities himself only if first declined in writing by the Board of
Directors of the Company.
3. COMPENSATION AND EXPENSES.
(a) SALARY. For the services of the Executive to be rendered under this
Agreement, the
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<PAGE>
Company shall pay the Executive an annual base salary of $150,000. The annual
base salary under this Section 3(a) will be reduced, however, to the extent that
the Executive elects to defer any portion thereof under the terms of any
deferred compensation or savings plan maintained by the Company. The Company
will pay the Executive his annual salary in equal installments no less
frequently than twice monthly in accordance with the Company's policies.
(b) BONUS. The Executive will have the opportunity to participate in
bonuses at the end of each fiscal year during which he is employed, which
bonuses shall be set by the Board of Directors in its discretion. Any
determination of bonus entitlement shall be based 50% upon the profitability and
performance of the Company, and 50% upon Executive's own performance, including
but not limited to, timely and accurate financial statement presentation and
reporting, cash management, receivables management and timely processing of
payables.
(c) STOCK OPTIONS. Executive is hereby granted 50,000 options under the
Company's 1995 Long Term Incentive Plan ("Plan") at an exercise price of $6.687
per share. The options shall vest 16,667 options on June 18, 1998; 16,667
options on June 18, 1999; and 16,666 options on June 18, 2000. In the event of a
change in control of the Company, as defined in the Plan, any remaining portion
of the 50,000 options not yet vested shall automatically vest. Executive may
also receive discretionary grants of options under the Plan in the sole
discretion of the Company's Board of Directors.
(d) EXPENSES. In addition to any compensation received pursuant to
Section 3(a), (b), and (c), the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous expenses
incurred in connection with the performance of his duties under this Agreement,
provided that the Executive properly accounts for such expenses to the Company
in accordance with the Company's practices. Such reimbursement or advances will
be made in accordance with policies and procedures of the Company in effect from
time to time relating to reimbursement of or advances to executive officers.
4. BENEFITS.
(a) VACATION. For each 12-month period during the Term, the Executive
will be entitled to four (4) weeks of vacation without loss of compensation or
other benefits to which he is entitled under this Agreement, to be taken at such
times as the Executive may select and as shall be convenient for the affairs of
the Company.
(b) EMPLOYEE BENEFIT PROGRAMS. During the Term, the Executive will be
entitled to participate in any pension, insurance or other employee benefit plan
that is maintained at that time by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of membership
fees in civic, social and professional organizations.
(c) AUTOMOBILE. The Company shall provide the Executive with a
non-accountable automobile allowance of $750 per month which includes all costs
associated with the use of an automobile including, without limitation, lease or
loan payments, fuel, maintenance and insurance.
5. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the Executive's
employment for
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<PAGE>
Cause at any time by giving written notice of termination to the Executive,
which shall be effective on the effective date set forth in paragraph 10 hereof.
Executive shall have no right to compensation, bonus or reimbursement under
Section 3, or to participate in any employee benefit programs under Section 4,
for any period subsequent to the effective date of termination. "Cause" shall
mean: (i) the material and repeated failure by Executive to perform his job
responsibilities competently, (ii) dishonesty, fraud, theft or misappropriation
in the performance of his job responsibilities, or (iii) any material breach of
any provision of Sections 2, 6 or 7. Employee shall work with the Company's
Chief Executive Officer to develop clear performance goals and standards and
will receive a formal performance evaluation following the initial six months of
employment under this Contract.
(b) DEATH OR DISABILITY. The obligations of the Company hereunder will
terminate upon the death or disability of the Executive. For purposes of this
Section 5(b), "disability" shall mean that for a period of six months in any
12-month period the Executive is incapable of substantially fulfilling the
duties set forth in Section 2 because of physical, mental or emotional
incapacity resulting from injury, sickness or disease.
6. NONCOMPETITION AGREEMENT.
(a) COMPETITION WITH THE COMPANY. Except as provided for in Sections
2(b) and 6(b) hereof, until termination of his employment and for a period of 12
months commencing on the date of termination, the Executive, directly or
indirectly, in association with or as a stockholder, director, officer,
consultant, employee, partner, joint venturer, member or otherwise of or through
any person, firm, corporation, partnership, association or other entity, will
not compete with the Company or any of its affiliates in the offer, sale or
marketing of radiology products or services, including radiology practice
management services, that are competitive with the products or services offered
by the Company as of the date of this Agreement, or any other business engaged
in by the Company after the date of this Agreement in which Executive is
actively involved on behalf of the Company, within any metropolitan area in the
United States or elsewhere in which the Company is then engaged in the offer and
sale of competitive products or services except as provided in (b) below.
Additionally, the foregoing shall not prevent Executive from accepting
employment with an enterprise engaged in two or more lines of business, one of
which is the same or similar to the Company's business (the "Prohibited
Business") if Executive's employment is totally unrelated to the Prohibited
Business; provided, further, the foregoing shall not prohibit Executive from
owning up to 5% of the securities of any publicly-traded enterprise provided
Executive is not an employee, director, officer, consultant to such enterprise
or otherwise reimbursed for services rendered to such enterprise.
(b) SOLICITATION OF CUSTOMERS. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, directly or
indirectly, will not seek Prohibited Business from any Customer (as defined
below) on behalf of any enterprise or business other than the Company, refer
Prohibited Business from any Customer to any enterprise or business other than
the Company or receive commissions based on sales or otherwise relating to the
Prohibited Business from any Customer, or any enterprise or business other than
the Company. For purposes of this Section 6(b), the term "Customer" means any
person, firm, corporation, partnership, association or other entity to which the
Company or any of its affiliates sold or provided goods or services during the
12-month period prior to the time at which any determination is required to be
made as to whether any such person, firm, corporation, partnership, association
or other entity is a Customer.
-3-
<PAGE>
(c) NO PAYMENT. The Executive acknowledges and agrees that no separate
or additional payment will be required to be made to him in consideration of his
undertakings in this Section 6.
(d) RELEASE. The provisions of this Section 6 shall not apply if this
Agreement is terminated by the Company without cause.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will learn and will have access to
confidential information regarding the Company and its affiliates, including
without limitation (i) confidential or secret plans, programs, documents,
agreements or other material relating to the business, services or activities of
the Company and its affiliates and (ii) trade secrets, market reports, customer
investigations, customer lists and other similar information that is proprietary
information of the Company or its affiliates (collectively referred to as
"Confidential Information"). All records, files, materials and Confidential
Information excluding personal items, obtained by the Executive in the course of
his employment with the Company are confidential and proprietary and shall
remain the exclusive property of the Company or its affiliates, as the case may
be. The Executive will not, except in connection with and as required by his
performance of his duties under this Agreement, for any reason use for his own
benefit or the benefit of any person or entity with which he may be associated
or disclose any such Confidential Information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever without the
prior written consent of the board of directors of the Company, unless such
Confidential Information previously shall have become public knowledge through
no action by or omission of the Executive.
8. ASSIGNABILITY. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors or
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
obligations hereunder may not be assigned or alienated and any attempt to do so
by the Executive will be void.
9. SEVERABILITY.
(a) The Executive expressly agrees that the character, duration and
geographical scope of the provisions set forth in paragraphs 6 and 7 of this
Agreement are reasonable in light of the circumstances as they exist on the date
hereof. Should a decision, however, be made at a later date in any arbitration
or judicial proceeding that the character, duration or geographical scope of
such provisions is unreasonable, then it is the intention and the agreement of
the Executive and the Company that this Agreement shall be construed by the
tribunal in such a manner as to impose only those restrictions on the
Executive's conduct that are reasonable in the light of the circumstances and as
are necessary to assure to the Company the benefits of this Agreement. If in an
arbitration or judicial proceeding, a tribunal shall refuse to enforce all of
the separate covenants deemed included herein because taken together they are
more extensive than necessary to assure to the Company the intended benefits of
this Agreement, it is expressly understood and agreed by the parties hereto that
the provisions of this Agreement that, if eliminated, would permit the remaining
separate provisions to be enforced in such proceeding shall be deemed
eliminated, for the purposes of such proceeding, from this Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is
-4-
<PAGE>
prohibited by the laws of the state or jurisdiction where it is to be performed,
this Agreement shall be considered divisible as to such provision and such
provision shall be inoperative in such state or jurisdiction and shall not be
part of the consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and of like
effect as though such provision were not included .
10. NOTICES AND ADDRESSES. All notices, offers, acceptances and any
other acts under this Agreement (except payment) shall be in writing, and shall
be sufficiently given if delivered to the addressees in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To the Company: US Diagnostic Inc.
777 S. Flagler Drive
West Palm Beach, Florida 33401
Attention: Joseph A. Paul
To the Executive: Wayne Moor
15520 Sharpe Croft Dr.
Miami Lakes, Florida 33014
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
12. ARBITRATION. Any controversy, dispute or claim arising out of or
relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the parties are unable to resolve by mutual
agreement, shall be settled by submission by either party of the controversy,
claim or dispute to binding arbitration in West Palm Beach, Florida (unless the
parties agree in writing to a different location), before a single arbitrator in
accordance with the rules of the American Arbitration Association then in
effect. In any such arbitration proceeding the parties agree to provide all
discovery deemed necessary by the arbitrator. The decision and award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgment may be entered thereon in any court having jurisdiction
thereof.
13. ATTORNEY'S FEES. In the event that there is any controversy or
claim arising out of or relating to this Agreement, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including that in
arbitration as provided for in Section 12 of this Agreement, is commenced to
enforce the provisions of this Agreement, the prevailing party shall be entitled
to an award by the court or arbitrator, as appropriate, of reasonable attorneys'
fees, costs and expenses.
-5-
<PAGE>
14. GOVERNING LAW. This Agreement and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided therein or performance
shall be governed and interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by both parties.
16. SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
US DIAGNOSTIC. INC.
By: /s/ JOSEPH A. PAUL
---------------------------
Joseph A. Paul, President &
Chief Executive Officer
/s/ WAYNE MOOR
---------------------------
Wayne Moor, ("Executive")
-6-
EXHIBIT 11
US DIAGNOSTIC INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
- -------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
--------- -------- -------- -------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 21,606 7,485 21,605 6,816
Dilutive effect of conversions -- 10,074 -- 9,582
--------- -------- -------- -------
Primary weighted average shares of common
stock and common stock equivalents 21,606 17,559 21,605 16,398
========= ======== ======== =======
Net Income (Loss) $ (11,904) $ 431 $ (9,870) $ 1,463
Adjustment to net income for interest
savings, net of related income taxes -- 658 -- 1,319
--------- -------- -------- -------
Adjusted net income (Loss) $ (11,904) $ 1,089 $ (9,870) $ 2,782
========= ======== ======== =======
Earnings (Loss) per share - primary $ (.55) $ .06 $ (.46) $ .17
========= ======== ======== =======
FULLY DILUTED EARNINGS PER SHARE (1):
Weighted average shares outstanding,
including escrow shares 22,598 9,021 22,596 8,210
Dilutive effect of conversions 886 9,897 1,250 9,610
--------- -------- -------- -------
Fully diluted weighted average shares of
common stock and common stock equivalents
outstanding 23,484 18,918 23,846 17,820
========= ======== ======== =======
Net Income (Loss) $ (11,904) $ 431 $ (9,870) $ 1,463
Adjustments to net income for interest
savings, net of related income taxes -- 620 -- 1,204
--------- -------- -------- -------
Adjusted net income (Loss) $ (11,904) $ 1,051 $ (9,870) $ 2,667
========= ======== ======== =======
Earnings per share - fully diluted $ (.51) $ .06 $ (.41) $ .15
========= ======== ======== =======
</TABLE>
(l) This calculation is submitted for 1997 in accordance with Regulation SK Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,426,071
<SECURITIES> 0
<RECEIVABLES> 68,760,639
<ALLOWANCES> (7,667,271)
<INVENTORY> 0
<CURRENT-ASSETS> 79,619,881
<PP&E> 112,617,629
<DEPRECIATION> (19,356,254)
<TOTAL-ASSETS> 365,397,042
<CURRENT-LIABILITIES> 98,455,841
<BONDS> 125,498,605
0
0
<COMMON> 226,000
<OTHER-SE> 126,036,594
<TOTAL-LIABILITY-AND-EQUITY> 365,397,042
<SALES> 0
<TOTAL-REVENUES> 109,968,430
<CGS> 0
<TOTAL-COSTS> 107,721,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,679,912
<INTEREST-EXPENSE> 8,519,488
<INCOME-PRETAX> (7,691,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,869,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,869,838)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
