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 September 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)
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DELAWARE 11-3164389
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(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification Number)
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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.
CLASS OUTSTANDING AT NOVEMBER 11, 1997:
----- -----------------------------------
Common Stock, $ .01 par value 22,810,498 shares
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US DIAGNOSTIC INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.................................................................................3
Condensed Consolidated Statements of Operations for the Three and Nine Months
ended September 30, 1997 and 1996.....................................................................5
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1997 and 1996.....................................................................6
Condensed Consolidated Statement of Stockholders' Equity for the Nine Months
ended September 30, 1997..............................................................................7
Notes to Condensed Consolidated Financial Statements..................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................15
PART II. FINANCIAL INFORMATION
Item 1. Legal Proceedings............................................................................20
Item 2. Changes in Securities........................................................................21
Item 3. Defaults upon Senior Securities..............................................................21
Item 4. Submission of Matters to a Vote of Security Holders..........................................21
Item 5. Other Information............................................................................21
Exhibit Index........................................................................................22
Signatures...........................................................................................23
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
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ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $30,914 $18,641
Accounts Receivable, Net of Allowance for Bad Debts of
$16,546 and $9,670, respectively 54,609 38,266
Other Receivables, Net of Allowance for Bad Debts of $485 and $923, respectively 10,053 10,298
Investment in Marketable Equity Securities, ($6,425 at cost) -- 7,280
Prepaid Expenses and Other Current Assets 9,139 5,320
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TOTAL CURRENT ASSETS 104,715 79,805
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Property and Equipment, Net of Accumulated Depreciation
of $23,330 and $11,825, respectively 96,431 79,946
Intangible Assets, Net of Accumulated Amortization of $12,899
and $4,875, respectively 176,740 163,675
Other Assets 5,132 5,398
Investment in Unconsolidated Subsidiaries 6,900 10,199
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TOTAL ASSETS $389,918 $339,023
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
SEPTEMBER 30, DECEMBER 31,
1997 1996
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(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $37,932 $21,054
Short-Term Borrowings -- 750
Current Portion of Long-Term Debt 18,798 27,336
Obligations Under Capital Leases - Current Portion 9,613 10,291
Other Current Liabilities 2,764 5,608
Purchase Price Due on Companies Acquired 1,794 8,338
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TOTAL CURRENT LIABILITIES 70,901 73,377
Subordinated Convertible Debentures 56,186 56,007
Long-Term Debt - Net of Current Portion 117,818 42,359
Obligations Under Capital Leases - Net of Current Portion 13,913 18,704
Deferred Income Taxes 6,694 6,684
Other Liabilities 253 230
--------- ---------
TOTAL LIABILITIES 265,765 197,361
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MINORITY INTEREST 2,911 8,150
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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 22,604,031 Shares and 23,749,217 Shares
Issued and Outstanding, respectively 226 237
Additional Paid-in Capital 146,985 141,941
Unrealized Gain on Marketable Equity Securities, Net of Tax -- 526
Deferred Stock Based Compensation (2,416) (5,357)
Accumulated Deficit (23,553) (3,835)
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TOTAL STOCKHOLDERS' EQUITY 121,242 133,512
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $389,918 $339,023
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
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REVENUES $ 56,705 $31,368 $166,674 $59,552
OPERATING EXPENSES:
General and Administrative Expense 41,455 18,242 118,106 33,664
Depreciation and Amortization Expense 7,486 2,982 21,750 6,819
Bad Debt Expense 8,879 1,234 12,559 2,343
Stock Based Compensation 299 1,037 1,037 1,604
Compensation to Terminated Consultant -- 1,424 -- 2,198
Professional Fees 3,397 778 8,057 1,617
Asset Impairment Losses
Settlement with Former Executive Officer 333 -- 4,058 --
Loss on Settlement of Lawsuits (1,000) -- 1,809 --
Loss on Sale of Stock of Subsidiary 125 -- 5,000 --
-- 389 -- 389
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Total Operating Expenses 60,974 26,086 172,376 48,634
--------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS (4,269) 5,282 (5,702) 10,918
--------- -------- -------- -------
OTHER INCOME (EXPENSE):
Interest Expense (4,777) (2,933) (13,296) (5,587)
Interest and Other Income 74 872 1,928 1,417
Gain on Marketable Equity Securities -- -- 406 --
--------- ---------- --------- --------
Total Other Income (Expense) (4,703) (2,061) (10,962) (4,170)
--------- ---------- --------- --------
INCOME (LOSS) BEFORE TAXES AND
MINORITY INTEREST (8,972) 3,221 (16,664) 6,748
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 534 634 2,712 1,178
INCOME TAX (PROVISION) (342) (1,479) (342) (2,999)
--------- ---------- --------- --------
NET INCOME (LOSS) ($9,848) $1,108 ($19,718) $2,571
========= ========== ========= ========
NET INCOME (LOSS) PER COMMON SHARE
Primary $(.45) $.05 $(.89) $.18
Fully Diluted $(.45) $.05 $(.89) $.15
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING:
Primary 22,126 21,278 22,124 14,021
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Fully Diluted 22,126 23,282 22,124 17,100
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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IN THOUSANDS NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1 9 9 6 1 9 9 7
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NET CASH - OPERATING ACTIVITIES $ 2,772 $1,295
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INVESTING ACTIVITIES:
Purchase of Property and Equipment (15,357) (3,784)
Acquisitions (Net of Cash Acquired) (21,827) (61,424)
Sale of Marketable Securities 7,161 --
Decrease on Purchase Price Due on Companies Acquired (6,544) --
Investment in and Advances to Unconsolidated Subsidiaries (3,104) (1,094)
Proceeds from Dispositions 1,887 --
Sale of Subsidiary -- 1,800
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NET CASH - INVESTING ACTIVITIES (37,784) (64,502)
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FINANCING ACTIVITIES:
Proceeds from Subordinated Convertible Debentures -- 54,492
Repayments on Debt and Capital Lease Obligations ( 22,867) (7,107)
Proceeds from Borrowings 70,069 3,361
Common Stock Issued and Exercise of Warrants and Options 84 89,951
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NET CASH - FINANCING ACTIVITIES 47,286 140,697
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NET INCREASE IN CASH AND CASH EQUIVALENTS 12,274 77,490
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 18,641 4,373
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $30,915 $81,863
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $14,308 $4,970
Income Taxes $ 3,179 $3,388
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The fair market value of Common Stock and options issued and received in
connection with acquisitions was $ 3,809,758 and $12,479,604 in 1997 and 1996,
respectively.
The fair market value of Common Stock issued in connection with the settlement
of a claim totaled $439,260 and $125,000 in 1997 and 1996, respectively.
The fair market value of Common Stock issued in connection with the cancellation
of a consulting agreement totaled $0 and $581,250 in 1997 and 1996,
respectively.
The fair market value of detachable warrants issued in connection with the
Convertible Debentures was $0 and $1,672,550 in 1997 and 1996, respectively.
Capital leases were $5,046,800 and $3,311,251 in 1997 and 1996, respectively.
Buyout of minority shareholders of a subsidiary through debt issuance was
$3,281,000 in 1997.
Warrants issued with debt in 1997 were valued at $703,475.
Stock issued in connection with the conversion of debt $0 and $762,790 in 1997
and 1996, respectively.
See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT NUMBER OF SHARES
COMMON STOCK
------------
NUMBER ADDITIONAL DEFERRED TOTAL
OF PAID-IN UNREALIZED STOCK BASED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL GAIN COMPENSATION DEFICIT EQUITY
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Balance - January 1, 1997 23,749,217 $237 $141,941 $526 ($5,357) ($3,835) $133,512
Release of Escrow Shares
Related to 1996 Acquisitions -- -- 3,805 -- -- -- 3,805
Cancellation of Escrow (1,163,853) (11) 11 -- -- -- --
Shares
Sale of Marketable Equity
Securities -- -- -- (526) -- -- (526)
Stock Options Exercised 14,667 -- 64 -- -- -- 64
Bridge Warrants Exercised 4,000 -- 20 -- -- -- 20
Restricted Stock Issued -- -- 440 -- (440) -- --
Deferred Stock Based
Compensation Component of
Settlement with Former -- -- -- -- 2,344 -- 2,344
Executive Officer
Amortization of Deferred
Compensation -- -- -- -- 1,037 -- 1,037
Warrants issued in
connection with Financing -- -- 704 -- -- -- 704
Agreement
Net Loss -- -- -- -- -- (19,718) (19,718)
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BALANCE - SEPTEMBER 30, 1997 22,604,031 $226 $146,985 $ -- $ (2,416) $(23,553) $121,242
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See Notes to Condensed Consolidated Financial Statements.
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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[1] INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements as of September 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 (consisting only of
normal and recurring 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 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.
The accompanying condensed consolidated statements of operations for the three
and nine months ended September 30, 1996, and the condensed consolidated
statement of cash flows for the nine months ended September 30, 1996, have been
restated from those originally filed with the SEC on Form 10-QSB. The restated
financial statements for the quarterly period ended September 30, 1996, were
filed with the SEC on Form 10-QSB/A on May 23, 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.
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. NASDAQ subsequently adopted an alternative
to the net tangible asset test in question for all NASDAQ listed companies, and
the Company believes it is now in compliance with all listing standards.
Therefore, the Company's securities remain listed on the NASDAQ National Market
System.
[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. 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
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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.
Certain acquisitions occurring during the fiscal year ended December 31, 1996
called for payment to the seller of cash or equity or a combination thereof
contingent upon achievement of certain earnings in future periods by the
acquired company. In connection therewith, the Company issued and placed 991,785
shares of the Company's Common Stock in escrow, and recorded the par value of
the stock issued to common stock and goodwill as of the date of the respective
transactions. During the three months ended September 30, 1997, earnings targets
were met pursuant to the terms of certain of the agreements, and the Company
released (or agreed to release in the near term) 517,785 shares of Common Stock
from escrow. The Company recorded an increase in paid in capital of $3,804,580
relating to the released Common Stock and recorded a liability of $1,464,000 for
additional cash to be paid and additional shares to be issued, resulting in an
increase in goodwill of $5,268,580. During the three months ended September 30,
1997, goodwill increased by $2,409,096 in connection with the purchase of the
remaining 20% of a majority owned subsidiary, and goodwill decreased by
$5,534,697 relating to adjustments of the allocation of the purchase of certain
businesses previously acquired as additional information with respect to the
fair value of net assets acquired became available. In connection with such
purchase price allocation adjustments, minority interest was reduced by
$4,500,782.
[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 nine months ended September 30,1997, offset by a valuation allowance in
the same amount.
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
Business Credit Corporation ("DVIBC") to provide two credit facilities of $25
million each. Borrowings are subject to certain conditions such as the
availability of unencumbered assets to collateralize advances and maintenance of
at least $5 million in cash during all reporting periods. The first $25 million
is a revolving credit loan from DVIBC secured by accounts receivable. The second
$25 million is an acquisition and equipment line of credit from DVI Financial
Services Inc. ("DVIFS"). Advance of funds on the second $25 million line is
based upon a review by DVIFS of the entity acquired and/or a review of the
assets securing the loan. The Company borrowed $25 million under the revolving
credit loan in February 1997, which will become due on February 28, 1999, and
bears interest, payable monthly, at prime plus two percent (10.5% at September
30, 1997). Between March 1997 and September 1997, the Company borrowed a total
of $12.25 million, collateralized by equipment, under the second $25 million
line. Each such advance is repayable through 2002 in sixty monthly installments.
At the time the Company entered into the financing arrangement with DVIBC, a
portion of the Company's accounts receivable did not meet certain of the
lender's eligibility criteria under the line of credit. DVIBC granted the
Company a waiver with respect to such criteria but provided in the loan
agreement that if the Company did not satisfy such criteria to DVIBC's
satisfaction within 90 days of the original funding of the loan, DVIBC had the
right to declare the nonconforming accounts ineligible and exclude them from the
borrowing base, in which case the Company would have been obligated to reduce
its then existing indebtedness to DVIBC to the borrowing base level at such
time. DVIBC has granted the Company additional waivers of such criteria through
December 15, 1997. However, if the Company is not able to satisfy such criteria
on or before December 15, 1997 and does not obtain any further waiver thereof
from DVIBC, the Company may be required to pay down its then outstanding
accounts receivable loans from DVIBC to a level not in excess of the Borrowing
Base on such date. There can be no assurance that the Company will be able to
satisfy such eligibility criteria on or before December 15, 1997, and if is
unable to
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do so, it may not have funds on hand sufficient to make the required payment of
the DVIBC indebtedness. If the Company fails to make any such required payment,
it could be declared in default under the DVIBC loan agreement, as well as under
the DVIFS arrangement described below resulting in possible debt acceleration
from both lenders. If the Company is unable to draw upon such credit facilities
or to replace the same without delay, the Company's liquidity would be seriously
impaired.
On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
Each advance under the term loan is repayable in 60 equal monthly installments
inclusive of principal and interest at the rate of 10% per annum as to the first
$7,500,000 borrowed and 11% per annum as to any additional amounts borrowed. In
addition, the Company may be required to pay down portions of these outstanding
term loans with the proceeds it receives as a result of reimbursement or
indemnification in connection with the shareholder litigation described under
Part II - Item 1. (Legal Proceedings) in this Quarterly Report on Form 10-Q. As
of November 14, 1997, $15,000,000 had been borrowed under this arrangement. In
addition, in connection with the term loans, the Company (i) increased its
revolving credit loan from $25,000,000 to $35,000,000, (ii) extended the
maturity date of the revolving credit loan from February 28, 1998 to February
28, 1999, and (iii) issued to DVI two warrants to purchase an aggregate of
250,000 shares of Common Stock of the Company at an exercise price of $7.6875
per share, which was the fair market value of a share of such Common Stock on
the date the warrants were issued. One of the warrants to purchase 125,000
shares of Common Stock is exercisable immediately, and the other warrant to
purchase 125,000 shares of Common Stock is exercisable beginning on or after
April 30, 1998 but only if the entire indebtedness to DVIFS or DVIBC has not
been reduced by at least $12,500,000 (exclusive of regularly scheduled
amortization) prior to the date of exercise. Both of the warrants expire on
September 30, 2004.
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 Company believes it is in
compliance with these covenants.
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.
On September 16, 1997, HEICO Corporation ("HEICO") sold to Forum Capital Markets
L.P. ("Forum") the $10 million convertible note bearing interest at a rate of 6
1/2% per annum that was originally issued by the Company to HEICO in July, 1996.
C. Keith Hartley, a Director of the Company, is a Managing Director of Forum.
The Note is convertible into shares of the Company's Common Stock at $8.50 per
share or an aggregate of 1,176,472 shares. The Note was originally issued in
July, 1996 to HEICO in an arm's length transaction (and prior to the time Mr.
Mendelson became a director of the
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Company), as partial consideration for the Company's acquisition of all of the
outstanding stock of MediTek Health Corporation from HEICO. The Note was
originally convertible into the Company's Common Stock at $9.25 per share or an
aggregate of 1,081,081 shares. The conversion price per share was reduced from
$9.25 per share to $8.50 per share in early September 1997, in consideration of
deleting the demand feature of the Note and extending its maturity. As amended,
the Note matures on June 30, 2001 but may be redeemed by the holders starting
January 1, 1999 if the shares into which the note is convertible have not by
that time been registered under the Securities Act. In November, 1997, the
Company listed the Note for trading on the PORTAL Market; and the Company is
giving holders that qualify as Qualified Institutional Buyers the opportunity to
exchange their notes for an interest in a global note to be held by the
Depository Trust Company in accordance with its book entry system.
[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 failure to timely file a Form 8-K
report in connection with one of its 1996 acquisitions has made it impracticable
for the Company to file registration statements under the Securities Act of 1933
until June 1998. 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 has 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 comprised the Special Committee appointed by the Company's Board of
Directors to review the Company's prior relationship 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 $8.625 which was the market value of the Company's common
stock at the date of grant.
On April 23, 1997 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 $6.25, which was the market value
of the Company's common stock at 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 $6.6875, 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
In January 1997, six separate class action lawsuits were filed against the
Company and certain officers, directors and other parties alleging failure to
make disclosure regarding the background of Keith Greenberg, who had provided
consulting services to the Company through Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Two of the lawsuits have been dismissed and
the four remaining suits have been settled in principle in a Memorandum of
Understanding (the "Memorandum") dated July 31, 1997. 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 (including
additional claims for alleged misstatements of financial conditions) for
$5,875,000, payable $587,500 within ten days after signing; 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
11
<PAGE>
the settlement. Management believes the second payment will not become due until
the latter part of December 1997 or January 1998 and that the final payment will
not become due before the first quarter of 1998. The first payment was made by
the Company as required on August 11, 1997. The settlement is subject to a court
approval process expected to take several months. 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 principle with its insurance carrier whereby the insurer will
contribute $1,000,000 toward the Company's settlement obligation in full
satisfaction of its director and officer liability insurance policy obligations.
In addition, the Company has reached an agreement with its former CEO, Jeffrey
Goffman, to contribute $1,000,000 to the settlement, consisting of $850,000 in
cash and $150,000 in forgiven payments under a note owing from the Company to
Goffman. The Company is currently in negotiations in which it is seeking
contribution from other third parties. There can be no assurance that the
Company will be successful in these negotiations. During the second fiscal
quarter ended June 30, 1997, the Company recorded a provision for settlement of
lawsuits in the amount of $4,875,000, comprising the $5,875,000 settlement, net
of the $1,000,000 contributions from the insurance company. During the three
months ended September 30, 1997, a credit of $1,000,000 was recorded in
Settlement with Former Chief Executive Officer to reflect the contribution from
Goffman.
As the Company previously reported, 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. Various counterclaims were
filed against MDI 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. The litigation was settled
at no cost to the Company, in October 1997.
The Company is currently involved in litigation related to its acquisition of
stock in Integrated Health Concepts, Inc. ("IHC") in August 1996. In March 1997,
litigation was commenced to determine the respective stock interests of the
Company, Don Ballard, Dr. Mohammed Athari and a key man trust which, together,
comprise all of IHC's shareholders. In June 1997, the Court issued a ruling
upholding the Company's position that it owns 70% of IHC's stock. Subsequently,
IHC appointed a new Board of Directors which terminated Mr. Ballard's employment
as president of IHC. Mr. Ballard filed additional claims against IHC and the
Company alleging that they had breached fiduciary duties owing to him and that
they were obligated to pay him more than $1 million based upon termination of
his employment, to provide him with $250,000 of USD Common Stock, and to
repurchase his IHC stock (and that of the key man trust) for its fair market
value which Mr. Ballard contended was approximately $8 million. The Company and
IHC are vigorously contesting such claims and have asserted their own claims
against Mr. Ballard aggregating approximately $1.3 million. The matter was tried
during October 1997 and is currently under consideration by the Court. Although
claims were also previously asserted against IHC by Mohammed Athari, they have
been fully settled and resolved without additional payments by the company.
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.
[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.
12
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<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Revenue as Reported $166,674 $59,552
Effect of MDI Acquisition 3,316 16,398
---------- --------
Pro Forma Revenue $169,990 $ 75,950
========== ========
Net Income (Loss) as Reported $(19,718) $2,571
Effect of MDI Acquisition (395) 192
----------- --------
Pro Forma Net Income (Loss) $(20,113) $2,763
=========== ========
Earnings (Loss) Per Share
Primary:
Historical $(.89) $.18
Effect of MDI Acquisition (.02) .02
---------- --------
Pro Forma Earnings (Loss) Per Share $(.91) $.20
========== ========
Fully Diluted:
Historical N/A $.15
Effect of MDI Acquisition .01
=======
Pro Forma Earnings (Loss) Per Share $.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 previously defined 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 employment related disputes
between them. 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 implementing the terms of the letter and
agreed to pay 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 exercised the right to vote or exercise legal control over the
Company's stock in which others have a beneficial interest. As part of this
Settlement, it was agreed that all previously vested restricted stock and stock
options granted to Mr. Goffman would be retained by him and all unvested
restricted stock as of March 31, 1997 (220,000 shares) were 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 were placed in the escrow account. Notwithstanding Mr. Goffman's
resignation, these options will 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 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 on or before March 31, 1999.
13
<PAGE>
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 were recorded in Settlement with Former
Executive Officer during the second fiscal quarter ended June 30, 1997.
On September 30, 1997 the Company entered into a second settlement with Mr.
Goffman which fully resolved the remaining issues between them. Pursuant to this
settlement, Mr. Goffman has agreed to contribute $1 million to the Settlement of
the class actions in the form of $850,000 cash and the forgiveness of the next
nine monthly payments totalling $150,000 which would otherwise be due to him
from the Company under the earlier settlement. Stock previously placed in the
escrow as part of the earlier settlement may be margined or sold by Mr. Goffman
to assist in raising the $850,000 cash which he is required to contribute. The
Company and Goffman have exchanged full and mutual releases and, upon receipt of
the $850,000 cash payment, all remaining shares of Common Stock held in escrow
will be released to Mr. Goffman. During the three months ended September 30,
1997, a credit of $1,000,000 was recorded in Settlement with Former Chief
Executive Officer to reflect the contribution from Goffman.
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 did not 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 September 30, 1997, the Company has deferred
compensation totaling $466,969 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. FAS 128 supersedes 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 $(.89) and $(.89),
respectively for the nine months ended September 30, 1997 and $(.45) and $(.45),
respectively for the three months ended September 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 $3.6 million in the second
fiscal quarter ended June 30, 1997, representing the Company's entire recorded
investment in DTC. Such amount is included in the accompanying condensed
consolidated statements of operations for the nine months ended September 30,
1997. Impairment losses excluding DTC relating to the recorded value of certain
assets totaled $333,000 and $500,000 for the three and nine months ended
September 30, 1997, respectively.
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<PAGE>
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 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.
For the fiscal year ended December 31, 1996, approximately 96% of all the
Company's revenues were derived from third party payors. 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. 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 nine months ended September 30,1996 and the condensed consolidated statement
of cash flows for the nine months ended September 30,1996 have been restated
from those originally filed with the SEC on Form 10-QSB. The restated financial
statements for the quarterly period ended September 30, 1996, were filed with
the SEC on Form 10-QSB/A on May 23, 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
15
<PAGE>
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 SEPTEMBER 30, 1997 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Revenue for the three months ended September 30, 1997 increased from $31.3
million in 1996, to $56.7 million in 1997. This increase of $25.4 million is
primarily the result of acquisitions.
General and Administrative expense was $41.5 million for the three months ended
September 30, 1997 compared to $18.2 million for the three months ended
September 30, 1996. This increase of $23.3 million 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 73.1% of revenue in 1997 compared to
58.2% of revenue in 1996.
Depreciation and Amortization increased by $4.5 million from $3.0 million in
1996 to $7.5 million 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.
Bad debt expense increased by $7.7 million from $1.2 million in the three months
ended September 30, 1996 to $8.9 million in the three months ended September 30,
1997. As a percentage of revenues, bad debt expense was 15.7% in the three
months ended September 30, 1997 compared to 3.9% during the three months ended
September 30, 1996.
The Company is in the process of converting all of its centers to one
centralized billing and collection system. This process should be substantially
completed by year end. The conversion process has both highlighted and created a
deterioration in the aging of receivables. Management increased the normal
provision for bad debts during the three months ended September 30, 1997 by $6.8
million to provide for possible collection problems. Additional experienced
personnel have been hired to aggressively address these problems.
Stock Based Compensation decreased by $738,000 from $1.0 million in the three
months ended September 30, 1996 to $299,000 in the three months ended September
30, 1997.
During the three months ended September 30, 1996 the Company recorded
Compensation to Terminated Consultant of $1.4 million. See Note 9 of Notes to
Condensed Consolidated Financial Statements.
Professional Fees increased by $2.6 million from $778,000 in 1996 to $3.4
million in 1997 primarily due to legal and accounting fees associated with
litigation, regulatory matters and the integration of the accounting and billing
system.
During the three months ended September 30, 1997 the Company recorded a credit
of $1,000,000 in Settlement with Former Chief Executive Officer. See Note 7 of
Notes to Condensed Consolidated Financial Statements.
Interest Expense increased $1.9 million from $2.9 million in the three months
ended September 30, 1996 to $4.8 million in the three months ended September 30,
1997. The increase is primarily attributable to debt incurred to finance
acquisitions and the purchase of property and equipment.
Net loss was $9.8 million, or $.45 loss per share on a fully diluted basis,
during the three months ended September 30, 1997, compared to net income of $1.1
million, or $.05 per share on a fully diluted basis, during the three months
ended September 30, 1996. As more fully described above, the net loss of $9.8
million incurred during the three months ended September 30, 1997 includes bad
debt expense of $8.9 million, professional fees of $3.4 million and a credit of
$1.0 million recorded in Settlement with Former Chief Executive Officer.
16
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue for the nine months ended September 30, 1997 increased from $59.6
million in 1996 to $166.7 million in 1997. This increase of $107.1 million is
primarily the result of acquisitions.
General and Administrative expense was $118.1 million for the nine months ended
September 30, 1997 compared to $33.7 million for the nine months ended September
30, 1996. This increase of $84.4 million 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 70.9% of revenue in 1997 compared to 56.5% in 1996.
Depreciation and Amortization increased by $15.0 million from $6.8 million in
1996 to $21.8 million 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.
Bad debt expense increased by $10.3 million from $2.3 million in the nine months
ended September 30, 1996 to $12.6 million in the nine months ended September 30,
1997. As a percentage of revenues, bad debt expense was 7.5% in the nine months
ended September 30, 1997 compared to 3.9% during the nine months ended September
30, 1996.
The Company is in the process of converting all of its centers to one
centralized billing and collection system. This process should be substantially
completed by year end. The conversion process has both highlighted and created a
deterioration in the aging of receivables. Management increased the normal
provision for bad debts during the three and nine months ended September 30,
1997 by $6.8 million to provide for possible collection problems. Additional
experienced personnel have been hired to aggressively address these problems.
Stock Based Compensation decreased by $567,000 from $1.6 million in the nine
months ended September 30, 1996 to $1.0 million in the nine months ended
September 30, 1997.
During the nine months ended September 30, 1996 the Company recorded
Compensation to Terminated Consultant of $2.2 million. See Note 9 to Notes to
Condensed Consolidated Financial Statements.
Professional Fees increased by $6.4 million from $1.6 million in 1996 to $8.0
million in 1997 primarily due to legal and accounting fees associated with
litigation, regulatory matters and integration of accounting systems.
During the nine months ended September 30, 1997 the Company recorded Asset
Impairment Losses of $4.1 million consisting primarily of a write-off of the
Company's investment in DTC. See Note 11 of Notes to Condensed Consolidated
Financial Statements.
During the nine months ended September 30, 1997 the Company recorded a charge of
$1.8 million to Settlement with Former Chief Executive Officer. See Note 7 of
Notes to Condensed Consolidated Financial Statements.
During the nine months ended September 30, 1997 the Company recorded a loss of
settlement of lawsuits totaling $5.0 million. See Note 7 of Notes to Condensed
Consolidated Financial Statements.
Interest Expense increased $7.7 million from $5.6 million in the nine months
ended September 30, 1996 to $13.3 million in the nine months ended September 30,
1997 . The increase is primarily attributable to debt incurred to finance
acquisitions and the purchase of property and equipment.
During the fiscal quarter ended March 31, 1997 the Company realized a gain on
marketable securities of $406,000 which is included in other income (expenses)
for the nine months ended September 30, 1997.
Net loss was $19.7 million, or $.89 loss per share on a fully diluted basis,
during the nine months ended September 30, 1997 compared to net income of $2.6
million, or $.15 per share on a fully diluted basis during the nine months ended
September 30, 1996. As more fully described above, the net loss of $19.7 million
incurred during the nine months ended September 30, 1997
17
<PAGE>
includes bad debt expense of $12.6 million, professional fees of $8.0 million,
asset impairment losses of $4.0 million, and loss on settlement of lawsuits of
$5.0 million.
LIQUIDITY
At September 30, 1997, the Company had Cash and Cash Equivalents of $30.9
million and working capital of $33.8 million. The Company generated cash of $2.8
million from operations during the nine months ended September 30, 1997. The
Company has $28.4 million of debt and other obligations under capital leases
which mature over the next twelve months.
The Company used $37.8 million of cash for investing activities during the nine
months ended September 30, 1997. Such uses included $15.3 million to purchase
property and equipment and $21.8 million to acquire MDI. The Company made
additional investments of $3.1 million in unconsolidated subsidiaries. The
Company also paid $6.5 million on purchase price due on companies previously
acquired. The Company sold assets and marketable securities which generated $7.1
million during the nine months ended September 30, 1997.
Financing activities generated $47.3 million in cash during the nine months
ended September 30, 1997. This included proceeds from borrowings totaling $70.1,
repayments on debt and capital lease obligations totaling $22.9 million and
exercise of options of $100,000.
Cash and Cash Equivalents increased by $12.2 million from December 31, 1996 to
September 30, 1997.
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 failure to timely file a Form 8-K
report in connection with one of its 1996 acquisitions has made it impracticable
for the Company to file registration statements under the Securities Act of 1933
until June 1998. 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.
Additionally, the payment terms of the Memorandum the Company entered into in
connection with the settlement of shareholder class action claims 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 another $3,818,758 no later than
25 days before the final hearing for approval of the settlement. Management
believes the second payment will not become due until the latter part of
December 1997 or January 1998 and that the final payment will not become due
before the first quarter of 1998. The Company has reached an agreement in
principle with its insurance carrier whereby the insurer will contribute $1
million at the time of the second payment in full satisfaction of its directors
and officers liability insurance policy obligations. The Company has also
reached a separate agreement with its former CEO, Jeffrey Goffman, to contribute
an additional $1 million towards the cost of settling the class action. $850,000
of this amount is expected to be received prior to the time the second payment
of the class action settlement will become due. 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.
(See Note 7 Litigation - to this Form 10-Q).
In February 1997, the Company entered into a financing agreement with DVI
Business Credit Corporation ("DVIBC") to provide two credit facilities of $25
million each. Borrowings are subject to certain conditions such as the
availability of unencumbered assets to collateralize advances and maintenance of
at least $5 million in cash during all reporting periods. The first $25 million
is a revolving credit loan from DVIBC secured by accounts receivable. The second
$25 million is an acquisition and equipment line of credit from DVI Financial
Services Inc. ("DVIFS"). Advance of funds on the second $25 million line is
based upon a review by DVIFS of the entity acquired and/or a review of the
assets securing the loan. The Company borrowed $25 million under the revolving
credit loan in February 1997, which will become due on February 28, 1999, and
bears interest, payable
18
<PAGE>
monthly, at prime plus two percent (10.5% at September 30, 1997). Between March
1997 and September 1997, the Company borrowed a total of $12.25 million,
collateralized by equipment, under the second $25 million line. Each such
advance is repayable through 2002 in sixty monthly installments.
At the time the Company entered into the financing arrangement with DVIBC, a
portion of the Company's accounts receivable did not meet certain of the
lender's eligibility criteria under the line of credit. DVIBC granted the
Company a waiver with respect to such criteria but provided in the loan
agreement that if the Company did not satisfy such criteria to DVIBC's
satisfaction within 90 days of the original funding of the loan, DVIBC had the
right to declare the nonconforming accounts ineligible and exclude them from the
borrowing base, in which case the Company would have been obligated to reduce
its then existing indebtedness to DVIBC to the borrowing base level at such
time. DVIBC has granted the Company additional waivers of such criteria through
December 15, 1997. However, if the Company is not able to satisfy such criteria
on or before December 15, 1997 and does not obtain any further waiver thereof
from DVIBC, the Company may be required to pay down its then outstanding
accounts receivable loans from DVIBC to a level not in excess of the Borrowing
Base on such date. There can be no assurance that the Company will be able to
satisfy such eligibility criteria on or before December 15, 1997, and if it is
unable to do so, it may not have funds on hand sufficient to make the required
payment of the DVIBC indebtedness. If the Company fails to make any such
required payment, it could be declared in default under the DVIBC loan
agreement, as well as under the DVIFS arrangement described below resulting in
possible debt acceleration from both lenders. If the Company is unable to draw
upon such credit facilities or to replace the same without delay, the Company's
liquidity would be seriously impaired.
On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
Each advance under the term loan is repayable in 60 equal monthly installments
inclusive of principal and interest at the rate of 10% per annum as to the first
$7,500,000 borrowed and 11% per annum as to any additional amounts borrowed. In
addition, the Company may be required to pay down portions of these outstanding
term loans with the proceeds it receives as a result of reimbursement or
indemnification in connection with the shareholder litigation described under
Part II - Item 1. (Legal Proceedings) in this Quarterly Report on Form 10-Q. As
of November 14, 1997, $15,000,000 had been borrowed under this arrangement. In
addition, in connection with the term loans, the Company (i) increased its
revolving credit loan from $25,000,000 to $35,000,000, (ii) extended the
maturity date of the revolving credit loan from February 28, 1998 to February
28, 1999, and (iii) issued to DVI two warrants to purchase an aggregate of
250,000 shares of Common Stock of the Company at an exercise price of $7.6875
per share, which was the fair market value of a share of such Common Stock on
the date the warrants were issued. One of the warrants to purchase 125,000
shares of Common Stock is exercisable immediately, and the other warrant to
purchase 125,000 shares of Common Stock is exercisable beginning on or after
April 30, 1998 but only if the entire indebtedness to DVIFS and DVIBC has not
been reduced by at least $12,500,000 (exclusive of regularly scheduled
amortization) prior to the date of exercise. Both of the warrants expire on
September 30, 2004.
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 DVIBC or DVIFS requires
repayment under the credit facilities or to the extent that Company is unable to
borrow sufficient additional funds from either such lender on terms which are
acceptable to it, the Company would be compelled to seek alternative sources of
financing to satisfy its obligations. Additionally, a payment default or a
non-payment default which results in the acceleration of indebtedness under the
DVIFS and DVIBC facilities would cause defaults under certain of the Company's
other indebtedness, including the Company's $57.5 million 9% Subordinated
Convertible Debentures due 2003. In the event of a default on such other
indebtedness, the Company would be required to seek alternative sources of
financing to satisfy those obligations as well. 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.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1997, six separate class action lawsuits were filed against the
Company and certain officers, directors and other parties alleging failure to
make disclosure regarding the background of Keith Greenberg, who had provided
consulting services to the Company through Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Two of the lawsuits have been dismissed and
the four remaining suits have been settled in principle in a Memorandum of
Understanding (the "Memorandum") dated July 31, 1997. 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 (including
additional claims for alleged misstatements of financial conditions) for
$5,875,000, payable $587,500 within ten days after signing; 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. Management believes the
second payment will not become due until the latter part of December 1997 or
January 1998 and that the final payment will not become due before the first
quarter of 1998. The settlement is subject to a court approval process expected
to take several months. 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 principle with its
insurance carrier whereby the insurer will contribute $1,000,000 toward the
Company's settlement obligation in full satisfaction of its director and officer
liability insurance policy obligations. In addition, the Company has reached an
agreement with its former CEO, Jeffrey Goffman, to contribute $1,000,000 to the
settlement, consisting of $850,000 in cash and $150,000 in forgiven payments
under a note owing from the Company to Goffman. The Company is currently in
negotiations in which it is seeking contribution from other third parties. There
can be no assurance that the Company will be successful in these negotiations.
During the second fiscal quarter ended June 30, 1997, the Company recorded a
provision for settlement of lawsuits in the amount of $4,875,000, comprising the
$5,875,000 settlement, net of the $1,000,000 contributions from the insurance
company. During the three months ended September 30, 1997, a credit of
$1,000,000 was recorded in Settlement with Former Chief Executive Officer to
reflect the contribution from Goffman. See Note 7 - Litigation - in this Form
10-Q.
As the Company previously reported, 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. Various counterclaims were
filed against MDI 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. The litigation was settled
at no cost to the Company, in October 1997.
The Company is currently involved in litigation related to its acquisition of
stock in Integrated Health Concepts, Inc. ("IHC") in August 1996. In March 1997,
litigation was commenced to determine the respective stock interests of the
Company, Don Ballard, Dr. Mohammed Athari and a key man trust which, together,
comprise all of IHC's shareholders. In June 1997, the Court issued a ruling
upholding the Company's position that it owns 70% of IHC's stock. Subsequently
IHC appointed a new Board of Directors which terminated Mr. Ballard's employment
as president of IHC. Mr. Ballard filed additional claims against IHC and the
Company alleging that they had breached fiduciary duties owing to him and that
they were obligated to pay him more than $1 million based upon termination of
his employment, to provide him with $250,000 of USD Common Stock, and to
repurchase his IHC stock (and that of the key man trust) for its fair market
value which Mr. Ballard contended was approximately $8 million. The Company and
IHC vigorously contest such claims and have asserted their own claims against
Mr. Ballard aggregating approximately $1.3 million. The matter was tried during
October 1997 and is currently under consideration by the Court. Although claims
were also previously asserted against IHC by Mohammed Athari they have been
fully settled and resolved resolved without additional payments by the Company.
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.
20
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders in the third
quarter of 1997.
ITEM 5. OTHER INFORMATION
On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
The term loans are repayable in 60 equal monthly installments inclusive of
principal and interest at the rate of 10% per annum as to the first $7,500,000
borrowed and 11% per annum as to any additional amounts borrowed. In addition,
the Company may be required to pay down portions of these outstanding term loans
with the proceeds it receives as a result of reimbursement or indemnification in
connection with the shareholder litigation described under Part II - Item 1.
(Legal Proceedings) in this Quarterly Report on Form 10-Q. As of November 14,
1997, $15,000,000 had been borrowed under this arrangement. In addition, in
connection with the term loans, the Company (i) increased its revolving credit
loan from $25,000,000 to $35,000,000, (ii) extended the maturity date of the
revolving credit loan from February 28, 1998 to February 28, 1999, and (iii)
issued to DVI two warrants to purchase an aggregate of 250,000 shares of Common
Stock of the Company at an exercise price of $7.6875 per share, which was the
fair market value of a share of such Common Stock on the date the warrants were
issued. One of warrants to purchase 125,000 shares of Common Stock is
exercisable immediately, and the other warrant to purchase 125,000 shares of
Common Stock is exercisable beginning on or after April 30, 1998 but only if the
entire indebtedness to DVIFS and DVIBC has not been reduced by at least
$12,500,000 (exclusive of regularly scheduled amortization) prior to the date of
exercise. Both of the warrants expire on September 30, 2004.
Effective October 20, 1997 the Company entered into a written Employment
Agreement to retain Leon F. Maraist as its Executive Vice President and Chief
Operating Officer. The term of the Agreement is three years and Mr. Maraist's
base salary is $200,000 per annum. Mr. Maraist has been granted options to
acquire 80,000 shares of the Company's Common Stock, at $6.50 per share, which
was the fair market value on the date of grant, which vest ratably over the term
of the contract. Mr. Maraist will be responsible for the daily operations of the
Company. Mr. Maraist was most recently Vice President of NMC Diagnostic Services
Inc., a subsidiary of National Medical Care Inc. which is owned by Fresenius
Medical Care. Mr. Maraist was responsible for the creation of the diagnostic
division of Fresenius Medical Care which provides mobile diagnostic imaging
services. Previously, he was Director of Operations for the Dialysis Services
Division of National Medical Care Inc. Mr. Maraist has over 23 years experience
in the health care industry.
The Company held its annual stockholders meeting on November 5, 1997, at which
stockholders of the Company voted upon and elected C. Keith Hartley, Laurans A.
Mendelson, Joseph A. Paul, Gordon C. Rausser and L.E. Richey as Directors,
approved an amendment to the Company's 1995 Long-Term Incentive Plan to increase
the number of authorized shares of the Company's Common Stock available for
grant thereunder from 3,000,000 shares to 4,700,000; and ratified the
appointment of Arthur Andersen LLP as the Company's independent accountants for
the fiscal year 1997. The Company has temporarily reduced the size of its Board
to five members and announced its intention to search for two new outside
directors.
21
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<S> <C> <C>
4.1 - Form of Amended and Restated 6 1/2% Convertible Negotiable Note Due June 30, 2001.
10.1 - Employment Agreement dated October 20, 1997 between the Company and Leon
Maraist.
10.2 - Settlement Agreement and General Release dated September 30, 1997 between US Diagnostic Inc. and
Jeffrey Goffman.
10.3 - Form of Loan and Security Agreement among Medical Diagnostics Inc., US Diagnostic Inc. and DVI Financial
Services Inc. dated September 29, 1997.
10.4 - Form of Secured Promissory Note due October 1, 2002 by Medical Diagnostics Inc. to DVI Financial Services Inc.
10.5 - Unconditional Continuing Guaranty dated September 29, 1997 for the benefit of DVI Financial Services Inc. by
US Diagnostic Inc.
10.6 - Stock Pledge Agreement dated September 29, 1997 between US Diagnostic Inc., DVI Financial Services Inc. and
DVI Business Credit Corporation.
10.7 - Common Stock Purchase Warrant dated September 29, 1997 of US Diagnostic Inc. issued to DVI Financial
Services Inc.
10.8 - Common Stock Purchase Warrant dated September 29, 1997 of US Diagnostic Inc. issued to DVI Financial
Services Inc.
10.9 - Letter of Agreement dated September 29, 1997 between US Diagnostic Inc.
and DVI Business Credit Corporation confirming amendment of Loan and
Security Agreement dated as of February 25, 1997.
11 - Earnings Per Share Calculation.
27 - Financial Data Schedule.
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended September
30, 1997:
22
<PAGE>
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: November 14, 1997 By: /S/ JOSEPH A. PAUL
-----------------------------------------
Joseph A. Paul
President and
Chief Executive Officer
By: /S/ WAYNE MOOR
-----------------------------------------
Wayne Moor
Vice President and Chief Financial Officer
23
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
NUMBER DESCRIPTION
- -------- -----------
4.1 - Form of Amended and Restated 6 1/2% Convertible Negotiable
Note Due June 30, 2001.
10.1 - Employment Agreement dated October 20, 1997 between the
Company and Leon Maraist.
10.2 - Settlement Agreement and General Release dated September
30, 1997 between the Company and Jeffrey Goffman.
10.3 - Form of Loan and Security Agreement among Medical
Diagnostics Inc., the Company and DVI Financial Services
Inc. dated September 29, 1997.
10.4 - Form of Secured Promissory Note due October 1, 2002 by
Medical Diagnostics Inc. to DVI Financial Services Inc.
10.5 - Unconditional Continuing Guaranty dated September 29, 1997
for the benefit of DVI Financial Services Inc. by U.S.
Diagnostic Inc.
10.6 - Stock Pledge Agreement dated September 29, 1997 between the
Company DVI Financial Services Inc. and DVI Business Credit
Corporation.
10.7 - Common Stock Purchase Warrant dated September 29, 1997 of
the Company issued to DVI Financial Services Inc.
10.8 - Common Stock Purchase Warrant dated September 29, 1997 of
the Company issued to DVI Financial Services Inc.
10.9 - Letter of Agreement dated September 29, 1997 between the
Company and DVI Business Credit Corporation confirming
amendment of Loan and Security Agreement dated as of
February 25, 1997.
11 - Earnings Per Share Calculation.
27 - Financial Data Schedule.
24
EXHIBIT 4.1
THIS NOTE AND THE SHARES OF COMMON STOCK OF U.S. DIAGNOSTIC INC. (THE "COMPANY")
INTO WHICH THIS NOTE IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE
STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF SUCH NOTE OR COMMON STOCK REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH SHARES OR NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS.
U.S. DIAGNOSTIC INC.
AMENDED AND RESTATED
6 1/2% CONVERTIBLE NEGOTIABLE NOTE
DUE JUNE 30, 2001
$_____________ New York, New York
September __, 1997
FOR VALUE RECEIVED, U.S. Diagnostic Inc., a Delaware corporation (the
"Company"), with its principal office at 777 S. Flagler Drive, West Palm Beach,
Florida 33401, promises to pay to the order of _________________________________
or assigns (the "Payee", "the holder of this Note" or the "Holder"), the
principal amount of _______________________________ Dollars ($____________.00),
with interest from the July 1, 1997 payable quarterly at the rate of six and
one-half percent (6 1/2%) per annum. The principal of this Note shall be due and
payable in full on June 30, 2001. Quarterly payments of accrued interest shall
commence September 30, 1997 and continue until the principal is paid or
converted in full. Accrued and unpaid interest on any portion of the Note that
is converted pursuant to the terms of Section 2 hereof will be payable through
the date of the Notice of Conversion on the principal amount converted. Interest
shall be computed based on the premise that a year contains twelve (12) thirty
(30) day months and 360 days and shall be charged on a per diem basis.
1. EVENTS OF DEFAULT. If one or more of the following events (herein
called "Events of Default") shall have occurred and be continuing, that is to
say:
(a) If the Company shall default in the payment of the principal and
accrued interest on this Note after the principal or accrued interest shall
become due and payable; or
(b) If (i) the Company shall commence any proceeding or other action
relating to it in bankruptcy or seek reorganization, arrangement, readjustment
of its debts, dissolution, liquidation, winding-up, composition or any other
relief under the Bankruptcy Act, as amended, or under any other insolvency,
reorganization, liquidation, dissolution, arrangement, composition, readjustment
of debt or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing; or (ii) the Company shall admit the material
allegations of any petition or pleading in
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<PAGE>
connection with any such proceeding; or (iii) the Company applies for, or
consents or acquiesces to, the appointment of a receiver, conservator, trustee
or similar officer for it or for all or a substantial part of its property; or
(iv) the Company makes a general assignment for the benefit of its creditors; or
(v) the Company is unable or admits in writing that it is unable to pay its
debts as they mature; or
(c) (i) Commencement of any proceedings or in the taking of any other
action against the Company in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any of
such events for twenty (20) days undismissed, unbonded or undischarged; or (ii)
the appointment of a receiver, conservator, trustee or similar officer for the
Company or for all or substantially all of its property and the continuance of
such event for thirty (30) days undismissed, unbonded or undisclosed; or (iii)
the issuance of a warrant of attachment, execution or similar process against
substantially all of the property of the Company and the continuance of such
event for thirty (30) days undismissed, unbonded and undischarged;
then the principal amount of, and all accrued interest on, this Note shall be
accelerated and become immediately due and payable in full. The Events of
Default listed herein are solely for the purpose of protecting the interests of
the holder of this Note.
2. CONVERSION OF NOTE.
(a) The Payee shall have the right, by written notice to the Company as
provided herein at any time following the issuance of this Note and prior to or
on the Maturity Date, to convert all or a portion of the unpaid principal amount
of this Note plus all accrued interest thereon, into Common Stock, $.01 par
value, of the Company ("Common Stock"), at a conversion price of $8.50 per
share, subject to adjustment as hereinafter provided (as so adjusted, the
"Conversion Rate").
(b) The Payee desiring to exercise its option to convert this Note
pursuant to clause (a) hereof, shall deliver the Note to the Company at its
principal executive office, accompanied by a signed "Notice of Conversion" in
the form attached as Exhibit A hereto, specifying the number of shares of Common
Stock to be acquired, the principal amount to be converted and the name or
names, address and social security or tax ID number in which the certificate or
certificates for shares of Common Stock are to be issued. The foregoing
notwithstanding, no holder of this Note shall be entitled to transfer this Note
by conversion without first complying with all applicable restrictions on the
transfer of this Note. The conversion will be deemed to have occurred upon the
date of delivery of this Notice and the Notice of Conversion and the person
entitled to receive share certificates for Common Stock shall be regarded for
all corporate purposes from and after such date as the record holder the number
of shares of Common Stock to which it is entitled upon the conversion. The
Company may rely on record ownership of this Note for all corporate purposes,
notwithstanding any contrary notice. Upon receipt of the Notice of Conversion,
the Company shall
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<PAGE>
promptly issue a stock certificate for the shares of Common Stock issuable upon
conversion of the Note and shall promptly pay all accrued interest on the
portion of the Note that has been converted.
(c) The Conversion Price in effect at any time and the number and kind
of securities purchasable upon the conversion of this Note shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(i) In case the Company shall (x) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (y) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (z) combine or
reclassify its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that
it shall equal the price determined by multiplying the Conversion Price
by a fraction, the denominator of which shall be the number of shares
of Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In the case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Company, or
in the case of any consolidation or merger of the Company with or into
another corporation or the conveyance of all or substantially all of
the assets of the Company to another corporation (other than a merger
with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of
the class issuable upon conversion of this Note), this Note shall
thereafter be convertible at the Conversion Price in effect on the day
immediately preceding such reclassification, reorganization, merger or
consolidation into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of
the Company deliverable upon conversion of this Note would have been
entitled upon such reclassification, change, consolidation, merger or
conveyance; and, in any such case, appropriate readjustment (as
determined by the Board of Directors) shall be made in the application
of the provisions herein set forth with respect to the rights and
interests thereafter of the holder of this Note, to the end that the
provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon
the conversion of this Note. The foregoing provisions of this
subsection (c)(ii) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) No fractional shares of Common Stock shall be issued upon
conversion of this Note. In the event that the principal amount stated in the
aforesaid notice to be converted would result in
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<PAGE>
the issuance of a fractional share of Common Stock, the Company shall pay a cash
adjustment in lieu of such fractional share to the holder of this Note based
upon the closing price of a share of Common Stock on the principal securities
exchange (including the NASDAQ National Market) on which such Common Stock is
trading on the date of conversion.
(e) In case at any time:
(i) The Company shall declare any dividend upon, or other
distribution in respect of, its Common Stock; or
(ii) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or a sale of all or substantially all
of the assets of the Company, or a consolidation or merger of the
Company with another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which
does not result in any reclassification), or change of then outstanding
shares of Common Stock or other capital stock issuable upon the
conversion of this Note (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result
of subdivision or combination or conversion of outstanding options and
warrants currently outstanding); or
(iii) There shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the registered holder of this Note at the earliest practicable time (and in any
event not less than 10 business days before any record date or other date set
for definitive action), written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or such reorganization, reclassification, sale, consolidation, merger or
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known or can reasonably be approximated
at the date of such notice) on the Conversion Rate and the kind and amount of
the shares of stock and other securities and property deliverable upon the
conversion of this Note. Such notice shall also specify the date as of which the
holders of the Common Stock of record shall participate in said dividend,
distribution or shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification, sale,
consolidation, merger or dissolution, liquidation or winding-up, as the case may
be.
(f) All shares of Common Stock which may be issued upon conversion of
this Note will, upon issuance the Company in accordance with the terms of this
Note be validly issued and, subject to the payment in full, in an amount equal
to the Conversion Rate of such shares multiplied by the number of shares so
issued, fully paid and non-assessable.
3. REQUIRED CONVERSION. At any time commencing on the later of January
1, 1999 or the date that the shares of Common Stock into which this Note is
convertible are registered for resale
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<PAGE>
by the Holder under the Securities Act of 1933, as amended (such time being
herein called the "Required Conversion Date"), if the last sale price of the
Common Stock averages at least $9.25 per share for the ten (10) trading days
immediately preceding the Required Conversion Date, then upon written notice
from the Company given within fifteen (15) days following the Required
Conversion Date, the Payee shall convert this Note at the then applicable
Conversion Rate; PROVIDED, HOWEVER, that, in the event of such notice being
given by the Company, the Payee may provide notice to the Company of its
election to receive payment in cash of the full principal balance of the Note
together with any accrued but unpaid interest, in lieu of consenting to the
conversion.
4. PREPAYMENT. This Note may be prepaid in whole or in part at any time
after January 1, 1999, upon sixty (60) days' written notice by the Company to
the Holder. The Holder shall be permitted to convert this Note at any time prior
to the date of prepayment set forth in such notice.
5. REDEMPTION AT THE OPTION OF HOLDER. If the shares of the Common
Stock into which this Note are convertible are not registered for resale by the
Holder under the Securities Act of 1933, as amended, prior to January 1, 1999,
Holder shall thereafter have the right to require the Company to redeem this
Note for cash upon ten (10) days' written notice by Holder to the Company at any
time prior to the date such registration becomes effective.
6. RESERVATION OF SHARES. The Company covenants and agrees that, during
the period within which the conversion rights contained in this Note may be
exercised, the Company will at all times have authorized and reserved, solely
for the purpose of such possible conversion, out of its authorized by unissued
shares, a sufficient number of shares of its Common Stock (and such other
securities, if any, which become issuable upon conversion hereof by reason of
the antidilution provisions of this Note) to provide for the exercise in full of
the conversion rights contained in this Note.
7. LOST DOCUMENTS. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Company will make and deliver in lieu of such a
Note a new Note of like tenor and unpaid principal amount and dated as of the
original date of the Note.
8. MISCELLANEOUS.
(a) PARTIES IN INTEREST. All covenants, agreements and undertakings in
this Note by and on behalf of the Company shall bind and inure to the benefit of
the successors and assigns of the Company and the permitted successors and
assigns of the Holder whether so expressed or not.
(b) NOTICES. All notices, requests, consents and demands given or made
pursuant to the provisions of this Note shall be made to the Company or to the
holder of this Note, as the case may be, by first class certified or registered
mail, post prepaid, or by hand delivery, in each case addressed
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as follows: (i) If to the Company, at the address of the Company set forth in
the first paragraph of this Note, and (ii) if to the holder of this Note, at the
address for such holder set forth on the Note Register of the Company maintained
for such purpose.
(c) CONSTRUCTION. The Company, for itself and its successors and
assigns, expressly waives presentment for payment, demand, protest and notice of
demand, notice of dishonor and notice of nonpayment and all other notices not
specifically provided for in this Note.
(d) COSTS OF COLLECTION; APPLICATION OF PAYMENTS. In the event that
this Note shall at any time after maturity be placed with an attorney for
collection, then the Company agrees to pay, in addition to the entire unpaid
principal balance and interest due hereunder, all collection costs, including
attorneys' fees and expenses, incurred by the Holder in collecting the
indebtedness due hereunder. All payments made hereunder prior to an Event of
Default shall first be applied to interest and then to principal; and all
payments made hereunder after an Event of Default shall first be applied to the
above-referenced costs of collection, then to interest and then to principal.
(e) GOVERNING LAW; JURISDICTION AND VENUE. THIS NOTE SHALL BE INTER
PRETED, AND THE RIGHTS AND LIABILITIES OF THE COMPANY AND THE HOLDER DETERMINED,
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS)
OF THE STATE OF FLORIDA. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY
RECEIVED, THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN DADE COUNTY, STATE OF FLORIDA, AND CONSENTS THAT
ALL SERVICE OF PROCESS BE MADE AT THE ADDRESS STATED IN, AND PURSUANT TO THE
TERMS OF, SECTION 8 ABOVE. THE COMPANY WAIVES ANY OBJECTION WHICH THE COMPANY
MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS
TO ANY SUIT OR PROCEEDING INSTITUTED BY THE HOLDER OF THIS NOTE IN ANY STATE OR
FEDERAL COURT LOCATED WITHIN DADE COUNTY, FLORIDA AND CONSENTS TO THE GRANTING
OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE HOLDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE HOLDER TO BRING ANY ACTION OR
PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION WHICH HAS JURISDICTION OVER THE COMPANY OR ITS PROPERTY.
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(f) SECTION HEADINGS. The section headings contained in this Note are
for convenience of reference only and shall not affect the meaning or
interpretation of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first specified above by the duly authorized representative of the Company.
U.S. DIAGNOSTIC INC.
By:_______________________________
_____________________,_________
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby irrevocably exercises the option to convert this
Note, or the portion below designated, into shares of Common Stock of U.S.
DIAGNOSTIC INC. in accordance with the terms of the Note, and directs that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned registered Holder hereof, unless a different name has been indicated
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Portion of this Note
to be converted: $______________
If shares of Common Stock are to be issued and registered in the name of a
person other than the undersigned, please print the name and address, including
zip code, and social security or other taxpayer identification number of such
person below:
------------------
------------------
------------------
Your Name: ________________________
(exactly as your name appears
on the face of this Note)
By:___________________________
Title:________________________
Date:_________________________
-8-
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
20th day of October 1997 between US Diagnostic Inc. (the "Company") and Leon
Maraist (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 commencing on
the date of this Agreement and continuing through November 1, 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 Executive
Vice President and Chief Operating 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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Company shall pay the Executive an annual base salary of $200,000. 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 bonus
shall be set forth by the Board of Directors and/or the CEO in its discretion.
Bonus will be based on achievement of earnings per share based on the adopted
budget. The bonus will be payable as the Company achieves 90% of the budget for
the year. For every $.01 increase over 90% of the budget, you will be entitled
to $7,500. By way of example: if the budgeted earnings per share is $.50 for
1998, the bonus would begin after the Company achieves $.45 per share. For every
$.01 over that amount, the bonus would be paid at $7,500 per $.01 increase.
(c) STOCK OPTIONS. Executive is hereby granted 80,000 options under
the Company's 1995 Long Term Incentive Plan ("Plan") at an exercise price of FMV
per share. The options shall vest ratably over the term of the contract. In the
event of a change in control of the Company, as defined in the plan, any
remaining portion of the 80,000 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.
Executive will be entitled to reimbursement for relocation expenses from Boston,
Massachusetts to West Palm Beach, Florida.
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.
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5. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the Executive's
employment for 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/her job responsibilities competently, (ii) dishonesty, fraud, theft
or misappropriation in the performance of his/her job responsibilities, or (iii)
any material breach of any provision of Sections 2(a), 6 or 7.
(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.
(c) SPECIAL TERMINATION. In the event that (i) the Company materially
breaches this Agreement or the performance of its duties and obligations
hereunder; or (ii) any entity or person not now an executive officer of the
Company becomes either individually or as part of a group the beneficial owner
of 40% or more of the Company's common stock or (iii) the merger, consolidation,
reorganization or liquidation of the Company (a "Change in Control"), the
Executive, by written notice to the Company, may elect to deem the Executive's
employment hereunder to have been terminated by the Company without cause, in
which event the Executive shall receive lump sum compensation equal to 2.0 times
his annual salary and incentive or bonus payments, if any, as shall have been
paid to the Executive during the Company's most recent fiscal year. If the total
amount of compensation under this paragraph were to exceed three (3) times the
Executive's base amount (the average annual taxable compensation of the
Executive for the five (5) years preceding the year in which the Change of
Control occurs) the Company and the Executive may agree to reduce the lump sum
compensation to be received by Executive in order to avoid the imposition of the
"golden parachute" tax. Alternatively, in such event, the Executive, by written
notice to the Company, may elect to refuse all further obligations of the
Company under Section 3 and Section 4 and to release the Company with respect
thereto, in which event the Company shall release the Executive from the
provisions of Section 6.
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
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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.
(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.
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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 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: Leon Maraist
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.
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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.
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:______________________________
Joseph A. Paul, President &
Chief Executive Officer
____________________________
Leon Maraist
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EXHIBIT 10.2
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This Final Settlement and Release of Claims (the "Final Agreement") is
entered into this 30th day of September, 1997, by and 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; and
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 USD, GOFFMAN, 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; and
C. WHEREAS, on or about February 3, l997 GOFFMAN voluntarily agreed to
be placed on administrative leave from USD while the matters alleged in the
Complaints were investigated by a Special Committee of USD's Board of Directors,
and GOFFMAN's employment by USD was subsequently terminated; and
D. WHEREAS, on or about July 11, l997, GOFFMAN and USD entered into a
Settlement Agreement and General Release (the "First Agreement") resolving
claims pertaining to GOFFMAN's employment and reserving for future adjudication
other claims specifically described in the First Agreement (the "Non-Released
Claims"); and
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E. WHEREAS, pursuant to the First Agreement, an escrow was established
(hereafter, the "Escrow") for the purpose of providing a source of recovery in
the event USD ultimately recovered a judgment against GOFFMAN on any of the
Non-Released Claims, and was funded with the deposit, or agreement to deposit
220,000 shares of USD Common Stock and options to purchase 100,000 additional
shares of USD Common Stock at an exercise price of $5.125; and
F. WHEREAS, as further consideration for the First Agreement, USD
agreed to pay GOFFMAN the sum of $300,000 of which $33,333.44 was paid in cash
at the time of execution and the balance was represented by a promissory note
(the "Note") payable in sixteen (16) equal monthly installments of $16,666.66
each, due on the first day of each month commencing on August 1, 1997; and
G. WHEREAS, fourteen monthly payments remain owing under the Note,
commencing with the payment coming due October 1, 1997; and
H. WHEREAS, the parties desire to resolve all remaining disputes and
differences between them and to provide for the dissolution and distribution of
the Escrow.
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 Final Agreement, the following terms
shall have the meanings indicated below:
(a) "CLAIMS" refers to and includes all claims, demands,
rights, causes of
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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 Final Agreement, and whether or not the same are
known to the parties at the time of their execution of this Final Agreement.
(b) "OBLIGATIONS" refers to and includes all obligations,
duties, liabilities, damages, expenses and debts of every kind and nature
whatsoever, owed by or to the parties to this Final Agreement, whether or not
the same are known to the parties at the time of their execution of this Final
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.
(d) "GOFFMAN" refers to Jeffrey A. Goffman and his heirs,
representatives, successors and assigns.
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 him or it in the
Complaints or elsewhere.
(b) The parties are entering into this Agreement for
the purpose of
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fully and completely settling all differences between them 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 Final Agreement.
3. SETTLEMENT CONSIDERATION
(a) VESTING OF SHARES IN ESCROW. The Parties hereto
acknowledge that, at present, 90,000 of the 220,000 shares placed in Escrow are
vested and the remaining 130,000 shares would ordinarily vest 65,000 shares on
May 1, 1998, and 65,000 shares on May 1, 1999. As part of this Settlement, USD
agrees to vest the 130,000 remaining shares immediately upon full execution of
this Final Agreement. USD will provide to any broker identified by GOFFMAN
written confirmation that all such shares have vested.
(b) CASH PAYMENT BY GOFFMAN. GOFFMAN agrees to pay
to USD the sum of $850,000 cash upon the earlier of (i) forty-five (45) days
from the date the Escrow Agent receives share certificates representing the
entire 220,000 shares to be held in Escrow or (ii) the receipt of proceeds from
any sale or financing of any securities which are part of the Escrow.
(c) NOTE FORGIVENESS. GOFFMAN agrees to forgive, and
USD shall not be required to pay, the next nine (9) payments which would
otherwise be owing under the Note, totalling $150,000 and commencing with the
payment which would otherwise be due on October 1, 1997. Payments under the Note
will resume as scheduled on July 1, 1998 and will continue through the final
payment due on November 1, 1998.
(d) ONGOING COOPERATION
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(i) GOFFMAN shall cooperate fully with counsel for
USD in the defense of any litigation or threatened litigation involving USD and
shall, upon reasonable prior notice, make himself available during normal
business hours to the Company and/or its attorneys for meetings, preparation,
document review or testimony. Nothing in this provision shall be deemed to
require GOFFMAN to waive any applicable privilege. 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 reasonable out of pocket costs incurred by GOFFMAN in
making himself available as provided in this paragraph shall be borne by USD.
(ii) USD shall execute such documents as may be
reasonably necessary to evidence its agreement to release the securities held in
Escrow, conditioned upon its receipt of the cash payment described in
subparagraph 3(b) and on condition that no proceeds from the sale or pledge of
such securities may be released to GOFFMAN until such payment has been made. USD
shall provide such written instructions to the Escrow Agent as may be necessary
to permit the sale or margining of the securities held in Escrow, subject to
such conditions and upon receipt of the payment set forth in paragraph 3(b),
shall notify the Escrow Agent to release to GOFFMAN any securities remaining in
the Escrow. Upon execution of this Final Agreement, USD shall notify the
Securities and Exchange Commission of the satisfactory resolution of its
disputes with GOFFMAN and of the terms of this Final Agreement.
(e) ADVANCEMENT OF FEES. The Company reaffirms the
scope of its prior agreement to advance legal fees and expenses incurred by
GOFFMAN in connection with
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certain shareholder class actions now or previously pending in the United States
District Court for the Southern District of Florida 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. It is expressly understood and agreed that USD shall
have no obligation to indemnify any fine, sanction, penalty, award, judgment or
liability imposed upon GOFFMAN by the Securities and Exchange Commission or any
other regulatory body.
(i) REPRESENTATIONS AND WARRANTIES.
(a) USD hereby represents and warrants as
follows:
(i) The 220,000 shares of Common
Stock which are the subject of the Escrow were granted to GOFFMAN pursuant to
the terms of the 1993 Employee Stock Option Plan or the 1995 Employee Stock
Option Plan each of which is the subject of a currently effective S-8
Registration Statement filed by USD with the SEC.
(ii) It has the full power and
authority to execute, deliver and perform this Final Agreement and to take the
actions provided for herein. It has duly authorized the execution, delivery and
performance of this Final Agreement, which, when executed and delivered by
GOFFMAN, 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
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court before which any such proceeding may be brought;
(iii) Neither the execution and
delivery of this Final Agreement, nor the fulfillment of, or compliance with,
its terms 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;
(iv) 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 this Final Agreement.
(v) There is no currently pending
litigation which would prevent USD from entering into or performing its
obligations under the terms of this Agreement.
(b) GOFFMAN hereby represents and warrants
as follows:
(i) He has the full power and
authority to consummate all transactions required of him by this Final
Agreement. He has duly executed and delivered this Final Agreement 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;
(ii) Neither the execution and
delivery of this Final
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Agreement nor the consummation of the transactions required of him herein, nor
the fulfillment of, or compliance with its terms and conditions 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;
(iii) 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 Final Agreement.
(iv) There is currently no pending
litigation which would prevent GOFFMAN from entering into or performing his
obligations under this Final 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 execution of this Final Agreement, including, but
without limiting the generality of the foregoing, any and all matters arising
out of or in any manner whatsoever connected with the Non-Released Claims.
(b) Without limiting the generality of the
foregoing, the parties acknowledge and agree that among those CLAIMS and
OBLIGATIONS released are those
8
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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 and the parties expressly waive
and assume the risk of any and all CLAIMS or OBLIGATIONS which exist as of the
date of this Final Agreement but which they do not know or suspect to exist as
of the date of this Final Agreement, whether through ignorance, oversight,
error, negligence, or otherwise, and which, if known, would materially affect
their decision to enter into this Final 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 and OBLLIGATIONS but that it shall not apply to
release CLAIMS based solely on events occurring after the date of execution of
this Final Agreement, or CLAIMS based upon a breach of the terms of this Final
Agreement.
(d) The Releases set forth in this paragraph 4 shall
automatically become effective upon receipt by USD of the $850,000 payment set
forth in paragraph 3(b) and shall not be effective until such time.
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 Final Agreement and all benefits
accruing under this Final 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 Final Agreement may not be modified
except by a
9
<PAGE>
writing signed by GOFFMAN and USD or their duly authorized representatives.
7. COUNTERPARTS. This Final 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
Final 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 Final 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 Final Agreement for each's own benefit.
10. REPRESENTATION BY COUNSEL. GOFFMAN and USD acknowledge
that they have been represented in the negotiations for, and in the preparation
of, this Final Agreement by counsel of their own choosing; that they have read
this Final 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 Final 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 Final Agreement on
behalf of USD
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hereby warrants that he has such authority and that the terms of this Final
Agreement were duly 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
Final 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 Final 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
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
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(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 Final Agreement constitutes and contains the entire agreement
and understanding concerning the subject matter hereof and supersedes and
replaces all prior negotiations and proposed agreements, whether written or
oral. This Final Agreement supplements, and shall be read in conjunction with
the First Agreement and the other documents referenced therein. 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 Final Agreement. 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 Final Agreement shall
become effective immediately upon the execution hereof by each of the parties
below.
16. HEADINGS. The various headings in this Final Agreement are
inserted for convenience only and shall not be deemed a part of or in any manner
affect this Final Agreement or any provision hereof.
17. BREACH OF THE AGREEMENT. In the event of a breach of any
provision of this Final 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
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<PAGE>
Final Agreement, at law or in equity.
18. SEVERABILITY. Should any part, term or provision of this
Final 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 Final Agreement and all of the
other parts, terms and provisions of this Final 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
Final 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 Final Agreement or any other
legal or factual issue whatsoever.
20. ABSENCE OF ENCUMBRANCES. 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 Final Agreement, the CLAIMS or OBLIGATIONS they are
releasing pursuant to this Final Agreement, or the consideration they are to
receive pursuant to this Final 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 Final Agreement, the prevailing party shall be entitled to recover its
attorneys' fees, costs and all
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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: ____________________, l997 _________________________
Jeffrey A. Goffman
U.S. DIAGNOSTIC INC.
Date: ___________________, l997 By:_________________________
Joseph A. Paul, President
14
EXHIBIT 10.3
[Form of]
LOAN AND SECURITY AGREEMENT
among
MEDICAL DIAGNOSTICS, INC.
Borrower,
U.S. DIAGNOSTIC INC.
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of September 29, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
Section 1 DEFINITIONS...........................................................................1
Section 1.1. Specific Definitions.............................................................1
Section 1.2. GAAP and UCC.....................................................................5
Section 1.3. Construction.....................................................................5
Section 2 LOAN..................................................................................5
Section 2.1. The Loan.........................................................................5
Section 2.2. Term and Repayment of Loan.......................................................5
Section 2.3. Prepayment.......................................................................6
Section 2.4. Late Payments....................................................................6
Section 2.5. Conditions to the Closing........................................................6
Section 3 SECURITY INTEREST.....................................................................8
Section 3.1. Grant of Security Interest.......................................................8
Section 4 SPECIFIC REPRESENTATIONS..............................................................8
Section 4.1. Name of Borrower.................................................................8
Section 4.2. Mergers and Consolidations.......................................................8
Section 4.3. Purchase of Assets...............................................................8
Section 4.4. Change of Name or Identity.......................................................9
Section 4.5. Corporate Structure..............................................................9
Section 5 PROVISIONS CONCERNING COLLATERAL......................................................9
Section 5.1. Title............................................................................9
Section 5.2. No Warranties....................................................................9
Section 5.3. Further Assurances...............................................................9
Section 5.4. Additional Collateral...........................................................10
Section 5.5. Lender's Duty of Care...........................................................10
Section 5.6. Intentionally Deleted...........................................................10
Section 5.7. Reinstatement of Liens..........................................................10
Section 5.8. Lender Expenses.................................................................10
Section 5.9. Inspection of Collateral and Records............................................11
Section 5.10. Waivers........................................................................11
Section 6 REPRESENTATIONS AND WARRANTIES.......................................................11
Section 6.1. Corporate Status................................................................11
Section 6.2. Authorization...................................................................11
Section 6.3. No Breach.......................................................................12
Section 6.4. Taxes...........................................................................12
Section 6.5. Deferred Compensation Plans.....................................................12
Section 6.6. Litigation and Proceedings......................................................12
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Section 6.7. Business........................................................................12
Section 6.8. Laws and Agreements.............................................................12
Section 6.9. Financial Condition.............................................................12
Section 6.10. Insurance......................................................................13
Section 6.11. Ownership of Property..........................................................13
Section 6.12. Health Care Laws...............................................................13
Section 6.13. Solvency.......................................................................13
Section 6.14. Cumulative Representations.....................................................14
Section 6.15. Full Disclosure................................................................14
Section 7 COVENANTS............................................................................14
Section 7.1. Encumbrance of Collateral.......................................................14
Section 7.2. Business........................................................................14
Section 7.3. Condition and Repair............................................................14
Section 7.4. Taxes...........................................................................14
Section 7.5. Insurance.......................................................................15
Section 7.6. Accounting System...............................................................15
Section 7.7. Quarterly Financial Statements..................................................15
Section 7.8. Annual Financial Statements.....................................................15
Section 7.9. Further Information.............................................................15
Section 7.10. ERISA Covenants................................................................16
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets, Issuance of Stock,
etc...................................................................................16
Section 7.12. Health Care Covenants..........................................................16
Section 7.13. Distributions..................................................................17
Section 8 EVENTS OF DEFAULT....................................................................17
Section 9 REMEDIES.............................................................................19
Section 9.1. Specific Remedies...............................................................19
Section 9.2. Power of Attorney...............................................................20
Section 9.3. Expenses Secured................................................................20
Section 9.4. Equitable Relief................................................................20
Section 9.5. Remedies Are Cumulative.........................................................20
Section 10 INDEMNITY............................................................................21
Section 10.1. General Indemnity..............................................................21
Section 11 MISCELLANEOUS........................................................................21
Section 11.1. Delay and Waiver...............................................................21
Section 11.2. Complete Agreement.............................................................21
Section 11.3. Severability; Headings.........................................................21
Section 11.4. Binding Effect.................................................................22
Section 11.5. Notices........................................................................22
Section 11.6. Governing Law..................................................................23
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Section 11.7. Jurisdiction...................................................................23
Section 11.8. Waiver of Trial by Jury........................................................23
SCHEDULES
1.1. Permitted Liens
3.1 Personal Property
6.6. Litigation and Proceedings
6.10. Insurance
7.13. Permitted Distributions
</TABLE>
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<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") is entered
into as of September 29, 1997 by and between DVI Financial Services Inc., a
Delaware corporation ("LENDER"), Medical Diagnostics, Inc., a Delaware
corporation ("BORROWER"), and U.S. Diagnostic Inc. ("GUARANTOR").
In consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions
apply:
"ADVANCE" means an advance of loan proceeds constituting all
or a part of the Loan.
"AFFILIATE" means with respect to any Person any other Person
which directly or indirectly Controls, is Controlled by or is under common
Control with that Person.
"BORROWER'S BOOKS" means all of the books and records of
Borrower and Guarantor including but not limited to: minute books, ledgers;
records indicating, summarizing or evidencing the assets of Borrower and
Guarantor, liabilities; all information relating to the business operations or
financial condition of Borrower and Guarantor; and all computer programs, disk
or tape files, printouts, runs and other computer-prepared information and the
equipment containing such information; provided, however, that confidential
patient records are not included therein, except to the extent otherwise
permitted by law.
"CLOSING DATE" means the date of the first Advance of the
Loan.
"COLLATERAL" has the meaning specified in Section 3.1 hereof.
"CONTROL" means (i) the ownership of a majority of the voting
power of all classes of voting stock of a corporation, or (ii) the ownership of
a majority of the beneficial interest in income and capital of a person other
than a corporation.
"DISTRIBUTION" means, with respect to any shares of capital
stock or any warrant or right to acquire shares of capital stock or any other
equity security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to
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any such security, (iii) any investment in the holder of five percent (5%) or
more of any such security if a purpose of such investment is to avoid
characterization of the transaction as a Distribution, and (iv) any other cash
payment constituting a distribution under applicable laws with respect to such
security.
"DVIBC" means DVI Business Credit Corporation, a Delaware
corporation.
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, ambient air, surface water, ground
water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes, and any and all regulations, codes, plans, orders, decrees,
judgments, injunctions, notices, or demand letters issued, entered, promulgated,
or approved thereunder.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all references to sections thereof include such sections
and any predecessor provisions thereto, including any rules or regulations
issued in connection therewith.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"EVENT OF DEFAULT" has the meaning specified in Section 8
hereof.
"GOVERNMENTAL AUTHORITY" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"GUARANTY" means the Unconditional Continuing Guaranty
executed by Guarantor unconditionally guaranteeing Borrower's Obligations under
this Agreement.
"HEALTH CARE LAWS" mean all federal, state and local laws
relating to health care providers and health care services, including, Section
1877(a) of the Social Security Act as amended by the Omnibus Budget
Reconciliation Act of 1993, 42 U.S.C. Section 1395nn.
"INDEBTEDNESS" of a Person means (i) all items (except items
of capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all
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indebtedness of others which such Person has directly or indirectly guaranteed,
endorsed (otherwise than for the collection or deposit in the ordinary course of
business), discounted or sold with recourse or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire, or in respect of
which such Person has agreed to supply or advance funds (whether by way of loan,
stock or equity purchase, capital contribution or otherwise) or otherwise to
become directly or indirectly liable.
"LENDER EXPENSES" means (i) all costs or expenses (including
taxes and insurance premiums) required to be paid by Borrower under this
Agreement or under any of the other Loan Documents that are paid or advanced by
Lender; (ii) filing, recording, publication and reasonable search fees paid or
incurred by Lender in connection with Lender's transactions with Borrower; (iii)
costs and expenses incurred by Lender to correct any Event of Default or enforce
any provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses incurred by Lender to convert any data submitted to
Lender by Borrower to an acceptable form; and (vi) Lender's reasonable attorney
fees and expenses incurred (before or after execution of this Agreement) in
advising Lender with respect to, or in structuring, drafting, reviewing,
negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Loan Documents or any portion thereof, irrespective of whether
suit is brought.
"LIEN" means any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
"LOAN" means the loan made by Lender to Borrower pursuant to
this Agreement.
"LOAN DOCUMENTS" mean (i) this Agreement; (ii) the Note; (iii)
the Security Documents; and (iv) any other certificates, documents or
instruments delivered by Borrower to Lender pursuant to the terms of this
Agreement.
"NOTE" means the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
"OBLIGATIONS" mean (i) the due and punctual payment of all
amounts due or become due under the Note; (ii) the performance of all
obligations of Borrower under this Agreement and the Note; (iii) all extensions,
renewals, modifications, amendments and refinancings of any of the foregoing;
(iv) all Lender Expenses; (v) all loans, advances, indebtedness and other
obligations owed by Borrower to Lender of every description whether now existing
or hereafter arising (including those owed by Borrower to others and acquired by
Lender by purchase, assignment, or otherwise) and whether direct or indirect,
primary or as guarantor or surety, absolute or contingent, liquidated or
unliquidated, matured or unmatured, whether or not secured by additional
collateral; and (vi) all loans, advances, indebtedness and other obligations
owed by Guarantor or its Affiliates to DVIBC or Lender under the Other Loan
Documents of every description whether now existing or hereafter arising
(including those owed by Guarantor to others and acquired by Lender or DVIBC by
purchase,
3
<PAGE>
assignment or otherwise) and whether direct or indirect, primary or as guarantor
or surety, absolute or contingent, liquidated or unliquidated, matured or
unmatured, whether or not secured by additional collateral. The Obligations of
Borrower under this Agreement are limited to an amount equal to the maximum
amount which, after giving effect to such maximum amount and all other
liabilities of Borrower's contingent or otherwise, result in the Obligations of
Borrower hereunder not constituting a fraudulent transfer, obligation or
conveyance.
"OTHER LOAN DOCUMENTS" means any and all loan and security
agreements or similar documents among Guarantor or any of its Affiliates and
Lender and any and all loan and security agreements or similar documents among
Guarantor or any of its Affiliates and DVIBC.
"PERMITTED LIENS" means (i) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens are subordinate or have been subordinated to the Liens of
Lender in a manner satisfactory to Lender; (iv) Liens granted to Lender or its
Affiliates; and (v) Liens existing on the date of this Agreement that are
disclosed on SCHEDULE 1.1 hereto.
"PERSON" means an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or any other entity.
"PROCEEDS" mean all proceeds and products of Collateral and
all additions and accessions to, replacements of, insurance or condemnation
proceeds of, and documents covering Collateral; all property received wholly or
partly in trade or exchange for Collateral; all claims against third parties
arising out of damage, destruction, or decrease in value of the Collateral; all
leases of Collateral; and all rents, revenues, issues, profits and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
"SECURITY DOCUMENTS" means the Guaranty, the Stock Pledge
Agreement, and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
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"STATED RATE" means Ten and 00/100 percent (10.00%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"STOCK PLEDGE AGREEMENT" means the Stock Pledge Agreement
dated on or about the date hereof by and between Guarantor and Lender pledging
its shares of Medical Diagnostics, Inc. as security for the Guarantor's
Obligations under the Guaranty.
"UNMATURED DEFAULT" means any event or condition that, with
notice, passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
SECTION 1.2. GAAP AND UCC. All financial terms used in this
Agreement other than those defined in Section 1, have the meanings accorded to
them under generally accepted accounting principles. All other terms used in
this Agreement, other than those defined in this Section 1, have the meanings
accorded to them in the Uniform Commercial Code as is enacted in any applicable
jurisdiction.
SECTION 1.3. CONSTRUCTION.
(a) Unless the context of this Agreement clearly requires
otherwise, the plural includes the singular, the singular includes the plural,
the part includes the whole, "including" is not limiting, and "or" has the
inclusive meaning of the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity
herein may be construed or resolved against any party hereto, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and their respective counsel and is entitled to
be construed and interpreted according to the ordinary meaning of the words used
so as to accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of ___________________ Million Dollars ($__,000,000)
which is evidenced by the Note. The proceeds of the Loan must be used by
Borrower for general corporate purposes.
SECTION 2.2. TERM AND REPAYMENT OF LOAN. The "TERM" of the
Loan is sixty (60) months and is payable in sixty (60) consecutive monthly
installments of _________________ Dollars ($________) on November 1, 1997 and
the first day of each calendar month thereafter, with all unpaid principal and
interest due and payable in full on the final installment date. All payments
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of principal and interest must be paid in full without setoff, deduction or
counterclaim. Borrower shall make all payments by direct payment to Lender at
500 Hyde Park, Doylestown, PA 18901.
SECTION 2.3. PREPAYMENT. The Loan may be prepaid in whole, but
not in part, on any scheduled payment date after thirty days notice from
Borrower of its intent to make such payment. Notwithstanding the foregoing, if
Guarantor receives reimbursement or indemnification for any amounts paid,
previously or hereafter, in settlement of GOLDEN ET. AL. V. U.S. DIAGNOSTIC INC.
ET AL, Case No. 97-8010-CIV-ZLOCH, or any case consolidated with such case,
Guarantor shall inform Lender of its receipt of such funds and offer to prepay
the Loan or any Indebtedness of Guarantor or its Affiliates to Lender or DVIBC.
Lender and DVIBC may accept such prepayment in their sole discretion and, if
accepted, may apply such amount to the prepayment at par of such Indebtedness
owed to either of them which they select.
SECTION 2.4. LATE PAYMENTS. If Borrower fails to make any
payment of interest or principal, including the payment due upon maturity, when
the same is due and payable and such failure continues for five (5) business
days after nonpayment, a late charge by way of damages to the extent provided in
this Section 2.4 is immediately due and payable. Borrower recognizes that
default by Borrower in making the payments herein agreed to be paid when due
will result in the Lender incurring additional expenses, in loss to the Lender
of the use of the money due and in frustration to the Lender in meeting its
other commitments. Lender is entitled to damages for the detriment caused
thereby, but it is extremely difficult and impractical to ascertain the extent
of such damages. Borrower shall pay on demand a sum equal to five cents ($.05)
for each one dollar ($1.00) of each payment which is not received within five
(5) business days after the date it is due and payable is a reasonable estimate
of the damages to the Lender. If any part of the principal or interest is not
paid when due, it thereafter bears interest at the rate of eighteen percent
(18%) per annum from and as of the date of delinquency until paid, provided,
however, that any amount due pursuant to the preceding sentence must be deducted
from the amount due pursuant to this sentence. If the specified interest rate at
any time exceeds the maximum rate allowed by law, then the applicable interest
rate is reduced to the maximum rate allowed by law.
SECTION 2.5. CONDITIONS TO THE CLOSING. The obligation of
Lender to make an Advance on the Closing Date is subject to Lender's
determination that Borrower has satisfied the following conditions on the
Closing Date:
(a) The representations and warranties set forth in this
Agreement are true and correct on and as of the date hereof and are true and
correct in all material respects as of the Closing Date and Borrower has
performed all obligations required to have been performed by it hereunder prior
to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused
to be executed and delivered to Lender by the appropriate Persons) the
following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Stock Pledge Agreement;
(vi) evidence satisfactory to Lender that Borrower
and Guarantor are each a corporation duly formed, validly existing and in good
standing in the state in which it was formed and in each state in which it is
authorized to do business;
(vii) certificates of insurance that evidence the
insurance coverage and policy provisions required by this Agreement and in the
Loan Documents;
(viii) pay-off letters, UCC Termination Statement and
Lien Releases as required to grant Lender a first priority security interest,
other than Permitted Liens, in Collateral pledged as security for repayment of
the Loan;
(ix) signature and incumbency certificate of
Borrower and Guarantor;
(x) certified copies of resolutions of the Board of
Directors of Borrower and Guarantor authorizing the execution and delivery of
the Loan Documents to be executed by Borrower and Guarantor;
(xi) copies of the Articles of Incorporation of
Borrower and Guarantor certified by the Secretary of State;
(xii) copies of the Bylaws of Borrower and Guarantor
certified by an officer thereof;
(xiii) the written opinion of counsel to Borrower and
Guarantor issued as of the Closing Date and satisfactory to Lender in scope and
substance; and
(xiv) a certificate from an officer of Borrower
indicating that the representations and warranties contained herein are true
and correct as of the Closing Date.
(c) Borrower has paid closing fees to Lender including
Lender's legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has
occurred and is continuing.
(e) Neither Borrower nor Guarantor has suffered a material or
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor delivered to
Lender or otherwise.
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(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure
prompt payment and performance of the Obligations, Borrower and Guarantor hereby
grant to Lender a continuing first-priority pledge and security interest in the
following property (the "COLLATERAL"), whether now owned or existing or
hereafter acquired or arising and regardless of where located subject only to
Permitted Liens. This security interest in the Collateral attaches to all
Collateral without further action on the part of Lender or Borrower. The
Collateral must be kept at the locations where it is presently located.
The Collateral consists of all equipment and machinery listed
on SCHEDULE 3.1 and all machine tools, motors, tools, parts, attachments,
accessories, accessions, replacements, upgrades, substitutions, additions and
improvements related thereto, wherever located, and the Proceeds of any of the
foregoing, including cash and non-cash Proceeds, together with such third-party
consents, lien waivers and estoppel certificates as Lender reasonably requires.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF BORROWER. The exact corporate name of
Borrower is Medical Diagnostics, Inc. Borrower was incorporated under the laws
of the State of Delaware. The following are all previous legal names of
Borrower: None. Borrower uses the following trade names: None. The following are
all other trade names used by Borrower in the past: None.
SECTION 4.2. MERGERS AND CONSOLIDATIONS. No entity has merged
into Borrower or been consolidated with Borrower.
SECTION 4.3. PURCHASE OF ASSETS. No entity has sold
substantially all of its assets to Borrower or sold assets to Borrower outside
the ordinary course of such seller's business at any time in the past.
SECTION 4.4. CHANGE OF NAME OR IDENTITY. Borrower shall not
change its name, business structure, or identity or use any new trade name
without prior notification of Lender.
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SECTION 4.5. CORPORATE STRUCTURE. Guarantor holds one hundred
percent (100%) of the common stock of Borrower. Such common stock is the sole
authorized and outstanding class of stock in Borrower.
SECTION 5
PROVISIONS CONCERNING COLLATERAL
SECTION 5.1. TITLE. Borrower or Guarantor has good and
marketable title to the Collateral, and the Liens granted to Lender pursuant to
this Agreement are fully perfected first-priority Liens, in and to the
Collateral with priority over the rights of every person in the Collateral,
free, clear and unencumbered by any Liens in favor of any person other than
Lender except for Permitted Liens.
SECTION 5.2. NO WARRANTIES. This Agreement is solely a
financing agreement. Borrower and Guarantor acknowledges that with respect to
the appropriate Collateral: the Collateral has or will have been selected and
acquired solely by Borrower or Guarantor fr their own purposes; Lender is not
the manufacturer, dealer, vendor or supplier of the Collateral; the Collateral
is of a size, design, capacity, description and manufacturer selected by
Borrower or Guarantor; Borrower or Guarantor are satisfied that the Collateral
is suitable and fit for its purposes; and LENDER HAS NOT MADE AND DOES NOT MAKE
ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, AS TO THE
FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE COLLATERAL, ITS
FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE OF THE COLLATERAL, THE QUALITY OR
CAPACITY OF THE MATERIALS IN THE COLLATERAL OR WORKMANSHIP IN THE COLLATERAL,
NOR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER.
SECTION 5.3. FURTHER ASSURANCES. Borrower and Guarantor shall
execute and deliver to Lender, concurrent with their execution of this Agreement
and at any time or times hereafter at the request of Lender, all financing
statements, continuation financing statements, security agreements, chattel
mortgages, assignments, endorsements of certificates of title, applications for
titles, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents Lender may reasonably request, in form
satisfactory to Lender, to perfect and maintain perfected Lender's Liens in the
Collateral and in order to consummate fully all of the transactions contemplated
under the Loan Documents. Borrower and Guarantor hereby irrevocably make,
constitute, and appoint Lender (and any of Lender's officers, employees or
agents designated by Lender) as their true and lawful attorney with power to
sign the name of Borrower and Guarantor on any of the above-described documents
or on any other similar documents that need to be executed, recorded, or filed
in order to perfect or continue perfected Lender's Liens in the Collateral. The
appointment of Lender as their attorney is irrevocable as long as any
Obligations are outstanding. Any person dealing with Lender is entitled to rely
conclusively on any written or oral statement of Lender that this power of
attorney is in effect.
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SECTION 5.4. ADDITIONAL COLLATERAL. If there is a material
impairment of the value of the Collateral, Borrower or Guarantor shall grant a
security interest in additional assets satisfactory to Lender having a value at
least equal to the decline in value of the existing Collateral.
SECTION 5.5. LENDER'S DUTY OF CARE. Lender has no duty of care
with respect to the Collateral except that Lender shall exercise reasonable care
with respect to the Collateral in Lender's custody. Lender will be deemed to
have exercised reasonable care if such property is accorded treatment
substantially equal to that which Lender accords its own property or if Lender
takes such action with respect to the Collateral as Borrower or Guarantor
requests or agrees to in writing, provided that no failure to comply with any
such request nor any omission to do any such act requested by the Borrower or
Guarantor may be deemed a failure to exercise reasonable care. Lender's failure
to take steps to preserve rights against any parties or property may not be
deemed to be failure to exercise reasonable care with respect to the Collateral
in Lender's custody. All risk, loss, damage or destruction of the Collateral is
borne by Borrower or Guarantor.
SECTION 5.6. INTENTIONALLY DELETED.
SECTION 5.7. REINSTATEMENT OF LIENS. If, at any time after
payment in full by Borrower of all Obligations and termination of Lender's
Liens, any payments on Obligations previously made by Borrower or any other
Person must be disgorged by Lender for any reason whatsoever (including, the
insolvency, bankruptcy, or reorganization of Borrower or such other Person),
this Agreement and then Lender's Liens granted hereunder are reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
or Guarantor shall sign and deliver to Lender all documents and things necessary
to perfect all terminated Liens.
SECTION 5.8. LENDER EXPENSES. If Borrower or Guarantor fails
to pay any moneys (whether taxes, assessments, insurance premiums or otherwise)
due to third persons or entities, fails to make any deposits or furnish any
required proof of payment or deposit or fails to discharge any Lien not
permitted hereby, all as required under the terms of this Agreement, then Lender
may, to the extent that it determines that such failure by Borrower or Guarantor
could have a material adverse effect on Lender's interest in the Collateral, in
its discretion and without prior notice to Borrower or Guarantor, make payment
of the same or any part thereof; provided, however, Lender shall make a
reasonable attempt to make a prior notification of Borrower or Guarantor if a
delay in making such payment would not have a material advise impact on Lender's
interest in the Collateral. Any amounts paid or deposited by Lender constitute
Lender Expenses, become part of the Obligations, bear interest at the rate of
eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender
for all sums expended by Lender that constitute Lender Expenses, and Borrower
hereby authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
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SECTION 5.9. INSPECTION OF COLLATERAL AND RECORDS. During
usual business hours, Lender may inspect and examine the Collateral and check
and test the same as to quality, quantity, value and condition and Borrower
shall reimburse Lender for its reasonable costs and expenses in so doing. Lender
also has the right at any time or times hereafter, during usual business hours
to inspect and verify Borrower's Books in order to verify the amount or
condition of, or any other matter relating to, the Collateral and the financial
condition of Borrower or Guarantor and to copy and make extracts therefrom.
Borrower and Guarantor waive the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Lender pursuant to this Agreement. Lender may
directly contact any such accounting firm or service bureau in order to obtain
such information.
SECTION 5.10. WAIVERS. Except as specifically provided for
herein, Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
SECTION 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby
warrants and represents to Lender the following:
SECTION 6.1. CORPORATE STATUS. Borrower and Guarantor are each
a corporation validly existing and in good standing under the laws of the state
of its incorporation; and each of such entities is qualified and licensed to do
business and is in good standing in any state in which the conduct of its
business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
SECTION 6.2. AUTHORIZATION. The execution, delivery, and
performance by Borrower and Guarantor of this Agreement and each Loan Document
have been duly authorized by all necessary corporate action. Borrower and
Guarantor have duly executed and delivered this Agreement and each Loan Document
to which they are a party, and each such Loan Document constitutes a valid and
binding obligation of Borrower and Guarantor.
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SECTION 6.3. NO BREACH. The execution, delivery and
performance by Borrower and Guarantor of this Agreement and each Loan Document
to which they are a party (a) will not contravene any law or any governmental
rule or order binding on Collateral; (b) will not violate any provision of the
articles of incorporation or bylaws of Borrower or Guarantor; (c) will not
violate any agreement or instrument by which Borrower or Guarantor or their
assets, is bound; (d) do not require any notice to consent by any Governmental
Authority; and (e) will not result in the creation of a Lien on any assets of
Borrower except the Lien to Lender granted herein.
SECTION 6.4. TAXES. All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower or Guarantor, or their property have been paid in full before
delinquency or before the expiration of any extension period; and Borrower or
Guarantor has made due and timely payment or deposit of all federal, state, and
local taxes, assessments, or contributions required of it by law, except only
for items that Borrower or Guarantor is currently contesting diligently and in
good faith and that have been fully disclosed in writing to Lender.
SECTION 6.5. DEFERRED COMPENSATION PLANS. Guarantor and each
ERISA Affiliate have made all required contributions to all deferred
compensation plans to which such person is required to contribute, and neither
Guarantor nor any ERISA Affiliate has any liability for any unfunded benefits of
any single-employer or multi-employer plans. Neither Guarantor nor any ERISA
Affiliate is or at any time has been a sponsor of, provided, or maintained for
any employees any defined benefit plan.
SECTION 6.6. LITIGATION AND PROCEEDINGS. Except as set forth
on SCHEDULE 6.6 attached hereto, there are no outstanding judgments against
Guarantor or its assets and there are no actions or proceedings pending by or
against Guarantor before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Guarantor is
the plaintiff and except as set forth in SCHEDULE 6.6 hereto.
SECTION 6.7. BUSINESS. Borrower and Guarantor have all
franchises, authorizations, patents, trademarks, copyrights and other rights
necessary to conduct its business. They are all in full force and effect and are
not in known conflict with the rights of others. Neither Borrower nor Guarantor
is a party to or subject to any agreement or restriction that is so unusual or
burdensome that it might have a material adverse effect on their business,
properties or prospects.
SECTION 6.8. LAWS AND AGREEMENTS. Borrower and Guarantor are
in compliance with all material contracts and agreements applicable to them,
including obligations to contribute to any employee benefit plan or pension plan
regulated by ERISA. Borrower and Guarantor are in material compliance with all
laws applicable to them.
SECTION 6.9. FINANCIAL CONDITION. All financial statements and
information relating to Borrower, Guarantor or their assets that have been or
may hereafter be delivered by Guarantor to Lender are accurate and complete in
all material respects and have been prepared in accordance with
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generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower or Guarantor since the date of the most
recent financial statements submitted to Lender.
SECTION 6.10. INSURANCE. SCHEDULE 6.10 sets forth a complete
and accurate list of all policies of fire, liability, product liability,
workers' compensation, health, business interruption and other forms of
insurance currently in effect with respect to the business of Borrower and
Guarantor, true copies of which have heretofore been delivered to Lender. All
such policies are valid, outstanding and enforceable policies and, to the best
knowledge of Borrower and Guarantor, each will remain in full force and effect
at least through the respective dates set forth on SCHEDULE 6.10.
SECTION 6.11. OWNERSHIP OF PROPERTY. Borrower has good and
marketable title to all of its properties and assets, free and clear of all
liens, security interests and encumbrances, except Permitted Liens. Borrower has
the exclusive right to use all such assets.
SECTION 6.12. HEALTH CARE LAWS.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of,
any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower, relating in
any way to Health Care Laws.
SECTION 6.13. SOLVENCY.
(a) Immediately following the execution of this Agreement and
the Loan Documents, and the completion of the transactions contemplated thereby
Borrower will be solvent, able to pay its debts as they mature, will have
capital sufficient to carry on its business and all businesses in which it is
about to engage, and will have assets which will have a present fair salable
value greater than the amount of its Indebtedness.
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(b) Borrower does not intend to incur debts beyond its ability
to pay them as they mature and the aggregate of each Borrower's property at a
fair valuation is sufficient in amount to pay its debts.
(c) Borrower does not is contemplating filing a petition in
bankruptcy or for an arrangement or reorganization under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended from time to time, or any
successor statute, nor is there any threatened bankruptcy or insolvency
proceedings against Borrower.
SECTION 6.14. CUMULATIVE REPRESENTATIONS. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower or
Guarantor gives, or cause to be given, to Lender, either now or hereafter.
SECTION 6.15. FULL DISCLOSURE. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
SECTION 7
COVENANTS
SECTION 7.1. ENCUMBRANCE OF COLLATERAL. Borrower and Guarantor
shall not create, incur, assume or permit to exist any Lien on any Collateral
now owned or hereafter acquired by except for Permitted Liens.
SECTION 7.2. BUSINESS. Borrower shall engage primarily in
business of the same general character as that now conducted by Borrower.
SECTION 7.3. CONDITION AND REPAIR. Borrower and Guarantor
shall maintain in good repair and working order all material properties used in
its business and from time to time shall make all appropriate repairs and
replacements thereof.
SECTION 7.4. TAXES. Borrower shall pay all taxes, assessments
and other governmental charges imposed upon it or any of its assets or in
respect of any of its franchises, business, income or profits before any penalty
or interest accrues thereon, and all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or might become a Lien or charge upon any
of its assets, provided that (unless any material item or property would be
lost, forfeited or materially impaired as a result thereof) no such charge or
claim need be paid if it is being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, if Lender is notified
in advance of such contest, and if Borrower establishes any reserve or other
appropriate provision required by generally
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accepted accounting principles. Borrower shall make timely payment or deposit of
all FICA payments and withholding taxes required of it by applicable laws and
will, upon request, furnish Lender with proof satisfactory to Lender indicating
that Borrower has made such payments or deposits.
SECTION 7.5. INSURANCE. Borrower and Guarantor shall maintain,
with financially sound and reputable insurers, insurance with respect to its
properties and business against loss or damage of the kinds and in the amounts
customarily insured against by corporations of established reputation engaged in
the same or similar businesses. Each such policy must name Lender as an
additional insured and, where applicable, as loss payee under a lender loss
payable endorsement satisfactory to Lender and must provide for thirty (30)
days' written notice to Lender before such policy is altered or canceled.
SECTION 7.6. ACCOUNTING SYSTEM. Borrower and Guarantor at all
times hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
SECTION 7.7. QUARTERLY FINANCIAL STATEMENTS. Guarantor shall
furnish Lender as soon as practicable but in no event later than forty-five (45)
days after the end of each of the first three quarterly fiscal periods of each
fiscal year with unaudited quarterly financial statements in form and substance
as reasonably required by Lender, including a balance sheet, an income statement
and a statement of cash flows, prepared in accordance with GAAP, together with a
certificate executed by the chief financial officer of Guarantor stating that
the financial statements fairly present the financial condition of Guarantor as
of the date and for the periods covered and that as of the date of such
certificate there has not been a violation of any provision of this Agreement
and no Event of Default or Unmatured Default has occurred and is continuing.
SECTION 7.8. ANNUAL FINANCIAL STATEMENTS. Guarantor shall
furnish Lender as soon as practicable but in no event later than ninety (90)
days after the close of each fiscal year commencing with fiscal 1996 with
audited annual financial statements, which financial statements are prepared in
accordance with GAAP and certified without qualification by an independent
certified public accounting firm reasonably satisfactory to Lender. Guarantor's
current certified public accounting firm, Arthur Andersen LLP, is satisfactory
to Lender. With the annual financial statements, Guarantor shall deliver a
certificate of its chief financial officer attesting that there has not been a
violation of any provision of this Agreement and no Event of Default or
Unmatured Default under the Agreement has occurred and is continuing.
SECTION 7.9. FURTHER INFORMATION. Guarantor shall furnish
Lender as soon as practicable with copies of all documents or reports filed by
Guarantor with the Securities and
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Exchange Commission. Borrower and Guarantor shall promptly supply Lender with
such other information concerning their affairs as Lender may reasonably request
from time to time hereafter and shall promptly notify Lender of any material
adverse change in Borrower's or Guarantor's financial condition and any
condition or event that constitutes an Event of Default or Unmatured Default
under this Agreement. In addition, Borrower and Guarantor authorize Lender to
contact credit reporting agencies concerning their credit standing.
SECTION 7.10. ERISA COVENANTS. Guarantor shall, and shall
cause each ERISA Affiliate to, comply with all applicable provisions of ERISA
and all other laws applicable to any deferred compensation plans with which
Guarantor or any ERISA Affiliate is associated, the failure with which to comply
would have a material adverse effect on Guarantor's or Borrower's business or
financial condition and shall promptly notify Lender of the occurrence of any
event that could result in any material liability of Guarantor to any person to
any person whatsoever with respect to any such plan.
SECTION 7.11. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF
ASSETS, ISSUANCE OF STOCK, ETC. Unless authorized by Lender or the Loan is
prepaid pursuant to Section 2.3, Borrower may not:
(a) merge or consolidate with any Person unless Borrower is
the surviving entity is wholly-owned by Guarantor;
(b) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business);
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) become subject to any agreement or instrument which by its
terms would restrict Borrower's right or ability to perform any of its
obligations to Lender pursuant to the terms of the Loan Documents; or
(e) authorize or issue any additional stock or equity interest
other than to Guarantor; or
SECTION 7.12. HEALTH CARE COVENANTS.
(a) Borrower shall comply in all material respects with, and
will obtain all permits required by, all Health Care Laws applicable to them.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
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SECTION 7.13. DISTRIBUTIONS. Borrower may not make any
Distributions other than a Distribution to Guarantor without the prior written
consent of Lender, which consent may not be unreasonably withheld and which
consent will not be deemed to authorize any Distribution while an Event of
Default is continuing or if such Distribution would cause an Event of Default.
SECTION 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following
events have occurred and is continuing:
(a) Borrower fails to make any payment of principal or
interest or any other payment on the Note or any other Obligation when due and
payable, by acceleration or otherwise, and such failure continues for five (5)
days after notice of non-payment is received by Borrower;
(b) Borrower or Guarantor fails to observe or perform any
covenant, condition or agreement to be observed or performed pursuant to the
terms hereof or any Loan Document to which it is a party and such failure is not
cured as soon as reasonably practicable and in any event within thirty (30) days
after written notice thereof by Lender;
(c) Borrower or Guarantor fails to keep its assets insured as
required herein, or material uninsured damage to or loss, theft or destruction
of the Collateral occurs and such assets are not repaired or replaced with five
(5) days;
(d) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in
excess of $250,000 is rendered against Borrower or Guarantor and remains
undischarged for thirty (30) days during which execution is not effectively
stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of
any of the Obligations, or becomes the subject of an insolvency proceeding of
the type described in clauses (d) or (e) above
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with respect to Borrower or fails to observe or perform any covenant, condition
or agreement to be performed under any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be
sold, conveyed or allocated by operation of law or otherwise, other than in the
ordinary course of business and if being replaced by items of comparable or
better value;
(i) Borrower or Guarantor defaults under the terms of any
Indebtedness or lease involving total payment obligations of Borrower or
Guarantor in excess of $250,000 and such default is not cured within the time
period permitted pursuant to the terms and conditions of such Indebtedness or
lease, or an event occurs that gives any creditor or lessor the right to
accelerate the maturity of any such indebtedness or lease payments;
(j) Demand is made for payment of any Indebtedness in excess
of $250,000 that was not originally payable upon demand when incurred but the
terms of which were later changed to provide for payment upon demand;
(k) Borrower or Guarantor is enjoined, restrained or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;
(l) A judgment or other claim in excess of $250,000 becomes a
Lien upon any or all of Borrower's or Guarantor's assets, other than a Permitted
Lien;
(m) A notice of Lien, levy or assessment in excess of $250,000
is filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the
Collateral or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $250,000 or any
Collateral are seized, subjected to a distress warrant, levied upon or come into
the possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender
by any officer of Borrower or Guarantor in connection with the transaction
contemplated in this Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan
Agreement or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (f), (i), (j), (l), (m) and
(o) hereof exceeds $1,000,000.
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SECTION 9
REMEDIES
SECTION 9.1. SPECIFIC REMEDIES. Upon the occurrence of any
Event of Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower or Guarantor,
with or without judicial process, and take possession of the Collateral;
provided however, that Lender may only exercise such remedy if it may do so
without a breach of the peace. Lender may remove the Collateral and may remove
or copy all records pertaining thereto, or Lender may remain on such premises
and use the premises for the purpose of collecting, preparing and disposing of
the Collateral, without any liability for rent or occupancy charges. Borrower or
Guarantor shall, upon request of Lender, assemble the Collateral and any records
pertaining thereto and make them available at a place designated by Lender that
is reasonably convenient to both parties.
(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(f) Lender may sell the Collateral at public or private sale
and is not required to repossess Collateral before selling it. Any requirement
of reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower or Guarantor, ten (10) days prior to such disposition
by any of the methods provided in Section 11.5 hereof. Borrower will be credited
with the net proceeds of such sale only when they are actually received by
Lender, and Borrower continues to be liable for any deficiency remaining after
the Collateral is sold or collected.
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(g) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time at least five (5)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held.
(h) To the maximum extent permitted by applicable law, Lender
may be the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
SECTION 9.2. POWER OF ATTORNEY. Borrower and Guarantor hereby
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Borrower's and Guarantor's attorney, with power after the
occurrence of an Event of Default: (a) to execute UCC Financing Statements; and
(b) to do all things necessary to carry out this Agreement. The appointment of
Lender as attorney for Borrower and Guarantor and each and every one of Lender's
rights and powers, being coupled with an interest, are irrevocable as long as
any Obligations are outstanding. Any person dealing with Lender is entitled to
rely conclusively on any written or oral statement of Lender that this power of
attorney is in effect. Lender may also use Borrower's or Guarantor's stationery
in connection with exercising its rights and remedies and performing the
Obligations of Borrower.
SECTION 9.3. EXPENSES SECURED. All expenses, including
reasonable attorney fees, incurred by Lender in the exercise of its rights and
remedies provided in this Agreement, in the Other Loan Documents or by law shall
be payable by Borrower to Lender, are part of the Obligations, and are secured
by the Collateral.
SECTION 9.4. EQUITABLE RELIEF. Borrower recognizes that in the
event Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
SECTION 9.5. REMEDIES ARE CUMULATIVE. No remedy set forth
herein is exclusive of any other available remedy or remedies, but each is
cumulative and in addition to every other right or remedy given under this
Agreement or under any other agreement between Lender and Borrower or Guarantor
or now or hereafter existing at law or in equity or by statute. Lender may
pursue its rights and remedies concurrently or in any sequence, and no exercise
of one right or remedy may be deemed to be an election. No delay by Lender
constitutes a waiver, election, or acquiescence by it. Borrower on its behalf
waives any rights to require Lender to proceed against Guarantor or any other
party; or proceed against or exhaust any security held from Guarantor or any
other party. Lender may at any time and from time to time, without notice to, or
consent of, Borrower, and without affecting or impairing the obligation of
Borrower hereunder do any of the following: (i) renew or extend any obligations
of Guarantor, or of any other party at any time directly or contingently liable
for payment of any of the obligations of Guarantor; (ii) accept partial payments
of the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv)
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consent to the transfer or sale of any security or bid and purchase at any sale
of any security of Guarantor. The validity of this Agreement and the Obligations
of Borrower are not terminated, affected or impaired by reason of the waiving,
delaying, exercising or non-exercising, of any of Lender's rights against
Guarantor or as a result of the substitution, release, repossession, sale,
disposition or destruction of any Collateral securing any obligations of
Guarantor. Borrower is not released or discharged, either in whole or in part,
by Lender's failure or delay to perfect or continue the perfection of any
security interest in any Collateral which secures the obligations of Guarantor
or to protect the property covered by such security interest.
SECTION 10
INDEMNITY
SECTION 10.1. GENERAL INDEMNITY. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender and its
directors, officers, employees and agents from and against any loss, cost,
liability (including negligence, tort and strict liability), expense, damage,
suits, demands or claims (including fees and disbursements of counsel) on
account of any suit or proceeding before any Governmental Authority which arises
from the transactions contemplated in this Agreement or otherwise arising in
connection with or relating to the Loan and any security therefor, unless such
suit, claim or damages are caused by the gross negligence or intentional
malfeasance of Lender or its directors, officer, agents or employees. Upon
receiving knowledge of any suit, claim or demand asserted by a third-party that
Lender believes is covered by this indemnity, Lender shall give Borrower timely
notice of the matter and an opportunity to defend it, at Borrower's sole cost
and expense, with legal counsel acceptable to Lender. Lender may, at its option,
also require Borrower to so defend the matter. This obligation on the part of
Borrower survives the termination of this Agreement and the repayment of the
Note.
SECTION 11
MISCELLANEOUS
SECTION 11.1. DELAY AND WAIVER. No delay or omission to
exercise any right impairs any such right or be a waiver thereof, but any such
right may be exercised from time to time and as often as may be deemed
expedient. A waiver on one occasion is limited to that particular occasion.
SECTION 11.2. COMPLETE AGREEMENT. This Agreement and the
Schedules are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only by an instrument in writing that explicitly states that it
amends this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
SECTION 11.3. SEVERABILITY; HEADINGS. If any part of this
Agreement or the application thereof to any person or circumstance is held
invalid, the remainder of this Agreement
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is unaffected thereby. The section headings herein are included for convenience
only and may not be deemed to be a part of this Agreement.
SECTION 11.4. BINDING EFFECT. This Agreement is binding upon
and inures to the benefit of the respective legal representatives, successors
and assigns of the parties hereto; provided however, Borrower may not assign any
of its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
SECTION 11.5. NOTICES. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower
and Guarantor: c/o US Diagnostic Inc.
777 S. Flagler Drive, #1006
West Palm Beach, FL 33401
Attention: Joseph Paul, President
Telephone: (561) 832-0006
Facsimile: (561) 833-8391
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the
change to the other parties; such change of address is effective only upon
actual receipt of the notice by the other parties.
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SECTION 11.6. GOVERNING LAW. ALL ACTS AND TRANSACTIONS
HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF PENNSYLVANIA WITHOUT
RESORT TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 11.7. JURISDICTION. The state and federal courts in
Pennsylvania or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
SECTION 11.8. WAIVER OF TRIAL BY JURY. LENDER, GUARANTOR AND
BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
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IN WITNESS WHEREOF, Borrower, Guarantor and Lender have
executed this Agreement by their duly authorized officers as of the date first
above written.
BORROWER:
MEDICAL DIAGNOSTICS, INC.
By: /S/ ALAN WINAKOR
---------------------------
Name: Alan Winakor
Title: Senior Vice President
GUARANTOR:
U.S. DIAGNOSTIC INC.
By: /S/ ALAN WINAKOR
---------------------------
Name: Alan Winakor
Title: Executive Vice President
LENDER:
DVI FINANCIAL SERVICES INC.
By: /S/ RICHARD E. MILLER
---------------------------
Richard E. Miller
President
24
EXHIBIT 10.4
[FORM OF] SECURED PROMISSORY NOTE
Due October 1, 2002
Note 1
FOR VALUE RECEIVED, MEDICAL DIAGNOSTICS, INC., a Delaware
corporation ("MAKER") hereby promises to pay to DVI FINANCIAL SERVICES INC. or
its assignee ("HOLDER"), or order, principal in the sum of ________________
MILLION Dollars ($___________), and interest thereon at the rate of 10.00 % per
annum computed on the basis of a 360-day year and actual days elapsed (the
"STATED RATE"). Principal and interest is payable, in sixty (60) consecutive
monthly installments of __________________ Dollars ($________) on November 1,
1997 and on the first day of each calendar month thereafter, with all unpaid
principal and interest due and payable in full on October 1, 2002.
1. Principal and interest are payable to Holder at DVI Financial
Services Inc., 500 Hyde Park, Doylestown, Pennsylvania 18901, or such other
place as the Holder may, from time to time in writing to Maker, designate.
2. This Note is made pursuant to, and secured by that certain Loan and
Security Agreement dated as of September 29, 1997 among Holder as Lender, Maker
as Borrower and U.S. Diagnostic Inc. as Guarantor (the "AGREEMENT"). All
capitalized terms used but not defined herein have the meanings ascribed to them
in the Agreement, the terms of which are incorporated herein by reference
thereto. This Note is also secured by the Security Documents referred to in the
Agreement. The Agreement and the Security Documents create a lien on and
security interest in, the personal property described therein ("COLLATERAL").
The Agreement and the Security Documents are collectively referred to as the
"LOAN AND SECURITY DOCUMENTS" and are hereby incorporated herein by reference
thereto and made a part of this Note.
3. If any part of the principal or interest of the Note is not paid
within five (5) days after notice from Holder that such payment is due, it
thereafter bears interest at the rate of eighteen percent (18%) per annum from
and as of the date of delinquency until paid; provided, however that any amount
due pursuant to paragraph 7 hereof must be deducted from the amount due pursuant
to this paragraph 3. If the specified interest rate at any time exceeds the
maximum rate allowed by law, then the applicable interest rate is reduced to the
maximum rate allowed by law. This Note may be prepaid pursuant to Section 2.3 of
the Agreement.
4. The occurrence of an Event of Default under the Agreement, after
notice is give pursuant to the Agreement, may, at the election of the Holder,
make the entire unpaid balance of the principal amount of this Note and accrued
interest thereon immediately due and payable with out notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character.
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5. Failure of the Holder to exercise the acceleration option of
paragraph 4 of this Note on the occurrence of an Event of Default does not
constitute a waiver of the right to exercise such option on the subsequent
occurrence of an Event of Default.
6. Principal and interest are payable in lawful money of the United
States of America which is legal tender in payment of all debts and dues, public
and private, at the time of payment. If any payment of principal or interest
under this Note becomes due on a Saturday, Sunday or legal or banking holiday,
such payment is due on the next succeeding business day. Maker waives
presentment, demand for payment, notice of nonpayment, protest, and notice of
protest, and all other notices and demands in connection with the delivery,
acceptance, performance, default, or enforcement of this Note, except as
specifically provided in the Agreement. Maker consents to any and all
assignments of this Note, extensions of time, renewals, and waivers that may be
made or granted by the Holder. Maker expressly agrees that such assignments,
extensions of time, renewals, or waivers do not affect Maker's liability
hereunder. Maker agrees that Holder may, without notice to Maker and without
affecting the liability of Maker, accept additional or substitute security for
this Note, or release any security or any party liable for this Note, or extend
or renew this Note.
7. If Maker fails to make any payment of interest or principal under
this Note, including the payment due upon maturity, when the same is due and
payable and such failure continues for five (5) days after notice from Holder of
such nonpayment, a late charge by way of damages to the extent provided in this
paragraph is immediately due and payable. Maker recognizes that default by Maker
in making the payments herein agreed to be paid when due will result in the
Holder incurring additional expenses, in loss to the Holder of the use of the
money due and in frustration to the Holder in meeting its other commitments.
Maker agrees that, if for any reason Maker fails to pay any amount due under
this Note when due, the Holder is entitled to damages for the detriment caused
thereby, but that it is extremely difficult and impractical to ascertain the
extent of such damages. Maker therefore agrees that a sum equal to five cents
($.05) for each one dollar ($1.00) of each payment which is not received within
five (5) days after notice that such payment it is due and payable is a
reasonable estimate of the damages to the Holder, which sum Maker agrees to pay
on demand.
8. If action is instituted on this Note (including without limitation,
any proceedings for collection hereof in any bankruptcy or probate matter or
case), or if proceedings are commenced on or under any of the Loan and Security
Documents, and Holder prevails in such proceedings Maker promises to pay the
Holder all costs of collection and enforcement including, without limitation,
reasonable attorneys' fees plus interest on any defaulted amount at the rate of
eighteen percent (18%) per annum.
9. Any and all notices or other communications or payments required or
permitted to be given hereunder are effective when received or refused if given
or rendered in writing, in the manner provided in the Agreement.
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10. This Note inures to the benefit of and is binding upon the Holder's
successors and assigns. References to the "Holder" are deemed to refer to the
holders of this Note at the time such reference becomes relevant.
11. If any term, provision, covenant, or condition of this Note is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
rest of this Note remains in full force and effect to the greatest extent
permitted by law and is in no other way affected, impaired or invalidated.
12. Nothing contained herein or in the Loan and Security Documents may
be deemed to prevent recourse to and the enforcement against Maker and the
Collateral of all liabilities, obligations and undertakings contained herein and
in the Loan and Security Documents.
13. THIS NOTE IS GOVERNED BY AND MUST BE CONSTRUED UNDER THE LAWS OF
THE STATE OF PENNSYLVANIA WITHOUT RESORT TO PRINCIPLES OF CONFLICTS OF LAW AND
MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS IN THE
STATE OF PENNSYLVANIA.
Dated: September 29, 1997
MEDICAL DIAGNOSTICS, INC.
By: /S/ ALAN WINAKOR
---------------------------------
Name: Alan Winakor
Title: Executive Vice President
3
EXHIBIT 10.5
UNCONDITIONAL CONTINUING GUARANTY
THIS UNCONDITIONAL CONTINUING GUARANTY ("GUARANTY") is made and entered
into as of September 29, 1997, for the benefit of DVI Financial Services Inc., a
Delaware corporation ("LENDER"), whose principal place of business is located at
500 Hyde Park, Doylestown, Pennsylvania 18901, by U.S. Diagnostic Inc., a
Delaware corporation ("GUARANTOR"), whose principal place of business is located
at 777 South Flagler Drive, West Palm Beach, Florida 33401.
RECITALS
A. Guarantor owns all of the outstanding stock of Medical Diagnostics,
Inc., a Delaware corporation ("BORROWER").
B. Pursuant to the terms and subject to the conditions of that certain
Loan and Security Agreement dated as of the date hereof (the "LOAN AGREEMENT")
among Borrower, Guarantor and Lender, Lender has agreed to lend Borrower
$_________________ (the "LOAN").
Guarantor therefore guarantees and agrees as follows:
1. GUARANTY. In order to induce Lender, and in consideration thereof,
to enter into the Loan Agreement with Borrower, and any future agreements with
Borrower, Guarantor unconditionally, absolutely and irrevocably guarantees to
Lender the due and punctual payment, performance and discharge (whether upon
acceleration or otherwise in accordance with the terms thereof) any and all
present and future Obligations of Borrower to Lender, including, but not limited
to, the repayment to Lender of all sums presently due and owing and of all sums
that in the future become due and owing from Borrower under the Loan Agreement.
This guaranty of the Obligations includes in all cases, all such Obligations
that arise after the filing of a bankruptcy petition with respect to a Borrower
and all such Obligations that will become due but for the operation of (i) the
automatic stay under Section 362(a) of the Bankruptcy Code, (ii) Section 502(b)
of the Bankruptcy Code, or (iii) Section 506(b) of the Bankruptcy Code,
including, but not limited to, interest accruing under the Loan Documents after
the filing of a bankruptcy petition, whether or not allowed or allowable as a
claim in the bankruptcy proceeding. This Guaranty is a guaranty of prompt and
punctual payment of the Obligations, whether at stated maturity, by acceleration
or otherwise and is not merely a guaranty of collection.
2. DEFINITIONS AND TERMS.
(a) DEFINITIONS. For purposes of this Guaranty, the following
terms have the following definitions:
"BANKRUPTCY CODE" means the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended from time to time, or any successor statute.
"BORROWER" includes the Borrower named in Recital A hereof and
any other Person at any time assuming or otherwise becoming primarily liable for
all or any part of the obligations of
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the named Borrower under the Loan Documents, including, but not limited to, the
trustee and the debtor-in-possession in any bankruptcy or similar proceeding
involving the named Borrower.
"EVENT OF DEFAULT" has the meaning specified in the Loan
Agreement.
"LIEN" has the meaning specified in the Loan Agreement.
"LOAN AGREEMENT" means the Loan and Security Agreement
described in Recital A hereto, and all extensions, addenda, supplements,
amendments, and modifications to the Loan Agreement.
"LOAN DOCUMENTS" has the meaning specified in the Loan
Agreement.
"PERSON" has the meaning specified in the Loan Agreement.
"OBLIGATIONS" of Borrower has the meaning specified in clauses
(i), (ii), (iii) and (iv) of the definition of Obligations contained in the Loan
Agreement as such apply to the Loan Agreement and any Other Loan Agreement
entered into by Guarantor as of the date hereof, unlimited by any limitation as
to the liability of Borrower contained therein.
"PROPERTY" means any interest of any Person in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.
"UCC" means the Uniform Commercial Code (or any successor
statute) of the State of California or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests, as such statutes are in effect during the term
hereof.
(B) OTHER TERMS. All other undefined terms contained in this
Guaranty unless the context indicates otherwise have the meanings provided for
the UCC to the extent the same are used or defined therein. Wherever appropriate
in the context, terms used in herein in the singular also include the plural,
and VICE VERSA, and each masculine, feminine, or neuter pronoun shall also
include the other genders and references to the part shall include the whole.
The term "including" is not limiting and the term "or" has the inclusive meaning
represented by the term "and/or." The words "hereof," "herein," "hereunder," and
similar terms in this Guaranty refer to this Guaranty as a whole and not to any
particular provision of this Guaranty.
3. RIGHTS OF LENDER. Guarantor authorizes Lender, without giving notice
to Guarantor or obtaining Guarantor's consent and without affecting the
liability of Guarantor for the Obligations to the extent described in Section 1
hereof, from time to time to:
(a) compromise, settle, renew, extend the time for payment,
change the manner or terms of payment, discharge the performance of, decline to
enforce, or release all or any of the Obligations; grant other indulgences to
Borrower in respect thereof; or modify in any manner any documents (other than
this Guaranty) relating to the Obligations;
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(b) declare all Obligations due and payable upon the
occurrence of an Event of
Default;
(c) take and hold security for the performance of the
Obligations and exchange, enforce, waive and release any such security;
(d) apply and reapply such security and direct the order or
manner of sale thereof as Lender, in its sole discretion, may determine;
(e) release, surrender or exchange any deposits or other
Property securing the Obligations or on which Lender at any time may have a
Lien; release, substitute or add any one or more endorsers or guarantors of the
Obligations; or compromise, settle, renew, extend the time for payment,
discharge the performance of, decline to enforce, or release all or any
obligations of any such endorser or guarantor or other Person who is now or may
hereafter be liable on any Obligations or release, surrender or exchange any
deposits or other Property of any such Person;
(f) apply payments received by Lender from Borrower to any
Obligations, in such order as Lender determines, in its sole discretion, whether
or not any such Obligations are covered by this Guaranty; and
(g) assign this Guaranty in whole or in part.
4. GUARANTOR'S WAIVERS.
(a) Guarantor waives:
(1) any defense based upon any legal disability or
other defense of Borrower, or by reason of the cessation or limitation of the
liability of Borrower from any cause (other than full payment of all
Obligations), including, but not limited to, failure of consideration, breach of
warranty, statute of frauds, statute of limitations, accord and satisfaction,
and usury;
(2) any defense based upon any legal disability or
other defense of any other guarantor or other Person;
(3) any defense based upon any lack of authority of the
officers, directors, partners or agents acting or purporting to act on behalf of
Borrower or any principal of Borrower or any defect in the formation of Borrower
or any principal of Borrower;
(4) any defense based upon the application by Borrower
of the proceeds of the Loan for purposes other than the purposes represented by
Borrower to Lender or intended or understood by Lender or Guarantor;
(5) any defense based on Guarantor's rights, under
statute or otherwise, to require Lender to sue Borrower or otherwise to exhaust
its rights and remedies against Borrower or any other Person or against any
collateral before seeking to enforce this Guaranty;
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(6) any defense based on Lender's failure at any time
to require strict performance by Borrower of any provision of the Loan Documents
or by Guarantor of this Guaranty. No such failure waives, alters or diminishes
any right of Lender thereafter to demand strict compliance and performance
therewith. Nothing contained herein prevents Lender from foreclosing on the Lien
of any deed of trust, mortgage or other security agreement, or exercising any
rights available to Lender thereunder, and the exercise of any such rights does
not constitute a legal or equitable discharge of Guarantor;
(7) any defense arising from any act or omission of
Lender which changes the scope of Guarantor's risks hereunder;
(8) any defense based upon Lender's election of any
remedy against Guarantor or Borrower or both; or any defense based on the order
in which Lender enforces its remedies;
(9) any defense based on (A) Lender's surrender,
release, exchange, substitution, dealing with or taking any additional
collateral, (B) Lender's abstaining from taking advantage of or realizing upon
any Lien or other guaranty, and (C) any impairment of collateral securing the
Obligations, including, but not limited to, Lender's failure to perfect, or
maintain the perfection or priority of, a Lien in such collateral;
(10) any defense based upon Lender's failure to
disclose to Guarantor any information concerning Borrower's financial condition
or any other circumstances bearing on Borrower's ability to pay the Obligations;
(11) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in any other respects more burdensome than that of a principal;
(12) any defense based upon Lender's election, in any
proceeding instituted under the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code or any successor statute;
(13) any defense based upon any borrowing or any grant
of a Lien under Section 364 of the Bankruptcy Code;
(14) any defense based on Lender's failure to be
diligent or to act in a commercially reasonable manner, or to satisfy any other
standard imposed on a secured party, in exercising rights with respect to
collateral securing the Obligations;
(15) notice of acceptance hereof; notice of the
existence, creation or acquisition of any Obligation; notice of any Event of
Default; notice of the amount of the Obligations outstanding from time to time;
notice of any other fact which might increase Guarantor's risk; diligence;
presentment; demand of payment; protest; filing of claims with a court in the
event of Borrower's receivership or bankruptcy and all other notices and demands
to which
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Guarantor might otherwise be entitled (and the same do not have to be made on
Borrower as a condition precedent to Guarantor's obligations hereunder);
(16) any defense based on errors and omissions by
Lender in connection with the administration of the Loan;
(17) any defense based on application of fraudulent
conveyance or transfer law or shareholder distribution law to any of the
Obligations or the security therefor;
(18) any defense based on Lender's failure to seek
relief from stay or adequate protection in Borrower's bankruptcy proceeding or
any other act or omission by Lender which impairs Guarantor's prospective
subrogation rights;
(19) any defense based on legal prohibition of Lender's
acceleration of the maturity of the Obligations during the occurrence of an
Event of Default or any other legal prohibition on enforcement of any other
right or remedy of Lender with respect to the Obligations and the security
therefor; and
(20) the benefit of any statute of limitations
affecting the liability of Guarantor hereunder or the enforcement hereof.
(b) The payment of all sums payable under the Loan Documents
or any part thereof or other act which tolls any statute of limitations
applicable to the Loan Documents similarly operate to toll the statute of
limitations applicable to Guarantor's liability hereunder.
5. SUBROGATION. Guarantor may not exercise any right which it may
acquire by reason of any payment made hereunder, whether by way of subrogation,
reimbursement or otherwise, until the prior payment, in full and in cash, of all
the Obligations. Any amount paid to Guarantor on account of any payment made
hereunder prior to the payment in full of all Obligations and termination or
expiration of Lender's obligations to make any advance under the Loan must be
held in trust for the benefit of Lender hereunder. So long as any Obligations
remain outstanding and the Loan remains in existence, Guarantor shall refrain
from taking any action or commencing any proceeding against Borrower, whether in
connection with a bankruptcy proceeding or otherwise, to recover any amounts in
respect of payments made to Lender under this Guaranty.
6. BANKRUPTCY OF BORROWER. In any bankruptcy or other proceeding in
which the filing of claims is required by law, Guarantor shall file all claims
which Guarantor may have against Borrower relating to any indebtedness of
Borrower to Guarantor and shall assign to Lender all rights of Guarantor
thereunder. If Guarantor does not file any such claim, Lender, as
attorney-in-fact for Guarantor, is hereby authorized to do so in the name of
Guarantor or, in Lender's discretion, to assign the claim to a nominee and to
cause a proof of claim to be filed in the name of Lender's nominee. The
foregoing power of attorney is coupled with an interest and cannot be revoked.
Lender or its nominee have the right, in its reasonable discretion, to accept or
reject any plan proposed in such proceeding and to take any other action which a
party filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the Person
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authorized to pay such claim are directed to pay to Lender the amount payable on
such claim and, to the full extent necessary for that purpose, Guarantor hereby
assigns to Lender all of Guarantor's rights to any such payments or
distributions to the extent of Guarantor's obligations hereunder; PROVIDED,
HOWEVER, that Guarantor's obligations hereunder are not satisfied except to the
extent that Lender receives cash by reason of any such payment or distribution.
If Lender receives anything hereunder other than cash, the same may be held as
collateral for amounts due under this Guaranty.
7. MARSHALING OF ASSETS. Lender is under no obligation to marshal any
assets in favor of Guarantor, Borrower or any other guarantor or other Person
liable for the Obligations or against or in payment of any Obligations.
8. RIGHT OF SET-OFF. Lender has a Lien upon, and a right of set-off
against, all credits or other Property of Guarantor now or hereafter in the
possession of or on deposit with Lender or any Person holding such Property for
Lender as security for the Obligations to Lender. Every such Lien and right of
set-off may be exercised without demand or notice to Guarantor. No Lien or right
of set-off may be deemed to have been waived by any act or conduct on the part
of Lender, or by any neglect to exercise such right to set-off or to enforce
such Lien, or by any delay in so doing.
9. DISCLOSURE OF INFORMATION. If Lender elects to sell participations
in the Loan and the Loan Documents, including this Guaranty, Lender may forward
to each participant and prospective participant all documents and information
relating to this Guaranty or to Guarantor, whether furnished by Borrower or
Guarantor or otherwise.
10. LENDER'S RECORDS. Lender's books and records with respect to the
Obligations are admissible in evidence in any action or proceeding, are binding
upon Guarantor for purposes of establishing the items therein set forth and
constitute prima facie proof thereof.
11. ADDITIONAL, INDEPENDENT AND UNSECURED OBLIGATIONS. The obligations
of Guarantor hereunder are in addition to, and do not limit or in any way
affect, the obligations of Guarantor under any other existing or future
guaranties unless the other guaranties are expressly modified or revoked in
writing. This Guaranty is independent of the obligations of Borrower under the
Loan Documents. Lender may bring a separate action to enforce the provisions
hereof against Guarantor without taking action against Borrower or any other
Person or joining Borrower or any other Person as a party to such action. This
Guaranty is not secured and may not be deemed to be secured by any security
instrument unless such security instrument expressly recites that it secures
this Guaranty.
12. TERM; REVIVAL.
(a) This Guaranty is irrevocable by Guarantor. It is a
continuing guaranty and terminates only upon the full satisfaction of the
Obligations. If, notwithstanding the foregoing, Guarantor has any nonwaivable
right under applicable law or otherwise to terminate or revoke this Guaranty,
such termination or revocation is not effective until a written notice of such
termination
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or revocation is received by Lender. Such notice does not affect the right and
power of Lender to enforce rights arising prior to receipt thereof. If Lender
make advances or take any other action after Guarantor's termination or
revocation but prior to receipt of the requisite notice, Lender's rights with
respect thereto are the same as if such termination or revocation had not
occurred.
(b) Guarantor's liability hereunder is reinstated and revived,
and the rights of Lender hereunder continue, with respect to any Obligations at
any time paid by Borrower which Lender is required to restore or return upon the
bankruptcy, insolvency or reorganization of Borrower or for any other reason,
whether by court order, administrative order or settlement, all as though such
amount had not been paid and this Guaranty is reinstated if the Loan had expired
or terminated and all of the Obligations had been satisfied prior to the
restoration or return of the payment.
13. HEADINGS. All headings appearing in this Guaranty are for
convenience only and must be disregarded in construing this Guaranty.
14. CHOICE OF LAW AND VENUE. This Guaranty is deemed to have been made
in the State of Pennsylvania, and the validity of this Guaranty, its
construction, interpretation and enforcement, and the rights of the parties
hereunder, must determined under, governed by and construed in accordance with
the laws of the State of Pennsylvania, without resort to principles of conflicts
of law. Guarantor and Lender consent to the jurisdiction of any local, state or
federal court located in the State of Pennsylvania and waive any objection
relating to improper venue or forum non conveniens to the conduct of any
proceeding by such court.
15. SERVICE OF PROCESS. Guarantor waives personal service of any
process upon it and consents that all service of process may be made by
registered mail, return receipt requested, directed to Guarantor at the address
indicated in the Loan Agreement and service so made deemed to be completed five
(5) business days after same is (1) posted as aforesaid or (2) delivered by any
other process permitted by applicable law.
16. WAIVER OF JURY TRIAL. Guarantor and Lender each waive any right to
have a jury participate in resolving any dispute, whether sounding in contract,
tort, or otherwise, between Lender and Guarantor arising out of, connected with,
related to or incidental to the relationship established between them in
connection with this Guaranty or any other instrument, document or agreement
executed or delivered in connection therewith or the transactions related
thereto. Any such claim, demand, action or cause of action must be decided by
court trial without a jury and either party may file an original counterpart or
a copy of this Guaranty with any court as written evidence of the consent of the
parties hereto to the waiver of their right to trial by jury.
17. ASSIGNMENT; BINDING EFFECT. Guarantor may not assign this Guaranty
without the prior written consent of Lender. This Guaranty is binding upon
Guarantor, its successors and permitted assigns, and inures to the benefit of
Lender and its successors, transferees and assigns.
18. ENTIRE AGREEMENT; MODIFICATIONS. This Guaranty is intended by
Guarantor and Lender to be the final, complete, and exclusive expression of the
agreement between them. This
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Guaranty supersedes all prior and contemporaneous oral and written agreements
relating to the subject matter hereof. Except as may be expressly contemplated
hereby, no modification, rescission, waiver, release, or amendment of any
provision of this Guaranty is made, except by a written agreement signed by
Guarantor and Lender.
19. SEVERABILITY. If any provision of this Guaranty is determined by a
court of competent jurisdiction to be invalid, illegal or unenforceable, that
portion is be deemed severed from this Guaranty and the remaining parts remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.
20. WAIVERS; REMEDIES. No failure on the part of Lender to exercise, no
delay in exercising and no course of dealing with respect to, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
21. CONSTRUCTION OF GUARANTY. Neither this Guaranty nor any uncertainty
or ambiguity herein may be construed or resolved against Lender on the basis
that this Guaranty was drafted by Lender. On the contrary, this Guaranty has
been negotiated and reviewed by all parties and must be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties hereto.
GUARANTOR:
U.S. DIAGNOSTIC INC.
By: ____________________________________
Name:
Title:
8
EXHIBIT 10.6
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "PLEDGE AGREEMENT") is made and
entered into as of September 29, 1997, by and between U.S. Diagnostic Inc., a
Delaware corporation ("PLEDGOR"), DVI Financial Services Inc., a Delaware,
corporation ("DVI") and DVI Business Credit Corporation, a Delaware corporation
("DVIBC").
RECITALS
A. DVI has agreed to advance affiliates of Pledgor loans in the amount
of Fifteen Million Dollars ($15,000,000) pursuant to the terms of various loans
and Security Agreements each dated on or about the date hereof (the "LOAN
AGREEMENTS") by and between DVI as lender, Pledgor as guarantor and various
affiliates as borrower.
B. DVIBC has provided Pledgor with an increase in a revolving line of
credit in the amount of $10,000,000 pursuant to the terms of an amendment to the
Loan and Security Agreement between DVIBC and Pledgor (the "DVIBC LOAN
AMENDMENT")(the Loan Agreements and the DVIBC Loan Amendment collectively, the
"AGREEMENTS").
C. Pledgor owns 100% of the issued and outstanding common stock of
Medical Diagnostics, Inc. ("MDI").
D. As a condition of DVI's obligations under the Loan Agreements and
DVIBC's amendment of the DVIBC Loan Agreement was that Pledgor has executed and
delivered this Pledge Agreement to pledge its stock in MDI as security for
performance of Pledgor's obligations under the Loan Agreements.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are being acknowledged and affirmed, the parties hereto
agree as follows:
1. As security on a pari passu basis for the performance of the
obligations of Pledgor and its affiliates under the Agreements and various
guaranties with respect thereto (the "OBLIGATIONS"), Pledgor hereby grants to
DVI and DVIBC a security interest in, and assigns, transfers to and pledges with
DVI as pledgee for DVI and DVIBC, a security interest in and to the common stock
of MDI held by Pledgor, together with proceeds from any sale or disposition
thereof, dividend payments, liquidating payments, new securities or other money
or property to which each Pledgor is or may hereafter become entitled to receive
on account thereof. In the event that Pledgor receives any such money or
property, which it is not permitted to receive pursuant to the terms of the
Agreements, Pledgor shall immediately deliver it to DVI to be held
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by DVI hereunder in the same manner as the property pledged by this Pledge
Agreement. All such money and property assigned, transferred to and pledged with
DVI as pledgee pursuant to this paragraph is hereafter called the "COLLATERAL".
Pledgor hereby appoints DVI as attorney-in-fact to transfer the Collateral
pursuant to the provisions of this Pledge Agreement.
2. DVI shall hold the Collateral, until required to return the
Collateral to Pledgor, as security for the performance of the Obligations and
DVI may not encumber or dispose of the Collateral except in accordance with the
provisions of this Pledge Agreement. Until the Obligations are paid in full,
Pledgor may not transfer, sell, contract to sell, assign, encumber or otherwise
dispose of any interest in the Collateral, in whole or in part, without the
prior written consent of DVI. Upon payment in full of the Obligations DVI shall
return the Collateral to Pledgor and this Pledge Agreement ceases to be of any
further force and effect.
3. Pledgor hereby represents, warrants and covenants to DVI (i) the
shares of MDI common stock pledged by Pledgor to DVI pursuant to this Pledge
Agreement represent 100% of the issued and outstanding shares of common stock
and warrants, options and other rights to purchase shares of common stock or any
other equity interest in MDI, (ii) Pledgor is the legal and beneficial owner of
the Collateral pledged by Pledgor to DVI pursuant to this Pledge Agreement,
(iii) such Collateral is validly issued, fully paid and is issued in the name of
Pledgor, (iv) none of such Collateral is subject to any Lien of any kind
whatsoever, except for the first Lien on such Collateral granted to DVI hereby
and Permitted Liens, (v) no authorization, approval or other action by, or
notice to or filing with, any Governmental Authority is required for the pledge
by Pledgor of such Collateral pursuant to the terms of this Pledge Agreement and
(vi) until all of the Obligations have been paid and performed in full, Pledgor:
(A) may not create or permit to exist any Lien upon or with respect to such
Collateral, except for the first Lien thereon granted to DVI by this Pledge
Agreement and Permitted Liens, and (B) may not sell, transfer, convey, assign,
or otherwise voluntarily divest Pledgor's interest in such Collateral, or any
part thereof, to any other Person.
4. In the event that, during the term of this Pledge Agreement,
Pledgor, by virtue of the ownership by Pledgor of the Collateral, becomes
entitled to additional or new shares of MDI common stock as the result of any
merger, consolidation, reorganization, conversion or preemptive right or
otherwise, Pledgor shall deliver or cause MDI to deliver the additional or new
certificates to DVI to be held under the terms of this Pledge Agreement in the
same manner as the Collateral originally pledged hereunder, and such additional
Collateral is also hereinafter be referred to as the "COLLATERAL".
5. If an Event of Default occurs and is continuing, DVI has the power,
exercisable by giving 30 days prior notice to Pledgor, to direct MDI to cause
the transfer in its books of all of the shares of MDI common stock which
constitute the Collateral, to the name of DVI, and to issue new certificates
representing such shares to DVI. DVI may also, at any time after the happening
of any of the events set forth in the preceding sentences of this paragraph 5,
elect to sell the Collateral at a public sale after giving notice or
notification to each Pledgor as required
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by the Commercial Code, at least ten days before the event which is the subject
of the notice. DVI may buy the Collateral at a public sale or at a private sale
under the conditions specified in the Commercial Code. Any such sale may be
conducted by any auctioneer or any officer or agent of DVI.
6. If any legal action or other proceeding is brought for the
enforcement of this Pledge Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Pledge Agreement, the successful or prevailing party is entitled to recover
attorneys' fees and other costs incurred in that action or proceeding in
addition to any other relief to which the party may be entitled.
7. The rights, powers and remedies given to DVI by virtue of this
Pledge Agreement are in addition to all rights, powers, and remedies given to
DVI by virtue of any statute or rule of law. Any forbearance, failure or delay
by DVI in exercising any right, power or remedy hereunder may not be deemed to
be a waiver of such right, power or remedy, and any single or partial exercise
of any right, power or remedy hereunder does not preclude the further exercise
thereof; and every right, power and remedy of DVI continues in full force and
effect until such right, power or remedy is specifically waived in writing by
DVI.
8. All notices, requests, demands and other communications under this
Agreement must be in writing and are deemed to have been delivered, given and
received when given in the manner provided and addressed as set forth in the
Loan Agreements.
9. Time is declared to be of the essence in this Pledge Agreement. This
Pledge Agreement shall be construed and governed by the laws of the State of
Pennsylvania, without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
U.S. DIAGNOSTIC INC.
By:
------------------------------
Name:
Title:
3
EXHIBIT 10.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT MAY BE MADE WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN EXEMPTION
THEREUNDER SUCH THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
U.S. DIAGNOSTIC INC.
COMMON STOCK PURCHASE WARRANT
--------------------------------------
THIS WARRANT to purchase shares of common stock, $.01 par value, (the
"COMMON STOCK") of U.S. DIAGNOSTIC INC., a Delaware corporation (the "COMPANY")
evidences that, for valuable consideration, receipt of which is hereby
acknowledged, DVI FINANCIAL SERVICES INC., a Delaware corporation ("PURCHASER"),
or registered assigns, is entitled to subscribe for and purchase from the
Company, an aggregate of up to One Hundred Twenty-five Thousand (125,000) shares
(subject to adjustment as specified in Section 4 hereof) of the fully paid and
nonassessable, Common Stock, (the "WARRANT STOCK"), at the price per share equal
to the closing price per share paid for Common Stock of the Company on September
29, 1997 on the principal national securities exchange on which the Common Stock
is admitted to trading (such price and such other price as results, from time to
time from the adjustments specified in Section 4 hereof, is referred to herein
as the "EXERCISE PRICE"), subject to the provisions and upon the terms and
conditions set forth herein.
1. CONDITIONS TO EXERCISE. The purchase right represented by this
Warrant is exercisable, in whole or in part, as to the Warrant Stock at any
time, and from time to time, on or before September 30, 2004. This Warrant
expires and may not be exercised after September 30, 2004.
2. METHOD OF EXERCISE: PAYMENT, ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may be exercised at any time, and from time to
time, by the surrender of this Warrant (with the Notice of Exercise form
attached hereto duly executed) at the principal office of the Company and by the
payment to the Company by check in an amount equal to the then applicable
Exercise Price per share multiplied by the number of shares of the Warrant Stock
then being purchased. In the event of any exercise of the rights represented by
this Warrant, the Company shall deliver to Purchaser certificates for the shares
of the Warrant Stock so purchased within a reasonable time, but not later than
twenty business days after exercise. This Warrant will be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above and the person entitled to receive the
shares of the Warrant Stock issuable upon such exercise is treated for all
purposes as the holder of such shares of record as of the close of business on
such date. Unless this Warrant has been fully exercised or has expired, a new
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Warrant representing the number of shares, if any, with respect to which this
Warrant has not then been exercised must also be issued to Purchaser within such
reasonable time.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Stock which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its fully paid and nonassessable Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price are subject to adjustment from time to time upon the happening of
the events and in the manner described in this Section 4.
4.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. If any capital
reorganization or reclassification of the capital stock of the Company,
consolidation or merger of the Company with another corporation or any other
entity or the sale of all or substantially all of its assets to another entity
is effected, the successor entity (if other than the Company) resulting from
such consolidation or merger or the entity purchasing such assets must assume
this Warrant by written instrument executed and mailed or delivered to
Purchaser, and lawful and adequate provision (in form reasonably satisfactory to
Purchaser) must be made whereby the holder hereof thereafter has the right to
purchase and receive in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place. In any such case, appropriate provision must be
made with respect to the rights and interests of the holder of this Warrant to
assure that the provisions hereof (including without limitation provisions for
adjustment of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) are thereafter applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.2 ANTIDILUTION ADJUSTMENTS. In case the Company, subsequent
to September 30, 1997, (a) pays a dividend or make a distribution on its shares
of Common Stock in shares of Common Stock, (b) subdivides or reclassifies its
outstanding Common Stock into a greater number of shares, or (c) combines or
reclassifies its outstanding Common Stock into a smaller number of shares or
otherwise effect a reverse split, then the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification must be proportionately
adjusted so that the Holder of this Warrant exercised after such date is
entitled to receive the aggregate number and kind of shares which, if this
Warrant had been exercised immediately prior to such time, the Holder would have
owned upon such exercise
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and been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment is made successively whenever any event listed
in this Section 4.2 occur.
4.3 ADJUSTMENT FOR DISTRIBUTION OF PROPERTY. In case the
Company, subsequent to the issuance hereof, distributes to all holders of Common
Stock assets (excluding cash dividends or distributions paid out of current
earnings and dividends or distributions referred to in Section 4.2 of this
Warrant), then the Exercise Price is adjusted thereafter by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator is the total number of shares of Common Stock outstanding multiplied
by the Current Market Price (as determined pursuant to Section 9.3) per share of
Common Stock, less the fair market value of the assets distributed, and of which
the denominator is the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment must be made successively whenever such a record date is fixed. Such
adjustment must be made whenever any such distribution is made and becomes
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
4.4 INTENTIONALLY DELETED.
4.5 OTHER ADJUSTMENTS. In the case any event occurs as to
which the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principles of this Warrant, then, in each such case, the Purchaser may appoint
an independent investment bank or firm of independent public accountants, which
will give its opinion as to the adjustment, if any, on a basis consistent with
the essential intent and principles established in this Warrant, necessary to
preserve the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly deliver a copy of such opinion to the
Purchaser and will make the adjustments described in such opinion. The fees and
expenses of such investment bank or independent public accountants will be borne
by the Company.
4.6 ADJUSTMENT IN NUMBER OF SHARES. Whenever the Exercise
Price payable upon exercise of each Warrant is adjusted pursuant to Sections 4.2
or 4.3, the number of shares of Common Stock purchasable upon exercise of each
Warrant must simultaneously be adjusted by multiplying the number of shares of
Common Stock issuable upon exercise of each Warrant in effect on the date
thereof by the Exercise Price in effect on the date thereof and dividing the
product so obtained by the Exercise Price, as adjusted.
4.7 DE MINIMUM ADJUSTMENT. No adjustment in the Exercise Price
is required unless such adjustment would require an increase or decrease of at
least one-half cent ($0.005) in the price. Any adjustments which by reason of
this Section 4.5 are not required to be made are carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 4 are
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be.
4.8 RETENTION OF ACCOUNTANTS. The Company may retain a firm of
independent accountants of recognized standing selected by the Board of
Directors (who may be the regular
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accountants employed by the Company) to make any computation required by this
Section 4, and a certificate signed by such firm is presumptive evidence of the
correctness of such adjustment.
4.9 APPLICABILITY OF ADJUSTMENTS. In the event that at any
time, as a result of an adjustment made pursuant to Section 4.2 of this Warrant,
the holder of any Warrant thereafter becomes entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such other shares
so receivable upon exercise of any Warrant is subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 4.
4.10 NO CHANGE IN LANGUAGE OF WARRANT. Irrespective of any
adjustments in the Exercise Price or the number or kind of shares purchasable
upon exercise of Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this and similar Warrants initially issued by the Company.
4.11 NOTICE OF SPECIFIC EVENTS. In case at any time:
(a) the Company declares any dividend payable in
stock upon its Common Stock or make any special dividend or other
distribution (other than cash dividends paid at an established annual
or quarterly rate) to the holders of its Common Stock;
(b) the Company offers for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(c) there is a capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another entity; or
(d) there is a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, the Company shall give Purchaser (i) at least one hundred twenty days
prior written notice of the date on which the books of the Company close or a
record is taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
one hundred twenty days prior written notice of the date when the same will take
place. Notice in accordance with the foregoing clause (i) must also specify, in
the case of any dividend, distribution or subscription rights, the date on which
the holders of Common Stock are entitled to exchange their Common Stock for
securities or other property deliverable upon Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be.
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4.12 NOTICE OF ADJUSTMENTS. Whenever the Exercise Price is
adjusted pursuant to Section 4 hereof, the Company shall promptly as practicable
prepare a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to Purchaser.
4.13 FRACTIONAL SHARES. Fractional shares of the Warrant Stock
will be issued in connection with any issuance hereunder.
5. TRANSFERS. This Warrant or the Warrant Stock may be transferred in
whole or in part by Purchaser in complianc with applicable law.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
6.1 PIGGY-BACK REGISTRATION RIGHTS. If, at any time during the
period commencing upon the issuance hereof and ending September 30, 2004, the
Company proposes to file a registration statement under the Security Act of
1933, as amended (the "1933 ACT"), covering securities of the Company, whether
for the Company's own account or for the account of selling securities holders,
other than registration statement relating to an acquisition or merger or a
registration statement on Form S-8 or subsequent similar form, it shall advise
the holders of this Warrant or the Warrant Stock (each such person being
referred to herein as a "HOLDER") by written notice at least one hundred twenty
days prior to the filing of such registration statement and will upon the
request of any such holder include in any such registration statement such
information as may be required to permit a public offering of the Warrant Stock.
The Company shall keep such registration statement current for a period of nine
months from the effective date of such registration statement or until such
earlier date as all of the registered Warrant Stock has been sold. In connection
with such registration, the holders shall execute and deliver such customary
underwriting documents as the managing underwriter requests as a condition to
the inclusion of the Warrant Stock in the registration statement.
6.2 INTENTIONALLY DELETED.
6.3 ADDITIONAL PROVISIONS CONCERNING REGISTRATION. The
following provisions of this Section 6.3 are also applicable to any registration
statement filed pursuant to Section 6.1:
(a) The Company shall bear the entire cost and
expense of any registration of securities initiated under Section 6.
Notwithstanding the foregoing, any holder whose Warrant Stock is
included in any such registration statement pursuant to this Section 6
shall, however, bear the fees of its own counsel and accountants and
any transfer taxes or underwriting discounts or commissions applicable
to the Warrant Stock sold by the holder pursuant thereto.
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(b) The Company shall indemnify and hold harmless
each such holder and each underwriter, within the meaning of the 1933
Act, who may purchase from or sell for any such holder any Warrant
Stock from and against any and all losses, claims, damages and
liabilities (including fees and expenses of counsel, which counsel may,
if the holders request, be separate from counsel for the Company)
caused by any untrue statement or alleged untrue statement of material
fact contained in the registration statement or any post-effective
amendment thereto or any registration statement under the 1933 Act or
any prospectus included therein required to be filed or furnished by
reason of this Section 6 or any application or other filing under any
state securities law caused by any omission or alleged omissions to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading to which such
holder or any such underwriter or any of them may become subject under
the 1933 Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or alleged untrue statement or omission or alleged omission
based upon information furnished to the Company by the indemnified
holder or underwriter expressly for use therein, which indemnification
includes each person, if any, who controls any such underwriter within
the meaning of each such Act. Any such holder or underwriter must at
the same time indemnify the Company, its directors, each officer
signing the related registration statement, each person, if any, who
controls the Company within the meaning of each such Act and each other
holder or underwriter, from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason
of this Section 6 or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon
information furnished to the Company by such holder or underwriter
expressly for use therein.
(c) The Company shall qualify the Warrant Stock for
sale in such states as it is otherwise qualifying its Common Stock for
sale. The Company shall also provide the holders with prospectuses upon
request from the holders.
(d) The selling holders shall furnish information and
provide indemnification as set forth in Section 6.3(b).
(e) Neither the giving of any notice by any holder
nor the making of any request for prospectuses imposes any upon any
holder making such request any obligation to sell any Warrant Stock or
exercise any Warrant.
(f) The registration rights set forth in Section 6.1
are exercisable only by Purchaser and its permitted assigns.
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(g) The Company is not required to include in any
registration statement any Warrant Stock which could, pursuant to the
provisions of Rule 144 of the Securities and Commission under the 1933
Act, be sold during a period of four months following the date on which
registration of such Warrant Stock was requested.
(h) The Company's agreements with respect to this
Warrant or the Warrant Stock in this Section 6 continue in effect
regardless of the exercise and surrender of this Warrant.
7. LISTING RIGHTS. If the Company at any time lists any Common Stock or
other securities of the same class as those issuable on the exercise of this
Warrant on any national securities exchange, the Company will, at its expense,
simultaneously list on that exchange, on official notice of issuance on exercise
of this Warrant, and maintain such listing of, all shares of the Warrant Stock
or other securities from time to time issuable on exercise of this Warrant.
8. NO RIGHTS AS STOCKHOLDERS. Purchaser is not entitled by virtue of
the terms hereof to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof until the Warrant has been exercised.
9. CURRENT MARKET PRICE. The "CURRENT MARKET PRICE"of the Common Stock
at any date is based on the public market for the Common Stock, if any, and is
based on the average of the daily closing prices for a twenty consecutive
trading days commencing thirty trading days before such date. The closing price
for each day is the last sale price reported or, in case no such reported sale
takes place on such day, the average of the reported last bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed or on the NASDAQ System,
or if not listed or admitted to trading on such exchange or such System, the
average of the reported highest bid and reported lowest asked prices as reported
by NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information.
10. GOVERNING LAW. This Warrant must be construed and interpreted in
accordance with and is governed in all respects by the laws of the State of
Delaware applicable to agreements executed and to be performed wholly within
such State.
11. NOTICES. All notices, demands, requests and other communications
which any party hereto desires or is required to deliver or otherwise give to
any other party hereunder must be in writing and are deemed to have been
delivered, given and received when personally given, delivered by overnight
courier against receipt or transmitted by facsimile if receipt is acknowledged
or transmission is confirmed by mail or on the third day after it is mailed by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows (or to such other address as any of the parties shall
specify by notice in accordance with this provision:
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Notices to the Company:
U.S. Diagnostic Inc.
777 South Flagler Drive
West Palm Beach, Florida 33401
Attn.: Joseph A. Paul
Fax:
Notices to Purchaser:
DVI Financial Services Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attn.: Richard Miller
Fax: 215/345-4428
With a copy to:
Jeffrey Wong, Esq.
Cooper, White & Cooper
201 California Street, 17th Floor
San Francisco, California 94111
Fax: 415/433-5530
12. REGISTERED HOLDER. The Company may deem and treat the person whose
name appears on its warrant register as the holder of this Warrant as the
absolute owner hereof for all purposes, and the Company is not affected by any
notice to the contrary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers duly authorized as of September 29, 1997.
U.S. DIAGNOSTIC INC.
By:
----------------------------
Name:
Title:
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NOTICE OF EXERCISE
TO: U.S. DIAGNOSTIC, INC.
1. The undersigned hereby elects to purchase ________ shares of Common
Stock of U.S. Diagnostic Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any, in the amount of
$_____________.
2. Please issue a certificate or certificates representing the shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------------
(Name)
---------------------------------------------
---------------------------------------------
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
---------------------------------
----------------------------------
- ---------------------------------
Date
9
EXHIBIT 10.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT MAY BE MADE WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN EXEMPTION
THEREUNDER SUCH THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
U.S. DIAGNOSTIC INC.
COMMON STOCK PURCHASE WARRANT
--------------------------------------
THIS WARRANT to purchase shares of common stock, $.01 par value, (the
"COMMON STOCK") of U.S. DIAGNOSTIC INC., a Delaware corporation (the "COMPANY")
evidences that, for valuable consideration, receipt of which is hereby
acknowledged, DVI FINANCIAL SERVICES INC., a Delaware corporation ("PURCHASER"),
or registered assigns, is entitled to subscribe for and purchase from the
Company, an aggregate of up to One Hundred Twenty-five Thousand (125,000) shares
(subject to adjustment as specified in Section 4 hereof) of the fully paid and
nonassessable, Common Stock, (the "WARRANT STOCK"), at the price per share equal
to the closing price per share paid for Common Stock of the Company on September
29, 1997 on the principal national securities exchange on which the Common Stock
is admitted to trading (such price and such other price as results, from time to
time from the adjustments specified in Section 4 hereof, is referred to herein
as the "EXERCISE PRICE"), subject to the provisions and upon the terms and
conditions set forth herein.
1. CONDITIONS TO EXERCISE. The purchase right represented by this
Warrant is exercisable, in whole or in part, as to the Warrant Stock at any time
after April 30, 1998, and from time to time, on or before September 30, 2004.
This Warrant expires and may not be exercised after September 30, 2004. If the
Company has reduced the principal amount of Indebtedness (as such term is
defined in the Loan and Security Agreements dated as of the date hereof entered
into between affiliates of the Company as Borrower, the Company as Guarantor and
Purchaser as Lender) owed by the Company and its affiliates to Purchaser and its
affiliate DVI Business Credit Corporation as of September 29, 1997 by an amount
not less than $12,500,000, then this Warrant terminates and may not be
exercised. For purposes of calculating the amount by which the principal amount
of Indebtedness has been reduced, scheduled amortization of the such principal
are excluded and any repayment of a revolving line of credit will be excluded
only to the extent that such repayment is accompanied by a reduction in the
Commitment amount under such revolving line of credit.
2. METHOD OF EXERCISE: PAYMENT, ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may be exercised at any time, and from time to
time, by the surrender of this Warrant (with the Notice of Exercise form
attached hereto duly executed) at the principal office of the Company and by the
payment to the Company by check in an amount equal to the then applicable
Exercise Price per share multiplied by the number of shares of the Warrant Stock
then
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being purchased. In the event of any exercise of the rights represented by this
Warrant, the Company shall deliver to Purchaser certificates for the shares of
the Warrant Stock so purchased within a reasonable time, but not later than
twenty business days after exercise. This Warrant will be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above and the person entitled to receive the
shares of the Warrant Stock issuable upon such exercise is treated for all
purposes as the holder of such shares of record as of the close of business on
such date. Unless this Warrant has been fully exercised or has expired, a new
Warrant representing the number of shares, if any, with respect to which this
Warrant has not then been exercised must also be issued to Purchaser within such
reasonable time.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Stock which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its fully paid and nonassessable Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price are subject to adjustment from time to time upon the happening of
the events and in the manner described in this Section 4.
4.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. If any capital
reorganization or reclassification of the capital stock of the Company,
consolidation or merger of the Company with another corporation or any other
entity or the sale of all or substantially all of its assets to another entity
is effected, the successor entity (if other than the Company) resulting from
such consolidation or merger or the entity purchasing such assets must assume
this Warrant by written instrument executed and mailed or delivered to
Purchaser, and lawful and adequate provision (in form reasonably satisfactory to
Purchaser) must be made whereby the holder hereof thereafter has the right to
purchase and receive in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place. In any such case, appropriate provision must be
made with respect to the rights and interests of the holder of this Warrant to
assure that the provisions hereof (including without limitation provisions for
adjustment of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) are thereafter applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.2 ANTIDILUTION ADJUSTMENTS. In case the Company, subsequent
to September 30, 1997, (a) pays a dividend or make a distribution on its shares
of Common Stock in shares of
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Common Stock, (b) subdivides or reclassifies its outstanding Common Stock into a
greater number of shares, or (c) combines or reclassifies its outstanding Common
Stock into a smaller number of shares or otherwise effect a reverse split, then
the Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification must be proportionately adjusted so that the Holder of this
Warrant exercised after such date is entitled to receive the aggregate number
and kind of shares which, if this Warrant had been exercised immediately prior
to such time, the Holder would have owned upon such exercise and been entitled
to receive upon such dividend, subdivision, combination or reclassification.
Such adjustment is made successively whenever any event listed in this Section
4.2 occur.
4.3 ADJUSTMENT FOR DISTRIBUTION OF PROPERTY. In case the
Company, subsequent to the issuance hereof, distributes to all holders of Common
Stock assets (excluding cash dividends or distributions paid out of current
earnings and dividends or distributions referred to in Section 4.2 of this
Warrant), then the Exercise Price is adjusted thereafter by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator is the total number of shares of Common Stock outstanding multiplied
by the Current Market Price (as determined pursuant to Section 9.3) per share of
Common Stock, less the fair market value of the assets distributed, and of which
the denominator is the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment must be made successively whenever such a record date is fixed. Such
adjustment must be made whenever any such distribution is made and becomes
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
4.4 INTENTIONALLY DELETED.
4.5 OTHER ADJUSTMENTS. In the case any event occurs as to
which the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principles of this Warrant, then, in each such case, the Purchaser may appoint
an independent investment bank or firm of independent public accountants, which
will give its opinion as to the adjustment, if any, on a basis consistent with
the essential intent and principles established in this Warrant, necessary to
preserve the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly deliver a copy of such opinion to the
Purchaser and will make the adjustments described in such opinion. The fees and
expenses of such investment bank or independent public accountants will be borne
by the Company.
4.6 ADJUSTMENT IN NUMBER OF SHARES. Whenever the Exercise
Price payable upon exercise of each Warrant is adjusted pursuant to Sections 4.2
or 4.3, the number of shares of Common Stock purchasable upon exercise of each
Warrant must simultaneously be adjusted by multiplying the number of shares of
Common Stock issuable upon exercise of each Warrant in effect on the date
thereof by the Exercise Price in effect on the date thereof and dividing the
product so obtained by the Exercise Price, as adjusted.
4.7 DE MINIMUM ADJUSTMENT. No adjustment in the Exercise Price
is required unless such adjustment would require an increase or decrease of at
least one-half cent ($0.005) in
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the price. Any adjustments which by reason of this Section 4.5 are not required
to be made are carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4 are made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be.
4.8 RETENTION OF ACCOUNTANTS. The Company may retain a firm of
independent accountants of recognized standing selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Section 4, and a certificate signed by such
firm is presumptive evidence of the correctness of such adjustment.
4.9 APPLICABILITY OF ADJUSTMENTS. In the event that at any
time, as a result of an adjustment made pursuant to Section 4.2 of this Warrant,
the holder of any Warrant thereafter becomes entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such other shares
so receivable upon exercise of any Warrant is subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 4.
4.10 NO CHANGE IN LANGUAGE OF WARRANT. Irrespective of any
adjustments in the Exercise Price or the number or kind of shares purchasable
upon exercise of Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this and similar Warrants initially issued by the Company.
4.11 NOTICE OF SPECIFIC EVENTS. In case at any time:
(a) the Company declares any dividend payable in
stock upon its Common Stock or make any special dividend or other
distribution (other than cash dividends paid at an established annual
or quarterly rate) to the holders of its Common Stock;
(b) the Company offers for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(c) there is a capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another entity; or
(d) there is a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, the Company shall give Purchaser (i) at least one hundred twenty days
prior written notice of the date on which the books of the Company close or a
record is taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
one hundred twenty days prior written notice of the date when the same will take
place. Notice in accordance with the foregoing clause (i) must also specify, in
the case of any
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<PAGE>
dividend, distribution or subscription rights, the date on which the holders of
Common Stock are entitled to exchange their Common Stock for securities or other
property deliverable upon Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
4.12 NOTICE OF ADJUSTMENTS. Whenever the Exercise Price is
adjusted pursuant to Section 4 hereof, the Company shall promptly as practicable
prepare a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to Purchaser.
4.13 FRACTIONAL SHARES. Fractional shares of the Warrant Stock
will be issued in connection with any issuance hereunder.
5. TRANSFERS. This Warrant or the Warrant Stock may be transferred in
whole or in part by Purchaser in complianc with applicable law.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
6.1 PIGGY-BACK REGISTRATION RIGHTS. If, at any time during the
period commencing upon the issuance hereof and ending September 30, 2004, the
Company proposes to file a registration statement under the Security Act of
1933, as amended (the "1933 ACT"), covering securities of the Company, whether
for the Company's own account or for the account of selling securities holders,
other than registration statement relating to an acquisition or merger or a
registration statement on Form S-8 or subsequent similar form, it shall advise
the holders of this Warrant or the Warrant Stock (each such person being
referred to herein as a "HOLDER") by written notice at least one hundred twenty
days prior to the filing of such registration statement and will upon the
request of any such holder include in any such registration statement such
information as may be required to permit a public offering of the Warrant Stock.
The Company shall keep such registration statement current for a period of nine
months from the effective date of such registration statement or until such
earlier date as all of the registered Warrant Stock has been sold. In connection
with such registration, the holders shall execute and deliver such customary
underwriting documents as the managing underwriter requests as a condition to
the inclusion of the Warrant Stock in the registration statement.
6.2 INTENTIONALLY DELETED.
6.3 ADDITIONAL PROVISIONS CONCERNING REGISTRATION. The
following provisions of this Section 6.3 are also applicable to any registration
statement filed pursuant to Section 6.1:
(a) The Company shall bear the entire cost and
expense of any registration of securities initiated under Section 6.
Notwithstanding the foregoing, any holder whose Warrant Stock is
included in any such registration statement pursuant to this Section 6
shall,
5
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however, bear the fees of its own counsel and accountants and
any transfer taxes or underwriting discounts or commissions applicable
to the Warrant Stock sold by the holder pursuant thereto.
(b) The Company shall indemnify and hold harmless
each such holder and each underwriter, within the meaning of the 1933
Act, who may purchase from or sell for any such holder any Warrant
Stock from and against any and all losses, claims, damages and
liabilities (including fees and expenses of counsel, which counsel may,
if the holders request, be separate from counsel for the Company)
caused by any untrue statement or alleged untrue statement of material
fact contained in the registration statement or any post-effective
amendment thereto or any registration statement under the 1933 Act or
any prospectus included therein required to be filed or furnished by
reason of this Section 6 or any application or other filing under any
state securities law caused by any omission or alleged omissions to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading to which such
holder or any such underwriter or any of them may become subject under
the 1933 Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or alleged untrue statement or omission or alleged omission
based upon information furnished to the Company by the indemnified
holder or underwriter expressly for use therein, which indemnification
includes each person, if any, who controls any such underwriter within
the meaning of each such Act. Any such holder or underwriter must at
the same time indemnify the Company, its directors, each officer
signing the related registration statement, each person, if any, who
controls the Company within the meaning of each such Act and each other
holder or underwriter, from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason
of this Section 6 or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon
information furnished to the Company by such holder or underwriter
expressly for use therein.
(c) The Company shall qualify the Warrant Stock for
sale in such states as it is otherwise qualifying its Common Stock for
sale. The Company shall also provide the holders with prospectuses upon
request from the holders.
(d) The selling holders shall furnish information and
provide indemnification as set forth in Section 6.3(b).
(e) Neither the giving of any notice by any holder
nor the making of any request for prospectuses imposes any upon any
holder making such request any obligation to sell any Warrant Stock or
exercise any Warrant.
6
<PAGE>
(f) The registration rights set forth in Section 6.1
are exercisable only by Purchaser and its permitted assigns.
(g) The Company is not required to include in any
registration statement any Warrant Stock which could, pursuant to the
provisions of Rule 144 of the Securities and Commission under the 1933
Act, be sold during a period of four months following the date on which
registration of such Warrant Stock was requested.
(h) The Company's agreements with respect to this
Warrant or the Warrant Stock in this Section 6 continue in effect
regardless of the exercise and surrender of this Warrant.
7. LISTING RIGHTS. If the Company at any time lists any Common Stock or
other securities of the same class as those issuable on the exercise of this
Warrant on any national securities exchange, the Company will, at its expense,
simultaneously list on that exchange, on official notice of issuance on exercise
of this Warrant, and maintain such listing of, all shares of the Warrant Stock
or other securities from time to time issuable on exercise of this Warrant.
8. NO RIGHTS AS STOCKHOLDERS. Purchaser is not entitled by virtue of
the terms hereof to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof until the Warrant has been exercised.
9. CURRENT MARKET PRICE. The "CURRENT MARKET PRICE"of the Common Stock
at any date is based on the public market for the Common Stock, if any, and is
based on the average of the daily closing prices for a twenty consecutive
trading days commencing thirty trading days before such date. The closing price
for each day is the last sale price reported or, in case no such reported sale
takes place on such day, the average of the reported last bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed or on the NASDAQ System,
or if not listed or admitted to trading on such exchange or such System, the
average of the reported highest bid and reported lowest asked prices as reported
by NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information.
10. GOVERNING LAW. This Warrant must be construed and interpreted in
accordance with and is governed in all respects by the laws of the State of
Delaware applicable to agreements executed and to be performed wholly within
such State.
11. NOTICES. All notices, demands, requests and other communications
which any party hereto desires or is required to deliver or otherwise give to
any other party hereunder must be in writing and are deemed to have been
delivered, given and received when personally given, delivered by overnight
courier against receipt or transmitted by facsimile if receipt is acknowledged
or transmission is confirmed by mail or on the third day after it is mailed by
registered or certified mail,
7
<PAGE>
postage prepaid, return receipt requested, addressed as follows (or to such
other address as any of the parties shall specify by notice in accordance with
this provision:
Notices to the Company:
U.S. Diagnostic Inc.
777 South Flagler Drive
West Palm Beach, Florida 33401
Attn.: Joseph A. Paul
Fax:
Notices to Purchaser:
DVI Financial Services Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attn.: Richard Miller
Fax: 215/345-4428
With a copy to:
Jeffrey Wong, Esq.
Cooper, White & Cooper
201 California Street, 17th Floor
San Francisco, California 94111
Fax: 415/433-5530
12. REGISTERED HOLDER. The Company may deem and treat the person whose
name appears on its warrant register as the holder of this Warrant as the
absolute owner hereof for all purposes, and the Company is not affected by any
notice to the contrary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers duly authorized as of September 29, 1997.
U.S. DIAGNOSTIC INC.
By:
-----------------------------
Name:
Title:
8
<PAGE>
NOTICE OF EXERCISE
TO: U.S. DIAGNOSTIC, INC.
1. The undersigned hereby elects to purchase ________ shares of Common
Stock of U.S. Diagnostic Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any, in the amount of
$_________________.
2. Please issue a certificate or certificates representing the shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------------
(Name)
---------------------------------------------
---------------------------------------------
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
----------------------------
----------------------------
- ---------------------------------
Date
EXHIBIT 10.9
DVI BUSINESS CREDIT CORPORATION
September 29, 1997
U.S. Diagnostic Inc.
777 South Flager Drive
West Palm Beach, Florida
Attn: Mr. Joseph Paul, President
Dear Mr. Paul:
U. S. Diagnostic Inc. ("USD") and DVI Business Credit Corporation
("DVIBC") entered into a Loan and Security Agreement dated as of February 25,
1997 (the "Loan Agreement") pursuant to which DVIBC has advanced USD a revolving
line of credit with a Commitment Amount of $25,000,000. Capitalized terms used
but not defined herein have the meaning given to them in the Loan Agreement.
This letter is confirm that USD and DVIBC agreed to amend the Loan
Agreement as follows:
1. The Commitment Amount is increased to Thirty-Five Million Dollars
($35,000,000).
2. The Term of the Loan Agreement is extended until February 28,
1999. Upon the expiration of such Term the Loan Agreement will
be renewed as proved in the Loan Agreement.
3. USD grants DVIBC the right to debit the lock boxes established
pursuant to the Lock Box Agreements in the amount of any loan,
lease or other payments which are or become due to DVI
Financial Services Inc. ("DVIFS") for Indebtedness owed by USD
to DVIFS. DVIBC shall promptly remit the amounts debited from
the lock box accounts to DVIFS for payment on such
Indebtedness.
4. Except as expressly amended by this letter, the Loan Agreement
remains in full force and effect. References to the Loan
Agreement are deemed to mean the Loan Agreement as amended by
this letter.
5. Promptly upon the execution of a counterpart of this letter,
USD will pay DVIBC an origination fee equal to one percent
(1%) of the increase in the Commitment Amount. USD will pay
all other fees when and as due pursuant to the Loan Agreement
based on the increased Commitment Amount.
6. Pursuant to Section 5.11 of the Loan Agreement DVIBC created a
post closing checklist, the items on which where required to
be completed within 90 days of Closing. DVIBC and USD
acknowledge that certain of the items on such post
<PAGE>
U.S. Diagnostic Inc.
September 29, 1997
Page 2
closing checklist have not been completed. USD agrees to
resolve all such items by October 30, 1997.
Please confirm your agreement that the terms of the Loan Agreement have
been modified as set forth above by signing each counterpart of this letter.
Very truly yours,
DVI BUSINESS CREDIT CORPORATION
AGREED:
- ------------------------
U.S. DIAGNOSTIC INC
Joseph Paul, President
<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
- --------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 22,126 18,287 22,124 10,662
Dilutive effect of conversions -- 2,991 -- 3,359
------- -------- ------- --------
Primary weighted average shares of common 22,126 21,278 22,124 14,021
stock and common stock equivalents ======= ======== ======= ========
outstanding
Net income (loss) $(9,848) $1,108 $(19,718) $2,571
Adjustment to net income for interest -- -- -- --
-------- -------- -------- --------
savings, net of related income taxes
Adjusted net income (loss) $(9,848) $1,108 $(19,718) $2,571
======== ======== ======== ========
Earnings (loss) per share - primary $(.45) $.05 $(.89) $.18
===== ==== ===== ====
FULLY DILUTED EARNINGS PER SHARE (1):
Weighted average shares outstanding, 22,600 20,325 22,598 12,254
including escrow shares
Dilutive effect of conversions 1,179 2,957 1,264 4,846
-------- -------- -------- --------
Fully diluted weighted average shares of 23,779 23,282 23,862 17,100
common stock and common stock equivalents ======== ======== ======== ========
outstanding
Net income (loss) $(9,848) $1,108 $(19,718) $2,571
Adjustments to net income for interest -- -- -- --
-------- -------- -------- --------
savings, net of related income taxes
Adjusted net income (loss) $(9,848) $1,108 $(19,718) $2,571
====== ===== ======= =====
Earnings per share - fully diluted $(.41) $.05 $(.83) $.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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALNCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 30,914,241
<SECURITIES> 0
<RECEIVABLES> 71,154,726
<ALLOWANCES> 16,545,844
<INVENTORY> 0
<CURRENT-ASSETS> 104,714,395
<PP&E> 119,760,954
<DEPRECIATION> 23,329,902
<TOTAL-ASSETS> 389,917,806
<CURRENT-LIABILITIES> 70,900,752
<BONDS> 187,916,782
0
0
<COMMON> 226,040
<OTHER-SE> 121,015,750
<TOTAL-LIABILITY-AND-EQUITY> 389,917,806
<SALES> 0
<TOTAL-REVENUES> 166,673,579
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,558,484
<INTEREST-EXPENSE> 13,475,589
<INCOME-PRETAX> (16,663,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,663,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,717,537)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
