UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 1-13392
US DIAGNOSTIC INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-3164389
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
777 SOUTH FLAGLER DRIVE, SUITE 1201 EAST, WEST PALM BEACH, FLORIDA 33401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 832-0006
As of April 10, 1998, 22,911,433 shares of Common Stock of the registrant were
issued and outstanding.
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Part III of the Annual Report on Form 10-K of US Diagnostic Inc. (the
"Company") for the year ended December 31, 1997 is amended in its entirety to
add the following information:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
current Directors and Executive Officers of the Company:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
C. Keith Hartley (1)(2)(3) 55 Co-Chairman of the Board and Director
L. E. Richey, M.D. (1) (2)(3) 69 Co-Chairman of the Board and Director
Michael A. O'Hanlon 51 Director
Gordon C. Rausser, Ph.D. (3) 54 Director
Joseph A. Paul (3) 40 Chief Executive Officer, President and Director
Francis J. Harkins, Jr. 48 Executive Vice President, General Counsel, and
Corporate Secretary
Leon F. Maraist 55 Executive Vice President and Chief Operating Officer
J. Wayne Moor 46 Executive Vice President, Chief Financial Officer
and Assistant Secretary
David Cohen 45 Executive Vice President, West Coast
Operations
Len V. Platt 44 Executive Vice President, Southeast Region
Arthur E. Quillo 56 Executive Vice President, South Central and
Midwest Regions
Alan M. Winakor 38 Executive Vice President, Northeast Region
Amos F. Almand, III 49 Senior Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
Todd R. Smith 34 Chief Information Officer and Vice
President
</TABLE>
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(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
The principal occupation of each director and executive officer for at least the
last five years is set forth below:
C. KEITH HARTLEY has been a member of the Board of Directors of the Company
since September 1996 and became Co-Chairman of the Board on December 1, 1997.
Since August 1995, Mr. Hartley also has been a Managing Partner, Corporate
Finance, of Forum Capital Markets L.P., an investment banking firm. From May
1991 to August 1995, Mr. Hartley was an independent financial consultant, and
from February 1990 to May 1991, he was a Managing Director of Peers & Co., a
merchant banking firm. From 1973 to 1989, Mr. Hartley was a Managing Director of
Drexel Burnham Lambert Incorporated. Mr. Hartley also is a director of Comdisco,
Inc. and Swisher International Group, both of which are publicly traded
companies.
L. E. RICHEY, M.D. has been a director of the Company since June 1997 and became
Co-Chairman of the Board on December 1, 1997. Dr. Richey is a radiologist with
over 30 years of medical and entrepreneurial experience, including medical
hospital ownership and management. In 1991, Dr. Richey founded US Imaging, Inc.,
a group of eight multi-modality outpatient diagnostic imaging centers located in
Houston and San Antonio, Texas, and served as its President from 1991 until it
was acquired by the Company in June 1996. From 1965 until 1990, Dr. Richey
served as the Director of Radiology at Polly Ryon Hospital and currently, Dr.
Richey serves as the Director of Radiology at Vencor Hospital and as the Medical
Director of four of the Company's imaging centers in Houston, Texas. Dr. Richey
is founder and president of L.E. Richey Associates PLLC which provides radiology
services in Houston and San Antonio.
MICHAEL A. O'HANLON has served as a director of the Company since January 20,
1998. Since November 1995, Mr. O'Hanlon has served as the president and chief
executive officer of DVI, Inc., the largest independent financier to the health
care market in the United States ("DVI"). Mr. O'Hanlon was president and chief
operating officer of DVI from September 1994 to November 1995, and he served as
executive vice president of DVI since joining DVI in March 1993. Prior to
joining DVI, Mr. O'Hanlon served as president and chief executive officer of
Concord Leasing, Inc. ("Concord Leasing") for nine years. Concord Leasing
provides medical, aircraft, shipping and industrial equipment financing, and
through its subsidiary, U.S. Concord, Inc., provides equipment financing for the
medical imaging industry. Mr. O'Hanlon is a director of DVI.
GORDON C. RAUSSER, PH.D. has been a director of the Company since October 1994
and a consultant to the Company since January 1995. For more than eight years,
Dr. Rausser has been a principal and director of the Law & Economics Consulting
Group, Inc., an economics consulting group that provides consulting and
litigation support services primarily to Fortune 500 companies, which is
publicly traded on the New York Stock Exchange. He is Chairman of the Board of
TriColor Lines, a commercial real estate and export/import company with offices
in San Francisco, London and Prague. Dr. Rausser has served as the Dean of the
College of Natural Resources at the University of California at Berkeley since
1994 and has been its Robert Gordon Sproul Distinguished Professor since 1986.
He has won fifteen national awards for his innovative economic research and
strategic analysis. He was also the Chairman of the Department of Agricultural
and Resource Economics from 1979 to 1985 and again from
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1992 to 1994. Dr. Rausser, while on leave from his professorship position at the
University of California at Berkeley, also served as Senior Economist on the
Council of Economic Advisors from 1986 to 1987 and as Chief Economist of the
Agency for International Development from 1988 to 1990. Dr. Rausser was an
initial shareholder of, and is a member of the Board of Directors of,
Diversified Therapy Corp., a corporation in which the Company owns approximately
a 25% interest.
JOSEPH A. PAUL has been a member of the Company's Board of Directors and its
President since July 1, 1996, was Chief Operating Officer from July 1, 1996
through October 31, 1997, was elected its interim Chief Executive Officer
effective February 1, 1997 and became its Chief Executive Officer in March 1997.
From May 1994 to June 30, 1996, he was President of MediTek Health Corporation,
a corporation acquired by the Company from HEICO Corporation ("HEICO") in July
1996. Mr. Paul joined HEICO in 1991 as a Vice President and was responsible for
forming MediTek Health Corporation. From 1981 until June 1997, Mr. Paul was a
Vice President of Ambassador Square, Inc., a real estate development and
management company, and from 1988 until June 1997, he also served as a Vice
President of Columbia Ventures, Inc., a private investment company. He is a
member of the American Institute of Certified Public Accountants and the Florida
Institute of Certified Public Accountants.
FRANCIS J. HARKINS, JR. joined the Company on December 9, 1997 as Executive Vice
President, General Counsel and Corporate Secretary. Prior to joining the
Company, Mr. Harkins served as Assistant General Counsel from 1993 to 1995, as
Corporate Secretary from 1995 to 1997, and as Vice President and Associate
General Counsel from 1996 to 1997, of Peoples Telephone Company, Inc. ("PTC"),
the largest independent operator of public pay telephones in the United States.
His positions with PTC included responsibility for day to day legal affairs,
special legal projects and the corporate secretarial function.
LEON F. MARAIST has served as Executive Vice President and Chief Operating
Officer of the Company since November 1, 1997. From 1993 to 1997, Mr. Maraist
served as Vice President of NMC Diagnostic Services, Inc. ("NMC") which provides
mobile imaging diagnostics in physicians' offices and diagnostics in fixed
sites. His responsibilities with NMC included marketing, sales, finance and
operations. From 1992 to 1994, Mr. Maraist directed operations of the $1 billion
nationwide dialysis division of NMC.
J. WAYNE MOOR has been Chief Financial Officer of the Company since June 1997
and is an Executive Vice President. Mr. Moor is a Florida certified public
accountant with seven years of public accounting experience with Arthur Andersen
LLP. From October 1994 until June 1997, Mr. Moor was an independent accounting
consultant, and he served in that capacity for the Company from February 1997
until June 1997. From 1989 to October 1994, Mr. Moor was an Executive Vice
President in charge of commercial real estate and business lending at Cartaret
Savings and AmeriFirst Banks.
DAVID COHEN has been with the Company since August 1995 and is an Executive Vice
President responsible for the Company's West Coast Operations. Mr. Cohen has
been responsible for and/or involved with the development of diagnostic imaging
centers for the past 13 years. From October 1994 until August 1995, Mr. Cohen
served as an independent consultant of the Company. From November 1992 to
September 1994, Mr. Cohen was the President of FutureCare Affiliates, Inc., a
company which he co-founded and that was acquired by the Company in November
1995. During 1991 and 1992, he was the Western Regional Manager for New Ventures
and Acquisitions for DVI Health Services, Inc., a publicly-traded national
health services
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organization. From 1986 to 1991, he served as a Magnetic Resonance Imaging
consultant for Diasonics/Toshiba America Medical Systems. Mr. Cohen was also an
initial shareholder of Diversified Therapy Corp., an entitiy in which the
Company owns approximately a 25% interest.
LEN V. PLATT has been with the Company since November 1996 and is an Executive
Vice President responsible for the Company's Southeast operations. From January
1995 until November 1996, Mr. Platt has held various sales and management
positions, including National Sales Manager at Elscint, Inc., a manufacturer of
imaging equipment. From August 1991 until January 1995, he was Regional Sales
Manager of Otsuka Electronics.
ARTHUR E. QUILLO has been Executive Vice President of the Company since November
1996 and is responsible for the Company's South Central and Midwest regional
operations. From June 1995 until he joined the Company in November 1996, Mr.
Quillo was the Director of Operations at Voxel, Inc., a medical device company.
From January 1993 through June 1995, Mr. Quillo served as Vice President of
Field Operations of the Resonex Corporation, a manufacturer of magnetic
resonance imaging equipment, and, from August 1991 through October 1992, he
served as President and Chief Operating Officer of MRI Medical Diagnostics
("MRI"), a start-up imaging center company. Mr. Quillo also held a broad range
of positions at the Xerox Corporation for approximately 13 years and has
accumulated over 14 years of experience in the medical imaging industry.
ALAN M. WINAKOR has been with the Company since October 1996 and is an Executive
Vice President responsible for the operations of the Company's Northeast
Region. In 1986, he founded Medical Marketing Development, Inc., an owner
and operator of six outpatient facilities in the New York area, which the
Company acquired in October 1996.
AMOS F. ALMAND, III was elected Senior Vice President in May 1995. Mr. Almand
served as a director of the Company from May 1995 to November 1997. Mr. Almand
organized and was the owner of the general partner of Salisbury Imaging Ltd.
from its founding in 1990 until it was acquired by the Company in 1995. Mr.
Almand was also an initial shareholder of, and is Chairman of the Board of
Diversified Therapy Corp., a corporation in which the Company owns approximately
a 25% interest.
TODD R. SMITH has been Vice President and Chief Information Officer since
January 1996. From October 1992 until its acquisition by the Company in November
1995, Mr. Smith was the President and, previously, Vice President of FutureCare
Affiliates, Inc., a company he co-founded in 1992. From June 1991 to October
1992, he was an Assistant Vice President of DVI Health Services Corp., a
publicly traded national health services organization, where he oversaw the
acquisition and development of six health care service businesses. From 1990 to
1991, he was the President of Premier Health Strategies. From 1986 to 1991, he
was Director of Project Development of TME, Inc. where he oversaw the
development of a number of outpatient diagnostic imaging center limited
partnerships.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Board of Directors
of the Company held eighteen meetings. All of the directors attended at least
75% of the aggregate of all meetings of the Board of Directors and the
Committees on which they served held during the term of their respective
directorships.
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The Board currently has three committees: the Audit Committee, the Compensation
Committee, and the Executive Committee.
The Audit Committee currently consists of two non-employee directors,
Mr. Hartley and Dr. Richey. The Audit Committee is authorized by the Board of
Directors to review with the Company's independent accountants the annual
financial statements of the Company; to review the work of, and approve
non-audit services performed by, such independent accountants; and to make
annual recommendations to the Board for the appointment of independent public
accountants for the ensuing year. The Audit Committee also reviews the
effectiveness of the financial and accounting functions, organization,
operations and management of the Company. The Audit Committee met twice in 1997.
The Compensation Committee currently consists of two non-employee
directors, Mr. Hartley and Dr. Richey. The Compensation Committee reviews and
recommends to the Board of Directors the compensation and benefits of all
officers of the Company, reviews general policy matters relating to compensation
and benefits of employees of the Company, administers the Company's 1995
Long-Term Incentive Plan and the issuance of stock options to the Company's
officers, employees and consultants and also has authority to grant options to
directors who are not employees of the Company. The Compensation Committee held
three meetings in 1997.
The Executive Committee of the Board of Directors currently consists of
Messrs. Hartley, Paul, Dr. Richey and Dr. Rausser. The Executive Committee
exercises the powers and authority of the Board of Directors in the management
and affairs of the Company between meetings of the Board of Directors, to the
extent permitted by law. During 1997, the Executive Committee met four times.
In January 1997, the Board appointed a special advisory committee (the
"Special Advisory Committee"), consisting of non-employee directors Mendelson
(now a former director), Hartley and Rausser, to review the Company's former
relationship with Coyote Consulting and Financial Services, LLC and Keith
Greenberg, a former independent consultant of the Company, and the Company's
prior public disclosure regarding that relationship. In addition, in March 1997,
the Special Advisory Committee recommended, and the Board adopted, certain
procedures regarding the management of the Company, including background
investigations of management and consulting candidates, strengthening disclosure
review, and the election of additional outside directors to the Board. The
Special Advisory Committee was disbanded in September 1997 after having
completed its function.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of the Company receive a
payment of $1,000 for each meeting of the Board that they attend and receive
$500 for each committee meeting they attend. Board members are also reimbursed
for their reasonable expenses incurred in serving as a director of the Company.
In November 1997, the Board of Directors adopted a policy of granting
options to purchase shares of the Company's common stock, par value $.01 per
share (the "Common Stock") to directors who are not employees or principal
stockholders of, or referring physicians to, the Company ("Director Options"),
on the following terms: options to purchase 10,000 shares of Common Stock are
granted to each such director (i) on the date such director is first elected or
appointed to the Board of Directors, and (ii) each year thereafter on the day of
the first meeting of the Board of Directors immediately following any annual
meeting of stockholders (so long as the director's term as a director continues
after such annual meeting). Director Options have a term
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of five years, vest as determined by the Board of Directors and have an exercise
price equal to the fair market value of the Common Stock on the date immediately
preceding the date of the option grant. On June 3, 1997, director L. E. Richey
was granted options to purchase 10,000 shares of Common Stock at an exercise
price of $7.50 per share under the Company's 1995 Long-Term Incentive Plan (the
"1995 Plan"). On November 6, 1997, directors C. Keith Hartley, Gordon Rausser
and L. E. Richey, and former director Laurans A. Mendelson, were each granted
options to purchase 10,000 shares of Common Stock at an exercise price of $6.50
per share under the 1995 Plan.
In March 1997, in consideration for their services on the Special
Advisory Committee, Mr. Mendelson, a former director of the Company, and Mr.
Hartley and Dr. Rausser, current directors of the Company, received options to
purchase 100,000, 35,000 and 35,000 shares of Common Stock, respectively, at an
exercise price of $8.625 per share under the 1995 Plan. These options are
immediately exercisable and have a term of 10 years from the date of grant.
Gordon Rausser is paid $25,000 each fiscal quarter pursuant to the
terms of a Consulting Agreement between the Company and Dr. Rausser dated
January 1, 1995, and amended effective September 1995 and September 1996. See
"Certain Relationships and Related Transactions."
Charles Jacobson, a former director of the Company, and an entity in
which he owns an equity interest, have management consulting arrangements with
the Company lasting through the year 2000, pursuant to which the Company paid an
aggregate of $104,312 to Mr. Jacobson and such entity in 1997 for management
consulting services. These arrangements were amended in 1997 to provide that the
Company will pay $100,000 for such services per year until the termination of
the arrangements.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years ended December 31, 1997,
1996, and 1995, the compensation paid or accrued by the Company to its current
Chief Executive Officer, its former Chief Executive Officer (whose employment
concluded on March 31, 1997), and the four other most highly compensated
executive officers for the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------- ------------------
OTHER
ANNUAL SECURITIES ALL
COMPEN- RESTRICTED UNDERLYING OTHER
PRINCIPAL SATION STOCK OPTIONS COMPEN-
POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($)(2) (#)(3) SATION($)
-------- ---- --------- -------- ------ ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Paul(4) 1997 222,346 50,000 15,240 - 200,000 7,450(5)
Chief Executive Officer, 1996 98,485 25,000 6,000 573,125 300,000 45,555(6)
President and Director 1995 - - - - - -
David Cohen (7) 1997 200,000 56,282 15,240 - - 3,000(5)
Senior Vice President 1996 225,383 82,006 12,000 - 50,000 1,615(5)
1995 41,538 26,000 5,000 - 150,000 -
Alan M. Winakor(8) 1997 204,000 16,667 - - - 6,620(5)
Senior Vice President 1996 45,508 - - - 100,000 942(5)
1995 - - - - - -
Todd R. Smith(9) 1997 120,769 67,050 12,651 - - 1,873(5)
Vice President and Chief 1996 126,923 27,500 12,000 - 20,000 542(5)
Information Officer 1995 - - - - 80,000 -
Len V. Platt(10) 1997 125,779 92,500 9,488 - - 69,281(11)
Senior Vice President 1996 13,942 30,385 - - 50,000 -
1995 - - - - - -
Jeffrey A. Goffman(12) 1997 53,846 - - - - 1,615(5)
Former Director, Former 1996 189,038 - 14,747 2,510,625 350,000 2,826(5)
Chief Executive Officer 1995 137,500 100,000 12,000 256,250 150,000 -
and Former Chairman of
the Board
</TABLE>
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(1) Represents car allowance.
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(2) The number of shares of restricted stock outstanding at December 31, 1997
totaled 580,000 shares. The aggregate value of the restricted stock was
$2,138,750 at December 31, 1997 based upon the closing market price of the
Company's Common Stock on that date. The total number of shares of outstanding
restricted stock included in the Summary Compensation Table that have vested, or
will vest, in whole or in part, within three years after date of grant is
280,000 shares. Of these 280,000 shares, 260,000 shares vested in 1997, 15,000
shares will vest in 1998 and 5,000 shares will vest in 1999. Dividends will be
paid on restricted stock to the extent paid on Common Stock.
(3) In 1996, the Company granted 100,000, 50,000, 20,000 and 100,000 options to
Messrs. Goffman, Cohen, Smith and Paul, respectively, with an exercise price
that was below the market price of the underlying Common Stock. The exercise
price per underlying share was $7.125, and the market price of the underlying
Common Stock at the date the options were granted was $12.875 per share.
(4) Joseph A. Paul joined the Company in July 1996 and became its Chief
Executive Officer in March 1997. The 1996 amounts only include Mr. Paul's
compensation as President for the period from July 1, 1996 through December 31,
1996 and do not include a $200,000 bonus and $17,512 of vacation pay earned at
MediTek Health Corporation and accrued prior to the acquisition of MediTek
Health Corporation by the Company and paid by the Company in July 1996
subsequent to the date of acquisition. These amounts do not include Mr. Paul's
1996 salary and bonus earned for the period prior to the acquisition of MediTek
Health Corporation by the Company (January 1, 1996 to June 30, 1996) in the
amounts of $70,488 and $37,500, respectively. Mr. Paul's salary and bonus at
MediTek Health Corporation were $140,413 and $50,000, respectively, in 1995.
(5) Company contributions to the 401(k) Plan. The Company did not make
contributions in 1995.
(6) Reimbursement for Mr. Paul's relocation expenses totaled $43,040, and
Company contributions to the 401(k) Plan on his behalf totaled $2,515.
(7) Mr. Cohen's employment began in August 1995.
(8) Mr. Winakor's employment began in October 1996.
(9) Mr. Smith was granted 80,000 options in December 1995 pursuant to his
employment contract. His employment commenced in December 1995, but all cash
compensation was paid commencing in January 1996.
(10) Mr. Platt's employment began in November 1996.
(11) Reimbursement for Mr. Platt's relocation expenses totaled $66,783 and
Company contributions to the 401(k) Plan totaled $2,498.
(12) On February 3, 1997, Mr. Goffman was placed on voluntary administrative
leave by the Company's Board of Directors. During this administrative leave, he
was relieved of all of his corporate duties and was not permitted to participate
in any meetings of the Company's Board of Directors. In March 1997, Mr. Goffman
ceased his employment with the Company. The Company entered into a Settlement
Agreement and General Release with Mr. Goffman pursuant to which Mr. Goffman
resigned as a director, officer and employee effective as of March 31, 1997. See
"Certain Relationships and Related Transactions."
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SUMMARY OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning persons listed in the
Summary Compensation Table who were granted options during the fiscal year ended
December 31, 1997:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NUMBER OF % OF TOTAL MARKET PRICE
SECURITIES OPTIONS OF COMMON
UNDERLYING GRANTED TO EXERCISE STOCK AT DATE
OPTIONS EMPLOYEES OR BASE OF OPTIONS EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR PRICE ($/SH) GRANTED ($/SH) DATE
---- ---------- -------------- ------------ -------------- ----
<S> <C> <C> <C> <C> <C>
Joseph A. Paul 200,000(1) 29.2% 6.25 6.25 4/23/2002
</TABLE>
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(1) The options granted vest immediately upon the earlier of (i) the Common
Stock trading at a price per share of $10.00 or more as reported on the Nasdaq
National Market and (ii) a change of control of the Company.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth certain information concerning the
persons listed in the Summary Compensation Table who exercised stock options
during fiscal year ended December 31, 1997 or held unexercised options at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDER- UNEXERCISED
LYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS AT
SHARES AT FY-END(#) FY-END($)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Joseph A. Paul ---- ---- 33,334/466,666 $--/$--
David Cohen ---- ---- 133,333/66,667 $--/$--
Alan M. Winakor ---- ---- 25,000/75,000 $--/$--
Todd R. Smith ---- ---- 41,665/43,335 $--/$--
Len V. Platt ---- ---- 16,666/33,334 $--/$--
Jeffrey A. Goffman(2) ---- ---- 140,000/400,000 $--/$--
</TABLE>
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(1) As of December 31, 1997, none of the options were in-the-money.
(2) See Note 19 of Notes to the Consolidated Financial Statements.
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EMPLOYMENT AGREEMENTS
Joseph A. Paul and the Company entered into a five-year employment
agreement, dated June 18, 1996, for Mr. Paul to serve as President and a
Director of the Company. Effective in February 1997, he was also appointed as
interim Chief Executive Officer of the Company, and in March 1997, he became
Chief Executive Officer. The agreement provides for an annual base salary of
$200,000 during the first year of its term, and for annual increases in each of
the remaining years of at least five percent per year. The agreement also
provides for an annual bonus of $50,000 during the first year and a bonus in
each subsequent year as determined by the Compensation Committee. In April 1997,
the Compensation Committee recommended and the Board of Directors approved that
effective May 1, 1997, Mr. Paul receive a salary of $235,000 per year, subject
to an annual increase of 5% per year, and a bonus based upon the Company meeting
certain financial targets. The agreement provides that all options and
restricted stock awards granted to Mr. Paul will vest if he is terminated
without cause or upon a change of control of the Company. During the term of his
employment with the Company, Mr. Paul is also entitled to (i) participation in
all other benefit plans provided by the Company to its executives, (ii) four
weeks paid vacation per year and (iii) a $1,000 per month non-accountable car
allowance. The agreement also provides that, upon the occurrence of the
following events, Mr. Paul has the right to elect to deem his employment to have
been terminated by the Company without cause and receive a lump sum payment
equal to 2.9 times the annual salary and incentive or bonus payments made to him
by the Company during the most recent fiscal year: (i) Mr. Paul no longer
exercises all of the duties and responsibilities and no longer possesses
substantially all of the authority provided for in the agreement; (ii) the
Company materially breaches the agreement or the performance of its duties and
obligations thereunder; or (iii) there are certain changes of control or
ownership of the Company. The agreement also restricts Mr. Paul from competing
with the Company or soliciting customers or other business for any entity other
than the Company during the term of the agreement and for a period of one year
following termination, and from disclosing certain confidential information with
respect to the Company. If, however, Mr. Paul's employment is terminated without
cause or terminates his agreement upon a material breach by the Company, his
non-compete and non-solicit restrictions will not apply following termination.
David Cohen and the Company entered into a four-year employment
agreement in August 1995, as amended in May 1997. Mr. Cohen currently serves as
Executive Vice President of West Coast Operations. The agreement provides that
Mr. Cohen's annual base salary was $120,000 for the first year of the agreement
and will be no less than 110% of the previous year's base salary. Currently, Mr.
Cohen's annual base salary is $200,000. Mr. Cohen is also entitled to an annual
bonus equal to the greater of five percent of the net income before taxes of the
Company's San Francisco Magnetic Resonance Center ("SFMRC") or $50,000. Mr.
Cohen was also entitled to a cash bonus of three percent of the net income
before taxes resulting from Mr. Cohen's identification and development of
certain mergers and acquisitions that were consummated by the Company prior to
June 1, 1997. Under the terms of his agreement, Mr. Cohen was granted (i)
100,000 fully vested stock options at an exercise price of $5.125 per share, and
(ii) 50,000 options with an exercise price of $5.125 per share, which vest at
the rate of 12,500 options per year, but only for each year in which the SFMRC
earns a minimum of $250,000 before taxes. In the event that Mr. Cohen's duties
and authority are materially diminished or the Company materially breaches the
agreement, Mr. Cohen is entitled to deem his employment terminated without cause
and receive all compensation which would have accrued to him under the agreement
for the longer of the remainder of the term or for a period of one year. Mr.
Cohen is entitled to (i) participation in all other benefit plans provided by
the Company to its executives, (ii) four weeks paid vacation per year and (iii)
a $1,000 per month non-accountable car allowance. The agreement also restricts
Mr. Cohen from competing with the Company and from disclosing confidential
information with respect to the Company, although if Mr. Cohen so deems his
employment terminated without cause, he may, under certain circumstances, waive
certain payments from the Company and be relieved from the non-competition
restrictions.
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Todd R. Smith and the Company entered into a three-year employment
agreement, dated December 7, 1995, effective December 5, 1995, which was amended
and restated on August 9, 1996, pursuant to which Mr. Smith serves as the
Company's Vice President and Chief Information Officer. The agreement provides
for an annual base salary of not less than $120,000 during 1997 and $125,000 for
1998. Mr. Smith is also entitled to an annual discretionary bonus, and a bonus
of $750 for each facility the computer system of which is brought on-line
pursuant to certain specifications. In addition, Mr. Smith received 80,000 stock
options in December 1995 at an exercise price of $6.50 per share which were to
vest in three equal installments on December 7, 1996, 1997 and 1998. All options
granted to Mr. Smith will vest upon the earlier of (i) Mr. Smith's employment
terminating without cause and (ii) upon a change of control of the Company.
During the term of his employment, Mr. Smith is also entitled to (i)
participation in all other benefit plans provided by the Company to its
executives, (ii) four weeks paid vacation per year and (iii) a $1,000 per month
non-accountable car allowance. In the event that the Company materially breaches
the employment agreement or in the event of certain changes in control or
ownership of the Company, Mr. Smith may elect to deem his employment terminated
by the Company without cause and in accordance with this provision, Mr. Smith
would be entitled to receive lump sum compensation, bonus and certain
reimbursements and benefits equal to two years' annualized compensation (unless
the remaining term of the agreement is less than one year, in which case Mr.
Smith is entitled to one year's annualized compensation, bonus and certain
reimbursements and benefits). If Mr. Smith releases the Company from its
obligation to pay such lump sum compensation, the Company will release him from
the post-termination non-compete and non-solicitation restrictions of the
agreement. The employment agreement restricts Mr. Smith from competing with the
Company and soliciting Customers (defined in the agreement) during a 12 month
period after the date of termination and from disclosing certain confidential
information with respect to the Company. The non-compete and non-solicit
restrictions will not apply if the agreement is terminated by the Company
without cause or by Mr. Smith upon a material breach by the Company.
Len V. Platt and the Company entered into a three-year employment
agreement, dated October 15, 1996, effective November 1, 1996, pursuant to which
Mr. Platt serves as the Company's Executive Vice President in charge of the
Southeast Region. The agreement provides for an annual base salary of $125,000
during the first year of the term of his employment, $132,500 for the second
year and $140,000 for the third year. Mr. Platt was guaranteed a minimum bonus
of $25,000 for the first 12 months of his employment, payable at the same
intervals as his base salary. In addition, Mr. Platt is also entitled to a bonus
based on achievement of certain earnings goals outlined in the employment
agreement not to exceed 40% of his base salary and to compensation for any
forfeited commission/bonus from a former employer. In addition, Mr. Platt (i)
was granted 50,000 stock options with an exercise price of $11.25 per share,
which vest over the three-year term of his employment with the Company; (ii)
will be eligible to receive 10,000 additional stock options at the end of years
one and two of his term of employment; and (iii) is entitled to future
discretionary grants of options. All options granted to Mr. Platt will vest upon
the earlier of (i) the termination of Mr. Platt's employment with the Company
without cause and (ii) a change of control of the Company. During the term of
his employment, Mr. Platt is entitled to (i) health insurance in accordance with
the Company's existing benefit package for senior management, (ii) three weeks
paid vacation per year and (iii) a $750 per month car allowance. In the event
that the Company materially breaches the employment agreement or in the event of
certain changes in control or ownership of the Company, Mr. Platt may elect to
deem his employment terminated by the Company without cause. In accordance with
this provision of his employment agreement, Mr. Platt would be entitled to
receive lump sum compensation, bonus and certain reimbursements and benefits
equal to two years' annualized compensation (unless the remaining term of the
agreement is less than one year, in which case Mr. Platt is entitled to one
year's annualized compensation, bonus and certain
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reimbursements and benefits). If Mr. Platt releases the Company from its
obligation to pay such lump sum compensation, the Company will release him from
the post-termination non-compete and non-solicitation restrictions of the
agreement. The employment agreement restricts Mr. Platt from competing with the
Company and soliciting Customers (defined in the agreement) during a 12 month
period after the date of termination and from disclosing certain confidential
information with respect to the Company. Such restrictions will not apply if the
agreement is terminated by the Company without cause or by Mr. Platt upon a
material breach by the Company.
Alan M. Winakor and the Company entered into a five-year employment
agreement. Mr. Winakor currently serves as Executive Vice President of the
Company in charge of the Northeast Region. The agreement provides for an annual
base salary of $200,000 during the first year of its term, and for annual
increases in each of the remaining years of at least five percent per year. The
agreement also provides for an annual bonus of $50,000 in each of the first two
years of the term of the agreement and a $50,000 bonus in each subsequent year
that the net income before taxes attributable to the six imaging centers
previously operated by Medical Marketing Development, Inc. meets certain targets
(the "Income Target"). In addition, Mr. Winakor was granted an option to
purchase 100,000 shares with an exercise price of fair market value on date of
grant. By resolution of the Board of Directors, 25,000 options of such grant
will vest in each year that the Income Target is met beginning on the first
anniversary of the date of grant. Mr. Winakor is also entitled to discretionary
grants of options. All options granted to Mr. Winakor will vest upon the earlier
of (i) the termination of his employment without cause and (ii) a change in
control of the Company. During the term of his employment with the Company, Mr.
Winakor is also entitled to (i) participation in all other benefit plans
provided by the Company to its executives, (ii) four weeks paid vacation per
year and (iii) a $1,000 per month non-accountable car allowance. The agreement
restricts Mr. Winakor from competing with the Company or soliciting customers or
other business for any entity other than the Company during the term of the
agreement and for a period of one year following termination, and from
disclosing certain confidential information with respect to the Company. If,
however, Mr.Winakor's employment is terminated without cause or he terminates
his agreement upon a material breach by the Company, the non-compete and
non-solicit restrictions will not apply following termination.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of April
10, 1998, by (i) each stockholder known to the Company to own beneficially more
than 5% of the Company's Common Stock; (ii) each of the Company's Directors;
(iii) each of the persons listed in the Summary Compensation Table; and (iv) all
Directors and Executive Officers of the Company as a group. Except as indicated
in the footnotes to this table and subject to applicable community property
laws, the persons named in the table, based on information provided by such
persons, have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) PERCENT OF CLASS (2)
- -------------------- ----------------------- --------------------
BENEFICIAL OWNERS
- -----------------
<S> <C> <C>
Lighthouse Capital Insurance Company 1,687,750 (3) 7.4%
DIRECTORS AND NAMED EXECUTIVE OFFICERS
- --------------------------------------
C. Keith Hartley 374,445 (5) 1.6%
L. E. Richey, M.D. 25,000 (4) *
Michael A. O'Hanlon 8,000 *
Gordon C. Rausser, Ph.D. 690,000 (6) 2.9%
Joseph A. Paul 87,058 (7) *
David Cohen 136,833 (8) *
Alan M. Winakor 339,628 (9) 1.5%
Todd R. Smith 41,665 (10) *
Len V. Platt 21,329 (11) *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (12) 1,891,989 8.2%
</TABLE>
* Less than 1%.
(1) The address for all of the Directors and Executive Officers is care of US
Diagnostic Inc., 777 S. Flagler Drive, Suite 1201 East, West Palm Beach, Florida
33401.
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<PAGE>
(2) Number of shares and percentage ownership include shares issuable pursuant
to options, warrants or other convertible securities held by the person in
question exercisable within 60 days after April 10, 1998. Percentage ownership
based on 22,911,433 shares of Common Stock outstanding as of April 10, 1998.
(3) Lighthouse Capital Insurance Company, whose address is Anderson Square, 3rd
Floor, P.O. Box 11235 GT, Grand Cayman, B.W.I. ("Lighthouse"), is the beneficial
owner of 1,671,000 shares of the Company's outstanding Common Stock (the
"Lighthouse Shares"). The Lighthouse Shares were issued by the Company to the
Reese General Trust ("Reese") in connection with the acquisition of U.S. Imaging
Inc. ("U.S. Imaging") on June 4, 1996. Reese later transferred the Lighthouse
shares to Lighthouse for the benefit of Dr. Richey's children. Of the Lighthouse
Shares, 271,000 shares are being held in escrow and will be released to
Lighthouse Capital Insurance Company only in the event that certain financial
results are achieved by U.S. Imaging. During 1997, Lighthouse acquired an
additional 16,750 shares. See Item 13, "Certain Relationships and Related
Transactions."
(4) Includes options to purchase 20,000 shares of Common Stock which are
exercisable within 60 days after April 10, 1998. Does not include 1,671,000
shares held by Lighthouse Capital Insurance Company for the benefit of Dr.
Richey's children. See footnote (3) above. Dr. Richey has no voting or
investment power with respect to such shares and disclaims beneficial ownership
of such shares.
(5) Includes options to purchase 55,000 shares of Common Stock which are
exercisable within 60 days after April 10, 1998. Includes 319,445 shares of
Common Stock underlying warrants held of record by Forum Capital Markets L.P.
over which Mr. Hartley has voting and investment power, which are exercisable
within 60 days after April 10, 1998. Mr. Hartley is a Managing Partner,
Corporate Finance, of Forum Capital Markets L.P., which served as an underwriter
in connection with the Company $57.5 million 9% Subordinate Convertible
Debenture Offering.
(6) Includes options to purchase 55,000 shares of Common Stock and 400,000
warrants to purchase Common Stock which are exercisable within 60 days after
April 10, 1998; and 75,000 shares of restricted stock granted under the 1995
Plan over which Dr. Rausser exercises voting power, 24,000 shares of which are
subject to a five-year vesting period and 51,000 shares of which are subject to
a three-year vesting period. Accordingly, Dr. Rausser does not currently have
investment power over 53,200 shares of the 75,000 shares of restricted stock
which have not yet vested.
(7) Includes options to purchase 33,333 shares of Common Stock which are
exercisable within 60 days after April 10, 1998; and 45,000 shares of restricted
stock granted under the 1995 Plan over which Mr. Paul exercises voting power,
20,000 of which will vest in four additional equal annual installments beginning
in October 1998 or immediately upon a change in control of the Company.
Accordingly, Mr. Paul does not currently have investment power with respect to
20,000 of the 45,000 shares of restricted stock which have not yet vested.
(8) Includes options to purchase 133,333 shares of Common Stock which are
exercisable within 60 days after April 10, 1998.
(9) Includes options to purchase 25,000 shares of Common Stock which are
exercisable within 60 days after April 10, 1998.
(10) Represents options to purchase shares of Common Stock which are exercisable
within 60 days after April 10, 1998.
(11) Includes options to purchase 16,667 shares of Common Stock which are
exercisable within 60 days after April 10, 1998.
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<PAGE>
(12) Includes Messrs. Hartley, Richey, O'Hanlon, Rausser, Paul, Harkins,
Maraist, Moor, Cohen, Platt, Quillo, Winakor, Almand and Smith.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission and The Nasdaq Stock Market. Copies of these reports are
also required to be delivered to the Company.
Except as set forth below, the Company believes, based solely on its
review of the copies of such reports received and written representations that
no other reports were required, during the fiscal year ended December 31, 1997,
all Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were complied with, except that Wayne
Moor inadvertently filed a Form 3 late; Leon Maraist inadvertently filed one
Form 4 late for two transactions; Len Platt inadvertently filed a Form 3 late
and a Form 4 for one transaction late; David Cohen filed a timely Form 5 in
February 1998 reporting one transaction for which he inadvertently failed to
file a Form 4; and L. E. Richey inadvertently filed a Form 3 late and a late
Form 5 reporting a grant of options; and Arthur Quillo inadvertently failed to
file a Form 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1996, in an arm's length transaction and prior to the time that
Mr. Mendelson became a director of the Company, the Company acquired all of the
outstanding capital stock of MediTek Health Corporation from HEICO. Laurans A.
Mendelson, a former director of the Company, is also the Chief Executive
Officer, President and Chairman of the Board of HEICO. The consideration paid by
the Company to HEICO was approximately $13 million in cash plus a five-year, $10
million convertible note bearing interest at a rate of 6% per annum. 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 Company granted HEICO certain
registration rights with respect to these shares of Common Stock. The Note was
redeemable at any time prior to the registration under the Securities Act of
1933 of the shares into which the Note is convertible. In September 1997, the
Note was amended such that (i) the Note is convertible into shares of the
Company's Common Stock at $8.50 per share, or an aggregate of 1,176,471 shares,
and (ii) the Note is due and payable in full on June 30, 2001, subject to
earlier redemption at the option of the Noteholders commencing on January 1,
1999 if the shares into which the Note is convertible have not at that time been
registered under the Securities Act. In September 1997, subsequent to the
amendment of the Note, HEICO sold the Note to Forum Capital Markets L.P.
("Forum"), of which C. Keith Hartley, a director and co-chairman of the Board of
the Company, is a Managing Partner (see discussion below re: Hartley). In
September 1997, Forum resold the Note to purchasers who are unaffiliated with
the Company, Forum, HEICO, or Mr. Mendelson. In accordance with the MediTek
acquisition agreements , Mr. Mendelson, as designee of HEICO, was elected by the
shareholders to the Company's Board of Directors on September 19, 1996. Mr.
Mendelson became Chairman of the Board of the Company on February 2, 1997. On
December 1, 1997, Mr. Mendelson resigned from the Board of Directors.
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<PAGE>
In 1997, the Company paid to HEICO, as reimbursement for time Mr.
Mendelson spent on the Company's business, an amount equal to $225 per hour that
Mr. Mendelson worked for the Company. The total amount paid to HEICO under this
arrangement was $100,350. In September 1997, the reimbursement arrangement was
terminated, and no further payments will be made to HEICO under the arrangement.
The Company is a party to a Consulting Agreement effective as of
January 1, 1995, with Gordon C. Rausser, as amended, pursuant to which Dr.
Rausser, a director of the Company, acts as a consultant to the Company on
economic, financial and strategic matters. Under the agreement, as amended, Dr.
Rausser is entitled to a consulting fee of $25,000 per quarter until December
31, 1999, provided that he offers or agrees to serve as a director of the
Company and offers or agrees to serve as a consultant under the agreement. In
connection with entering into the agreement, as amended, Dr. Rausser received a
warrant to purchase 400,000 shares of Common Stock of the Company exercisable at
$5.00 per share at any time through December 31, 1999. In addition, in October
1996, the Company issued 24,000 restricted shares of Common Stock with a fair
market value of $12.625 per share to Dr. Rausser under the 1995 Plan, and in
January 1997, the Company issued an additional 51,000 restricted shares of
Common Stock with a fair market value of $8.625 per share to Dr. Rausser under
the 1995 Plan, in connection with the Consulting Agreement.
See Note 10 ("Capital Transactions") of the Notes to Consolidated
Financial Statements for disclosure regarding a related party transaction
involving a settlement agreement among the Company, Jeffrey Goffman and
Consolidated General Ltd., U.K. Errington Ltd., and certain other persons.
See Note 19 ("Termination of Employment and Consulting Agreements") of
the Notes to Consolidated Financial Statements for disclosure regarding (i) a
settlement of employment and other issues between the Company and Jeffrey
Goffman; and (ii) issues relating to the termination of employment by the
Company of Michael D. Karsch.
See Note 21 ( "Related Party Transactions") of the Notes to
Consolidated Financial Statements for disclosure regarding a related party
transaction involving (i) C. Keith Hartley and Forum Capital Markets L.P. in
connection with the $57,500,000 Subordinated Convertible Debenture offering by
the Company in March 1996; and (ii) Todd Smith and the Company's Installation
Agreement with CIERRA Solutions, Inc.
In June 1996, the Company acquired U.S. Imaging, Inc. ("U.S. Imaging")
in a merger transaction pursuant to which U.S. Imaging merged into a
wholly-owned subsidiary of the Company. The merger consideration paid to the
former sole stockholder of U.S. Imaging, the Reese General Trust (the "Reese
Trust"), was $7,000,000 in cash and 1,671,000 shares of the Company's Common
Stock, of which 671,000 shares were placed in escrow. The Reese Trust
transferred the shares to Lighthouse Capital Insurance Company. The shares held
in escrow will be released to Lighthouse if certain financial results are
achieved by U.S. Imaging in 1997 and 1998. Of the shares held in escrow, 400,000
shares have been released in 1997. L. E. Richey, a director and Co-Chairman of
the Board of the Company, was the President of U.S. Imaging at the time of the
merger. In addition, Dr. Richey's children are the beneficial owners of the
shares held by Lighthouse. Dr. Richey became a director of the Company in June
1997 and was not a director or an employee of the Company at the time that the
Company acquired U.S. Imaging. See Item 12, "Security Ownership of Certain
Beneficial Owners and Management," footnotes 3 and 4.
In October 1996, the Company purchased 100% of the capital stock of
Medical Marketing Development ("MMD") from Alan Winakor, a Senior Vice President
of the Company. Mr. Winakor was not an employee of the Company on the date that
the Company acquired MMD. In 1996, the Company also
18
<PAGE>
acquired four other partnerships of which Mr. Winakor was the President and
general partner. Pursuant to the purchase agreements, the payment of a portion
of the consideration for the purchases of MMD and the other acquired entities
was contingent upon the achievement of certain financial results by the acquired
entities, and an aggregate of 88,679 shares of the Company's Common Stock were
held in escrow pending release to Mr. Winakor upon the achievement of such
results. In 1997, the requisite milestones were reached, and (i) the 88,679
shares of the Company's Common Stock were released from escrow to Mr. Winakor,
and (ii) the Company paid $732,000 to Mr. Winakor and issued 79,135 shares of
Common Stock to Mr. Winakor.
Pursuant to the terms of a Subscription Agreement dated December 1,
1996, the Company purchased approximately five million shares of common stock of
Diversified Therapy Corp. ( DTC ) for $3.5 million, representing approximately
25% of all of the outstanding common stock of DTC at December 31, 1996. DTC
commenced operations in 1996 to develop a leadership position in the ownership
and operations of U.S. wound care treatment facilities utilizing hyperbaric
chambers. On the date of the Subscription Agreement and on December 31, 1996,
the President of DTC was Keith Greenberg. Mr. Greenberg, on behalf of Coyote
Consulting previously had provided consulting services to the Company. In
January 1997, Mr. Greenberg resigned as President of DTC. Mr. Almand, an
executive officer and former director of the Company, is the Chairman of the
Board and a more than 5% beneficial owner of DTC. Mr. Rausser, a director of the
Company, and Mr. Jacobson, a former director of the Company, are also directors
of DTC. As a result of losses incurred by DTC, the Company recorded a loss of
$3,537,184 as of June 30, 1997, representing the Company's entire recorded
investment in DTC.
In December 1994, the Company entered into a five-year consulting
agreement with Coyote Consulting, which was amended in October 1995 and amended
and restated on June 1, 1996, effective January 1, 1996, pursuant to which the
Company paid Coyote Consulting an annual draw of $185,000. Coyote Consulting was
also entitled to a finder's fee of 2% of the aggregate purchase price of any
entity acquired by the Company as a result of an introduction by Coyote
Consulting. It is believed that Coyote Consulting is owned by Keith Greenberg's
wife, Elise Nulman Greenberg, and a family trust. Mrs. Greenberg is a former
employee of the Company. Cash compensation paid to, and the value of restricted
stock granted and compensatory stock options issued to Coyote Consulting for the
years ended December 31, 1996 and 1995, totaled $5,596,750 and $138,126,
respectively.
In December 1996, the Company negotiated a Termination Agreement with
Coyote Consulting (the "Termination Agreement"), which terminated the existing
consulting agreement, subject to ratification by the Company's Board. As of this
date, the Company's Board has deferred the issue of ratification pending further
study. In connection with the terms of the unratified Termination Agreement, the
Company paid to Coyote Consulting the sum of $620,000 representing one-half of
the finder's fees due Coyote Consulting upon closing of the then-pending
acquisition of Medical Diagnostics, Inc., which was closed in February 1997, and
the then-pending acquisition of American Shared Hospital Services. Under the
terms of the unratified Termination Agreement, the remaining portion of the
finder's fees on such acquisitions would be payable at closing of the
acquisitions. In the event that the Company's acquisition of American Shared
Hospital Services did not close, the payment on account of the finder's fee was
to be credited toward finder's fees on future acquisitions as discussed below.
On April 28, 1997, the Company announced it had terminated further negotiations
to acquire American Shared Hospital Services.
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<PAGE>
The unratified Termination Agreement would also provide that all
unvested shares of restricted stock and unvested options to purchase the
Company's Common Stock held by Coyote Consulting would be vested as of the date
of the Agreement, except that 50,000 unvested stock options granted June 1,
1996, with an exercise price of $7.125 per share would, pursuant to the terms of
the original grant, vest only if the Company's Common Stock trades at a price in
excess of $15.00 per share prior to June 1, 1999. At January 21, 1997, Coyote
Consulting held 105,000 shares of restricted stock, of which 25,000 were vested
prior to the Termination Agreement and a total of 250,000 stock options, of
which 50,000 were vested prior to the Termination Agreement. Mr. Greenberg has
not received a certificate for 50,000 of these restricted shares, and the
Company is disputing his entitlement to these shares.
Coyote Consulting and Keith Greenberg have sued the Company alleging
that they are entitled to receive additional cash, stock and/or options in an
unspecified amount in connection with the termination of the Consulting
Agreement. The Company has not yet been required to answer the complaint but
intends to vigorously defend the claims and to assert cross-claims exceeding the
amount claimed by Coyote and Mr. Greenberg.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
US DIAGNOSTIC INC.
Date: April 28, 1998 By: /S/ JOSEPH A. PAUL
---------------------
Joseph A. Paul
Chief Executive Officer, President,
and Director
